<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ENTERPRISE SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7371 36-3130103
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1400 SOUTH WOLF ROAD
WHEELING, ILLINOIS 60090-6524
(847) 537-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GLEN E. TULLMAN
1400 SOUTH WOLF ROAD
WHEELING, ILLINOIS 60090-6524
(847) 537-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
WILLIAM N. WEAVER, JR., ESQ. J. VAUGHAN CURTIS, ESQ.
JEFFREY A. SCHUMACHER, ESQ. NILS H. OKESON, ESQ.
SACHNOFF & WEAVER, LTD. ALSTON & BIRD
30 S. WACKER DRIVE, 29TH FLOOR 1201 WEST PEACHTREE STREET
CHICAGO, ILLINOIS 60606-7484 ATLANTA, GEORGIA 30309-3424
TELEPHONE NO. (312) 207-1000 TELEPHONE NO. (404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 600,000 $24.3125 $14,587,500 $5,030.17
</TABLE>
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(1) Estimated pursuant to Rule 457 solely for purposes of computing the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996
ENTERPRISE SYSTEMS, INC.
600,000 SHARES
COMMON STOCK
LOGO
All of the 600,000 shares of Common Stock offered hereby are being sold on an
any or all basis by Enterprise Systems, Inc. ("Enterprise" or the "Company") in
a directed public offering principally to selected institutional investors.
Robertson, Stephens & Company LLC and Wessels, Arnold & Henderson, L.L.C. (the
"Placement Agents") have been retained to act, on a best efforts basis, as the
exclusive placement agents in connection with the offering. On October 4, 1996,
the last sale price of the Common Stock as reported on the Nasdaq National
Market was $24.3125 per share. See "Price Range of Common Stock." The Common
Stock is traded on the Nasdaq National Market under the symbol "ESIX."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PLACEMENT
PRICE TO AGENT PROCEEDS TO
PUBLIC FEE(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total............................. $ $ $
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</TABLE>
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(1) The Company has agreed to pay the Placement Agents a fee in connection with
the offering and to indemnify them against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution."
(2) Before deducting expenses, payable by the Company, estimated at $300,000.
----------
There can be no assurance that the Company will be successful in selling any
or all of the shares of Common Stock offered hereby. The Company has not fixed
a minimum number of shares of Common Stock to be sold pursuant to this
offering. Therefore, the Company may sell less than all of the shares of Common
Stock offered hereby, which may significantly reduce the amount of proceeds
received by the Company.
The shares of Common Stock offered hereby are being issued and sold directly
by the Company. It is expected that payment for the shares of Common Stock sold
pursuant hereto will be made against delivery of certificates representing such
shares in Chicago, Illinois on or about October , 1996.
ROBERTSON, STEPHENS & COMPANY WESSELS, ARNOLD & HENDERSON
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Placement Agents. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates, or an
offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to the date hereof.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Summary................................................................... 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 12
Use of Proceeds........................................................... 13
Price Range of Common Stock............................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Consolidated Pro Forma Financial Information.............................. 15
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 23
Management................................................................ 30
Certain Transactions...................................................... 38
Principal Stockholders.................................................... 39
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 44
Plan of Distribution...................................................... 45
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
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TITAN(R), Enterprise Scheduling(R), Enterprise Systems(R), Matkon(R) and
MATKON2000(R) are registered trademarks and NOVA(TM), Nova.IDN(TM), ORBIT(TM),
Titan.IDN(TM), ORION(TM), TS2000(TM), TouchScan(TM) and Corporate
Communications System(TM) are trademarks of the Company. Windows(R) is a
registered trademark of Microsoft Corporation. HL7(R) is a registered
trademark of the American National Standards Institute. ESP(TM) and
Environment for Scheduling Personnel(TM) are trademarks of Total Care
Technologies, Inc. All other trademarks and trade names referred to in this
Prospectus are the property of their respective owners.
IN CONNECTION WITH THIS OFFERING, THE PLACEMENT AGENTS AND OTHER BROKERS OR
DEALERS PARTICIPATING IN THE OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE
COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company
including statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Backlog."
Prospective investors are cautioned that such statements, which may be
identified by words including "anticipate," "believe," "intend," "estimates,"
"expect" and similar expressions, are only predictions and that actual events
or results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth under the caption "Risk Factors,"
which could cause actual results to differ materially from those indicated by
such forward-looking statements. The following summary is qualified in its
entirety by, and should be read in conjunction with, the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors" beginning on
page 6.
THE COMPANY
Enterprise is a healthcare information services company that develops,
markets, installs and services an integrated suite of application software
products that assist healthcare providers in managing their operations. These
resource management systems focus on cost containment and address a broad range
of non-clinical management needs, including materials management, operating
room logistics, patient and staff scheduling and financial management. The
Company's information systems operate on personal computer networks and make
extensive use of electronic data interchange, enabling its customers to
redesign their resource management functions to enhance efficiency and
productivity.
In recent years, governmental and market-driven reform initiatives have
produced significant pressures on healthcare providers to control costs. In
order to manage the economic risk of healthcare delivery, providers are being
forced to change the way they operate and are increasingly focused on measuring
and controlling the cost of delivering care. To date, there has been a lack of
emphasis on integrated information systems that effectively manage operational
costs, which the Company believes constitute a majority of providers' overall
costs. Without the necessary information, it has been difficult for healthcare
managers to allocate efficiently their resources--people, supplies, facilities,
equipment and services--or to understand their costs.
Enterprise has developed information systems that address the operational
aspects of healthcare delivery. The Company offers an integrated suite of
resource management systems that enable healthcare providers to (i) improve
productivity through the redesign and automation of operational processes and
(ii) obtain the information necessary to measure and control costs. The
Company's current product offerings address materials management, operating
room logistics, organization-wide patient and staff scheduling and financial
management, areas which the Company believes offer significant opportunities
for productivity improvement and cost savings. The Company's products are
modular in design, share a common database, and may be used independently or
bundled together in order to provide an integrated resource management system
solution.
The Company's business strategy is to strengthen its existing product lines
and to expand into additional resource management areas. The Company believes a
significant opportunity exists to penetrate further the market of approximately
2,900 large acute care hospitals and 3,100 small hospitals in the United States
and Canada. Most of the Company's existing customers do not currently use the
Company's entire product line. The Company believes that its high customer
retention rate provides an opportunity to sell additional components of its
product suite to its existing customers, which include approximately 1,000
acute care hospitals, of which approximately 270 were added as customers when
the Company acquired the Matkon materials management division of Continental
Healthcare Systems, Inc. in May 1996 (the "Matkon
3
<PAGE>
Acquisition"). Of those customers (other than customers of the Matkon division)
which have purchased the Company's current products since January 1, 1991,
approximately 97% remained customers at July 1, 1996. The Company also intends
to expand its limited presence in alternate site markets, including outpatient
clinics, ambulatory surgery centers and specialty laboratories. In addition,
the Company has entered into joint marketing agreements with group purchasing
organizations and hospital management organizations, which typically provide
for the Company's products to be recommended on a preferred or exclusive basis.
The Company intends to pursue similar agreements, joint ventures or other
arrangements (which may include investments by the Company) with certain
healthcare information system developers and resellers and certain medical
product suppliers.
The Company was organized under the laws of the State of Illinois in 1981 and
was reincorporated in the State of Delaware in October 1995. The Company's
principal executive offices are located at 1400 South Wolf Road, Wheeling,
Illinois 60090-6524. The Company's telephone number is (847) 537-4800.
RECENT DEVELOPMENTS
On January 2, 1996, the Company entered into a distribution agreement with
Total Care Technologies, Inc. to distribute a staff scheduling software product
known as ESP for Windows. The agreement provides the Company with exclusive
territorial rights in the United States healthcare market for an initial term
of 26 months with the option to renew thereafter.
On March 22, 1996, the Company entered into a license agreement with
FlexiInternational Software, Inc. that allows the Company to incorporate the
FLEXI general ledger and accounts payable applications into the Company's
products for distribution in the United States healthcare market for an initial
term of four years with the option to renew thereafter.
On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon division develops,
markets, installs and services a line of hospital materials management software
products which primarily run on a UNIX platform. The Company recorded charges
of $8,453,000 in the quarter ended June 30, 1996 for acquired in-process
technology in connection with the Matkon Acquisition. See "Recent
Developments."
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.. 600,000 shares
Common Stock Outstanding after the 8,119,581 shares(1)
Offering............................
Use of Proceeds...................... For working capital and other general
corporate purposes, including potential
acquisitions and joint ventures. See "Use
of Proceeds."
Nasdaq National Market Symbol........ ESIX
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995(2) 1995 1996 1996(2)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues............... $20,427 $24,712 $33,248 $40,337 $14,440 $21,043 $24,522
Software development
expenses.............. 4,237 6,377 7,536 8,973 3,376 4,043 4,783
Sales and marketing
expenses.............. 4,455 5,984 8,832 10,078 4,249 5,507 6,224
Acquired in-process
technology............ -- -- -- -- (3) -- 8,453 8,453
Total operating costs
and expenses.......... 19,141 24,550 31,783 39,265 14,858 28,433 32,071
Income (loss) from
operations............ 1,286 162 1,465 1,072 (418) (7,390) (7,549)
Net income (loss)...... 749 28 800 478 (360) (4,277) (4,546)
Net income (loss) per
common share.......... $ 0.15 $ 0.01 $ 0.13 $ 0.08 $ (0.07) $ (0.57) $ (0.61)
Shares used in
calculation of per
share data(4)......... 4,886 5,383 6,279 6,279 5,525 7,459 7,459
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,601 $16,086
Working capital......................................... 20,427 33,912
Total assets............................................ 45,553 59,038
Total stockholders' equity.............................. 36,984 50,469
</TABLE>
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(1) Based on the number of shares outstanding as of September 1, 1996. Excludes
910,801 shares of Common Stock issuable upon the exercise of stock options
outstanding as of September 1, 1996, at a weighted average exercise price
of $11.13 per share, and 22,163 shares of Common Stock reserved for grant
of future options or direct issuances under the Company's Long-Term
Incentive Compensation Plan. See "Management--Compensation Pursuant to
Plans."
(2) Gives effect to the Matkon Acquisition as if it had occurred as of January
1, 1995. See "Consolidated Pro Forma Financial Information."
(3) Does not reflect recorded charges of $8,453,000 in the quarter ended June
30, 1996 for acquired in-process technology in connection with the Matkon
Acquisition. See "Recent Developments."
(4) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
(5) Adjusted to reflect the application of the estimated net proceeds from the
sale of 600,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $24.3125 per share. See "Use of Proceeds."
Unless otherwise indicated, all references to the "Company" or "Enterprise"
refer to Enterprise Systems, Inc. and its wholly owned subsidiary. See
"Description of Capital Stock--Recapitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
ABILITY TO DEVELOP NEW SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The healthcare information systems market is characterized by rapid
technological change, changing customer needs, frequent new software product
introductions and evolving industry standards. Historically, the Company has
derived substantially all of its revenue from three products: NOVA (materials
management), ORBIT (operating room logistics) and TITAN (accounts payable
management). The Company believes that as the market for these products
matures, its future success will depend upon its ability to enhance current
products and to develop and introduce new software products that keep pace
with technological developments and emerging industry standards and that
address the increasingly sophisticated needs of its customers. In addition,
the introduction of competing products embodying new technologies and the
emergence of new industry standards could render the Company's existing
products obsolete and unmarketable. Accordingly, the Company anticipates that
significant amounts of future revenue will be derived from products and
product enhancements which either do not exist today or have not been sold in
large enough quantities to ensure market acceptance. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the successful development and introduction of product enhancements or new
products, or that such enhancements or new products will adequately meet the
requirements of the marketplace or achieve market acceptance. If the Company
is unable to develop and introduce product enhancements and new products in a
timely and cost-effective manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRODUCT CONVERSIONS TO WINDOWS
Currently, the Company is converting its remaining DOS-based products, which
include NOVA, ORBIT and TITAN, to a Windows platform. As a result of the
complexities involved in such a conversion, the new Windows versions will
require significant development and testing periods before they achieve
marketability. There can be no assurance that the Windows versions will be
completed before demand for the DOS versions slows or before the Company's
competitors are able to develop functionally equivalent products on a Windows
platform. Further, certain potential customers may delay purchasing decisions
until Windows versions of the Company's products are available. There can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful and timely development, introduction and
marketing of the new Windows versions of its products, or that such versions
will adequately meet the requirements of the marketplace and achieve market
acceptance. In addition, the conversions will divert resources away from
developing or enhancing other products. The occurrence of any of these
potential product conversion problems could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Products."
NEW PRODUCT ACCEPTANCE
The Company may find that the market does not fully accept certain of its
products in their current forms and may be slow to adopt new information
systems technology. For example, the Company's TouchScan point-of-use resource
management product requires a healthcare organization to re-engineer its
operations in order to realize the full economic benefit from the product. As
a result, the volume of sales of the TouchScan product has been substantially
lower than the Company originally forecasted. If TouchScan does not achieve a
greater degree of market acceptance, the Company's growth in future revenues
may be materially and adversely affected.
6
<PAGE>
ACQUISITIONS
The Company's growth strategy may be implemented, in part, through
acquisitions of products, technologies and businesses. The success of any such
acquisition will depend on many factors, including the Company's ability to
identify suitable acquisition candidates, the purchase price, the availability
and terms of financing, and management's ability to integrate effectively the
acquired products, technologies or businesses into the Company's operations.
Significant competition for acquisition opportunities exists in the industry,
which may significantly increase the costs of potential acquisitions. Further,
acquisitions may involve a number of special risks, including, failure to
retain key acquired personnel, unanticipated events or circumstances, legal
liabilities and amortization of acquired intangible assets, some or all of
which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company competes
for acquisition opportunities with other companies that have significantly
greater financial and management resources and experience in acquiring
products, technologies and businesses. There can be no assurance that the
Company will be able to finance or integrate successfully any acquired
products, technologies or businesses, and their identification, acquisition
and integration may cause a diversion of management time and resources. The
Company cannot assure that a given acquisition will not materially and
adversely affect the Company's business, operating results and financial
condition.
The Company recorded charges of $8,453,000 for acquired in-process
technology in connection with the Matkon Acquisition, which reduced the
Company's operating and net income for the six months ended June 30, 1996. The
Company may incur similar charges in connection with future acquisitions. See
"Recent Developments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
VARIABLE QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Furthermore, the Company has experienced a seasonal
pattern in its operating results, with a greater proportion of the Company's
revenue and operating profitability occurring in the second half of the year.
Accordingly, results of operations for any particular quarter may not be
indicative of results of operations for future periods. Quarterly revenues and
operating results may fluctuate as a result of a variety of factors including:
the Company's sales cycle; demand for the Company's products; the size and
timing of significant orders; competitive conditions in the industry; the
ability of the Company to develop, introduce and market new products and new
releases on a timely basis; deferrals of customer orders in anticipation of
new products or new releases; delay or deferral of customer implementations of
the Company's products; changes in customer budgets; and general economic
factors. A significant portion of the Company's expenses are relatively fixed,
and the amount and timing of increases in such expenses are based in large
part on the Company's expectations for future revenues. If revenues are below
expectations in any given quarter, the adverse effect may be magnified by the
Company's inability to adjust spending quickly enough to compensate for the
revenue shortfall. Accordingly, even a small variation from expected revenues
could have a material adverse effect on the Company's results of operations
for a given quarter. The Company plans to increase expenditures in order to
fund a larger direct sales and marketing staff, greater levels of research and
development, and development of new distribution and resale channels. To the
extent such expenses precede or are not subsequently followed by increased
revenues, the Company's operating results would be materially and adversely
affected.
The timing and amount of the Company's revenues are subject to a number of
factors that make estimation of operating results prior to the end of a
quarter extremely uncertain. In addition, certain large contracts may, in the
future, constitute a substantial portion of the operating profits for a
quarter. Contract signing may be delayed for a number of reasons outside of
the control of the Company, including customers' budgetary constraints and
internal authorization reviews. In addition, the Company's ability to complete
installation of its systems and recognize revenues is dependent on certain
factors outside the control of the Company, including the customer's ability
to allocate its internal resources to the installation process.
7
<PAGE>
Consequently, the Company's business or operating results for a particular
quarter could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The market for healthcare information systems is intensely competitive. The
competitive factors affecting the market for the Company's software and
services include: vendor and product reputation, availability of products on
preferred computer and communications platforms, scalability, integration with
other applications, functionality and features, ease of use, quality of
support, documentation and training, product quality, product innovation,
price and the effectiveness of marketing and sales efforts. The relative
importance of each of these factors depends upon the market segment. Certain
of the Company's competitors have significantly greater financial, technical,
research and development and marketing resources. As a result, they may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion, sale and support of their products than the Company. In addition,
consolidation in the healthcare information systems industry may permit the
Company's competitors to have access to increased financial and administrative
resources and greater technological capabilities and to realize other
operational efficiencies and competitive advantages. Moreover, some purchasers
may prefer to buy computer systems from a single source provider. Because the
Company focuses exclusively on healthcare resource management systems (as
opposed to clinical or billing systems), it cannot serve as the sole source of
computer software for healthcare organizations. The Company cannot assure that
it will be able to continue to compete effectively in this environment, that
competition will not intensify or that future competition will not have a
material adverse effect on the Company's business, operating results or
financial condition. See "Business--Competition."
UNCERTAINTY AND CONSOLIDATION IN HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of healthcare providers. Many federal and state legislators have announced
that they intend to propose programs to reform the United States healthcare
system at both the federal and state level. These programs may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the environment in which providers
operate. Healthcare providers may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investments, including
investments in the Company's products and services.
In response to this environment, many healthcare providers are consolidating
to create larger healthcare delivery organizations. This consolidation reduces
the number of potential customers for the Company's products, and the
increased bargaining power of these organizations could lead to reductions in
the amounts paid for the Company's products. Further, because the Company's
product offerings have expanded into a more extensive package of integrated
products, purchases of the Company's products increasingly require approval by
a customer's executive officers as opposed to departmental managers by whom
the Company is better known. The impact of these developments in the
healthcare industry is difficult to predict and could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Government Regulation."
INABILITY TO EXPAND INTO NEW MARKETS
To date, the Company's products have been purchased primarily by acute care
hospitals. However, healthcare services are increasingly being provided at
sites other than hospitals, such as outpatient clinics, ambulatory surgery
centers and specialty laboratories. The Company intends to increase its
limited presence in these alternate site markets. Because the Company has
limited experience in non-hospital markets, it may find that significant
modifications to its products are necessary before they become useful to a
customer or that pricing may have to be adjusted downward. The Company's
business, operating results and financial condition may be materially and
adversely affected if such alternate site markets are not receptive to the
Company's products.
8
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company depends significantly upon proprietary technology. The Company
relies on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy is a potential
problem. In addition, the laws of some foreign countries in which the Company
sells or may in the future sell its products do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
The Company cannot assure that its protective measures for proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar or superior technology, duplicate the Company's products or
circumvent its intellectual property rights.
Substantial litigation regarding intellectual property rights exists in the
software industry, and the Company expects that software products may be
increasingly subject to third-party infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products overlaps. Although the Company has never received a
claim that it is infringing third parties' intellectual property rights, there
can be no assurance that third parties will not in the future claim
infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. Any such claims, regardless of their
merit, could be time consuming, result in costly litigation, delay or prevent
product shipments or require the Company to enter into costly royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Proprietary Rights."
PRODUCT LIABILITY
The software products offered by the Company may contain undetected errors
or failures when first introduced or as new versions are released. Errors or
failures that are not detected until after the commencement of commercial
shipments of a product could result in loss of or delay in market acceptance
of the product and in claims against the Company. Any of these factors could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Strategy," "--Products" and "--Product
Development and Technology."
DEPENDENCE ON KEY PERSONNEL
The Company depends to a significant extent on certain key personnel. In
addition, the Company believes that its growth and success will depend on its
ability to attract and retain qualified management, technical, sales and
marketing personnel. Competition for such personnel is intense. The loss of
the services of one or more of the Company's key employees or the Company's
inability to attract and retain qualified personnel could have a material
adverse effect on the Company's business, operating results and financial
condition. While the Company does have employment contracts with all members
of its executive management team, and with certain key product and software
development employees, these contracts do not guarantee that these individuals
will continue their employment with the Company. The Company maintains "key
man" life insurance of $1,000,000 on the life of Glen E. Tullman, Chief
Executive Officer.
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, Thomas R. Pirelli, a Director and a
founder of the Company, will beneficially own an aggregate of 1,586,630 shares
of Common Stock, representing approximately 20% of the
9
<PAGE>
outstanding Common Stock assuming 600,000 shares are sold by the Company in
this offering. The Company's other Directors, executive officers and principal
stockholders, including its 401(k) Plan, and their affiliates will
beneficially own approximately 25% of the outstanding Common Stock assuming
600,000 shares are sold by the Company in this offering. Consequently, these
stockholders, acting together, will be able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders" and "Description of Capital Stock--Antitakeover
Effects of Provisions of the Certificate of Incorporation, By-Laws and
Delaware Law."
UNALLOCATED PROCEEDS OF OFFERING
None of the anticipated net proceeds of this offering have been designated
for specific uses. Therefore, the Board of Directors of the Company will have
broad discretion with respect to the use of the net proceeds of this offering.
See "Use of Proceeds."
POSSIBLE VOLATILITY OF STOCK PRICE
Since the Company's initial public offering in October 1995, the market
price for the Common Stock has fluctuated substantially. The market price of
the Common Stock may continue to experience significant fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company or
its competitors, governmental regulatory actions, general trends in the
industry and other events. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many technology companies and that have often
been unrelated or disproportionate to the operational performance of these
companies. These fluctuations, as well as general economic and market
conditions, may materially and adversely affect the market price of the Common
Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. Upon completion of this offering, the Company will have 8,119,581
shares of Common Stock outstanding, assuming no exercise of options after
September 1, 1996. Substantially all of these shares will be freely tradeable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), or may currently be sold in accordance with Rule 144 under
the Securities Act ("Rule 144"). In addition, the Company has registered on a
registration statement on Form S-8 a total of 1,114,846 shares of Common Stock
reserved for issuance under the Company's Long-Term Incentive Compensation
Plan, of which options for 181,882 shares have been exercised as of September
1, 1996. The remaining 932,964 shares, when and if issued, would be freely
tradeable (unless acquired by an affiliate of the Company, in which case they
would be subject to volume and other limitations under Rule 144). The
Directors and executive officers of the Company and the Company's 401(k) Plan,
beneficially holding an aggregate of 2,784,169 shares of Common Stock as of
September 1, 1996, have entered into lock-up agreements pursuant to which such
stockholders have agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 90 days after the date of this Prospectus without
the prior written consent of Robertson, Stephens & Company LLC ("Robertson,
Stephens & Company"). However, Robertson, Stephens & Company may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. Upon expiration or early termination
of the lock-up period, these shares will be eligible for immediate sale,
subject in certain cases to volume and other limitations under Rule 144. See
"Shares Eligible for Future Sale" and "Plan of Distribution."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further
vote
10
<PAGE>
or action by the stockholders. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock could have the effect of delaying, deferring or preventing a
change in control of the Company. In addition, certain provisions of the
Company's Certificate of Incorporation and By-Laws and of Delaware law could
have the effect of delaying, deterring or preventing a change in control of
the Company. See "Description of Capital Stock--Preferred Stock" and "--
Antitakeover Effects of Provisions of the Certificate of Incorporation, By-
Laws and Delaware Law."
HOLDING COMPANY STRUCTURE
The Company derives substantially all of its operating income and cash flows
from its subsidiary. The Company relies on dividends and other distributions
from its subsidiary to generate the funds necessary to meet its obligations.
The ability of the Company's subsidiary to make such distributions is subject
to, among other things, applicable state laws and the terms of the
subsidiary's credit facility. Claims of creditors of the Company's subsidiary,
including trade creditors, will generally have priority as to the assets of
such subsidiary over the claims of the Company. See "Description of Capital
Stock--Recapitalization."
11
<PAGE>
RECENT DEVELOPMENTS
On January 2, 1996, the Company entered into a distribution agreement with
Total Care Technologies, Inc. ("TCT") to distribute a staff scheduling
software product known as ESP for Windows ("ESP"). The agreement provides the
Company with exclusive territorial rights in the United States healthcare
market for an initial term of 26 months with the option to renew thereafter.
ESP is a Windows-based client/server product that assists users in managing
the complex staffing issues for numerous clinical and operational areas,
including nursing, dietary/food service, housekeeping, clinical technician
services, surgical services and physical and occupational therapy. The
Company's minimum royalty commitment to TCT over the initial 26-month term of
the agreement is approximately $1.2 million. As of September 27, 1996, the
Company has licensed eleven copies of TCT's staff scheduling software.
On March 22, 1996, the Company entered into a license agreement with
FlexiInternational Software, Inc. ("FLEXI") that allows the Company to
incorporate the FLEXI general ledger and accounts payable applications into
the Company's products for distribution in the United States healthcare market
for an initial term of four years with the option to renew thereafter. The
Company has an exclusive right to sell the FLEXI applications in the United
States upon meeting certain sales levels. FLEXI products are Windows-based
client/server products that operate in both the Windows NT and UNIX
environments. The Company's minimum royalty commitment to FLEXI over the
initial four year term of the agreement is approximately $2.0 million.
On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon division develops,
markets, installs and services a line of hospital materials management
software products which primarily run on a UNIX platform. The Matkon division
has an installed base of approximately 270 acute care hospitals. The Company
recorded charges of $8,453,000 in the quarter ended June 30, 1996 for acquired
in-process technology in connection with the Matkon Acquisition. See
"Consolidated Pro Forma Financial Information" and "Selected Financial Data."
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 600,000 shares of Common Stock offered
hereby are estimated to be approximately $13,485,190, assuming a public
offering price of $24.3125 per share and after deducting estimated fees of the
Placement Agents and estimated offering expenses. The Company expects to use
the net proceeds of this offering for general corporate purposes. A portion of
the net proceeds may also be used for acquisitions of, or joint ventures with
respect to, additional businesses, products and technologies. However, the
Company has no agreements or commitments with respect to any such
transactions. Pending such uses, the net proceeds of this offering will be
invested in short-term, investment-grade, interest-bearing securities.
There can be no assurance that the Company will be successful in selling any
or all of the shares of Common Stock offered hereby. The Company has not fixed
a minimum number of shares of Common Stock to be sold pursuant to this
offering. Therefore, the Company may sell less than all of the shares of
Common Stock offered hereby, which may significantly reduce the amount of
proceeds received by the Company.
PRICE RANGE OF COMMON STOCK
The Common Stock began trading publicly on the Nasdaq National Market on
October 20, 1995 under the symbol "ESIX". The following table sets forth, for
the periods indicated, the range of high and low closing sales prices for the
Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------- -------
<S> <C> <C>
December 31, 1995 (from October 20, 1995)................. $37 3/4 $17 3/4
March 31, 1996............................................ $30 1/2 $23
June 30, 1996............................................. $39 5/8 $27 1/4
September 30, 1996........................................ $28 1/8 $19
</TABLE>
On October 4, 1996, the closing sales price of the Common Stock as reported
on the Nasdaq National Market was $24.3125 per share. On September 1, 1996,
there were approximately 78 registered holders of the Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock. The
Company currently anticipates that all of its earnings will be retained for
development of the Company's business, and does not anticipate paying any cash
dividends (other than intercompany dividends) in the foreseeable future.
Future cash dividends, if any, will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, the Company's
future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors may deem relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996 and (ii) as adjusted to reflect the receipt and application of
the net proceeds from the sale of 600,000 shares of Common Stock offered
hereby at an assumed public offering price of $24.3125 per share. The
following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------
AS
ACTUAL ADJUSTED
------- --------
(in thousands)
<S> <C> <C>
Long-term debt............................................... $ -- $ --
======= =======
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 authorized
shares; no shares issued and outstanding.................. -- --
Common Stock, $.01 par value; 30,000,000 authorized shares;
7,519,581 shares issued and outstanding; 8,119,581 issued
and outstanding as adjusted(1)............................ 75 81
Additional paid-in capital................................. 39,352 52,831
Retained earnings (accumulated deficit)(2)................. (2,367) (2,367)
Deferred compensation...................................... (76) (76)
------- -------
Total stockholders' equity............................... 36,984 50,469
------- -------
Total capitalization................................... $36,984 $50,469
======= =======
</TABLE>
- --------
(1) Excludes 910,801 shares of Common Stock issuable upon the exercise of
stock options outstanding as of September 1, 1996, at a weighted average
exercise price of $11.13 per share, and 22,163 shares of Common Stock
reserved for grant of future options or direct issuances under the
Company's Long-Term Incentive Compensation Plan. See "Management--
Compensation Pursuant to Plans."
(2) Includes charges of $8,453,000 for acquired in-process technology in
connection with the Matkon Acquisition.
14
<PAGE>
CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The accompanying consolidated pro forma financial information gives effect
to the Matkon Acquisition. The consolidated pro forma statement of operations
for the fiscal year ended December 31, 1995 combines the audited consolidated
statement of operations of the Company for the fiscal year ended December 31,
1995 with the audited statement of revenues and expenses of the Matkon
division for the twelve-month period ended November 30, 1995 as if the Matkon
Acquisition had occurred at January 1, 1995. The pro forma statement of
operations for the six-month period ended June 30, 1996 combines the unaudited
consolidated pro forma statement of operations of the Company for the six-
month period ended June 30, 1996 with the unaudited statement of revenues and
expenses of the Matkon division for the six-month period ended May 31, 1996 as
if the Matkon Acquisition had occurred at January 1, 1995. The transaction has
been accounted for as a purchase and appropriate adjustments have been made to
the consolidated pro forma statements of operations to reflect the transaction
at the beginning of the respective periods combined. The consolidated pro
forma financial information presented below is not necessarily indicative of
the operating results which would have been achieved had the Matkon
Acquisition occurred at the beginning of the periods presented or of results
to be achieved in the future.
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
COMPANY MATKON PRO FORMA
CONSOLIDATED DIVISION ADJUSTMENTS PRO FORMA
DECEMBER 31, NOVEMBER 30, DEBIT DECEMBER 31,
1995 1995(1) (CREDIT)(2) 1995
------------ ------------ ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues
Software................ $16,104 $1,497 $17,601
Services................ 16,498 3,810 20,308
Hardware................ 646 1,782 2,428
------- ------ -------
Total revenues........ 33,248 7,089 40,337
Operating costs and
expenses
Software development.... 7,536 937 $ 500 (2a) 8,973
Service and support..... 10,742 2,152 12,894
Hardware................ 786 1,885 2,671
Sales and marketing..... 8,832 1,246 10,078
Administration and
other.................. 3,887 372 390 (2b) 4,649
------- ------ -------
Total operating costs
and expenses......... 31,783 6,592 39,265
------- ------ -------
Income from operations.... 1,465 497 1,072
Interest income (expense),
net...................... 17 -- 144 (2c) (127)
------- ------ -------
Income before income
taxes.................... 1,482 497 945
Income taxes (benefit).... 682 -- (215)(2d) 467
------- ------ -------
Net income................ $ 800 $ 497 $ 478
======= ====== =======
Net income per share...... $ 0.13 $ 0.08
======= =======
Weighted average shares
outstanding.............. 6,279 6,279
======= =======
</TABLE>
- --------
See accompanying footnotes on following page.
15
<PAGE>
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
COMPANY MATKON PRO FORMA
CONSOLIDATED DIVISION ADJUSTMENTS PRO FORMA
JUNE 30, MAY 31, DEBIT JUNE 30,
1996(3) 1996(1) (CREDIT)(2) 1996(3)
------------ -------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues
Software......................... $ 9,860 $ 795 $10,655
Services......................... 10,454 1,936 12,390
Hardware......................... 729 748 1,477
------- ------ -------
Total revenues................. 21,043 3,479 24,522
Operating costs and expenses
Software development............. 4,043 490 $250 (2a) 4,783
Service and support.............. 6,577 1,077 7,654
Hardware......................... 739 846 1,585
Sales and marketing.............. 5,507 717 6,224
Administration and other......... 3,114 63 195 (2b) 3,372
Acquired in-process technology... 8,453 -- 8,453
------- ------ -------
Total operating costs and
expenses...................... 28,433 3,193 32,071
Income (loss) from operations..... (7,390) 286 (7,549)
Interest income (expense), net.... 467 -- 289 (2c) 178
------- ------ -------
Income (loss) before income taxes. (6,923) 286 (7,371)
Income taxes (benefit)............ (2,646) -- (179)(2d) (2,825)
------- ------ -------
Net income (loss)................. $(4,277) $ 286 $(4,546)
======= ====== =======
Net loss per share................ $(0.57) $ (0.61)
======= =======
Weighted average shares
outstanding...................... 7,459 7,459
======= =======
</TABLE>
- --------
1. On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon Acquisition has
been reflected as though such transaction occurred on January 1, 1995. The
expected purchase price allocation includes approximately $8.4 million of
acquired in-process technology and $1.7 million of purchased software. The
allocation of purchase price represents an estimate of the fair values of
assets acquired and liabilities assumed including estimated professional
fees and other acquisition expenses expected to be incurred. The allocation
is subject to change and is not necessarily indicative of the ultimate
purchase price allocation. The charge for the acquired in-process
technology of approximately $8.4 million is not reflected in the
Consolidated Pro Forma Statement of Operations for the year ended December
31, 1995. Such amount is a charge to earnings in the period of acquisition.
2. The consolidated pro forma financial information is based on the following
assumptions and adjustments:
a. To conform Matkon's policy of capitalizing certain software development
expenses to the Company's method of software capitalization.
b. To reflect the amortization of the excess of cost over net assets
acquired and other intangible assets.
c. To reduce interest income related to cash payments made for the
acquisition.
d. To reflect the net income tax benefit relating to the adjustments
discussed above using an effective tax rate of 40%.
3. The Company's consolidated statement of operations for the six months ended
June 30, 1996 includes revenues and net income of $797,000 and $199,000,
respectively, related to the results of the operations of the Matkon
division during the period from May 29, 1996 to June 30, 1996.
16
<PAGE>
SELECTED FINANCIAL DATA
The statements of operations data for the years ended December 31, 1993,
1994 and 1995, and the balance sheet data at December 31, 1994 and 1995 are
derived from the audited consolidated financial statements included elsewhere
in this Prospectus and should be read in conjunction with those financial
statements and notes thereto. The statements of operations data for the years
ended December 31, 1991 and 1992 are derived from unaudited financial
statements not included herein. The statements of operations data for the six-
month periods ended June 30, 1995 and 1996 and the balance sheet data at June
30, 1995 and 1996 are derived from unaudited consolidated financial statements
that include, in the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues
Software............... $ 6,669 $ 7,304 $ 9,065 $11,762 $16,104 $ 6,988 $ 9,860
Services............... 7,740 8,567 10,653 12,343 16,498 7,240 10,454
Hardware............... 1,394 1,153 709 607 646 212 729
------- ------- ------- ------- ------- -------- --------
Total revenues....... 15,803 17,024 20,427 24,712 33,248 14,440 21,043
Operating costs and
expenses
Software development... 3,088 3,505 4,237 6,377 7,536 3,376 4,043
Service and support.... 4,907 5,607 7,187 8,629 10,742 5,133 6,577
Hardware............... 1,218 1,112 717 682 786 269 739
Sales and marketing.... 3,537 3,347 4,455 5,984 8,832 4,249 5,507
Administration......... 1,979 2,107 2,545 2,878 3,887 1,831 3,114
Acquired in-process
technology............ -- -- -- -- -- -- 8,453
------- ------- ------- ------- ------- -------- --------
Total operating costs
and expenses........ 14,729 15,678 19,141 24,550 31,783 14,858 28,433
------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations............. 1,074 1,346 1,286 162 1,465 (418) (7,390)
Interest income
(expense), net......... (93) (132) (198) (114) 17 (81) 467
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 981 1,214 1,088 48 1,482 (499) (6,923)
Income taxes (benefit).. 451 455 339 20 682 (139) (2,646)
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 530 $ 759 $ 749 $ 28 $ 800 $ (360) $ (4,277)
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
share.................. $ 0.11 $ 0.16 $ 0.15 $ 0.01 $ 0.13 $ (0.07) $ (0.57)
======= ======= ======= ======= ======= ======== ========
Shares used in computing
net income (loss) per
share(1)............... 4,756 4,711 4,886 5,383 6,279 5,525 7,459
======= ======= ======= ======= ======= ======== ========
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,806 $ 1,665 $ 1,901 $ 1,588 $11,403 $ 1,079 $ 2,601
Working capital......... 1,776 3,303 3,046 4,924 30,368 4,279 20,427
Total assets............ 6,849 9,963 12,842 15,752 48,926 15,518 45,553
Long-term debt, less
current portion........ 2,029 1,057 291 -- -- -- --
Total stockholders'
equity................. 1,680 2,769 5,028 8,737 40,406 8,349 36,984
</TABLE>
- --------
(1)Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
Enterprise was founded in 1981. The Company develops, markets, installs and
services an integrated suite of application software products that assist
healthcare providers in managing their operations. The Company derives its
revenues from software licenses, installation services, ongoing support,
maintenance and enhancement services, product education, consulting and the
sale of computer hardware. While the Company's customers currently consist
primarily of large acute care hospitals (hospitals with 150 or more beds), it
has increased its efforts to penetrate other healthcare provider markets, in
particular, small hospitals (hospitals with less than 150 beds) and alternate
site facilities such as outpatient clinics, ambulatory surgery centers and
specialty laboratories.
The selling cycle for the Company's software products has generally ranged
from six to twelve months, culminating with the signing of a license
agreement. These agreements provide for up-front fees for each of a system's
components, including the software license, installation services, initial
product education and hardware (if required), as well as annual fees for
ongoing support, maintenance and enhancements. Payment terms for up-front fees
generally provide for remittances upon contract signing, software load,
initial operational use and post-installation review. The agreements typically
provide for a minimum of one year of support, maintenance and enhancement
fees, renewable annually. Generally, fees for support and maintenance are
billed monthly, while enhancement fees are billed annually. The Company also
offers continuing product education and on-site consulting services.
Software revenues consist of software license fees. Services revenues
consist of (i) up-front fees for software installation and initial product
education, (ii) annual fees for ongoing support, maintenance and enhancements
and (iii) fees for continuing product education and consulting services.
Revenues from software licensing and installation services are recognized as
the installation services are performed. Ongoing support, maintenance and
enhancement revenue is recognized ratably over the time periods covered by the
service agreements. The Company recognizes education and consulting revenue as
the services are performed.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth revenue and expense items as a percentage of
total revenues, and the percentage change in dollar amounts of such items from
period to period.
<TABLE>
<CAPTION>
SIX
MONTHS PERCENT
YEAR ENDED ENDED INCREASE/(DECREASE)
DECEMBER 31, JUNE 30, OVER PRIOR PERIOD
---------------- ----------- -------------------------
1993 1994 1995 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software................. 45% 48% 48% 49% 47% 30% 37% 41%
Services................. 52 50 50 50 50 15 34 44
Hardware................. 3 2 2 1 3 (14) 6 244
--- --- --- --- ---
Total revenues........... 100 100 100 100 100 21 35 46
Operating costs and
expenses
Software development..... 21 26 23 23 19 50 18 20
Service and support...... 35 35 32 35 31 20 24 28
Hardware................. 3 3 2 2 4 (5) 15 175
Sales and marketing...... 21 24 27 29 26 34 48 30
Administration........... 12 11 12 13 15 13 35 70
Acquired in-process
technology.............. -- -- -- -- 40 -- -- *
--- --- --- --- ---
Total operating costs and
expenses................ 92 99 96 102 135 28 29 91
--- --- --- --- ---
Income (loss) from
operations............... 8 1 4 (2) (35) (87) * *
Interest income (expense),
net...................... (1) -- -- (1) 2 * * *
--- --- --- --- ---
Income (loss) before
income taxes............. 7 1 4 (3) (33) (96) * *
Income taxes (benefit).... 2 -- 2 (1) (13) (94) * *
--- --- --- --- ---
Net income (loss)......... 5% 1% 2% (2)% (20)% (96)% * *
=== === === === ===
</TABLE>
- --------
*Not meaningful.
Revenues
The Company derives its revenues from software licenses, installation
services, ongoing support, maintenance and enhancement services, product
education, consulting and the sale of computer hardware. Total revenues for
the first half of 1996 were $21,043,000, an increase of $6,603,000 or 46%, as
compared to $14,440,000 for the same period in 1995. Total revenues from all
sources for 1995 were $33,248,000, an increase of $8,536,000 or 35% from 1994
total revenues of $24,712,000. Total revenues in 1994 increased $4,285,000 or
21% over 1993 revenues of $20,427,000.
Software. Software revenues for the first half of 1996 increased $2,872,000,
or 41%, as compared to the same period of 1995. In 1995, software revenues
were $16,104,000, a 37% increase over 1994. From 1993 to 1994, software
revenues increased 30% from $9,065,000 to $11,762,000. The increases are
primarily attributable to expansion of the Company's sales force and marketing
efforts.
Services. Services revenues for the first half of 1996 increased $3,214,000,
or 44%, as compared to the first half of 1995. Services revenues in 1995
increased 34% over 1994 to $16,498,000, and 1994 services revenues of
$12,343,000 represented an increase of 15% over 1993 services revenues. The
increase in services revenues is related to the increase in software revenues
coupled with an increase in consulting services revenues and growth in
recurring support fees.
Hardware. Hardware revenues for the first half of 1996 increased $517,000 as
compared to the first half of 1995. Hardware revenues in 1995 increased
$39,000 or 6% over 1994 to $646,000. From 1993 to 1994, hardware revenues
declined $102,000. Prior to 1995, hardware revenues had declined over time as
customers had increasingly elected to purchase personal computer equipment
from other sources. The increases in hardware revenues in 1995 and the first
six months of 1996 are principally attributable to sales of TouchScan, which
was introduced in 1995.
19
<PAGE>
Costs and Expenses
Software Development. Software development expenses for the first half of
1996 increased $667,000, or 20%, as compared to the first half of 1995.
Software development expenses increased to $7,536,000 in 1995 from $6,377,000
in 1994 and $4,237,000 in 1993. The increases in these expenses are primarily
related to development work on new releases of each of the Company's product
lines and the ongoing conversion of its DOS-based products to a Windows-based
platform. For the first six months of 1996, software development expenses
decreased as a percentage of total revenues from the year earlier period,
however, because a larger percentage of development effort was related to new
products, rather than enhancement of existing products, more software
development expenditures were capitalized in that period.
The Company capitalized $666,000 and $338,000 of software development costs,
net of related amortization expense, for the six months ended June 30, 1996
and 1995 and $624,000, $538,000 and $335,000 in 1995, 1994 and 1993,
respectively, in accordance with Statement of Financial Accounting Standards
No. 86. Capitalized software development costs are amortized over the
estimated life of the related products (up to four years). Amounts
capitalized, net of amounts amortized, represent 14% and 9% of total software
development expenditures for the six months ended June 30, 1996 and 1995 and
8%, 8% and 7% for 1995, 1994 and 1993, respectively.
Service and Support. Service and support expenses for the first half of 1996
increased $1,444,000, or 28%, as compared to the first half of 1995. Service
and support expenses increased to $10,742,000 in 1995 from $8,629,000 in 1994
and $7,187,000 in 1993. The increases in these expenses are primarily
attributable to the hiring of additional implementation personnel and related
travel. As a percentage of total revenues, service and support expenses
decreased from 35% in 1994 and 1993 to 32% in 1995.
Hardware. Hardware costs for the first half of 1996 increased $470,000, as
compared to the first half of 1995. Hardware costs were $786,000, $682,000 and
$717,000 in 1995, 1994 and 1993, respectively. The fluctuations in hardware
costs are attributable to the proportionate fluctuations in hardware revenues
in each year.
Sales and Marketing. Sales and marketing expenses for the first half of 1996
increased $1,258,000, or 30%, as compared to the first half of 1995. Sales and
marketing expenses increased to $8,832,000 in 1995 from $5,984,000 in 1994 and
$4,455,000 in 1993. The increases in these expenses are primarily attributable
to the expansion of the Company's sales force and related sales support and
marketing activities.
Administration. Administration expenses for the first half of 1996 increased
$1,283,000, or 70%, as compared to the first half of 1995. The increase in
administration expenses is a result of an increase in administrative services
personnel, public company related expenses, amortization of intangible assets
acquired in the Matkon Acquisition and the provision for bad debts, which has
increased with the increase in revenues. Administration expenses increased to
$3,887,000 in 1995 from $2,878,000 in 1994 and $2,545,000 in 1993. The
increases in administration expenses in these periods are primarily a result
of additions to the management team and investments in the Company's
telecommunications and computer infrastructure.
Acquired In-Process Technology. The Company recorded nonrecurring charges of
$8,453,000 in the quarter ended June 30, 1996 for acquired in-process
technology in connection with the Matkon Acquisition. See "Consolidated Pro
Forma Financial Information."
Interest. Prior to its initial public offering in 1995, the Company borrowed
primarily to finance seasonal working capital needs. A portion of the proceeds
from the initial public offering was used to repay all outstanding debt. Net
interest income for the first half of 1996 was $467,000, as compared to net
interest expense of $81,000 in the first half of 1995. The increase in net
interest income in 1996 was primarily attributable to the investment of a
portion of the initial public offering proceeds in interest-bearing
securities.
20
<PAGE>
Income Taxes. For the first half of 1996, the income tax benefit was
$2,646,000, compared to an income tax benefit of $139,000 in the first half of
1995. The Company incurred income tax expense of $682,000 (effective rate of
46%) in 1995, $20,000 (effective rate of 42%) in 1994 and $339,000 (effective
rate of 31%) in 1993. The increase in the effective rate in 1995 is
attributable to the incurrence of a greater proportion of nondeductible
travel-related expenses.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly results of operations have been seasonal, with a
greater proportion of the Company's revenue and operating profitability
occurring in the second half of the year. This seasonality is primarily
attributable to (i) hospital budgeting practices that are characterized by a
disproportionately larger amount of spending in the second half of the year
and (ii) the Company's sales force compensation program, which is based
significantly on achieving sales quotas by the end of September.
The following table sets forth certain unaudited quarterly financial data
for each of the ten quarters ending with the quarter ended June 30, 1996. In
the opinion of management, this unaudited data contains all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations for the periods presented. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software............... $2,373 $2,328 $2,877 $4,184 $3,406 $3,582 $3,835 $ 5,281 $4,284 $ 5,576
Services............... 2,886 2,842 3,105 3,510 3,333 3,907 4,305 4,953 4,922 5,532
Hardware............... 93 124 154 236 71 141 102 332 391 338
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total revenues......... 5,352 5,294 6,136 7,930 6,810 7,630 8,242 10,566 9,597 11,446
Operating costs and
expenses
Software development... 1,390 1,401 1,725 1,861 1,558 1,818 2,110 2,050 1,933 2,110
Service and support.... 2,005 2,239 2,225 2,160 2,452 2,681 2,784 2,825 2,782 3,795
Hardware............... 85 145 168 284 76 193 105 412 369 370
Sales and marketing.... 1,283 1,614 1,277 1,810 2,133 2,116 2,150 2,433 2,594 2,913
Administration......... 697 640 667 874 861 970 953 1,103 1,579 1,535
Acquired in-process
technology............ -- -- -- -- -- -- -- -- -- 8,453
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Total operating costs
and expenses.......... 5,460 6,039 6,062 6,989 7,080 7,778 8,102 8,823 9,257 19,176
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations............. (108) (745) 74 941 (270) (148) 140 1,743 340 (7,730)
Interest income
(expense), net......... (57) (14) (5) (38) (46) (35) (69) 167 276 191
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes........... (165) (759) 69 903 (316) (183) 71 1,910 616 (7,539)
Income taxes (benefit).. (67) (233) 19 301 (88) (51) 28 793 260 (2,906)
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Net income (loss)....... $ (98) $ (526) $ 50 $ 602 $ (228) $ (132) $ 43 $ 1,117 $ 356 $(4,633)
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Net income (loss) per
share.................. $(0.02) $(0.10) $ 0.01 $ 0.11 $(0.04) $(0.02) $ 0.01 $ 0.15 $ 0.04 $ (0.62)
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
Shares used in computing
net income (loss) per
share.................. 4,943 5,240 5,338 5,383 5,524 5,525 5,520 7,420 8,030 7,510
====== ====== ====== ====== ====== ====== ====== ======= ====== =======
</TABLE>
21
<PAGE>
The following table sets forth, as a percentage of revenue, certain unaudited
quarterly financial data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software............... 44% 44% 47% 53% 50% 47% 47% 50% 45% 49%
Services............... 54 54 51 44 49 51 52 47 51 48
Hardware............... 2 2 2 3 1 2 1 3 4 3
--- --- --- --- --- --- --- --- --- ---
Total revenues......... 100 100 100 100 100 100 100 100 100 100
Operating costs and
expenses
Software development... 26 26 28 23 23 24 26 19 20 18
Service and support.... 37 42 36 27 36 35 34 27 29 33
Hardware............... 2 3 3 4 1 3 1 4 4 4
Sales and marketing.... 24 31 21 23 31 27 26 23 27 25
Administration......... 13 12 11 11 13 13 11 11 16 13
Acquired in-process
technology............ -- -- -- -- -- -- -- -- -- 75
--- --- --- --- --- --- --- --- --- ---
Total operating costs
and expenses.......... 102 114 99 88 104 102 98 84 96 168
--- --- --- --- --- --- --- --- --- ---
Income (loss) from
operations............. (2)% (14)% 1% 12% (4)% (2)% 2% 16% 4% (68)%
=== === === === === === === === === ===
Net income (loss)....... (2)% (10)% 1% 8% (3)% (2)% 1% 11% 4% (40)%
=== === === === === === === === === ===
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in 1995, the Company met its capital
needs through a combination of cash flow from operations and proceeds from
issuance of Common Stock in 1993 ($1.1 million) and 1994 ($3.5 million). The
seasonality of the Company's business has historically necessitated the use of
short-term borrowings at various times during the year. The Company currently
has an $18 million unsecured revolving credit line bearing interest at the
prime rate less 0.5% or LIBOR plus 1.25% to 1.75%, which is available to fund
short-term liquidity needs and other general corporate purposes. As of
September 30, 1996, the Company had $300,000 outstanding under the line of
credit.
On October 25, 1995, the Company completed an initial public offering of its
Common Stock. The initial public offering resulted in net proceeds to the
Company of approximately $31,282,000. Management believes that the net proceeds
from this offering, together with existing cash and cash equivalents, cash flow
from operations and borrowings under its line of credit, will be sufficient to
meet the Company's currently anticipated working capital and capital
expenditure requirements for at least the next twelve months.
On May 28, 1996, the Company completed the Matkon Acquisition for a cash
purchase price of approximately $13.9 million. The Matkon division develops,
markets, installs and services a line of hospital materials management software
products which primarily run on a UNIX platform. The Matkon Acquisition
resulted in declines in cash and investment securities, and increases in a
number of asset accounts reflecting the acquisition of tangible and intangible
assets. Increases in prepaid and deferred income taxes arise as a result of the
tax benefits from the write-off of acquired in-process technology. See "Recent
Developments."
The Company has no outstanding material purchase commitments. The Company is
obligated to make minimum royalty payments in the aggregate amount of
approximately $3.2 million under certain license agreements, of which
approximately $400,000 has been paid. See "Recent Developments."
The Company does not believe that inflation has had a material impact on its
results of operations.
PENDING ACCOUNTING STANDARD
In accordance with Statement of Financial Accounting Standards No. 123, the
Company will continue to measure compensation cost for stock options using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock issued to Employees." The disclosure requirements of
Statement No. 123 will be incorporated into the December 31, 1996 financial
statements.
22
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Enterprise is a healthcare information services company that develops,
markets, installs and services an integrated suite of application software
products that assist healthcare providers in managing their operations. These
resource management systems, which are sold primarily to acute care hospitals,
focus on cost containment and address a broad range of non-clinical management
needs, including materials management, operating room logistics, patient and
staff scheduling and financial management. The Company's healthcare
information systems operate on personal computer networks and make extensive
use of electronic data interchange ("EDI"), enabling its customers to redesign
their resource management functions to enhance efficiency and productivity.
INDUSTRY BACKGROUND
Healthcare spending in the United States in 1995 is estimated to have
exceeded $1 trillion. In recent years, governmental and market-driven reform
initiatives have produced significant pressures on healthcare providers to
control costs. In the past, the financial risk of healthcare delivery was
principally absorbed by third-party payors, and providers were not focused on
cost containment. Through managed care and provider capitation arrangements,
the economic risk of healthcare delivery is shifting from payors to providers.
In order to manage this risk, providers are being forced to change the way
that they operate and are increasingly focused on measuring and controlling
the cost of delivering care. The shifting of risk has also encouraged
consolidation among healthcare providers and the emergence of integrated
healthcare organizations in order to achieve economies of scale and operating
efficiencies. See "Risk Factors--Uncertainty and Consolidation in Healthcare
Industry."
The Company believes that a significant need exists for information systems
that address the operational aspects of healthcare delivery. To date, there
has been a lack of emphasis on integrated information systems that effectively
manage these operational costs, which the Company believes constitute a
majority of providers' overall costs. Most existing healthcare information
systems address the billing and clinical aspects of healthcare delivery.
Without the necessary information, it has been difficult for healthcare
managers to allocate efficiently their resources--people, supplies,
facilities, equipment and services--or to understand their costs. These tasks
have been made more difficult by the operating complexity caused by provider
consolidation and the emergence of integrated healthcare organizations.
THE ENTERPRISE SOLUTION
Enterprise has developed information systems that address the operational
aspects of healthcare delivery. The Company offers an integrated suite of
resource management systems that assist users in more efficiently managing
people, supplies, facilities, equipment and services. These systems enable
healthcare providers to (i) improve productivity through the redesign and
automation of operational processes and (ii) obtain the information necessary
to measure and control costs. The Company's current product offerings address
materials management, operating room logistics, organization-wide patient and
staff scheduling and financial management, areas which the Company believes
offer significant opportunities for productivity improvement and cost savings.
The Company's systems can be easily integrated with a wide variety of third-
party products. The Company has developed more than two hundred interfaces for
sharing critical information among its applications and other healthcare
information systems. These interfaces ensure that the Company's systems may be
integrated into a healthcare provider's management information systems
environment, thereby eliminating the need to enter the same data more than
once for use in different applications.
23
<PAGE>
STRATEGY
The Company's objective is to continue to be a leading provider of resource
management systems by aggressively using technology to enable healthcare
providers to manage resources, redesign processes and reduce costs. See "Risk
Factors." The Company's strategy includes the following key elements:
Develop and Acquire New Products; Enhance Existing Products. The Company
intends to continue to strengthen existing product lines and expand into
additional operational management areas. This includes (i) developing and
acquiring new technologies and resource management products that complement
existing product lines, (ii) converting the Company's remaining DOS-based
products to a Windows platform, (iii) enhancing system functionality to better
address the needs of integrated healthcare organizations and (iv) developing
additional interfaces with other software products. See "Recent Developments."
Leverage Existing Customer Base. The Company's existing customer base
includes approximately 1,000 acute care hospitals, of which approximately 270
were added as customers when the Company acquired the Matkon division. See
"Recent Developments." Most of the Company's existing customers do not
currently use the Company's entire suite of products. Because of its high
customer retention rate, the Company believes that many of these customers are
candidates for additional components of its product suite and for upgrades to
Windows versions with enhanced functionality. Of those customers (other than
customers of the Matkon division) which have purchased the Company's current
products since January 1, 1991, approximately 97% remained customers at July
1, 1996.
Increase Penetration in Hospital Market. The Company believes a significant
opportunity exists to penetrate further the approximately 2,900 large acute
care hospitals in the United States and Canada. The Company also believes a
significant opportunity now exists with the approximately 3,100 small
hospitals in the United States and Canada. The Company has expanded its direct
sales force and increased its marketing efforts to capitalize on these
opportunities and has established sales teams focused on these targeted
markets.
Expand Presence in Alternate Site Markets. The Company intends to expand its
limited presence in alternate site markets, including outpatient clinics,
ambulatory surgery centers and specialty laboratories. Accordingly, the
Company has expanded its sales force and is in the process of developing
strategic relationships with medical product suppliers.
Develop Additional Distribution Channels. The Company has entered into joint
marketing agreements with group purchasing organizations and hospital
management organizations, which typically provide for these organizations to
recommend the Company's products on a preferred or exclusive basis. The
Company intends to pursue similar agreements, joint ventures or other
arrangements (which may include investments by the Company) with certain
healthcare information system developers and resellers and certain medical
product suppliers.
PRODUCTS
The Company's major product lines include materials management, operating
room logistics, organization-wide patient and staff scheduling and financial
management. Generally, the Company's products are personal computer-based and
utilize either a DOS or Windows platform, linked by a number of network
operating systems, including Novell and Microsoft Windows NT. The software
acquired in the Matkon Acquisition primarily operates on minicomputers using a
UNIX platform. The Company's products are modular in design, share a common
database, and may be used independently or bundled together in order to
provide an integrated resource management system solution that enables
healthcare managers to improve efficiency and obtain the information needed to
make strategic decisions regarding resource utilization. The Company's systems
follow the American National Standards Institute (ANSI) HL7 and X12 standards
to exchange data with other software.
24
<PAGE>
The following table describes the product lines currently offered by the
Company:
<TABLE>
<CAPTION>
INSTALLED
PRODUCT LINE PRODUCTS DESCRIPTION BASE/1/
- -------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Materials NOVA DOS-product used to manage supplies
Management from purchase to point-of-use, stream-
lining acquisition and distribution 484
through use of electronic requisition-
ing, EDI and just-in-time inventory
management.
---------------------------------------------------------------------------
MATKON 2000 UNIX-materials management product which
streamlines acquisition and distribu-
tion of supplies through the use of 124
electronic requisitioning, EDI and
just-in-time inventory management.
---------------------------------------------------------------------------
Nova.IDN Windows/client server redesign of NOVA,
enhanced to address the more complex
financial, security and access issues *
faced by Integrated Delivery Networks
(IDNs).
- -------------------------------------------------------------------------------------------
Materials TouchScan Windows/client server point-of-use sup-
Management-- ply management system providing just-
Point-of-Use in-time inventory management, cost by 14
Systems patient and procedure, automated pa-
tient charging and EDI.
---------------------------------------------------------------------------
TS2000 Windows/client server point-of-use sup-
ply management system specifically tai- 7
loring TouchScan functionality for spe-
cialty laboratories.
- -------------------------------------------------------------------------------------------
Materials Corporate Windows/client server product that ac-
Management-- Communications cumulates and analyzes purchasing in-
Contract System formation throughout an IDN to improve **
Management purchase contract negotiation and com-
pliance.
---------------------------------------------------------------------------
Interkon UNIX-system which accumulates and dis-
seminates supply contract information 2
to buying group members.
- -------------------------------------------------------------------------------------------
Financial TITAN DOS-accounts payable management prod-
Management uct, providing electronic invoice re- 287
ceipt, automated invoice matching and
electronic payment capabilities.
---------------------------------------------------------------------------
Titan.IDN Windows/client server accounts payable
and general ledger system with EDI ca- **
pability.
- -------------------------------------------------------------------------------------------
Operating Room ORBIT DOS-operating room management system,
Logistics which automates scheduling, physician 340
preference lists, supply management and
procedure charting.
---------------------------------------------------------------------------
Win/ORBIT Windows/client server upgrade for ORBIT 31
operating room scheduling product.
- -------------------------------------------------------------------------------------------
Scheduling Enterprise Schedul- Windows/client server, enterprise-wide
ing patient scheduling system incorporating
clinical sequencing protocols and en- 20
abling centralized or decentralized
scheduling.
---------------------------------------------------------------------------
ESP for Windows Windows/client server, enterprise-wide
staff scheduling which serves as a mas-
ter scheduler with a staff demographic **
database that supports an unlimited
number of work areas and staff posi-
tions.
</TABLE>
/1/As of June 30, 1996.
*Currently in beta-testing.
**Product introduced in 1996. As of September 27, 1996 the Company had
licensed the following new products:
Corporate Communications
System________________5
Titan.IDN_______________8
ESP for Windows________11
25
<PAGE>
CUSTOMER SERVICE AND SUPPORT
The Company provides its customers with services that begin prior to product
implementation and continue for the duration of product use. Service and
support helps customers realize the benefits offered by the Company's software
solutions and provides the Company with a significant base of recurring
revenue. The services offered by the Company are priced separately and include
the following:
Network Verification and Design. Prior to the installation of the Company's
software, customers normally contract for a network analysis, which includes a
survey of the customer's existing information systems, hardware and networks.
Implementation Services. The Company offers implementation services at the
time of a software purchase, including: (i) loading of the software, (ii)
analysis to identify required interfaces with other applications and the
conversion, where necessary, of data from existing systems into the required
formats and (iii) hands-on education.
Customer Education. The Company regularly conducts a wide range of product
educational seminars at its headquarters. More than 1,000 customer
representatives attended Company seminars in 1995.
Service and Support. The Company provides customer service and support after
installation of the software. Included with basic service is 24-hour, toll-
free access to customer support personnel.
Consulting. The Company provides on-site project management, including cost-
benefit analysis, system optimization review and, in some instances, long-term
staff management functions in an outsourcing capacity.
CUSTOMERS
The Company's customers include healthcare providers and medical products
suppliers located throughout the United States and in Canada. As of July 1,
1996, the Company had approximately 1,000 healthcare provider customers using
one or more of its systems, of which approximately 270 were added as customers
when the Company acquired the Matkon division in 1996. Of those customers
(other than customers of the Matkon division) which have purchased the
Company's current products since January 1, 1991, approximately 97% remained
customers at July 1, 1996. In addition, more than 90 suppliers have contracted
with or have arranged through the Company to maintain electronic data
interchange with providers. No single customer accounted for more than 5% of
the Company's revenues in either of the last two fiscal years.
Historically, the Company has focused its marketing efforts on the large
hospital market, which comprises the substantial majority of its customer
base. More recently, the Company has expanded its marketing efforts to include
small hospitals and alternate site providers such as outpatient clinics,
ambulatory surgery centers and specialty laboratories. The Company's potential
customers in the United States and Canada include approximately: (i) 2,900
large acute care hospitals (hospitals with 150 or more beds), (ii) 3,100 small
hospitals (hospitals with less than 150 beds), (iii) 7,000 outpatient clinics,
(iv) 2,100 freestanding ambulatory surgery centers and (v) 8,400 hospital-
based and free-standing specialty laboratories. Because the Company has
limited experience in non-hospital markets, it may find that significant
modifications to its products are necessary before they become useful to a
customer or that product pricing may have to be adjusted downward. See "Risk
Factors--Inability to Expand into New Markets."
SALES AND MARKETING
The Company sells its products and services through a direct sales force
located throughout the United States and in Canada that is organized according
to market segments. These segments include large hospitals, small hospitals
and clinics, specialty laboratories and groups and healthcare networks. The
sales cycle of the Company's systems and products varies substantially from
customer to customer and typically requires six to twelve months.
26
<PAGE>
Large Hospitals. The large hospital sales team consists of five sales
managers, twenty-seven sales representatives and eight sales specialists who
assist in the more technical aspects of the sales process. These sales
representatives are responsible for selling additional components of the
Company's product suite to existing customers as well as selling the entire
product suite to large hospital prospects.
Small Hospitals, Clinics, Ambulatory Surgery Centers and Specialty
Laboratories. The small hospital, clinic and ambulatory surgery center sales
team consists of a sales manager and ten sales representatives. Although the
Company has a number of existing customers in this segment, this market is a
new focus for the Company. Increasingly, potential customers are affiliated
with a healthcare network or group purchasing organizations, thereby enabling
the Company to pursue small hospitals and clinics more cost effectively. This
team also intends to focus on sales of the Company's point-of-use resource
management product to specialty laboratories.
Groups and Healthcare Networks. The group and healthcare network sales team
consists of five sales managers and three sales representatives. They are
responsible for developing business relationships between the Company and
those groups and networks that either own hospitals or exercise influence over
procurement decisions for their member institutions.
The Company has been named a preferred vendor by a number of group
purchasing organizations, including AllHealth, Health Services Corporation of
America, Horizon Healthcare, Inc., Healthcare Services of New England, Quorum
Health Resources, Inc., and University Hospital Consortium Services
Corporation, all of which provide group purchasing management services to
healthcare providers. Pursuant to these preferred vendor agreements, various
systems sold by the Company are endorsed by the group purchasing organizations
as the preferred or exclusively recommended product in a category. There are
more than 1,900 hospital members in these organizations. In addition, the
Company intends to pursue similar agreements, joint ventures or other
arrangements (which may include investments by the Company) with certain
healthcare information system developers and resellers and certain medical
product suppliers.
To support its sales force, the Company conducts comprehensive marketing
programs that include direct mail, focus groups, user conferences, site visits
and customer seminars. Decision makers for the Company's offerings are well
identified. Therefore, direct marketing techniques are emphasized to raise
marketplace awareness, influence decisions and generate qualified leads. The
marketing group consists of one manager and a staff of eight. Customer
seminars are periodically sponsored in association with Microsoft Corporation
("Microsoft") as part of its "Solution Provider" relationship with the
Company. Through this Solution Provider relationship, the Company has been
granted licenses to use Microsoft systems and applications products, server
products, development tools products and pre-release software in order to
assist the Company in providing comprehensive computer solutions to its
customers.
BACKLOG
As of June 30, 1996, the Company had approximately $24 million of backlog
(defined as unrecognized up-front fees pursuant to signed contracts) for
software and services that had not yet been delivered, of which $4 million of
backlog is attributable to the Matkon division, as compared to $13 million of
backlog as of June 30, 1995. These backlog amounts do not include revenues
related to annual support, maintenance and enhancement, continuing education
fees and hardware. Based upon its experience, the Company anticipates that a
majority of the backlog will be completed within the next twelve months.
However, the Company is unable to predict with any degree of accuracy the
amount of revenue it will achieve from its backlog in any particular quarter
because the length of the implementation cycle is dependent to a great extent
on factors outside the Company's control. These factors include the date on
which the installation starts (which the customer may delay), the amount of
internal resources that a customer commits to the installation process, the
availability of customer hardware, the structure and size of databases which
need to be converted and the number of interfaces with other information
systems. See "Risk Factors--Variable Quarterly Operating Results; Seasonality"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
27
<PAGE>
PRODUCT DEVELOPMENT AND TECHNOLOGY
The Company's product development strategy is directed at increasing the
functionality and performance of current products, adapting its products for
other healthcare market segments, integrating its products with products from
other healthcare software vendors and creating new products. The Company uses
several methods to identify new product opportunities and enhancements to
current products, including (i) targeted focus groups to collect feedback on
specific requirements, (ii) co-development arrangements with specific
customers and (iii) user conferences to achieve broad consensus on market
needs.
Through the use of co-development arrangements, the Company believes that it
is able to release products that better address current market demands.
Representative co-development partners have included Covenant Healthcare
System, Inc., Harris Methodist Health Systems, Rex Healthcare Services and
Stanford Health Services.
The Company is currently converting its NOVA and TITAN products from DOS to
a Windows client/server platform using an SQL database. Nova.IDN, the Windows-
based version of NOVA, is currently in beta-testing. Its Enterprise Scheduling
and TouchScan products already operate in this environment, while ESP for
Windows is being converted to use an SQL database. In addition, the functions
of the Company's ORBIT product will be incorporated into Enterprise
Scheduling. See "Risk Factors--Product Conversions to Windows."
Generally, the Company's software operates on IBM-compatible personal
computers, using either a DOS or Windows platform, linked by a number of
network operating systems, including Novell and Microsoft Windows NT. The
software acquired in the Matkon Acquisition primarily operates on
minicomputers using a UNIX platform. The Company's products are modular in
design, share common database elements and may be used independently or
together. The Company's systems follow the American National Standards
Institute (ANSI) HL7 and X12 standards to exchange data with other software.
All new products are being developed with a three-tiered, client/server
architecture, using object-oriented methodologies and the C++ programming
language. The new products are designed to run on 32-bit Microsoft Windows
environments and various SQL databases. See "Risk Factors--Ability to Develop
New Software Products; Rapid Technological Change" and "--New Product
Acceptance."
COMPETITION
The market for healthcare information systems is intensely competitive. The
competitive factors affecting the market for the Company's software and
services include: vendor and product reputation, availability of products on
preferred computer and communications platforms, scalability, integration with
other applications, functionality and features, ease-of-use, quality of
support, documentation and training, product quality and performance, product
innovation, price and the effectiveness of marketing and sales efforts. The
relative importance of each of these factors depends upon the market segment.
Certain of the Company's competitors have significantly greater financial,
technical, research and development and marketing resources. As a result, they
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion, sale and support of their products than the Company.
In addition, consolidation in the healthcare information systems industry may
permit the Company's competitors to have access to increased financial and
administrative resources, greater technological capabilities and to realize
other operational efficiencies and competitive advantages. Moreover,
purchasers may prefer to buy computer systems from a single source provider.
Because the Company focuses exclusively on healthcare resource information
systems (as opposed to clinical or billing systems), it cannot serve as the
sole source of computer software for healthcare organizations. The Company
believes that its experience, its use of technology to create innovative
solutions, its reputation for customer service and its ability to bring
products to market faster than its competition through joint development
partnerships with key customers will enable the Company to compete effectively
in its marketplace. See "Risk Factors--Competition."
28
<PAGE>
PROPRIETARY RIGHTS AND LICENSES
The Company depends significantly upon proprietary technology. The Company
relies on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and nondisclosure and other contractual provisions
to protect its proprietary rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company believes that, because
of the rapid pace of innovation within the computer software industry, factors
such as the technological and creative skills of its personnel, frequent
product enhancements and ongoing reliable product maintenance and support are
more important in establishing and maintaining a leadership position within
the industry than are the various legal protections of its technology. See
"Risk Factors--Dependence on Proprietary Technology; Risks of Infringement."
Typically, the Company distributes its products under software license
agreements that grant a customer a nonexclusive, nontransferable license to
use the Company's products for the customer's internal operation at designated
sites. In general, the license agreements require the Company to deposit the
source code for its software products in an escrow that may be accessed by the
customer in the event of the Company's liquidation, dissolution or bankruptcy,
or if the Company fails to cure a material breach of contract.
The Company uses the "TouchScan" name under an agreement with a third party.
This agreement does not provide for the Company's use of the name in the
specialty laboratory market. Consequently, the Company sells its point-of-use
resource management product in this market under the name "TS2000."
GOVERNMENTAL REGULATION
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of healthcare providers. Many federal and state legislators have announced
that they intend to propose programs to reform the United States healthcare
system at both the federal and state level. These programs may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the environment in which providers
operate. Healthcare providers may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investments, including
investments in the Company's products and related services. See "Risk
Factors--Uncertainty and Consolidation in the Healthcare Industry."
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
EMPLOYEES
As of September 1, 1996, the Company had 410 full-time employees, of which
74 were in sales and marketing, 102 in product development, 191 in customer
services and 43 in administration. None of the Company's employees is
represented by a labor union, and the Company is not aware of any
organizational efforts on behalf of any labor unions involving the Company's
employees.
FACILITIES
The Company leases approximately 59,000 square feet of space at its
corporate headquarters located in Wheeling, Illinois, pursuant to leases which
expire on December 31, 2001 with renewal options through December 31, 2006 and
approximately 12,100 square feet of space in Overland Park, Kansas pursuant to
a sublease which expires on June 1, 1997.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glen E. Tullman.............. 37 Chief Executive Officer and Director
Joseph E. Carey.............. 38 President and Secretary
David B. Mullen.............. 45 Chief Financial Officer
Steven M. Katz............... 46 Chief Operating Officer
David A. Carlson............. 44 Executive Vice President, Business Development
Stanley A. Crane............. 47 Executive Vice President, Software Engineering
James H. Ray................. 55 Senior Vice President, Finance and Treasurer
Thomas R. Hutchison(1)(2).... 56 Chairman of the Board and Director
Thomas R. Pirelli............ 49 Director
Robert A. Compton(2)......... 40 Director
Bernard Goldstein(1)(2)...... 65 Director
M. Fazle Husain(1)........... 32 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
Glen E. Tullman has served as a Director of the Company since March 1993 and
as Chief Executive Officer since October 1994. From 1983 to 1994, Mr. Tullman
was employed by CCC Information Services Inc., a computer software company
servicing the insurance industry, most recently as President and Chief
Operating Officer. He serves on the board of directors of Insurance Auto
Auctions, Inc. Mr. Tullman holds a B.A. degree from Bucknell University and a
degree from St. Antony's College, Oxford University, Oxford, England.
Joseph E. Carey has served as President of the Company since April 1993 and
has served as Secretary since November 1994. From 1987 to April 1993, Mr. Carey
held various management positions with the Company in product management and
operations. From 1986 to 1987, he was employed by BioTechnica Diagnostics, Inc.
as Director of Finance and Administration. From 1980 to 1986, he was employed
by Ernst & Young LLP, most recently as Audit Manager. Mr. Carey holds a B.B.A.
degree from the University of Notre Dame and an M.B.A. degree from the
University of Chicago.
David B. Mullen has served as Chief Financial Officer of the Company since
January 1995. From 1983 to 1995, Mr. Mullen was employed in various positions
by CCC Information Services Inc., including Vice Chairman, President and Chief
Financial Officer. Prior to that, he was employed by Ernst & Young LLP. Mr.
Mullen holds an A.B. degree from Princeton University and an M.B.A. degree from
the University of Pennsylvania.
Steven M. Katz has served as Chief Operating Officer of the Company since
November 1994. From December 1993 to November 1994, Mr. Katz was employed by
CCC Information Services Inc. as President of its Insurance Division. From
January 1993 to December 1993, he was employed as Chief Operating Officer by
Melson Technologies, Inc., a computer software company serving the real estate
industry. From 1990 to December 1992, Mr. Katz was employed by LPC/A Pitney
Bowes Co., a direct-marketing computer software company, most recently as
President. Prior to that, Mr. Katz held various positions with Xerox
Corporation and IBM. Mr. Katz holds a B.S. degree in Economics from the
University of Illinois.
30
<PAGE>
David A. Carlson, a co-founder of the Company, has served as Executive Vice
President, Business Development of the Company since November 1994. Since the
Company's inception, Mr. Carlson has held various management positions with
the Company, including Executive Vice President, Strategic Alliances; Chief
Operating Officer; and Senior Vice President, Software Development. Mr.
Carlson serves as a founding Director of the Health Level 7 (HL7)
International Standards Organization.
James H. Ray, has served as Treasurer of the Company since 1987 and as
Senior Vice President, Finance of the Company since January 1995. From 1987 to
January 1995, Mr. Ray served as Chief Financial Officer of the Company. Mr.
Ray holds a B.S. degree from the University of Illinois.
Stanley A. Crane has served as Executive Vice President, Software
Engineering of the Company since July 1995. From February 1995 to May 1995,
Mr. Crane was employed by Global Village Communications, a computer software
company, as Director of Software. Additionally, from December 1994 to June
1995, Mr. Crane provided Internet consulting services to IBM and Network
Computing Devices, Inc. From March 1993 to November 1994, Mr. Crane was
employed by Lotus Development Corporation, a computer software company, most
recently as Senior Director of Research and Development. From December 1991 to
February 1993, he was employed by WordStar International, Inc., a computer
software company, most recently as Vice President of Research and Development.
From July 1989 to November 1991, Mr. Crane was employed by Ashton-Tate, Inc.,
a computer software company, most recently as Director of Product Development
for DBASE IV. Mr. Crane holds a B.A. degree from Fort Lewis College and an
M.A. degree from the University of Wyoming.
Thomas R. Hutchison has been a Director of the Company since June 1983 and
has served as Chairman of the Board since July 1995. He serves as Chairman and
Chief Executive Officer of Hawkeye Argus, Inc., a private company with
diversified investments. From 1964 until August 1, 1995, Mr. Hutchison was
employed by Merrill Lynch and Co., Inc., most recently as First Vice
President--Private Client Group.
Thomas R. Pirelli, a co-founder of the Company, has served as a Director of
the Company since 1981. From 1981 to December 1995, Mr. Pirelli held various
positions with the Company, including Chairman of the Board, Chief Executive
Officer and President. In December 1995, Mr. Pirelli resigned as an officer
and terminated his employment with the Company. See "Management--Severance
Agreement." He currently serves as Chairman of Arial Systems Corporation, a
high technology start-up in the telecommunications industry. Prior to founding
the Company, Mr. Pirelli served as a Director of Information Systems for
American Hospital Supply Corporation. Mr. Pirelli holds a B.S.E. degree from
Princeton University.
Robert A. Compton has served as a Director of the Company since May 1993.
Since 1988, Mr. Compton has been a general partner of CID Equity Partners I,
L.P. and a general partner of CID Equity Partners II, L.P. (collectively,
"CID"). From 1985 to 1988, he served as an investment manager with First
Chicago Venture Capital. Mr. Compton serves as a Director of Sofamor Danek
Group, Inc., a medical devices manufacturer, and as a director of six private
companies. Mr. Compton is also a Director of the Ewing Marion Kauffman
Foundation.
Bernard Goldstein has served as a Director of the Company since March 1993.
Mr. Goldstein has been Managing Director of Broadview Associates LLC, an
investment banking firm, since 1979. See "Certain Transactions." Mr. Goldstein
currently serves as a Director of Apple Computer, Inc. where he is the
Chairman of the Audit Committee. Mr. Goldstein also serves as a Director of
SPSS, Inc., SunGard Data Systems, Inc. and Franklin Electronic Publishers,
Inc. He is Past President of The Information Technology Association of
America.
M. Fazle Husain has served as a Director of the Company since August 1994.
Mr. Husain is a Vice President of Morgan Stanley & Co. Incorporated, an
investment banking firm ("Morgan Stanley") where he has been employed since
1991, and of the Managing General Partner of certain partnerships affiliated
with Morgan Stanley which beneficially own Common Stock of the Company. Mr.
Husain was also employed at Morgan Stanley from 1987 until 1989. Mr. Husain
serves on the Board of Directors of Cambridge Heart, Inc.
31
<PAGE>
and several private healthcare and healthcare information technology companies.
Mr. Husain received an Sc.B. in Chemical Engineering from Brown University and
an MBA from the Harvard Graduate School of Business Administration.
The Board of Directors of the Company may consist of up to nine members and
is divided into three classes with staggered three-year terms. Currently, the
Board of Directors consists of six persons and each class consists of two
directors. Messrs. Husain and Hutchison serve in the class whose term expires
on the date of the annual meeting of stockholders next following the end of
fiscal 1996; Messrs. Pirelli and Tullman serve in the class whose term expires
on the date of the annual meeting of stockholders next following the end of
fiscal 1997; and Messrs. Goldstein and Compton serve in the class whose term
expires on the date of the annual meeting of stockholders next following the
end of fiscal 1998. The executive officers of the Company are elected at each
annual meeting of the Board of Directors and serve at the discretion of the
Board of Directors.
Two of the Company's current Directors, Messrs. Compton and Husain, were
nominated and elected to the Company's Board of Directors prior to the
Company's initial public offering in accordance with certain investment and
related agreements. See "Management--Compensation Committee Interlocks and
Insider Participation."
DIRECTOR COMPENSATION
Directors who are not executive officers of the Company are paid a fee of
$1,000 for each board meeting attended in person and are reimbursed for travel
expenses incurred in connection with attending meetings. Directors are not
entitled to additional fees for serving on committees of the Board of
Directors. Pursuant to the terms of the formula program of the Company's Long
Term Incentive Plan, each current director of the Company who was not otherwise
employed by the Company when he became a director automatically was granted an
option to purchase 15,000 shares of Common Stock upon his initial election to
the Board of Directors. These options vest in three annual installments of
5,000 shares each. Messrs. Goldstein, Hutchison and Tullman each received
options to purchase 15,000 shares of Common Stock, all of which have vested.
Outstanding options are exercisable at $4.57 per share. When CID became a
principal stockholder in April 1993, it acquired the right to appoint a nominee
to the Company's Board of Directors. Upon election of its nominee, Mr. Compton,
CID was granted an option to purchase 15,000 shares of Common Stock, all of
which are now vested. These options are exercisable at $4.57 per share. When
Morgan Stanley became a principal stockholder in March 1994, it also acquired
the right to appoint a nominee to the Company's Board of Directors. Upon the
election of such nominee (who has since resigned and been replaced by Mr.
Husain), Morgan Stanley was granted an option to purchase 15,000 shares of
Common Stock, 5,000 of which vested on each of April 21, 1995 and April 21,
1996 and 5,000 of which will vest on April 21, 1997. These options are
exercisable at $5.60 per share. Pursuant to the terms of the formula program of
the Company's Long-Term Incentive Compensation Plan, each director of the
Company appointed in the future who is not otherwise employed by the Company
automatically will be granted an option to purchase 5,000 shares of Common
Stock upon his or her initial election to the Board of Directors. The option
will vest in three equal annual installments. See "Management--Compensation
Pursuant to Plans" and "Certain Transactions."
32
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation with respect to the annual and
long-term compensation earned by the Company's Chief Executive Officer and the
four most highly compensated executive officers other than the Chief Executive
Officer during the years ended December 31, 1995 and December 31, 1994 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ------------
OPTIONS
NAME AND PRINCIPAL FISCAL OTHER ANNUAL (# OF ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION SHARES) COMPENSATION(1)
- ------------------ ------ -------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman(2)...... 1995 $200,000 $42,000 -- -- --
Chief Executive Officer 1994(2) 50,000 1,000 $3,000(3) 144,846 --
Joseph E. Carey......... 1995 132,000 27,720 -- 17,500 --
President 1994 121,000 45,980 -- -- $7,653
David B. Mullen......... 1995(4) 160,410 28,072 -- 77,500 --
Chief Financial Officer
Steven M. Katz.......... 1995 170,000 29,750 -- 17,500 --
Chief Operating Officer 1994(5) 22,558 451 -- 55,000 --
David A. Carlson ....... 1995 120,900 16,322 -- 12,500 --
Executive Vice
President 1994 113,400 36,288 -- -- 7,601
Business Development
</TABLE>
- --------
(1) These amounts represent contributions to the Company's Employee Stock
Ownership Plan (the "ESOP"). The ESOP was merged into the Company's 401(k)
Savings Plan in October 1995. No contributions to the ESOP have been made
since 1994, although forfeitures by existing participants will cause
additions to other participants, including certain of the Named Executive
Officers. See "Management--Compensation Pursuant to Plans."
(2) Mr. Tullman's salary and bonus in 1994 reflect amounts paid from the
commencement of his employment with the Company in October 1994 through
fiscal year ended December 31, 1994.
(3) Mr. Tullman earned $3,000 as an outside director of the Company prior to
his employment.
(4) Mr. Mullen became the Company's Chief Financial Officer in January 1995.
(5) Mr. Katz' salary and bonus in 1994 reflect amounts paid from the
commencement of his employment with the Company in November 1994 through
the fiscal year ended December 31, 1994.
33
<PAGE>
STOCK OPTIONS
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in 1995:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------ ------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES PER EXPIRATION
GRANTED(1) IN 1995 SHARE DATE 5% 10%
---------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Glen E. Tullman.. -- -- -- -- -- --
Joseph E. Carey.. 7,500 4.4% $ 5.93 06/15/05 $210,483 $ 509,585
10,000 25.00 12/22/05
David B. Mullen.. 55,000(3) 19.5 5.93 01/23/05 494,207 1,228,603
7,500 5.93 06/15/05
15,000 25.00 12/22/05
Steven M. Katz... 7,500 4.4 5.93 06/15/05 210,483 509,585
10,000 25.00 12/22/05
David A. Carlson. 7,500 3.1 5.93 06/15/05 131,871 310,367
5,000 25.00 12/22/05
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Generally, options granted under the Company's Long-Term Incentive
Compensation Plan become exercisable over a three-year period at the rate
of 33% per year and have ten-year terms so long as the optionee's
employment with the Company continues. All options were granted at fair
market value as determined by the Board of Directors of the Company on the
date of grant with the exception of the options that were granted in June
1995. After the June 1995 options were granted, the Company determined
that the fair market value of these options were $8.00 at the time of
grant, rather than $5.93. Accordingly, the Company has recorded an
adjustment for compensation expenses, but the exercise price has not been
changed.
(2) Future value of current-year grants assuming appreciation in the market
value of the Common Stock of 5% and 10% per year over the ten-year option
period. The actual value realized may be greater than or less than
potential realizable values set forth in the table.
(3) Mr. Mullen's option to purchase 55,000 shares of Common Stock provides for
vesting in four equal annual installments beginning on January 23, 1995.
34
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
1995 with respect to each of the Named Executive Officers. No options were
exercised by the Named Executive Officers in 1995:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glen E. Tullman(2).......... 67,938 91,908 $1,682,837 $2,264,980
Joseph E. Carey............. 40,000 37,500 1,037,200 757,875
David B. Mullen............. 13,750 63,750 337,837 1,280,287
Steven M. Katz.............. 27,500 45,000 675,675 914,950
David A. Carlson............ 33,334 29,166 864,351 643,924
</TABLE>
- --------
(1) Value of unexercised options equals fair market value at December 31, 1995
(market price $30.50) of a share of Common Stock into which the option can
be converted, less exercise price, times the number of options
outstanding.
(2) Does not include options to purchase 144,846 shares of issued and
outstanding Common Stock from Thomas R. Pirelli, of which options to
purchase 57,938 shares are currently exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, the Compensation Committee
of the Board of Directors consisted of Messrs. Hutchison, Goldstein and
Tullman until February 1995. Mr. Husain, a Director and a Vice President with
Morgan Stanley, one of the Company's principal stockholders, replaced Mr.
Tullman as a member of the Compensation Committee in February 1995. Mr.
Tullman has served as Chief Executive Officer of the Company since October
1994.
On April 30, 1993, the Company entered into an Investment Agreement with CID
Ventures, L.P., and CID Equity Capital, L.P. (collectively, the "CID
Investors"). On March 31, 1994, the Company entered into an Investment
Agreement with Morgan Stanley Venture Investors, L.P., Morgan Stanley Venture
Capital Fund II, L.P., and Morgan Stanley Venture Capital Fund II, C.V.
(collectively, the "Morgan Investors"). Pursuant to these investment
agreements, the Company issued 218,818 shares of Common Stock in April 1993 to
the CID Investors at a price of $4.57 per share for an aggregate purchase
price of $999,998.26 and 642,857 shares of Common Stock in March 1994 to the
Morgan Investors at a price of $5.60 per share for an aggregate purchase price
of $3,599,999.20. In addition, the Company, the CID Investors, the Morgan
Investors and others entered into an Amended and Restated Registration Rights
Agreement dated March 31, 1994, pursuant to which the CID and Morgan Investors
have been granted certain demand and piggyback registration rights. See
"Description of Capital Stock--Registration Rights." Messrs. Compton and
Husain were nominated and elected to the Company's Board of Directors prior to
the Company's initial public offering in accordance with these investment and
related agreements. On April 30, 1993, the Company also sold 54,704 shares of
Common Stock for an aggregate purchase price of $249,997.28 ($4.57 per share)
to Mr. Goldstein, a Director of the Company. See "Certain Transactions."
The Company entered into an agreement with Broadview Associates LLC
("Broadview"), effective as of February 1, 1996, pursuant to which Broadview
agreed to: (i) study the Company's existing corporate strategy; (ii) help
establish acquisition transaction criteria consistent with the Company's
goals; (iii) develop suggested target candidates; (iv) screen target
candidates under consideration against agreed criteria; (v) make approaches
and introductions to target candidates; and (vi) help negotiate and structure
transactions. This agreement has terminated. Pursuant to the agreement, the
Company paid Broadview a fee of $370,000 in connection with the Matkon
Acquisition. Bernard Goldstein, a Director of the Company and a member of the
Compensation Committee, is a Managing Director of Broadview.
35
<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Tullman, Carey, Mullen, Katz and Carlson have employment agreements
with the Company. The agreements fix each of the officers' base compensation
and provide for reimbursement of travel and other expenses in connection with
such officers' employment. In general, the agreements provide for annual
bonuses of up to 40% of the officer's salary upon attaining certain
performance objectives (such as total revenues and operating income)
determined by the Board of Directors at the beginning of the calendar year.
The current term of the agreements expire on August 31, 1997, are renewable
for successive periods of one year after expiration of the current term and
are terminable by the Company with cause, as defined in the employment
agreements. Upon termination by the Board of Directors without cause, the
executive will be entitled to receive a payment equal to his then current
annual base salary, in addition to all compensation earned but unpaid as of
the date of termination. If so terminated, the Company will be obligated to
pay the following amounts to the Named Executive Officers: Mr. Tullman,
$225,000; Mr. Carey, $170,000; Mr. Mullen, $200,000; Mr. Katz, $190,000; and
Mr. Carlson, $135,000. In addition, if employment of any officer is terminated
by the Company within twelve months of a change in control, the executive will
be entitled to the following additional benefits: (i) any options to purchase
Common Stock, which would otherwise be nonvested, will immediately vest, (ii)
100% of the bonus to which he would have otherwise been entitled had he been
employed on the last day of the calendar year (and then been terminated) and
(iii) payment of his health insurance premiums for the duration of the COBRA
continuation period. These employment agreements also contain confidentiality
and noncompetition provisions for the terms set forth in each agreement.
SEVERANCE AGREEMENT
On January 9, 1996, the Company entered into a severance agreement with
Thomas R. Pirelli (the "Severance Agreement"). Pursuant to the Severance
Agreement, Mr. Pirelli terminated his employment with the Company. As a
severance payment, the Company paid Mr. Pirelli $200,000, plus $19,682 as
accrued bonus for 1993 and 1994 and $35,000 as a bonus for 1995. In
consideration for such payment, Mr. Pirelli agreed to a general release of all
claims against the Company, a covenant not to sue and an agreement not to
solicit any of the Company's employees through December 31, 1997. Until
January 9, 1998, Mr. Pirelli is subject to noncompetition covenants contained
in his original employment agreement with the Company.
COMPENSATION PURSUANT TO PLANS
Long-Term Incentive Compensation Plan. The Board of Directors has adopted
the Enterprise Systems, Inc. Long-Term Incentive Compensation Plan (the "Long-
Term Plan"), which was an amendment and restatement of the Company's 1993
Stock Option Plan. The purpose of the Long-Term Plan is to promote the
interests and enhance the value of the Company by linking the personal
interests of its employees and directors with those of its stockholders, by
inducing individuals of outstanding ability and potential to join and remain
with the Company, by encouraging and enabling eligible employees and directors
to acquire proprietary interests in the Company, and by providing the
participating employees and directors with an additional incentive to promote
the success of the Company.
Awards under the Long-Term Plan may be in the form of stock options
(including both incentive stock options that meet the requirements of Section
422 of the Internal Revenue Code and nonqualified stock options), stock
awards, restricted stock grants, stock appreciation rights ("SARs") and
performance shares (collectively, "Awards"). The Long-Term Plan also includes
the formula program. The formula program provides for the automatic grant of
options to purchase shares of Common Stock to nonemployee directors of the
Company. Pursuant to the terms of the formula program, each director of the
Company who is not otherwise employed by the Company automatically will be
granted an option to purchase 5,000 shares of Common Stock upon his or her
initial election to the Board. The option will vest in three annual
installments, with the first such installment to vest on the first anniversary
of the option grant date.
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<PAGE>
Awards will be evidenced by a written agreement, setting forth the terms and
conditions of that Award, which need not be identical for each Award. Any
Award issued under the Long-Term Plan that is forfeited, expired or terminated
prior to vesting or exercise will again become available for grant under the
Plan.
The Long-Term Plan is administered by the Compensation Committee (the
"Committee"). The Committee has discretion to determine which "key employees"
and "key non-employees" (non-employee directors, consultants or independent
contractors) will be recipients of Awards under the Long-Term Plan, and to
establish the terms, conditions and limitations of each Award (subject to the
terms of the Long-Term Plan and the applicable provisions of the Internal
Revenue Code), including the type and amount of the Award, the number of
shares of Common Stock to be subject to any Award of options or restricted
stock, or the amount of cash or rights to be included in an Award, the
exercise price of any options, and the date or dates upon which options become
exercisable or upon which any restrictions applicable to any Award lapse. The
Committee also has full power to construe and interpret the Long-Term Plan and
the Awards granted under the Long-Term Plan, and to establish rules and
regulations necessary or advisable for its administration. The determination
of the Committee with respect to any matter under the Long-Term Plan to be
acted upon by the Committee is conclusive and binding.
Awards under the Long-Term Plan may be granted only to key employees and key
non-employees of the Company and its subsidiaries. The Committee determines
whether a particular employee or non-employee qualifies as a key employee or
non-employee. Awards also may be granted to a prospective employee,
conditioned upon such person becoming an employee. Members of the Committee
are not eligible for Awards while serving on the Committee, unless the Award
is made pursuant to a formula that states the amount and price of the Common
Stock to be awarded to the members of the Committee and specifies the timing
of the Award.
The maximum number of shares of Common Stock which may be issued and sold
under the Long-Term Plan, subject to adjustment, is 1,114,846 shares. As of
September 1, 1996, participants in the Long-Term Plan held options to purchase
an aggregate of 910,801 shares of Common Stock at per share exercise prices
ranging from $4.57 to $38.50, with a weighted average exercise price per share
of $11.13. As of September 1, 1996, no shares of Common Stock have been issued
pursuant to restricted stock awards and a total of 22,163 shares of Common
Stock remain available for issuance under the Plan. In general, options
automatically vest upon a change in control of the Company depending on the
terms of each individual grant.
401(k) Savings Plan. The Enterprise Systems, Inc. 401(k) Savings Plan (the
"401(k) Plan") is a tax qualified "cash or deferred" plan under Section 401(k)
of the Internal Revenue Code in which all of the Company's employees,
including executive officers, are eligible to participate after completing
three months of service. Participants are able to defer up to 15% of their
salary (to a maximum of $9,500 in 1996, as adjusted annually) to be
contributed to a trust fund and invested, at the participant's election, in
equity or fixed income investments offered by the administrator of the 401(k)
Plan. The Company has the discretion to match a percentage of the
contributions made to the 401(k) Plan in any year. In 1996, the Company will
match 25% of the first $1,000 of salary contributed by each employee, not to
exceed a maximum annual contribution of $250 by the Company. The employees'
contributions are fully vested and nonforfeitable at all times. A
participant's contributions become distributable upon the participant's
retirement, death, disability or other termination of employment and, under
certain emergency circumstances, may be distributed during employment.
In December 1995, the Company merged its ESOP into the 401(k) Plan with
account balances from the ESOP transferring to the 401(k) Plan. The trustee of
the 401(k) Plan is appointed from time to time by the Board of Directors and
currently is Emjay Corporation (the "Trustee"). Shares of Common Stock that
have been allocated to participants under the ESOP and which remain as part of
their account balances in the 401(k) Plan will be voted by the Trustee in
accordance with directions from each participant. Any allocated Common Stock
with respect to which voting directions are not given will be voted by the
Trustee.
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CERTAIN TRANSACTIONS
On April 30, 1993, the Company entered into an Investment Agreement with CID
Ventures, L.P., and CID Equity Capital, L.P. (collectively, "CID Investors").
On March 31, 1994, the Company entered into an Investment Agreement with
Morgan Stanley Venture Investors, L.P., Morgan Stanley Venture Capital Fund
II, L.P., and Morgan Stanley Venture Capital Fund II, C.V. (collectively, the
"Morgan Investors"). Pursuant to these investment agreements, the Company
issued 218,818 shares of Common Stock in April 1993 to the CID Investors at a
price of $4.57 per share for an aggregate purchase price of $999,998.26 and
the Company issued 642,857 shares of Common Stock in March 1994 to the Morgan
Investors at a price of $5.60 per share for an aggregate purchase price of
$3,599,999.20. In addition, the Company, the CID Investors, the Morgan
Investors and others entered into an Amended and Restated Registration Rights
Agreement, dated March 31, 1994, pursuant to which the CID and Morgan
Investors have been granted certain demand and piggyback registration rights.
See "Description of Capital Stock--Registration Rights." On April 30, 1993,
the Company also sold 54,704 shares of Common Stock for an aggregate purchase
price of $249,997.28 ($4.57 per share) to Mr. Goldstein, a Director of the
Company. See "Management--Compensation Committee Interlocks and Insider
Participation."
In April 1993, the Company and ESI Research & Development Limited
Partnership (the "Partnership") entered into a letter agreement, pursuant to
which the Company purchased from the Partnership all right, title and interest
in and to certain capital asset management software for a purchase price of
$200,000. Mr. Pirelli, a Director of the Company, was a limited partner with a
7% ownership interest in the Partnership prior to its dissolution in June
1993. The purchase price for this software was based upon a professional
valuation.
On December 29, 1988, the Company made a term loan of approximately
$3,100,000 at an interest rate of 8.94% to fund the ESOP. The ESOP serviced
the principal and interest requirements on this loan with contributions from
the Company. The final payment was made in December 1994. Company
contributions to the ESOP amounted to approximately $590,000 and $543,000 for
1993 and 1994, respectively.
The Company entered into an agreement with Broadview Associates LLC
("Broadview"), effective as of February 1, 1996, pursuant to which Broadview
agreed to: (i) study the Company's existing corporate strategy; (ii) help
establish acquisition transaction criteria consistent with the Company's
goals; (iii) develop suggested target candidates; (iv) screen target
candidates under consideration against agreed criteria; (v) make approaches
and introductions to target candidates; and (vi) help negotiate and structure
transactions. This agreement has terminated. Pursuant to the agreement, the
Company paid Broadview a fee of $370,000 in connection with the Matkon
Acquisition. Bernard Goldstein, a Director of the Company and a member of the
Compensation Committee, is a Managing Director of Broadview.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 1, 1996, and as
adjusted to reflect the sale of the shares offered hereby, by: (i) each person
who is known by the Company to beneficially own more than five percent of the
Company's Common Stock; (ii) each of the Company's Directors; (iii) each of
the Named Executive Officers; and (iv) all Directors and executive officers of
the Company as a group. Except as indicated in the footnotes to this table,
the Company believes that the persons named in the table have sole voting and
investment power with respect to all Common Stock shown as beneficially owned
by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(2)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) OFFERING OFFERING
- ---- ------------ ---------- ----------
<S> <C> <C> <C>
Enterprise 401(k) Plan(3)............. 947,763 12.6% 11.7%
Glen E. Tullman(4).................... 158,599 2.1 1.9
Joseph E. Carey(5).................... 68,426 * *
David B. Mullen(6).................... 28,200 * *
Steven M. Katz(7)..................... 23,525 * *
David A. Carlson(8)................... 143,183 1.9 1.8
Thomas R. Hutchison(9)................ 115,000 1.5 1.4
Thomas R. Pirelli(10)................. 1,586,630 21.1 19.5
James H. Ray(11)...................... 50,628 * *
Stanley A. Crane(12).................. 8,334 * *
Robert A. Compton(13)................. 22,056 * *
M. Fazle Husain(14)................... -- -- --
Bernard Goldstein(15)................. 87,561 1.2 1.1
Morgan Stanley Venture Capital Fund
II, L.P.(16)......................... 652,857 8.7 8.0
All executive officers and directors
as a group
(12 persons)......................... 2,205,235 28.4 26.3
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and (except as otherwise noted)
includes voting and investment power with respect to the shares shown as
beneficially owned.
(2) Applicable percentage of ownership as of September 1, 1996 is based upon
7,519,581 shares of Common Stock outstanding. Applicable percentage
ownership after this offering is based upon 8,119,581 shares of Common
Stock outstanding. Shares of Common Stock subject to options currently
exercisable or exercisable on or before October 30, 1996 are deemed
outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage
ownership of any other person.
(3) Includes 20,526, 27,134, 39,975 and 29,828 401(k) Plan shares
beneficially owned by Messrs. Carey, Carlson, Pirelli and Ray,
respectively. The Trustee of the 401(k) Plan is Emjay Corporation, 725
West Glendale Avenue, Glendale, Wisconsin 53209. See "Management--
Compensation Pursuant to Plans."
(4) Includes options to purchase 131,814 shares of Common Stock, including
options to purchase 86,907 shares of Common Stock currently outstanding
and held by Thomas R. Pirelli.
(5) Includes options to purchase 47,500 shares of Common Stock and 20,526
shares of Common Stock held in the 401(k) Plan.
(6) Includes options to purchase 25,000 shares of Common Stock.
(7) Includes options to purchase 23,125 shares of Common Stock.
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<PAGE>
(8) Includes options to purchase 52,500 shares of Common Stock, 27,134 shares
of Common Stock held in the 401(k) Plan, and 63,549 shares of Common Stock
held in the David A. Carlson Trust dated October 12, 1992.
(9) Mr. Hutchison serves as the trustee of an irrevocable trust for each of
Mr. Pirelli's two daughters and has beneficial ownership of 100,000 shares
of Common Stock held in such trusts (the "Pirelli Children Trusts"). Mr.
Pirelli is a Director and principal stockholder of the Company.
(10) Includes 86,907 shares of Common Stock subject to options held by Glen E.
Tullman, 39,975 shares of Common Stock held in the 401(k) Plan and
1,537,471 shares of Common Stock held in the Thomas R. Pirelli Trust
U/A/D January 26, 1990. Mr. Pirelli disclaims beneficial ownership in the
100,000 shares of Common Stock held in the Pirelli Children Trusts. Mr.
Pirelli's address is 909 Oakhurst, Riverwoods, Illinois 60015.
(11) Includes options to purchase 20,000 shares of Common Stock and 29,828
shares of Common Stock held in the 401(k) Plan.
(12) Includes options to purchase 8,334 shares of Common Stock.
(13) Mr. Compton holds 7,056 shares of Common Stock. CID Equity Capital III,
L.P. ("CID-III") holds options to purchase 9,645 shares of Common Stock.
CID Ventures, L.P. ("CID-V") holds options to purchase 5,355 shares of
Common Stock. Mr. Compton is a general partner of CID Equity Partners I,
L.P. ("CID-I"), which is the general partner of CID-V and he is a general
partner of CID Equity Partners II, L.P. ("CID-II"), which is the general
partner of CID-III. Accordingly, Mr. Compton may be attributed beneficial
ownership of the shares owned by CID-V and CID-III. Mr. Compton disclaims
beneficial ownership of such shares beyond his ownership interest in CID-I
and CID-II. Mr. Compton was originally elected as a director of the
Company as a nominee of CID-V and CID-III. The address of Mr. Compton,
CID-I, CID-II, CID-III and CID-V is One American Square, Suite 2850, Box
8207, Indianapolis, Indiana 46282.
(14) Mr. Husain disclaims beneficial ownership of the shares held by Morgan
Stanley.
(15) Includes options to purchase 15,000 shares of Common Stock.
(16) Morgan Stanley Venture Capital Fund II, L.P. ("MSLP") holds 402,878 shares
of Common Stock. Morgan Stanley Venture Investors, L.P. ("MSVI") holds
161,266 shares of Common Stock and options to purchase 10,000 shares of
Common Stock. Morgan Stanley Venture Capital Fund II, C.V. ("MSCV") holds
78,713 shares of Common Stock. The managing general partner of the general
partner of MSLP, MSVI and MSCV is Morgan Stanley Venture Capital II, Inc.,
a wholly owned subsidiary of Morgan Stanley Group Inc. Mr. Husain serves
as a Director of the Company as a nominee of MSLP, MSVI and MSCV. The
address of each of MSLP, MSVI and MSCV is 1221 Avenue of the Americas, New
York, New York 10020.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. As of September 1, 1996, there were 7,519,581
shares of Common Stock outstanding, held of record by 78 stockholders, and no
shares of Preferred Stock were outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for the election
of directors and all other matters submitted for stockholder vote, except
matters submitted to the vote of another class or series of shares. Holders of
Common Stock are not entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voting for the election of directors can
elect all of the directors if they choose to do so. The holders of Common
Stock are entitled to dividends in such amounts and at such times, if any, as
may be declared by the Board of Directors out of funds legally available
therefor. The Company has not paid any dividends on its Common Stock and does
not anticipate paying any cash dividends on such stock in the foreseeable
future. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all net assets
available for distribution to stockholders after payments to creditors. The
Common Stock is not redeemable and has no preemptive or conversion rights. See
"Dividend Policy."
The rights of the holders of Common Stock are subject to the rights of the
holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
sold by the Company in this offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
vote or action by the stockholders. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. Upon consummation of this offering, no shares of Preferred
Stock will be outstanding. The Company has no present intention to issue
shares of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-
LAWS AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Company's Certificate of
Incorporation provides that the Board of Directors will be divided into three
classes of directors, each class constituting approximately one-third of the
total number of directors and with the classes serving staggered three-year
terms. In addition, the Certificate of Incorporation provides that all
stockholder action must be effected at a duly called meeting and not by a
consent in writing. The By-Laws provide that the Company's stockholders may
call a special meeting of stockholders only upon a request of stockholders
owning at least 50% of the Company's capital stock. These provisions of the
Certificate of Incorporation and By-Laws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of
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<PAGE>
the Company to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for the Company's shares and, as a consequence, they also
may inhibit fluctuations in the market price of the Company's shares that
could result from actual or rumored takeover attempts. Such provisions also
may have the effect of preventing changes in the management of the Company.
See "Risk Factors--Effect of Certain Charter Provisions; Antitakeover Effects
of Certificate of Incorporation, By-Laws and Delaware Law."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such
date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder, (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Certificate provides that directors of the Company shall
not be personally liable for monetary damages to the Company for certain
breaches of their fiduciary duty as directors, unless they violated their duty
of loyalty to the Company or its stockholders, acted in bad faith, knowingly
or intentionally violated the law, authorized illegal dividends or
redemptions, or derived an improper personal benefit from their action as
directors. This provision would have no effect on the availability of
equitable remedies or nonmonetary relief, such as an injunction or rescission
for breach of the duty of care. In addition, the provision applies only to
claims against a director arising out of his or her role as a director and not
in any other capacity (such as an officer or employee of the Company).
Further, liability of a director for violations of the federal securities laws
will not be limited by this provision. Directors will, however, no longer be
liable for monetary damages arising from decisions involving violations of the
duty of care which could be deemed grossly negligent.
Indemnification. The Certificate provides that directors and officers of the
Company shall be indemnified by the Company to the fullest extent authorized
by Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of the Company. The Certificate also authorizes the Company to enter
into one or more agreements with any
42
<PAGE>
person which provide for indemnification greater or different from that
provided in the Certificate. The Company has entered into indemnification
agreements with all current members of the Board of Directors.
REGISTRATION RIGHTS
Holders of 657,857 shares of Common Stock have certain demand and piggyback
registration rights with respect to the registration under the Securities Act
of shares of Common Stock ("Registrable Shares") held by them from time to
time. Certain holders of the Registrable Shares are Directors and 5% or
greater beneficial stockholders of the Company. See "Certain Transactions."
The holders of not less than 25% of the Registrable Shares may request that
the Company register all or part of their Registrable Shares under the
Securities Act. In addition, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of
Registrable Shares may require the Company to include all or a portion of
their Registrable Shares in the registration, provided, among other
conditions, that the managing underwriter (if any) of any such offering has
the right, subject to certain conditions, to limit the number of Registrable
Shares included in the registration. In general, all fees, costs and expenses
of such registrations (other than underwriting commissions, dealer's fees,
brokers' fees and applicable concessions) will be borne by the Company. The
rights of holders of Registrable Shares to demand or participate in such
registrations terminate on the earlier of (i) the date all Registrable Shares
are registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (ii) the date all Registrable Shares
are sold or transferred in accordance with the requirements of Rule 144.
RECAPITALIZATION
In October 1995, the Company reincorporated in the State of Delaware and
became a holding company with a wholly owned operating subsidiary (the
"Recapitalization"). The Recapitalization was accomplished in two steps.
First, the Company merged with a wholly owned Delaware subsidiary, with such
subsidiary being the surviving entity. Second, the Company became a holding
company by transferring substantially all of its assets and liabilities to a
new wholly owned Illinois subsidiary named "Enterprise Systems, Inc." See
"Risk Factors--Holding Company Structure."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,119,581 shares of
Common Stock outstanding, assuming no exercise of options after September 1,
1996. Substantially all of these shares will be freely tradeable without
restriction under the Securities Act or may currently be sold in accordance
with Rule 144 under the Securities Act ("Rule 144"). In addition, the Company
has registered on a registration statement on Form S-8 a total of 1,114,846
shares of Common Stock reserved for issuance under the Company's Long-Term
Plan, of which options for 181,882 shares have been exercised as of September
1, 1996. The remaining 932,964 shares, when and if issued, would be freely
tradeable (unless acquired by an affiliate of the Company, in which case they
would be subject to volume and other limitations under Rule 144).
The Directors and executive officers of the Company and the Company's 401(k)
Plan, beneficially holding an aggregate of 2,784,169 shares of Common Stock as
of September 1, 1996, have entered into lock-up agreements pursuant to which
such stockholders have agreed not to sell or otherwise dispose of any shares
of Common Stock for a period of 90 days after the date of this Prospectus
without the prior written consent of Robertson, Stephens & Company. Upon
expiration of the lock-up period, these shares will be eligible for immediate
sale, subject in certain cases to volume and other limitations under Rule 144.
See "Plan of Distribution."
Generally, shares of Common Stock that have not been registered under the
Securities Act or that are held by affiliates of the Company (whether or not
registered) are deemed "restricted" securities under Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then outstanding shares of
Common Stock of the Company (81,196 shares after giving effect to this
offering) or the average weekly trading volume of the Common Stock as reported
through the Nasdaq National Market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. In addition, under Rule 144(k) of the
Securities Act, a person who is not an affiliate of the Company at any time
within 90 days preceding a sale, and who has beneficially owned shares for at
least three years, would be entitled to sell such shares immediately following
this offering without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144. The Commission has
proposed to amend the holding period required by Rule 144 to permit sales of
"restricted" securities after one year rather than two years (and two years
rather than three years for "non-affiliates" under Rule 144(k)).
No predictions can be made of the effect, if any, that shares eligible for
market sale will have on the market price of Common Stock prevailing from time
to time. Nevertheless, sales of substantial amounts of shares of Common Stock
in the public market could adversely affect the market price of the Common
Stock. See "Risk Factors--Shares Eligible for Future Sale."
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<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock being offered hereby are being offered for sale
by the Company principally to selected institutional investors. Robertson,
Stephens & Company LLC and Wessels, Arnold & Henderson, L.L.C. (the "Placement
Agents") have been retained to act, on a best efforts basis, as the exclusive
agents for the Company in arranging sales of Common Stock to be sold by the
Company in the offering. The Placement Agents may retain one or more
subplacement agents in connection with the offering. The closing of the
offering is not conditioned on the sale of any minimum number of shares of
Common Stock offered hereby.
The Placement Agents are not obligated to purchase any of the Common Stock
offered hereby. It is anticipated that the Placement Agents will obtain
indications of interest from potential investors for the amount of the
offering and that, after obtaining such indications of interest, the Company
will fix the price for the offering and the Placement Agents will confirm
orders to purchase shares of Common Stock from the Company at that price. The
Company does not intend to request effectiveness of the Registration Statement
for the offering until the Company fixes the offering price. However, orders
will not be confirmed until the Registration Statement has been declared
effective. The Company may sell less than all of the shares of Common Stock
offered hereby. There is no required minimum number of shares that must be
sold as a condition to completion of the offering. Confirmations containing
requests for written commitments from investors purchasing in the offering and
final prospectuses will be distributed to all investors as soon as practicable
after pricing. No investor funds will be accepted prior to the effective date
of the Registration Statement. Upon closing, (i) the Company will deliver to
each investor the number of shares purchased by such investor in accordance
with instructions previously delivered by the Placement Agents on behalf of
the investors, (ii) each investor will deliver to the Company immediately
available funds in an amount equal to the aggregate purchase price of the
shares of Common Stock being sold to such investor and (iii) the Company will
pay the Placement Agents their fee. The offering will not continue after the
closing.
The Company has agreed to pay to the Placement Agents a fee equal to 5.5% of
the purchase price of the shares. The Company has also agreed to indemnify the
Placement Agents against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Placement Agents may be
required to make in respect thereof.
The Company, its Directors, executive officers and 401(k) Plan have agreed
that, subject to certain limited exceptions, they will not, for a period of 90
days after the date of this Prospectus, sell, offer to sell, contract to sell
or otherwise dispose of any of their shares of Common Stock (except for sales
described in or contemplated by this Prospectus) or other securities of the
Company without the prior written consent of Robertson, Stephens & Company,
except that the Company may, without such consent, grant options and issue
shares of Common Stock under the Long-Term Plan.
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sachnoff & Weaver, Ltd., Chicago, Illinois. Certain
legal matters in connection with the offering will be passed upon for the
Placement Agents by Alston & Bird, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements and Schedule for the Company as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995, have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of the Matkon Product Line of Continental Health
Systems, Inc. as of November 30, 1994 and 1995, and for the years ended
November 30, 1994 and 1995, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement, including the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract, agreement or any other document referred to herein are not
necessarily complete; with respect to each such contract, agreement or
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of them or any
part thereof may be obtained from such office, upon payment of the fees
prescribed by the Commission. The Registration Statement, including the
exhibits and schedules thereto, is also available on the Commission's Web site
at http://www.sec.gov.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy material and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Copies of reports, proxy and information
statements and other information are available on the Commission's Web site at
http://www.sec.gov.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENTERPRISE SYSTEMS, INC.
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994, 1995 and June 30,
1996 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30,
1996 (unaudited)......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
Independent Auditors' Report.............................................. F-14
Statements of Assets to be Acquired and Liabilities to be Assumed November
30, 1994 and 1995 and May 31, 1996 (unaudited)........................... F-15
Statements of Revenues and Expenses for the years ended November 30, 1994
and 1995 and for the six months ended May 31, 1995 and 1996 (unaudited).. F-16
Statements of Cash Flows for the years ended November 30, 1994 and 1995
and for the six months ended May 31, 1995 and 1996 (unaudited)........... F-17
Notes to Financial Statements............................................. F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Enterprise Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Enterprise
Systems, Inc. and subsidiary (the "Company") as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enterprise
Systems, Inc. and subsidiary as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 12, 1996
F-2
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
ASSETS 1994 1995 1996
------ ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............................. $ 1,588 $11,403 $ 2,601
Short-term investment securities...................... -- 9,220 2,122
Receivables, less allowance for doubtful accounts of
$302, $356 and $825.................................. 7,652 14,321 15,814
Refundable and prepaid income taxes................... 109 547 1,605
Deferred income taxes................................. 1,509 777 2,834
Prepaid commissions................................... 344 1,344 1,591
Other current assets.................................. 575 955 1,700
------- ------- -------
Total current assets................................ 11,777 38,567 28,267
------- ------- -------
Investment securities................................... -- 4,893 4,815
Property and equipment
Computer equipment.................................... 4,800 6,242 7,910
Furniture and fixtures................................ 1,217 897 971
Leasehold improvements................................ 384 499 564
------- ------- -------
Total property and equipment........................ 6,401 7,638 9,445
Less accumulated depreciation and amortization.... 3,346 4,071 4,999
------- ------- -------
3,055 3,567 4,446
------- ------- -------
Purchased and developed software, net of accumulated
amortization........................................... 874 1,498 3,947
Excess of cost over net assets acquired................. -- -- 569
Other assets............................................ 46 401 3,509
------- ------- -------
$15,752 $48,926 $45,553
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Notes payable......................................... $ 1,700 $ -- $ --
Current portion of long-term debt..................... 291 -- --
Accounts payable...................................... 1,116 1,285 1,222
Accrued liabilities................................... 929 2,240 3,394
Unearned revenue...................................... 2,817 4,674 3,224
------- ------- -------
Total current liabilities........................... 6,853 8,199 7,840
------- ------- -------
Deferred income taxes................................... 162 321 729
------- ------- -------
Stockholders' equity
Preferred stock, $.01 par value; authorized 1,000,000
shares; none outstanding............................. -- -- --
Common stock, $.01 par value; authorized 30,000,000
shares; issued and outstanding 5,230,158, 7,357,033
and 7,519,581 shares................................. 52 74 75
Additional paid-in capital............................ 7,575 38,513 39,352
Retained earnings (accumulated deficit)............... 1,110 1,910 (2,367)
Deferred compensation................................. -- (91) (76)
------- ------- -------
Total stockholders' equity.......................... 8,737 40,406 36,984
------- ------- -------
$15,752 $48,926 $45,553
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Software......................... $ 9,065 $11,762 $16,104 $ 6,988 $ 9,860
Services......................... 10,653 12,343 16,498 7,240 10,454
Hardware......................... 709 607 646 212 729
------- ------- ------- ------- -------
Total revenues................. 20,427 24,712 33,248 14,440 21,043
------- ------- ------- ------- -------
Operating costs and expenses
Software development............. 4,237 6,377 7,536 3,376 4,043
Service and support.............. 7,187 8,629 10,742 5,133 6,577
Hardware......................... 717 682 786 269 739
Sales and marketing.............. 4,455 5,984 8,832 4,249 5,507
Administration................... 2,545 2,878 3,887 1,831 3,114
Acquired in-process technology... -- -- -- -- 8,453
------- ------- ------- ------- -------
Total operating costs and
expenses...................... 19,141 24,550 31,783 14,858 28,433
------- ------- ------- ------- -------
Income (loss) from operations...... 1,286 162 1,465 (418) (7,390)
Interest income (expense), net..... (198) (114) 17 (81) 467
------- ------- ------- ------- -------
Income (loss) before income taxes.. 1,088 48 1,482 (499) (6,923)
Income taxes (benefit)............. 339 20 682 (139) (2,646)
------- ------- ------- ------- -------
Net income (loss).................. $ 749 $ 28 $ 800 $ (360) $(4,277)
======= ======= ======= ======= =======
Net income (loss) per share........ $ 0.15 $ 0.01 $ 0.13 $ (0.07) $ (0.57)
======= ======= ======= ======= =======
Weighted average common stock and
common
stock equivalent shares
outstanding....................... 4,886 5,383 6,279 5,525 7,459
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS COMPANY
-------------- PAID-IN (ACCUMULATED DEFERRED LOAN TO
SHARES AMOUNT CAPITAL DEFICIT) COMPENSATION ESOP TOTAL
------ ------ ---------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992. 4,411 $44 $ 2,950 $ 803 $ -- $(1,028) $ 2,769
Repurchase of common stock. (30) -- (20) (134) -- -- (154)
Issuance of common
stock, net................ 273 3 1,147 -- -- -- 1,150
Net income................. -- -- -- 749 -- -- 749
Repayment of loan by ESOP.. -- -- -- -- -- 514 514
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1993. 4,654 47 4,077 1,418 -- (514) 5,028
Repurchase of common stock. (67) (1) (45) (336) -- -- (382)
Issuance of common
stock, net................ 643 6 3,543 -- -- -- 3,549
Net income................. -- -- -- 28 -- -- 28
Repayment of loan by ESOP.. -- -- -- -- -- 514 514
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1994. 5,230 52 7,575 1,110 -- -- 8,737
Repurchase of common stock. (56) -- (530) -- -- -- (530)
Issuance of common
stock, net................ 2,164 22 31,260 -- -- -- 31,282
Exercise of stock options.. 19 -- 93 -- -- -- 93
Net income................. -- -- -- 800 -- -- 800
Deferred compensation
from issuance of stock
options................... -- -- 115 -- (115) -- --
Amortization of deferred
compensation.............. -- -- -- -- 24 -- 24
----- --- ------- ------- ----- ------- -------
Balance at December 31, 1995. 7,357 74 38,513 1,910 (91) -- 40,406
Exercise of stock options
(unaudited)............... 163 1 839 -- -- -- 840
Net loss (unaudited)....... -- -- -- (4,277) -- -- (4,277)
Amortization of deferred
compensation (unaudited).. -- -- -- -- 15 -- 15
----- --- ------- ------- ----- ------- -------
Balance at June 30, 1996
(unaudited)................. 7,520 $75 $39,352 $(2,367) $ (76) $ -- $36,984
===== === ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss)............. $ 749 $ 28 $ 800 $ (360) $ (4,277)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation................ 815 1,249 1,595 659 928
Amortization................ 19 125 242 100 249
Deferred income taxes....... (243) (336) 891 (217) (1,649)
Acquired in-process
technology................. -- -- -- -- 8,453
Changes in assets and
liabilities:
Receivables, net.......... (840) (741) (6,669) 872 (353)
Refundable and prepaid
income taxes............. (189) (109) (438) 54 (1,058)
Prepaid commissions and
other current assets..... (234) (478) (1,380) (379) (843)
Accounts payable.......... 21 647 169 (333) (63)
Accrued liabilities....... 339 18 1,311 415 (77)
Unearned revenue.......... 304 525 1,857 (1,111) (1,450)
Other, net................ 41 (2) (355) 1 (272)
------- ------- -------- ------- --------
Net cash provided by
(used in) operating
activities............. 782 926 (1,977) (299) (412)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Payment for acquisition....... -- -- -- -- (13,892)
Maturities (purchases) of
investment securities........ -- -- (14,113) -- 7,176
Purchase of property and
equipment.................... (1,598) (2,142) (2,107) (753) (1,614)
Capitalized software
development.................. (355) (664) (842) (438) (900)
Other......................... (4) (18) -- -- --
------- ------- -------- ------- --------
Net cash used in
investing activities... (1,957) (2,824) (17,062) (1,191) (9,230)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from notes payable... 900 -- -- 1,300 --
Repayment of notes payable.... -- (1,000) (1,700) -- --
Repayment of loan by ESOP..... 514 514 -- -- --
Repayment of long-term debt... (999) (1,096) (291) (291) --
Proceeds from issuance of
common stock, net............ 1,150 3,549 31,282 -- --
Proceeds from exercise of
stock options................ -- -- 93 73 840
Repurchase of common stock.... (154) (382) (530) (101) --
------- ------- -------- ------- --------
Net cash provided by
financing activities... 1,411 1,585 28,854 981 840
------- ------- -------- ------- --------
Increase (decrease) in cash and
cash equivalents............... 236 (313) 9,815 (509) (8,802)
Cash and cash equivalents at
beginning of period............ 1,665 1,901 1,588 1,588 11,403
------- ------- -------- ------- --------
Cash and cash equivalents at end
of period...................... $ 1,901 $ 1,588 $ 11,403 $ 1,079 $ 2,601
======= ======= ======== ======= ========
Supplemental disclosures of cash
flow information:
Interest paid................. $ 267 $ 158 $ 236 $ 106 $ 13
======= ======= ======== ======= ========
Income taxes paid............. $ 734 $ 485 $ 250 $ 43 $ --
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS AND DISCLOSURES APPLICABLE TO JUNE 30, 1995 AND JUNE 30, 1996 ARE
UNAUDITED.)
(1) DESCRIPTION OF BUSINESS
Enterprise Systems, Inc. develops, markets, installs and services an
integrated suite of application software products that assist healthcare
providers in managing their operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Enterprise
Systems, Inc. and its subsidiary (the "Company"). All intercompany accounts
and transactions have been eliminated in consolidation.
Revenue Recognition
Revenues from software licensing and installation fees are recognized in
accordance with Statement of Position 91-1, "Software Revenue Recognition."
After contract signing and software delivery, revenues are recognized as the
installation services are performed. Education and consulting revenues are
recognized as the related services are performed. Revenue from first year
maintenance fees implicit in new software licenses and revenue from separately
priced maintenance agreements are recognized ratably over the maintenance
periods. Services revenues include fees from software installation, ongoing
maintenance, education and consulting. Commissions are generally paid in the
month following contract signing and are recognized as the related revenue is
recognized.
Cash Equivalents and Investment Securities
Cash equivalents are comprised of certain highly liquid investments with
original maturities of less than three months. Investment securities consist
of U.S. Treasury notes and municipal bonds with original maturities generally
ranging from one to two years.
Investment securities are classified as held-to-maturity, as the Company has
the ability and intent to hold such securities until maturity. Held-to-
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Premiums and discounts are
amortized or accreted over the life of the related security as an adjustment
to yield using the straight-line method, which approximates the effective
interest method. Interest income is recognized when earned.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from
three to five years, of the various classes of property. Amortization of
leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset.
Income Taxes
Deferred income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which
F-7
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period of enactment.
Software Development
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as software development and expensed as incurred. Once
technological feasibility has been established, additional costs incurred in
development, including coding, testing and documentation writing, are
capitalized until general release.
Amortization of developed software is provided on a product-by-product basis
over the estimated economic life of the software, generally four years, using
the straight-line method. Amortization commences when a product is available
for general release to customers. Unamortized software development costs
determined to be in excess of the net realizable value of a product are
expensed at the date of such determination.
Computation of Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
shares outstanding and includes the dilutive effect of unexercised stock
options using the treasury stock method. Net loss per share is based on the
weighted average number of shares outstanding and does not include the effect
of unexercised stock options.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, options for common stock granted by the Company during the twelve months
immediately preceding the initial public offering (using the treasury stock
method and the mid-point of the then proposed public offering price) have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company's financial instruments are valued at their carrying amounts
which are reasonable estimates of fair value due to the relatively short
period to maturity of the instruments.
Interim Financial Statements
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of management, the
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations for such periods. Results of operations for
interim periods are not necessarily indicative of results that will be
achieved for the entire year.
(3) INITIAL PUBLIC OFFERING
On October 25, 1995, the Company completed an initial public offering of its
common stock in which 1,800,000 shares were sold by the Company. On November
21, 1995, the Company's underwriters exercised their over-allotment option to
purchase an additional 363,750 shares of common stock. The sale of the
Company's common stock resulted in net proceeds of approximately $31,282,000.
F-8
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains (losses) and fair value
for investment securities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-maturity:
Current......................... $ 9,220 $ 3 $ -- $ 9,223
Due after one year.............. 4,893 3 -- 4,896
------- ------ ----- -------
$14,113 $ 6 $ -- $14,119
======= ====== ===== =======
</TABLE>
At June 30, 1996, the unrealized holding gain was approximately $8,000
(unaudited).
The scheduled maturities for investment securities at December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
LESS THAN 1-2
1 YEAR YEARS TOTAL
--------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury Notes.............................. $4,996 $ -- $ 4,996
Municipal Bonds.................................. 4,224 4,893 9,117
------ ------ -------
$9,220 $4,893 $14,113
====== ====== =======
</TABLE>
(5) RECEIVABLES
Receivables represent amounts billed and contracts receivable. Contracts
receivable represent revenues earned but not yet billed due to contractual
payment terms. A summary of receivables is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
--------------- -------------
1994 1995 (UNAUDITED)
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable........................ $5,490 $ 9,457 $11,367
Contracts receivable....................... 2,464 5,220 5,272
------ ------- -------
7,954 14,677 16,639
Allowance for doubtful accounts............ (302) (356) (825)
------ ------- -------
$7,652 $14,321 $15,814
====== ======= =======
</TABLE>
(6) PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------- -------------
1994 1995 (UNAUDITED)
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchased software.......................... $ -- $ -- $1,783
Software development........................ 1,019 1,860 2,760
------ ------ ------
1,019 1,860 4,543
Less accumulated amortization............... (145) (362) (596)
------ ------ ------
$ 874 $1,498 $3,947
====== ====== ======
</TABLE>
F-9
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense included in the consolidated statements of operations
and classified as software development amounts to:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C>
December 31, 1993.......................................... $ 20
December 31, 1994.......................................... 125
December 31, 1995.......................................... 217
June 30, 1995 (unaudited).................................. 100
June 30, 1996 (unaudited).................................. 234
</TABLE>
(7) FINANCING ARRANGEMENTS
The Company has available an unsecured revolving credit line from a bank for
$18,000,000. The line is comprised of a $100,000 standby letter of credit and
a $17,900,000 revolving credit line. At December 31, 1995 and June 30, 1996,
there was outstanding $100,000 under the standby letter of credit. Borrowings
bear interest ranging from LIBOR plus 1.25% to LIBOR plus 1.75% or prime rate
less 0.5%. No borrowings were outstanding under the revolving credit line at
June 30, 1996.
The Company is required to comply with certain financial covenants under the
financing arrangements discussed above. At December 31, 1995 and June 30,
1996, the Company was in compliance with the loan covenants.
(8) INCOME TAXES
Income tax expense for the years ended December 31, 1993, 1994 and 1995 is
comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $ 522 $ 277 $(174)
State.............................................. 60 79 (35)
----- ----- -----
582 356 (209)
Deferred............................................. (243) (336) 891
----- ----- -----
$ 339 $ 20 $ 682
===== ===== =====
</TABLE>
The reconciliation of income taxes computed using the federal statutory rate
of 34% in 1993, 1994 and 1995 to the income tax provision is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes, at the federal income tax statutory
rate................................................. $370 $ 16 $504
State income taxes, net of federal tax benefit........ 40 52 87
Research and experimentation credits.................. (73) (18) --
Foreign tax credit.................................... (10) (17) (4)
Nondeductible expenses................................ 16 50 72
Other................................................. (4) (63) 23
---- ---- ----
$339 $ 20 $682
==== ==== ====
</TABLE>
F-10
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which give rise to deferred tax assets and liabilities
in 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Unearned revenue......................................... $1,323 $1,152
Allowance for doubtful accounts.......................... 112 134
Other accrued liabilities................................ 108 44
Depreciation............................................. 98 169
Other.................................................... 26 43
------ ------
Total gross deferred tax assets........................ 1,667 1,542
Less valuation allowance............................... -- --
------ ------
Net deferred tax assets................................ 1,667 1,542
------ ------
Deferred tax liabilities:
Software development, net................................ 263 567
Prepaid commissions...................................... 57 519
------ ------
Total gross deferred tax liabilities................... 320 1,086
------ ------
Net deferred tax assets................................ $1,347 $ 456
====== ======
</TABLE>
The Company believes its history of profitability and taxable income and its
utilization of tax planning sufficiently supports the value of the deferred tax
assets. Accordingly, the Company has not recorded a valuation allowance as it
is more likely than not that all deferred tax assets will be recovered.
(9) COMMITMENTS
The Company leases office space under long-term lease agreements expiring
through the year 2001 with a renewal option through 2006. Future minimum rental
payments under noncancelable long-term operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 644
1997....................................................... 662
1998....................................................... 681
1999....................................................... 701
2000 and after............................................. 1,463
------
$4,151
======
</TABLE>
Rental expense included in the consolidated statements of operations amounted
to:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------------
(IN THOUSANDS)
<S> <C>
December 31, 1993.......................................... $663
December 31, 1994.......................................... 664
December 31, 1995.......................................... 880
June 30, 1995 (unaudited).................................. 522
June 30, 1996 (unaudited).................................. 547
</TABLE>
F-11
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) STOCK OPTIONS
In 1993, the Company adopted a stock option plan under which certain
employees and nonemployee directors may be granted the right to purchase
shares of common stock. In October 1995, this stock option plan was amended to
create the Company's Long-Term Incentive Compensation Plan. Stock options vest
over periods ranging from three to five years. Stock options expire ten years
from the date granted. At December 31, 1995 and June 30, 1996, there were
128,416 and 119,049 shares, respectively, reserved for future grants.
In June 1995, stock options were granted to purchase 55,000 shares of the
Company's common stock at an exercise price of $5.93 per share. Deferred
compensation has been recorded representing the difference between the fair
market value of the options at the date of grant and the exercise price.
Compensation expense representing the amortization of the deferred
compensation is recognized over the vesting period of the stock options.
Stock option transactions from January 1, 1994 to June 30, 1996 relating to
the stock option plan are summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE
-------- ---------------
<S> <C> <C>
Outstanding on January 1, 1994................. 370,000 $ 4.57
Granted...................................... 289,846 5.60 to 5.93
Canceled..................................... (30,000) 4.57 to 5.60
--------
Outstanding on December 31, 1994............... 629,846 4.57 to 5.93
Granted...................................... 398,250 5.93 to 25.00
Exercised.................................... (19,334) 4.57 to 5.93
Canceled..................................... (41,666) 4.57 to 5.93
--------
Outstanding on December 31, 1995............... 967,096 4.57 to 25.00
Granted...................................... 14,000 26.50 to 38.50
Exercised.................................... (162,548) 4.57 to 5.93
Canceled..................................... (4,633) 5.93 to 25.00
--------
Outstanding on June 30, 1996 (unaudited)....... 813,915 $ 4.57 to 38.50
========
Exercisable on June 30, 1996 (unaudited)....... 328,079
========
</TABLE>
(11) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
Subsequent to the Company's initial public offering in 1995, the ESOP was
combined into the Company's 401(k) retirement plan and all account balances
from the ESOP were transferred to the Company's 401(k) plan. The Company's
ESOP covers certain employees with more than one year of service. The
Company's final contribution to the ESOP was $543,000 in 1994.
(12) INTEREST
Interest income (expense), net for the years ended December 31, 1993, 1994
and 1995 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED,
JUNE 30,
-------------
1993 1994 1995 1995 1996
----- ----- ----- ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income............................. $ 62 $ 56 $ 269 $ 38 $ 480
Interest expense............................ (260) (170) (252) (119) (13)
----- ----- ----- ------ -----
$(198) $(114) $ 17 $ (81) $ 467
===== ===== ===== ====== =====
</TABLE>
F-12
<PAGE>
ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment. The Company markets its
products in the United States and in Canada. No customer accounted for 5% or
more of revenue for the years presented.
(14) SUBSEQUENT EVENTS (UNAUDITED)
On January 2, 1996, the Company entered into a distribution agreement to
distribute, install and support a staff scheduling system. The agreement
provides the Company with exclusive territorial rights to the United States
for a term of two years. The Company's minimum royalty commitment over the
term of the agreement is approximately $1.2 million.
On March 22, 1996, the Company entered into a license agreement with
FlexiInternational Software, Inc. ("FLEXI") that allows the Company to
incorporate the FLEXI general ledger and accounts payable applications into
the Company's products for distribution in the United States healthcare
market. The Company has an exclusive right to sell the FLEXI applications in
the United States upon meeting certain sales levels.
On May 28, 1996, the Company purchased certain net assets of the materials
management division of Continental Healthcare Systems, Inc. for approximately
$13.9 million. The acquisition was accounted for under the purchase method.
Accordingly, the purchase price has been allocated to identifiable tangible
and intangible assets acquired and liabilities assumed based on their
estimated fair values. Approximately $8.4 million of the purchase price was
allocated to acquired in-process technology which has been charged to
operations in the consolidated statement of operations for the quarter ended
June 30, 1996. Such allocation is subject to change and is not necessarily
indicative of the ultimate purchase price allocation.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Continental Health Systems, Inc.
and Enterprise Systems, Inc.:
We have audited the accompanying statements of assets to be acquired and
liabilities to be assumed as of November 30, 1994 and 1995 and the statements
of revenues and expenses and cash flows for the years ended November 30, 1994
and 1995 of the Matkon Product Line of Continental Health Systems, Inc.
(Continental). These financial statements are the responsibility of
Continental's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in notes 1(a) and 7 to the financial statements, on May 28,
1996 Continental sold certain assets and liabilities of the Matkon Product
Line of Continental to Enterprise Systems, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired and liabilities to be
assumed as of November 30, 1994 and 1995 and revenues and expenses and cash
flows for the years ended November 30, 1994 and 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
July 10, 1996
F-14
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30,
------------- MAY 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Receivables, less allowance for doubtful accounts
of $382, $461,
and $420.......................................... $3,345 $4,673 $7,610
Inventory.......................................... 247 33 --
------ ------ ------
Total current assets............................. 3,592 4,706 7,610
Property and equipment, net........................ 283 210 192
Software development, net of accumulated
amortization...................................... 1,068 1,735 1,995
Noncurrent receivables............................. 995 470 107
------ ------ ------
Total assets..................................... 5,938 7,121 9,904
Current liabilities:
Accounts payable and accrued expenses.............. 288 206 419
Deferred revenue................................... 1,483 1,174 3,302
------ ------ ------
Total current liabilities........................ 1,771 1,380 3,721
Commitments (note 6)
------ ------ ------
Excess of assets to be acquired over liabilities
to be assumed................................... $4,167 $5,741 $6,183
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF REVENUES AND EXPENSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
-------------- --------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software...................................... $1,094 $1,497 $ 501 $ 795
Services...................................... 3,872 3,810 1,772 1,936
Hardware...................................... 2,052 1,782 772 748
------ ------ ------ ------
Total revenue............................... 7,018 7,089 3,045 3,479
------ ------ ------ ------
Costs and expenses (note 5):
Hardware...................................... 2,092 1,885 811 846
Software development.......................... 1,087 937 498 490
Service and support........................... 2,293 2,152 1,128 1,077
Sales and marketing........................... 1,129 1,246 527 717
Administration................................ 646 362 197 108
------ ------ ------ ------
Total costs and expenses.................... 7,247 6,582 3,161 3,238
------ ------ ------ ------
Income (loss) from operations............... (229) 507 (116) 241
Other income (expense), net..................... (13) (10) (5) 45
------ ------ ------ ------
Excess (deficiency) of revenues over (under)
expenses................................... $ (242) $ 497 $ (121) $ 286
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
MATKON PRODUCT LINE OF
CONTINENTAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS SIX MONTHS
ENDED ENDED
NOVEMBER 30, MAY 31,
--------------- --------------
1994 1995 1995 1996
------- ------ ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Excess (deficiency) of revenues over (under)
expenses................................... $ (242) $ 497 $(121) $ 286
Adjustments to reconcile expenses in excess
of revenues to net cash used by operating
activities:
Depreciation and amortization............. 389 340 176 162
Loss (gain) on sale of property and
equipment................................ 4 (1) -- --
Changes in assets and liabilities:
Receivables, net........................ 1,800 (803) (325) (2,574)
Inventories............................. (41) 214 87 33
Accounts payable........................ 288 (82) 44 213
Deferred revenues....................... (486) (309) 94 2,128
------- ------ ----- -------
Net cash provided by (used in)
operating activities................. 1,712 (144) (45) 248
------- ------ ----- -------
Cash flows from investing activities:
Purchase of property and equipment.......... (166) (149) (139) (34)
Proceeds from disposal of property and
equipment.................................. -- 145 -- --
Capitalized software development............ (503) (929) (334) (370)
------- ------ ----- -------
Net cash used in investing activities. (669) (933) (473) (404)
------- ------ ----- -------
Cash flow provided by (used in) investing
activities -- Contribution (return) of
capital from (to) Continental Health Systems,
Inc.......................................... (1,043) 1,077 518 156
------- ------ ----- -------
Change in cash................................ -- -- -- --
Cash at beginning of period................... -- -- -- --
------- ------ ----- -------
Cash at end of period......................... $ -- $ -- $ -- $ --
------- ------ ----- -------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994 AND 1995
(AMOUNTS AND DISCLOSURES APPLICABLE TO MAY 31, 1995 AND MAY 31, 1996 ARE
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Matkon product line (Matkon) of Continental Health Systems, Inc.
(Continental) designs, develops, markets, installs and services application
software products that assist health care providers in managing their
operations.
As more fully described in note 7, Continental has entered into an agreement
to sell assets and liabilities of the Matkon product line to Enterprise
Systems, Inc. (Enterprise).
(b) Basis of Presentation
Matkon's financial results have historically been reported in a combined
manner with the results of Continental. For purposes of this presentation, the
accompanying financial statements present only those assets and liabilities of
Matkon to be acquired by Enterprise as of November 30, 1994 and 1995. The
statements of revenues and expenses of Matkon for the years ended November 30,
1994 and 1995 include only the operating results of Matkon presented on a
stand-alone basis, excluding the impact, if any, on Continental's consolidated
income tax provision.
(c) Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method.
(d) Property and Equipment
Property and Equipment are recorded at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets which
range from three to five years. Leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or estimated useful
life of the assets.
(e) Software Development Costs
Costs incurred internally in creating computer software products are
expensed until technological feasibility has been established upon completion
of a detail program design. Thereafter, all software development costs are
capitalized and subsequently reported at the lower of amortized cost or net
realizable value. Capitalized costs are amortized based on current and future
revenue for each product, with minimum annual amortization equal to the
straight-line amortization over the estimated economic life of the product.
Continental is amortizing capitalized costs on a straight-line basis over five
years.
(f) Revenue Recognition
Revenues from software licensing and installation fees are recognized in
accordance with Statement of Position 91-1, "Software Revenue Recognition."
After contract signing and software delivery, revenues are recognized as the
installation services are performed. Custom programming and consulting
revenues are recognized as the related services are performed. Revenue from
maintenance agreements is recognized ratably over the maintenance periods.
Service revenues include fees from software installation, ongoing maintenance,
custom programming and consulting.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
F-18
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(h) Fair Value of Financial Instruments
Financial instruments consisting of current receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the short-
term nature of the instruments. The fair value of the noncurrent receivables
is estimated to be $829,000 and $432,000 at November 30, 1994 and 1995,
respectively, based on Continental's estimated cost of capital.
(i) Interim Financial Statements
The financial statements as of May 31, 1996 and for the six months ended May
31, 1995 and 1996 are unaudited. In the opinion of management, the unaudited
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position and
results of operations for such periods. Results of operations for interim
periods are not necessarily indicative of results that will be achieved for
the entire year.
(2) PROPERTY AND EQUIPMENT
A summary of fixed assets follows as of November 30, 1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements.................................... $ 7 $ 89
Furniture, fixtures and equipment......................... 411 274
Computer.................................................. 455 447
------- -------
873 810
Less accumulated depreciation............................. 590 600
------- -------
$283 $210
======= =======
</TABLE>
Depreciation expense for the years ended November 30, 1994 and 1995 was
$114,812 and $77,461, respectively.
(3) RECEIVABLES
Receivables represent amounts billed and contracts receivable. Contracts
receivable represent revenues earned but not yet billed due to contractual
payment terms. A summary of current receivables is as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Accounts receivable....................................... $1,639 $1,398
Contracts receivable...................................... 2,088 3,740
------ ------
3,727 5,138
Allowance for doubtful accounts........................... 382 461
------ ------
$3,345 $4,677
====== ======
</TABLE>
(4) SOFTWARE DEVELOPMENT
Capitalized software development costs consist of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Software development....................................... $2,204 $3,133
Less accumulated amortization.............................. 1,135 1,398
------ ------
$1,069 $1,735
====== ======
</TABLE>
Amortization expense for the years ended November 30, 1994 and 1995 included
in the statements of revenues and expenses was $274,471 and $262,396,
respectively.
F-19
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) ALLOCATED COSTS
Matkon is one of the product lines offered by Continental. As such, certain
allocations of costs have been included in the accompanying statements of
revenues and expenses and are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 BASIS FOR ALLOCATION
----- ----- -------------------------------
(IN
THOUSANDS)
<S> <C> <C> <C>
Software development:
Development administration. $338 $744 Number of employees
===== =====
Service and support:
Client service
administration............ $358 $267 Revenue
Night support.............. -- 63 Revenue
Training................... 22 30 Revenue
Hardware installation...... 171 179 Hardware revenue
Documentation.............. 141 158 Number of employees
----- -----
Total allocated service
and support costs....... $692 $ 697
===== =====
Sales and marketing:
Marketing administration... $ 66 $ 146 Sales to new customers
Sales administration....... 174 237 Sales to new customers/upgrades
----- -----
Total allocated sales and
marketing costs......... $240 $ 383
===== =====
Administration:
Corporate administration... $206 $ 170 Number of employees
Accounting................. 223 135 Number of employees
----- -----
Total allocated
administrative costs.... $429 $ 305
===== =====
</TABLE>
The allocated costs consist primarily of overhead expenses such as executive
and support staff salaries, benefits, utilities, depreciation and rent which
are shared among the various Continental product lines.
Management believes that the allocation methods used are reasonable and
result in the allocation of all appropriate expenses to the Matkon product
line.
(6) LEASE COMMITMENTS
Matkon is obligated under operating leases, principally for its offices.
Total rental expense for operating leases for the years ended November 30,
1994 and 1995 was approximately $215,000 and $212,000, respectively.
F-20
<PAGE>
MATKON PRODUCT LINE OF CONTINENTAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Future minimum lease payments under the operating leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996...................... $125
1997...................... 90
----
$215
====
</TABLE>
(7) SALE OF MATKON PRODUCT LINE
On May 28, 1996, Continental entered into an agreement to sell certain assets
and liabilities of Matkon to Enterprise for approximately $13.9 million. In
accordance with the agreement, such assets and liabilities existing at the
closing date will be transferred to Enterprise. Substantially all contracts and
leases of Matkon will be assigned to Enterprise.
F-21
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of the Common Stock being registered hereby. All
the amounts shown are estimated, except the SEC registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 5,030
NASD filing fee................................................. 1,959
Nasdaq National Market listing fee.............................. 12,000
Blue Sky fees and expenses...................................... 10,000
Printing and engraving expenses................................. 50,000
Legal fees and expenses......................................... 125,000
Auditors' accounting fees and expenses.......................... 60,000
Transfer Agent and Registrar fees............................... 5,000
Miscellaneous................................................... 31,011
--------
Total....................................................... $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the
corporation or was serving as such with respect to another corporation or
other entity at the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article XIII of the
Corporation's Certificate of Incorporation provides that "no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, as the same exists or hereafter may be amended,
or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize the further elimination
or limitation of liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by an amended DGCL.
Any repeal or modification of this Article XIII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification."
The Company's Certificate of Incorporation and By-Laws contain provisions
that require the Company to indemnify its directors and officers to the
fullest extent permitted by Delaware law.
The Company has entered into indemnification agreements with each of its
executive officers and directors in which the Company agrees to indemnify and
hold harmless the officer or director to the fullest extent permitted by
applicable law against any and all reasonable attorneys' fees and all other
reasonable expense, cost, liability and loss (including a mandatory obligation
by the Company to advance reimbursement of legal fees and expenses) paid or
reasonably incurred by such officer or director or on his or her behalf in
connection with any threatened, pending or completed action, suit or
proceeding, or any inquiry or
II-1
<PAGE>
investigation not initiated by the officer or director that he or she believes
in good faith might lead to a proceeding, inquiry or investigation (a
"Proceeding"), relating to the fact that the officer or director is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, or by reason of any action or inaction by the
officer or director in such capacity. However, the Company's obligation to
indemnify the officer or director is subject to a determination by: (i) the
Company's Board of Directors, by vote of the majority of disinterested
directors; (ii) under certain circumstances, independent legal counsel
appointed by the Board of Directors in a written opinion; (iii) stockholders
of the Company; or (iv) a court of competent jurisdiction in a final,
nonappealable adjudication, that the officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal Proceeding,
the officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and the officer or director had no reasonable cause to believe that
his or her conduct was unlawful.
The Placement Agency Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Placement Agents of the Company, its directors and
executive officers, and each person, if any, who controls the Company, for
certain liabilities, including liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1, 1993, the Company has issued the following securities that
were not registered under the Securities Act:
On March 31, 1994, Morgan Stanley Venture Capital Fund II, L.P. purchased
402,878 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $2,256,116.80.
On March 31, 1994, Morgan Stanley Venture Capital Fund II, C.V. purchased
78,713 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $440,792.80.
On March 31, 1994, Morgan Stanley Venture Investors, L.P. purchased
161,266 shares of Common Stock at $5.60 per share for an aggregate purchase
price of $903,089.60.
Between July 1, 1993 and January 1, 1996, the Company issued an aggregate of
24,334 shares of Common Stock to persons who were employees of the Company
upon exercise of stock options previously granted to such persons. The
exercise prices ranged from $4.57 to $5.93 per share.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act or Rule 701
promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------------
<C> <S> <C>
1.1. Form of Placement Agency Agreement between the Company *
and the Placement Agents
3.1. Amended and Restated Certificate of Incorporation of (3)
Enterprise Systems, Inc.
3.2. Amended and Restated By-Laws of Enterprise Systems, (3)
Inc.
4.1. Specimen Common Stock Certificate (3)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
4.2. Shareholders' Agreement among the Company, Thomas R. (1)
Pirelli, CR Investments, Venrock Associates, Henry S.
Smith, Robert Noyce, Thomas R. Hutchison, Trustees of
Grinnell College, John Gildea, Berkeley Associates, and
Sidney Kahn dated June 9, 1983
4.3. Amended and Restated Registration Rights Agreement (1)
among CID Ventures, L.P., CID Equity Capital, L.P.,
Morgan Stanley Venture Investors, L.P., Morgan Stanley
Venture Capital Fund II, L.P., Morgan Stanley Venture
Capital Fund II, C.V., Harry Pomerantz, Mid-America
Investment Co. and the Company dated March 31, 1994
5.1. Opinion of Sachnoff & Weaver, Ltd. *
10.1. Investment Agreement among CID Ventures, L.P., CID (1)
Equity Capital, L.P. and the Company dated April 30,
1993
10.2. Investment Agreement among Morgan Stanley Venture (1)
Investors, L.P., Morgan Stanley Venture Capital Fund
II, L.P., Morgan Stanley Venture Capital Fund II, C.V.,
and the Company dated March 31, 1994
10.4. Employment Agreement between the Company and Thomas R. (2)
Pirelli
10.5. Employment Agreement between the Company and Glen E. (2)
Tullman
10.6. Employment Agreement between the Company and David B. (2)
Mullen
10.7. Employment Agreement between the Company and Joseph E. (2)
Carey
10.8. Employment Agreement between the Company and Steven M. (2)
Katz
10.9. Employment Agreement between the Company and David A. (2)
Carlson
10.10. Employment Agreement between the Company and Stanley A. (2)
Crane
10.11. Employment Agreement between the Company and James H. *
Ray
10.12. Enterprise Systems, Inc. Long-Term Incentive (3)
Compensation Plan
10.13. Enterprise Systems, Inc. 401(k), as amended (3)
10.14. Office Lease dated May 17, 1991 between the Company and (1)
LaSalle National Trust, N.A. as successor Trustee under
Trust No. 104254 for the premises located at Building
500, 1400 South Wolf Road, Wheeling, Illinois
10.15. Office Lease Agreement among the Company (1)
Gateway/Wheeling Limited Partnership and Comerica Bank-
Illinois, as Trustee under Trust Agreement dated
December 20, 1993 and known as Trust Number 11866 dated
April 11, 1994, as amended
10.16. Form of Indemnification Agreement between the Company (3)
and Company directors
10.17. Agreement for Contribution, License and Issuance of (3)
Stock between Enterprise Systems, Inc., a Delaware
corporation, and Enterprise Systems, Inc., an Illinois
corporation, dated October 17, 1995
10.20 Severance Agreement between the Company and Thomas R. (5)
Pirelli dated January 9, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.21 Distribution Agreement between the Company and Total (5)
Care Technologies, Inc. dated January 23, 1996
10.22 Loan Agreement between Enterprise Systems, Inc., an *
Illinois corporation and LaSalle National Bank dated
May 31, 1996
10.23 Guaranty of Enterprise Systems, Inc., a Delaware *
Corporation to LaSalle National Bank and Amendment to
Guaranty dated May 31, 1996
10.24 Asset Purchase Agreement among the Company, Continental *
Healthcare Systems, Inc. and Information Handling
Services Group, Inc. dated May 28, 1996
10.25 Development, Technology and Software License Agreement *
between the Company and FlexiInternational Software,
Inc. dated March 22, 1996
21.1. Subsidiaries of Registrant (3)
23.1. Report and Consent of KPMG Peat Marwick LLP *
23.2 Consent of KPMG Peat Marwick LLP *
23.3. Consent of Sachnoff & Weaver, Ltd. (included in Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule *
</TABLE>
- --------
*Filed herewith
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 33-96328 as filed with the SEC on August 30, 1995.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-1
Registration Statement No. 33-96328 as filed with the SEC on September 25,
1995.
(3) Incorporated by reference from the Registrant's Amendment No. 3 to Form S-1
Registration Statement No. 33-96328 as filed with the SEC on October 4,
1995.
(4) Incorporated by reference from the Registrant's Amendment No. 4 to Form S-1
Registration Statement No. 33-96328 as filed with the SEC on October 18,
1995.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1995.
B. FINANCIAL STATEMENT SCHEDULE.
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. If
a claim for indemnification against such liability (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The Company hereby undertakes to provide at the closing specified in the
Placement Agency Agreement certificates in such denominations and registered
in such names as required by the Placement Agents to permit prompt delivery to
each purchaser.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF WHEELING,
STATE OF ILLINOIS, ON OCTOBER 8, 1996.
Enterprise Systems, Inc.
/s/ Glen E. Tullman
By: _________________________________
Glen E. Tullman
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS GLEN E. TULLMAN AND DAVID B. MULLEN, AND EACH
OF THEM SINGLY, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES TO SIGN THE REGISTRATION STATEMENT FILED
HEREWITH AND ANY OR ALL AMENDMENTS TO SAID REGISTRATION STATEMENT (INCLUDING
POST-EFFECTIVE AMENDMENTS AND REGISTRATION STATEMENTS FILED PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT OF 1933, AND ANY OR ALL AMENDMENTS THERETO),
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS THE FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND
ABOUT THE FOREGOING, AS FULL TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT
AND AGENTS OR ANY OF THEM, OR HIS SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 8TH DAY OF OCTOBER 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Glen E. Tullman Chief Executive Officer, Director
___________________________________________ (Principal Executive Officer)
Glen E. Tullman
/s/ David B. Mullen Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
David B. Mullen Officer)
/s/ Robert A. Compton Director
___________________________________________
Robert A. Compton
/s/ Bernard Goldstein Director
___________________________________________
Bernard Goldstein
/s/ M. Fazle Husain Director
___________________________________________
M. Fazle Husain
/s/ Thomas R. Hutchison Director
___________________________________________
Thomas R. Hutchison
/s/ Thomas R. Pirelli Director
___________________________________________
Thomas R. Pirelli
</TABLE>
II-6
<PAGE>
SCHEDULE II
ENTERPRISE SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING AND TO OTHER AT END
ACCOUNTS OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ---------------------- ---------- -------- -------- ---------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995................... $302 $ 68 $-- $14 $356
Year ended December 31,
1994................... 232 148 -- 78 302
Year ended December 31,
1993................... 174 70 -- 12 232
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------------
<C> <S> <C>
1.1. Form of Placement Agency Agreement between the Company *
and the Placement Agents.
3.1. Amended and Restated Certificate of Incorporation of (3)
Enterprise Systems, Inc.
3.2. Amended and Restated By-Laws of Enterprise Systems, (3)
Inc.
4.1. Specimen Common Stock Certificate (3)
4.2. Shareholders' Agreement among the Company, Thomas R. (1)
Pirelli, CR Investments, Venrock Associates, Henry S.
Smith, Robert Noyce, Thomas R. Hutchison, Trustees of
Grinnell College, John Gildea, Berkeley Associates, and
Sidney Kahn dated June 9, 1983
4.3. Amended and Restated Registration Rights Agreement (1)
among CID Ventures, L.P., CID Equity Capital, L.P.,
Morgan Stanley Venture Investors, L.P., Morgan Stanley
Venture Capital Fund II, L.P., Morgan Stanley Venture
Capital Fund II, C.V., Harry Pomerantz, Mid-America
Investment Co. and the Company dated March 31, 1994
5.1. Opinion of Sachnoff & Weaver, Ltd. *
10.1. Investment Agreement among CID Ventures, L.P., CID (1)
Equity Capital, L.P. and the Company dated April 30,
1993
10.2. Investment Agreement among Morgan Stanley Venture (1)
Investors, L.P., Morgan Stanley Venture Capital Fund
II, L.P., Morgan Stanley Venture Capital Fund II, C.V.,
and the Company dated March 31, 1994
10.4. Employment Agreement between the Company and Thomas R. (2)
Pirelli
10.5. Employment Agreement between the Company and Glen E. (2)
Tullman
10.6. Employment Agreement between the Company and David B. (2)
Mullen
10.7. Employment Agreement between the Company and Joseph E. (2)
Carey
10.8. Employment Agreement between the Company and Steven M. (2)
Katz
10.9. Employment Agreement between the Company and David A. (2)
Carlson
10.10. Employment Agreement between the Company and Stanley A. (2)
Crane
10.11 Employment Agreement between the Company and James H. *
Ray
10.12. Enterprise Systems, Inc. Long-Term Incentive (3)
Compensation Plan
10.13. Enterprise Systems, Inc. 401(k), as amended (3)
10.14. Office Lease dated May 17, 1991 between the Company and (1)
LaSalle National Trust, N.A. as successor Trustee under
Trust No. 104254 for the premises located at Building
500, 1400 South Wolf Road, Wheeling, Illinois
10.15. Office Lease Agreement among the Company (1)
Gateway/Wheeling Limited Partnership and Comerica Bank-
Illinois, as Trustee under Trust Agreement dated
December 20, 1993 and known as Trust Number 11866 dated
April 11, 1994, as amended
10.16. Form of Indemnification Agreement between the Company (3)
and Company directors
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.17. Agreement for Contribution, License and Issuance of (3)
Stock between Enterprise Systems, Inc., a Delaware
corporation, and Enterprise Systems, Inc., an Illinois
corporation, dated October 17, 1995
10.20 Severance Agreement between the Company and Thomas R. (5)
Pirelli dated January 9, 1996
10.21 Distribution Agreement between the Company and Total (5)
Care Technologies, Inc. dated January 23, 1996
10.22 Loan Agreement between Enterprise Systems, Inc., an *
Illinois corporation and LaSalle National Bank dated
May 31, 1996
10.23 Guaranty of Enterprise Systems, Inc., a Delaware *
Corporation to LaSalle National Bank and Amendment to
Guaranty dated May 31, 1996
10.24 Asset Purchase Agreement among the Company, Continental *
Healthcare Systems, Inc. and Information Handling
Services Group, Inc. dated May 28, 1996
10.25 Development, Technology and Software License Agreement *
between the Company and FlexiInternational Software,
Inc. dated March 22, 1996
21.1. Subsidiaries of Registrant (3)
23.1. Report and Consent of KPMG Peat Marwick LLP *
23.2 Consent of KPMG Peat Marwick LLP *
23.3. Consent of Sachnoff & Weaver, Ltd. (included in Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule *
</TABLE>
- --------
*Filed herewith
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 33-96328 as filed with the SEC on August 30, 1995.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on September
25, 1995.
(3) Incorporated by reference from the Registrant's Amendment No. 3 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 4,
1995.
(4) Incorporated by reference from the Registrant's Amendment No. 4 to Form S-
1 Registration Statement No. 33-96328 as filed with the SEC on October 18,
1995.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1995.
<PAGE>
600,000 Shares
ENTERPRISE SYSTEMS, INC.
Common Stock
PLACEMENT AGENCY AGREEMENT
October __, 1996
ROBERTSON, STEPHENS & COMPANY LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Enterprise Systems, Inc., a Delaware corporation (the "Company"), proposes
to offer and sell 600,000 shares of its Common Stock, $.01 par value per share
(the "Shares"), to certain investors (collectively, the "Investors"). The
Shares are more fully described in the Registration Statement defined below.
The Company hereby confirms its agreements with you as follows:
1. Agreement to Act as Placement Agent. On the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions of this Agreement, Robertson, Stephens &
Company LLC and Wessels, Arnold & Henderson, L.L.C. (collectively, the
"Placement Agents") agree to act as the Company's exclusive placement agents, on
a best efforts basis, in connection with the issuance and sale by the Company of
the Shares to the Investors. As compensation for services rendered, on the first
business day following the Closing Date, the Company shall pay to the Placement
Agents, by wire transfer of immediately available funds to an account or
accounts designated by the Placement Agents, an amount equal to 5.5% of the
gross proceeds received by the Company from the sale of the Shares at a price of
$____ per share. All shares of Common Stock, $.01 per value per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock." The
Placement Agents may, in their sole discretion, retain one or more sub-Placement
Agents, upon prior notice to the Company.
2. Delivery and Payment.
--------------------
(a) On or before the third business day following the date on which
the Registration Statement (as defined below) is declared effective (the
"Closing Date") (as defined below), the Placement Agents shall notify the
Company of the total number of Shares for which it has received and confirmed
orders to purchase in the offering at a purchase price
<PAGE>
acceptable to the Company (the "Purchased Shares").
(b) On the Closing Date, the Company shall cause its transfer agent,
through the Depository Trust Corporation ("DTC"), to credit "free of payment"
the total number of Purchased Shares to the account of Robertson, Stephens &
Company LLC, to be held in the name and for the benefit of the Company (the
"Nominee Account"). Robertson, Stephens, & Company LLC will, in turn, cause DTC
to credit the account of each Investor through DTC with the number of Purchased
Shares purchased by such Investor against receipt of the full purchase price for
such Purchased Shares in the Nominee Account. On the first business day
following the Closing Date, the Robertson, Stephens & Company LLC shall cause to
be paid to the Company, by wire transfer of immediately available funds to a
bank account or accounts designated by the Company, the gross proceeds from the
sale of the Purchased Shares in the offering which have been credited to the
Nominee Account. With respect to any Purchased Shares for which an Investor or
Investors has not credited payment in full to the Nominee Account by the Closing
Date (or such later date as the Company and the Placement Agent may agree), the
Robertson, Stephens & Company LLC shall, through DTC, cause such Shares to be
returned to the Company's transfer agent. The Placement Agents shall have no
liability to the Company for any Purchased Shares credited to the Nominee
Account for which payment of the purchase price for such Shares is not, in turn,
credited to the Nominee Account as long as such Shares are returned to the
Company's transfer agent through DTC.
3. Representations, Warranties and Agreements of the Company.
---------------------------------------------------------
The Company represents and warrants to and agrees with each of the
Placement Agents that:
(a) A registration statement on Form S-1 (File No. 333-_____) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
-2-
<PAGE>
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if the Placement Agents shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if the Placement Agents shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations relating thereto after the effective date of
such registration statement, shall also mean (from and after the effectiveness
of such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of the Placement Agents, the Company
shall have provided to the the Placement Agents a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall
mean the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Placement Agents by the Company and
circulated by the Placement Agents to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement at
the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall be
provided to the Placement Agents by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus"
-3-
<PAGE>
shall refer to such revised prospectus from and after the time it is first
provided to the Placement Agents for such use. If in reliance on Rule 434 of the
Rules and Regulations and with the consent of the Placement Agents, the Company
shall have provided to the Placement Agents a term sheet pursuant to Rule 434(b)
or (c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the Prospectus and the term sheet,
together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to the Placement Agents furnished to the Company by
the Placement Agents specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries (as hereinafter defined)
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation with full power
and authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
-4-
<PAGE>
seeking to revoke, limit or curtail, such power and authority or qualification;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound; and neither the Company nor any of its
subsidiaries is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not have any subsidiaries, nor does it control, directly or
indirectly, or own, directly or indirectly, any shares of stock or any other
equity interest of any corporation, partnership or limited liability company,
other than those entities identified on Schedule A hereto. For purposes of this
Agreement, the term "subsidiary" includes any corporation, partnership, limited
liability company or other entity in which the Company or any subsidiary has a
controlling ownership interest.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms or provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all of which requirements
have been satisfied in all material respects, and except such as may be required
under state or other securities or Blue Sky laws.
-5-
<PAGE>
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Shares have been duly authorized for
issuance and sale to the Investors and, when issued and delivered by the Company
against payment therefor in accordance with the terms of this Agreement, will be
duly and validly issued and fully paid and nonassessable, and will be sold free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest; and no preemptive right, co-sale right, tag along right,
registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Shares or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof. No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act, the Exchange Act
or under state or other securities or Blue Sky laws. All issued and outstanding
shares of capital stock of each subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and were not
issued in violation of or subject to any preemptive right, or other rights to
subscribe for or purchase shares and are owned by the Company free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company and the related notes thereto included in the
Prospectus, neither the Company nor any subsidiary has outstanding any options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
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commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights. Except as disclosed in the
Prospectus, there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Common Stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the Company's
stockholders.
(g) KPMG Peat Marwick LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of December 31, 1994 and 1995 and for each of the years in the three
(3) years ended December 31, 1995 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise),
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earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has good and marketable title to
all properties and assets described in the Registration Statement and Prospectus
as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any of
its subsidiaries is a party described in the Registration Statement and
Prospectus are valid agreements, enforceable by the Company and its subsidiaries
(as applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiaries has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a
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cost that would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as now conducted and as proposed to be
conducted; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights; and the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise.
(n) Except as described in the Registration Statement and Prospectus,
the Company and its subsidiaries have operated and currently operate their
business in conformity with all applicable laws, rules and regulations of each
jurisdiction in which it is conducting business, except where the failure to be
so in compliance would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise. The Company
and its subsidiaries have all licenses, certificates, authorizations, approvals,
permits, franchises, orders and consents from all state, federal and other
governmental or regulatory authorities which are necessary to the conduct of
their businesses, except where the failure to be so in compliance would not have
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or
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business prospects of the Company and its subsidiaries considered as one
enterprise. All of such licenses, certificates, authorizations, approvals,
permits, franchises, orders and consents are valid and in full force and effect.
Except as described in the Registration Statement and Prospectus, the Company
and its subsidiaries have fulfilled and performed, and will fulfill and perform,
all of their obligations with respect to, and are operating in compliance with,
all such licenses, certificates, authorizations, approvals, permits, franchises,
orders and consents and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination thereof or result in any
impairment of the rights of the holder thereof, except to the extent that any
such revocation, termination or impairment would not have a material adverse
effect on the financial condition, results of operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
Except as set forth in the Registration Statement and Prospectus, no such
licenses, certificates, authorizations, approvals, permits, franchises, orders
or consents contain any restrictions that have or may have a material adverse
effect on the financial condition, results of operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise. The
Company and its subsidiaries are not aware of any existing or imminent matter
which may adversely impact their operations or business prospects other than as
disclosed in the Registration Statement and Prospectus.
(o) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq Stock Market, Inc. National Market (the
"Nasdaq National Market"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or de-listing the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. ("NASD") is contemplating
terminating such registration or listing. The Company has filed in a timely
manner all reports and other information required to be filed with the
Commission pursuant to the Exchange Act during the twelve calendar months and
any portion of a month immediately preceding the filing of the Registration
Statement (or during such shorter period of time that the Company has been
subject to the reporting requirements of the Exchange Act).
(p) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations. Neither the Company nor any of
its subsidiaries is, nor will the Company or any of its subsidiaries become upon
the sale of the Shares and the application of the proceeds therefrom as
described in the Prospectus under the caption "Use of Proceeds," an "investment
company" or a person controlled by an "investment company" within the meaning of
the 1940 Act.
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(q) The Company has not distributed and will not distribute prior to
the Closing Date any offering material in connection with the offering and sale
of the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(r) Neither the Company nor any of its subsidiaries, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company or any subsidiary has, directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; failed to disclose fully
any contribution in violation of law; violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any
unlawful bribe, rebate, payoff, influence, kick-back or other unlawful payment.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(t) Each executive officer and director of the Company [AND EACH OF
THE PERSONS IDENTIFIED ON SCHEDULE B HERETO] has agreed in writing that such
person will not, for a period of 90 days from the date that the Registration
Statement is declared effective by the Commission (the "Lock-up Period"), offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to (collectively, a "Disposition") any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired by such person,
directly or indirectly, or with respect to which such person has or hereafter
acquires the power of disposition, directly or indirectly, other than (i) as a
bona fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) if such person is an
individual, to a member or members of his or her immediate family or to a trust
the beneficiaries of which are exclusively such person and/or a member or
members of his or her immediate family, provided that each transferee thereof
agrees in writing to be bound by the terms of this restriction, or (iv) with the
prior written consent of Robertson, Stephens & Company LLC. Further, the trustee
of the 401(k) Plan has agreed in writing that such trustee will not, during the
Lock-up Period, effect a Disposition of any Securities now owned or hereafter
acquired by such trustee, directly or indirectly, for the benefit of the
participants in the 401(k) Plan or with respect to which such trustee has or
hereafter acquires the power of disposition, directly or indirectly, for the
benefit of the participants in the 401(k) Plan; other than (i) pursuant to a
valid distribution to a 401(k) Plan participant that is required by the terms
and conditions of the 401(k) Plan, (ii) pursuant to
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a private sale not effected through a securities broker or dealer or through the
Nasdaq National Market, provided that the purchaser thereof agrees in writing to
be bound by the terms of this restriction, or (iii) during any period there is
outstanding a tender offer that is subject to Section 14(d)(1) of the Exchange
Act. The foregoing restrictions are expressly agreed to preclude the holder of
the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, each such person has agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with the
foregoing restrictions. The Company has provided to counsel for the Placement
Agents a complete and accurate list of all securityholders of the Company and
the number and type of securities held by each securityholder. The Company has
provided to counsel for the Placement Agents true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
stockholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Robertson, Stephens &
Company LLC.
(u) The operations of the Company and its subsidiaries with respect
to any real property currently leased, owned or by any means controlled by the
Company or any of its subsidiaries (the "Real Property") are in compliance with
all federal, state, and local laws, ordinances, rules, and regulations relating
to occupational health and safety and the environment; the Company and its
subsidiaries maintain all licenses, permits and authorizations necessary to
operate under all such laws applicable to the Company and its subsidiaries; and
there is no pending or, to the best knowledge of the Company, threatened, claim,
litigation or any administrative agency proceeding, nor has the Company or any
subsidiary received any written or oral notice from any governmental entity or
third party, that: (i) alleges a violation of any such laws by the Company or
any of its subsidiaries; (ii) alleges that the Company or any of its
subsidiaries is a liable party under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. (S) 9601 et seq.
("CERCLA"), or any state superfund law; (iii) alleges possible contamination of
the environment by the Company or any of its subsidiaries; or (iv) alleges
possible contamination of the Real Property. No property which is owned, leased
or occupied by the Company has been designated as a Superfund site pursuant to
CERCLA or otherwise designated as a contaminated site under applicable state or
local law.
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(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus, and except
for loans, advances or guarantees to or for the benefit of any one of such
persons which do not exceed $60,000 in the aggregate.
(y) The Company has complied with all provisions of Florida Statutes
Section 517.075, and the regulations thereunder, relating to doing business with
the Government of Cuba or with any person or affiliate located in Cuba.
(z) No subsidiary of the Company is prohibited, directly or
indirectly, from paying any dividends, from making any other distributions on
such subsidiary's capital stock, from repaying to the Company any loans or
advances to such subsidiary or from transferring any of such subsidiary's
property or assets to the Company or any other subsidiary of the Company, except
as disclosed in the Registration Statement and Prospectus and except for such
limitations that may be contained in the corporate code of the jurisdiction
under which such subsidiary is incorporated.
(aa) To the best of the Company's knowledge, other than Mr. Bernard
Goldstein's relationship with Broadview Associates, Mr. M. Fazle Husain's
relationship with Morgan, Stanley & Co. and Ms. Ellyn Acker's relationship with
Prudential Securities Incorporated, no officer, director or securityholder of
the Company has an "association" or "affiliation" with any member of the
National Association of Securities Dealers, Inc. ("NASD"), within the meaning of
Article III, Section 44 of the Rules of Fair Practice of the NASD. The Company
does not have an "association" or "affiliation" with any member of the NASD,
within the meaning of Article III, Section 44 of the Rules of Fair Practice of
the NASD.
4. Further Agreements of the Company. The Company agrees with each of the
Placement Agents that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as
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promptly as possible; the Company will use its best efforts to cause any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations as may be required subsequent to the date the Registration Statement
is declared effective to become effective as promptly as possible; the Company
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement, any subsequent amendment to the Registration
Statement or any abbreviated registration statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations, have been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (7) of Rule
424(b) of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
for the Placement Agents ("Placement Agents' Counsel"), may be necessary or
advisable in connection with the placement of the Shares by the Placement
Agents; it will promptly prepare and file with the Commission, and promptly
notify you of the filing of, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as then in
effect would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case either of the
Placement Agents is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
the Placement Agent, such amendment or amendments to the Registration Statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act; and it will file no
amendment or supplement to the Registration Statement or Prospectus which shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act, the Rules and Regulations and the
provisions of this Agreement.
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(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if the Placement Agents shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the ninetieth (90th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof and for
so long as the Company is a reporting company under the Exchange Act, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you upon request (i) concurrently with
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furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's stockholders, (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the NASD, (v) every material press release and every material news item or
article in respect of the Company or its affairs which was released or prepared
by the Company or any of its subsidiaries, and (vi) any additional information
of a public nature concerning the Company or its subsidiaries, or their
respective businesses, which you may reasonably request. During such five (5)
year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and its subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement to be performed hereunder or to fulfill any condition of
the Placement Agents' obligations hereunder, or if the Company shall terminate
this Agreement pursuant to Section 11(a) hereof, or if the Placement Agents
shall terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the the Placement Agents for all out-of-pocket expenses (including
fees and disbursements of Placement Agents' Counsel) incurred by the Placement
Agents in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
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(k) During the Lock-up Period, the Company will not, without the
prior written consent of the Robertson, Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than (i) the sale
of the Shares, (ii) the Company's issuance of options or Common Stock under the
Company's Long-Term Incentive Plan (the "Option Plan") and (iii) the issuance of
Securities in connection with the Company's acquisition of an ownership interest
in another business or entity, provided, however, that the Company may not
register such Securities under the Act or grant any registration rights with
respect to such Securities without the prior written consent of Robertson,
Stephens & Company LLC.
(1) For so long as there are more than fifty (50) shareholders of
record of the Common Stock, the Company shall use its best efforts to maintain
the listing of the Common Stock on the Nasdaq National Market for a period of at
least five (5) years after the effective date of the Registration Statement.
(m) The Company shall use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Shares.
(n) The Company agrees to enforce (at its expense), for the benefit
of the Placement Agents and at the request of Robertson, Stephens & Company LLC,
the Lock-Up Agreements and not to waive any condition of any such agreement
without the prior written consent of Robertson, Stephens & Company LLC.
5. Expenses.
(a) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company agrees with each
of the Placement Agents that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey and any instruments related to any of the foregoing; the
issuance and delivery of the Shares
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hereunder to the Investors, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements, of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing to the Placement Agents copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus, and
any amendments or supplements to any of the foregoing; NASD filing fees and the
cost of qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of Placement Agents'
Counsel in connection with such NASD filings and Blue Sky qualifications); and
all other expenses directly incurred by the Company in connection with the
performance of their obligations hereunder.
(ii) In addition to its other obligations under Section 7(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 7(a) hereof, it will reimburse the Placement Agents on a monthly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim. action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Placement Agents for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Placement Agents shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Placement Agents within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(b) In addition to its other obligations under Section 7(b) hereof,
the Placement Agents agree severally and not jointly that, as an interim
measure during the pendency of any claim, action investigation, inquiry or other
proceeding described in Section 7(b) hereof, they will reimburse the Company on
a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Placement
Agents' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Placement Agents together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a
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request for reimbursement shall bear interest at the Prime Rate from the date of
such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 7(d) hereof.
6. Conditions of Placement Agents' Obligations. The obligations of the
Placement Agents hereunder shall be subject to the accuracy, as of the date
hereof and the Closing Date, of the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder
and to the following additional conditions (any of which may be waived by the
Placement Agents):
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., Eastern time, on the date of this Agreement or such later date
as shall be consented to in writing by you; and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the Company or the Placement
Agents, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus) shall have been complied with to the satisfaction of Placement
Agents' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Placement Agents' Counsel; and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section; and such counsel shall have rendered to you such opinions as you
may reasonably request.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have been any change in the condition
(financial
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or otherwise), earnings, operations, business or business prospects of the
Company from that set forth in the Registration Statement or Prospectus, which,
in your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the offering of the
Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date a written opinion of
Sachnoff & Weaver, Ltd., counsel for the Company, dated the Closing Date and
addressed to the Placement Agents to the effect that:
(i) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation.
(ii) The Company and each subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus.
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries
considered as one enterprise. To such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation, association or
other entity other than the subsidiaries listed in Schedule A hereto.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein; the issued and outstanding
shares of capital stock of the Company have been duly and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right.
(v) All issued and outstanding shares of capital stock of
each subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right and are owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest.
(vi) The Shares have been duly authorized and, upon issuance
and delivery against payment therefor in accordance with the terms hereof,
will be
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duly and validly issued and fully paid and nonassessable, and will not have
been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders.
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Investors
the Shares to be issued and sold by it hereunder.
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law, and except as enforceability
may be limited by laws pertaining to bankruptcy, insolvency, fraudulent
conveyance or transfer, equitable subordination, reorganization, moratorium
or similar laws and judicial decisions affecting creditors' rights
generally or by general principles of equity and public policy, including,
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing, and except that the remedies of specific performance and
injunctive relief may be granted or denied in the discretion of a court.
(ix) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act.
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as to
which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the
Company conform in all material respects to the description thereof
contained in the Registration Statement and Prospectus under the caption
"Description of Capital Stock"; and the form of certificates evidencing the
Common Stock and filed as an exhibit to the Registration Statement is in
due and proper form and complies with the requirements of Delaware law.
(xii) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings, contracts and
other documents, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries and
correctly present in all
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material respects the information required to be presented by the Act and
the applicable Rules and Regulations.
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required.
(xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any material bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which their
respective properties are bound, or any applicable statute, rule or
regulation, or any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or over any of their respective properties or operations
(other than state securities or Blue Sky laws, concerning which no opinion
need be expressed).
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or over any
of their respective properties or operations is necessary in connection
with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as
may be required under state or other securities or Blue Sky laws in
connection with the placement of the Shares by the Placement Agents.
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein.
(xvii) To such counsel's knowledge, neither the Company nor any
of its subsidiaries is presently (a) in material violation of its
respective charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation or any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or over any of their respective properties or operations.
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(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights to registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have,
with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification
of the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in
full satisfaction of such rights.
(xix) Neither the Company nor any of its subsidiaries is, nor
will the Company or any of its subsidiaries become upon the sale of the
Shares and the application of the proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds," an "investment company" or
a person controlled by an "investment company" within the meaning of the
1940 Act.
(xx) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Investors will receive valid
marketable title to the Shares purchased by it from Company, free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest. In rendering such opinion, such counsel may assume that the
Investors purchased in good faith and without notice of any defect in the
title of the Shares being purchased from the Company.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Placement Agents, Placement Agents' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (except as
specifically provided above), nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom and other financial or statistical
data, as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or at
the Closing Date, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact
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or omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of Illinois and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you and to
Placement Agents' Counsel.
(e) You shall have received on the Closing Date an opinion of Alston
& Bird, in form and substance satisfactory to you, with respect to the
sufficiency of all such corporate proceedings and other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(f) You shall have received on the Closing Date a letter from KPMG
Peat Marwick LLP addressed to the Company and the Placement Agents, dated the
Closing Date, confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. The Original Letter
from KPMG Peat Marwick LLP shall be addressed to or for the use of the Placement
Agents in form and substance satisfactory to the Placement Agents and shall (i)
represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the consolidated balance sheets of the Company
as of December 31, 1995 and 1994 and related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, (iii) state that KPMG Peat Marwick
LLP has performed the
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procedure set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of KPMG Peat
Marwick LLP as described in SAS 71 on the financial statements for the six month
periods ended June 30, 1995 and 1995, and (iv) address other matters agreed upon
by KPMG Peat Marwick LLP and you.
(f) You shall have received on the Closing Date a certificate of the
Company, dated the Closing Date, signed by the Chief Executive Officer and Chief
Financial Officer of the Company, to the effect that, and you shall be satisfied
that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations or the Exchange Act and the applicable
rules and regulations of the Commission thereunder, as the case may be, and in
all material respects conformed to the requirements of the Act and the Rules and
Regulations or the Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, the Registration Statement, and any
amendment or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended supplemented Prospectus which has not been so set forth;
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company, incurred by the Company, except obligations incurred
in the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the
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Company, or (f) any loss or damage (whether or not insured) to the property of
the Company which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
exemptions, business or business prospects of the Company; and
(v) The Shares have been approved for listing on the Nasdaq
National Market.
(g) The Company shall have obtained and delivered to you an agreement
from each executive officer and director of the Company [AND EACH PERSON
IDENTIFIED ONSCHEDULE B HERETO] in writing prior to the date hereof that such
person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired by such person, directly or
indirectly, or with respect to which such person has or hereafter acquires the
power of disposition, directly or indirectly, other than (i) as a bona fide gift
or gifts, provided the donee or donees thereof agree in writing to be bound by
this restriction, (ii) as a distribution to limited partners or stockholders of
such person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, (iii) if such person is an individual, to a
member or members of his or her immediate family or to a trust the beneficiaries
of which are exclusively such person and/or a member or members of his or her
immediate family, provided that each transferee thereof agrees in writing to be
bound by the terms of this restriction, or (iv) with the prior written consent
of Robertson, Stephens & Company LLC. As to the trustee of the 401(k) Plan, such
trustee shall have delivered to you an agreement in writing prior to the date
hereof that such trustee will not, during the Lock-up Period, effect a
Disposition of any Securities now owned or hereafter acquired by such trustee,
directly or indirectly, for the benefit of the participants in the ESOP or with
respect to which such trustee has or hereafter acquires the power of
disposition, directly or indirectly, for the benefit of the participants in the
401(k) Plan; other than (i) pursuant to a valid distribution to a 401(k) Plan
participant that is required by the terms and conditions of the 401(k) Plan,
(ii) pursuant to a private sale not effected through a securities broker or
dealer or through the Nasdaq National Market, provided that the purchaser
thereof agrees in writing to be bound by the terms of this restriction, or (iii)
during any period there is outstanding a tender offer that is subject to Section
14(d)(1) of the Exchange Act. The foregoing restrictions are expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will have also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with the foregoing restrictions.
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(i) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company herein, as to the Performance by the Company of its
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Placement Agents hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Placement Agents' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each of the
Placement Agents against any losses, claims, damages or liabilities, joint or
several, to which either of them may become subject under the Act, the Exchange
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each of the Placement Agents for
any legal or other expenses reasonably incurred by either of them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, liability or action arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to the
Placement Agents furnished to the Company by the Placement Agents, directly or
through you, specifically for use in the preparation thereof and, provided
further, that the indemnity agreement provided in this Section 7(a) with respect
to any Preliminary Prospectus shall not inure to the benefit of the Placement
Agents with respect to any Investor asserting any losses, claims, damages,
liabilities or actions based upon any untrue statement or alleged untrue
statement of material fact or omission or alleged omission to state therein a
material fact who purchased Shares, if a copy of the Prospectus in which such
untrue statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required by
the Act and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
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The indemnity agreement in this Section 7(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls either of the Placement Agents within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) The Placement Agents agree severally and not jointly to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of such Placement Agent herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 7(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Placement Agent specifically for
use in the preparation thereof, and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 7(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, and each person, if any, who controls the Company within the meaning of
the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which the Placement Agents may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 7, notify the indemnifying party in writing of the commencement
thereof, but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party under this
Section 7 (except to the extent that such omission materially and adversely
affects the indemnifying party's ability to defend such action) or from any
liability otherwise than under this Section 7. In case any such action is
brought against any indemnified party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that
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it shall elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have received a written opinion from counsel that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 7(a)
or 7(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 7
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 7(e) hereof, the Placement Agents severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
Placement Agents' fee bears to the gross proceeds received by the Company
(before deducting the Placement Agents' fee), and the Company is responsible for
the remaining portion, provided, however, that no person guilty of a fraudulent
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<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 7(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls either Placement Agent or the Company within the
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and each director of the Company. This
subsection (d) shall not be operative as to any Placement Agent to the extent
that the Company is entitled to receive or has received indemnity from such
Placement Agent under this Section 7.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 7, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 7 and further agree not to attempt to assert any such
defense.
8. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Placement Agents herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 7
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Placement Agents or any controlling
person within the meaning of the Act or the Exchange Act, or by or on behalf of
the Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the Investors or termination of this Agreement.
9. Termination.
Robertson, Stephens & Company LLC shall have the right to terminate this
Agreement and to terminate any obligation of the Investors to purchase the
Shares by giving notice as hereinafter specified at any time at or prior to the
Closing Date (i) if the Company shall have failed, refused or been unable to
perform any agreement on its part to be performed, or because any other
condition of the Placement Agents' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company from that set forth in the Registration
Statement or Prospectus, or (h) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum
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<PAGE>
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over-the-counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially with the
conduct of the business and operations of the Company regardless of whether or
not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in the reasonable judgment of Robertson, Stephens & Company
LLC makes it inadvisable or impracticable to proceed with the offering, sale and
delivery of the Shares, or (v) if there shall have been an outbreak or
escalation of hostilities or of any other insurrection or armed conflict or the
declaration by the United States of a national emergency which, in the
reasonable opinion of Robertson, Stephens & Company LLC, makes it impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. In the event of any such termination, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 7
hereof.
If you elect to terminate this Agreement as provided in this Section 9, you
shall promptly notify the Company by telephone, telecopy or telegram, in each
case confirmed by letter.
10. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Robertson, Stephens & Company LLC, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: General Counsel; and if sent to the Company, such notice
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to 1400 South Wolf Road, Wheeling, Illinois 60090-
6524, telecopier number (847) 537-4800, Attention: Chief Executive Officer.
11. Parties. This Agreement shall inure to the benefit of and be binding
upon each Placement Agent, any sub-placement agents and the Company and their
respective executors, administrators, successors and assigns. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 7 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
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<PAGE>
12. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California.
13. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[Remainder of page intentionally left blank]
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<PAGE>
If the foregoing correctly sets forth the understanding between the Company
and the Placement Agents. Please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
the Company and the Placement Agents.
Very truly yours,
ENTERPRISE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
By: Robertson, Stephens & Company LLC
---------------------------------
By:
----------------------------------
Authorized Signatory
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<PAGE>
Exhibit 5.1
October 8, 1996
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Ladies and Gentlemen:
We have acted as counsel to Enterprise Systems, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-1 (the "Registration Statement"), filed by the Company under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission"), relating to the sale of up to 600,000 shares (the "Shares")
of the Company's Common Stock, par value $.01 per share. We have examined the
Registration Statement and the form of Placement Agency Agreement filed with the
Commission as an exhibit to the Registration Statement (the "Placement Agency
Agreement"). In addition, we have reviewed such other documents and have made
such further investigations as we have deemed necessary to enable us to express
the opinion hereinafter set forth.
We hereby advise you that in our opinion the Shares have been duly
authorized by the Company and, upon payment and delivery in accordance with the
Placement Agency Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Sachnoff & Weaver, Ltd.
---------------------------
SACHNOFF & WEAVER, LTD.
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of this 3rd
day of November, 1995, by and between ENTERPRISE SYSTEMS, INC., an Illinois
corporation ("Corporation") and James H. Ray ("Associate").
WITNESSETH:
WHEREAS, the Corporation is an Illinois corporation that specializes in the
design and development of computer software systems; and
WHEREAS, the Associate has extensive experience in the areas of financial
management and control; and
WHEREAS, the Corporation desires to retain the services of Associate and
Associate is willing to be employed by the Corporation;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained and other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged;
IT IS COVENANTED AND AGREED by and between the parties herein as follows:
SECTION 1. ESTABLISHMENT OF EMPLOYMENT. The Corporation hereby employs
Associate and Associate hereby agrees to remain in the employ of Corporation for
the duration of the term of his employment hereunder, as Senior Vice President,
Finance (or in such other positions, titles and duties assigned to him that are
consistent with a management role) and to perform such duties and services as
shall be assigned to him from time to time by the Corporation's Chief Financial
Officer. The Associate shall devote his best efforts and entire working time to
the interests of the Corporation and will perform his executive duties
faithfully and efficiently subject to the general direction of the Chief
Financial Officer; provided, that Associate shall be entitled to devote time to
personal investments and professional activities, to the extent such activities
do not unduly interfere with his duties hereunder;
SECTION 2. TERM OF EMPLOYMENT. The term of Associate's employment hereunder
shall be automatically extended from year to year, all subject however, to
termination by the Corporation pursuant to SECTION 9 of this Agreement.
Associate shall have the right to terminate upon 30 days written notice by
Associate to the Corporation.
SECTION 3. COMPENSATION. For all services rendered by the Associate under
this Agreement, the Corporation shall pay the Associate a basic salary at the
rate of no less than $105,000 per annum payable in semi-monthly installments.
The basic salary shall be reviewed by the Chief Financial Officer of the
Corporation a minimum of once per year. The Associate also shall be eligible to
participate in any Associate stock ownership, profit
<PAGE>
sharing, pension, retirement or other plan maintained from time to time by the
Corporation for the benefit of all Associates generally of the Corporation. The
Corporation shall at all times during the term hereof, at its expense, maintain
and provide the Associate a life insurance policy equal to two times the
Associate's annual salary, to a maximum of $300,000 payable in the event of
death of the Associate to the Associate's designated beneficiary. If the
corporation owns the life insurance policy providing the benefit set forth in
this agreement, it agrees to transfer the policy to Associate at termination of
his employment.
SECTION 4. VACATION. The Associate will be entitled to three (3) weeks paid
vacation during the initial term hereof. Thereafter, Associate shall be entitled
to vacation as set forth in the Corporation's general vacation policy for other
Associates, as amended from time to time, except that in no event shall
Associate be entitled to less than three (3) weeks vacation. Attendance at
professional meetings shall not be treated as vacation time. Additional vacation
time may be taken without pay.
SECTION 5. DISABILITY. Associate will be provided with Short Term Disability
as specified by the policy maintained by the Corporation for the benefit of
Associates generally of the Corporation. In addition, Associate shall be
eligible for and the Corporation shall obtain on his behalf long term disability
insurance effective on the first day of the month following the date Associate
has worked full time for the Corporation for thirty (30) consecutive days. The
benefit under the long term disability insurance shall be sixty percent (60%) of
the Associate's basic monthly earnings up to a maximum benefit of $12,500 per
month.
SECTION 6. PROHIBITION AGAINST ASSIGNMENT. The Associate agrees on behalf of
himself or of his executors and administrators, heirs, legatees, distributees,
and any other person or persons claiming any benefits hereunder by virtue of
this Agreement, that this Agreement and the rights, interests and benefit
hereunder shall not be assigned, transferred, pledged or hypothecated in any way
by Associate or any executor, administrator, heir, legatee, distributee or other
person claiming under Associate by virtue of this Agreement and shall not be
subject to execution, attachment or similar process. Any attempt to assign,
transfer, pledge, hypothecate or otherwise dispose of this Agreement or of any
rights, interests and benefits contrary to the foregoing provisions, or the levy
of any attachment or similar process thereupon shall be null and void and
without effect.
SECTION 7. NOTICE. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing to the other party, with the receiving party signing and returning a
written verification of receipt.
SECTION 8. PROTECTIVE COVENANTS. The Associate acknowledges and agrees that
solely by virtue of his employment by, and relationship with, the Employer, he
will acquire "Confidential Information," as hereinafter defined, as well as
special knowledge of the Employer's relationships with its customers and
business brokers, and that, but for his association with the Employer, the
Associate will not have access to said Confidential Information or knowledge of
said relationships. The Associate further acknowledges and agrees (i) that the
Employer has long term, near-permanent relationships with its customers
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and business brokers, and that those relationships were developed at great
expense and difficulty to the Employer over several years of close and
continuing involvement; (ii) that the Employer's relationships with its
customers and business brokers are and will continue to be valuable, special and
unique assets of the Employer and that the identity of its customers and
business brokers is kept under tight security with the Employer and cannot be
readily ascertained from publicly available materials available to the
Employer's competitors; and (iii) that the Employer has the following
protectable interests that are critical to its competitive advantage in the
industry and would be of demonstrable value in the hands of a competitor:
software designs, including but not limited to designs relating to health care
materials management, health care operating room management, health care patient
cost accounting, health care capital asset management, and health care
centralized patient scheduling; plans; processes and protocols; formulae; and
concepts, ideas and other matters not known to the general public. In return for
the consideration, the receipt and sufficiency of which are hereby acknowledged,
and as a condition precedent to the Employer entering into this Agreement, and
as an inducement to the Employer to do so, the Associate hereby represents,
warrants, and covenants as follows:
A. The Associate has executed and delivered this Agreement as his free
voluntary act, after having determined that the provisions contained herein
are of material benefit to him, and that the duties and obligations imposed
on him hereunder are fair and reasonable and will not prevent him from
earning a comparable livelihood following the termination of his employment
with the Employer;
B. The Associate has read and fully understands the terms and conditions
set forth herein, has had time to reflect on and consider the benefits and
consequences of entering into this Agreement, and has had the opportunity
to review the terms hereof with an attorney or other representative, if he
so chooses;
C. The execution and delivery of this Agreement by the Associate does not
conflict with, or result in a breach of or constitute a default under, any
agreement or contract, whether oral or written, to which the Associate may
be bound;
D. The Associate agrees that, during the time of his employment and for a
period of one (1) year after termination of the Associate's employment
hereunder for any reason whatsoever or for no reason, whether voluntary or
involuntary, the Associate will not, except on behalf of Employer:
(1) directly or indirectly, contact, solicit or direct any person,
firm, or Corporation to contact or solicit any of the Employer's
customers, prospective customers, or business brokers (as hereinafter
defined) for the purpose of selling or attempting to sell, any
products and/or services that are the same as or similar to the
products and services provided by the Employer to its customers during
the term hereof. In addition, the Associate will not disclose the
identity of any such business brokers, customers, or prospective
<PAGE>
customers, or any part thereof, to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever, and
(2) directly or indirectly, whether as an investor (excluding
investments representing less than five percent (5%) of the common
stock of a public company), lender, owner, stockholder, officer,
director, consultant, employee, agent, salesperson or in any other
capacity, whether part-time or full-time, become associated with any
business involved in the design, manufacture, marketing, or servicing
of products then constituting ten percent (10%) or more of the annual
sales of the Employer; and
(3) solicit or accept if offered to him, with or without
solicitation, on his own behalf or on behalf of any other person, the
services of any person who is an associate of the Employer, nor
solicit any of the Employer's associates to terminate employment with
the Employer; and
(4) act as a consultant, advisor, officer, manager, agent, director,
partner, independent contractor, owner, or employee for or on behalf
of any of the Employer's business brokers, customers, or prospective
customers (as hereinafter defined), with respect to or in any way with
regard to any aspect of the Employer's business and/or any other
business activities in which Employer engages during the term hereof.
E. The Associate acknowledges and agrees that the scope described above
is necessary and reasonable in order to protect the Employer in the conduct
of its business and that, if the Associate becomes employed by another
employer, he shall be required to disclose the existence of this Paragraph
8 to such employer.
F. For purposes of this Paragraph 8, "customer" shall be defined as any
person, firm, or entity that purchased any type of product and/or service
from Employer or is or was doing business with the Employer or the
Associate within the twelve (12) month period immediately preceding
termination of the Associate's employment. For purposes of this Paragraph
8, "prospective customer" shall be defined as any person, firm, or entity
contracted or solicited by the Employer or the Associate (whether directly
or indirectly) or who contacted the Employer or the Associate (whether
directly or indirectly) within the twelve (12) month period immediately
preceding termination of the Associate's employment for the purpose of
having such persons, firms, or entities become a customer of the Employer.
For purposes of this Paragraph 8, "business broker" shall be defined as any
person, firm, or entity who is or was doing business with the Employer or
the Associate who was contacted or solicited by the Employer or the
Associate (whether directly or indirectly) or who contacted or solicited
the Employer or the Associate (whether directly or indirectly) within the
twelve (12) month period immediately preceding termination of the
Associate's employment.
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G. The Associate agrees that both during his employment and thereafter
the Associate will not, for any reason whatsoever, use for himself or
disclose to any person not employed by the Employer any "Confidential
Information" of the Employer acquired by the Associate during his
relationship with the Employer, both prior to and during the term of this
Agreement. The Associate further agrees to use Confidential Information
solely for the purpose of performing duties with the Employer and further
agrees not to use Confidential Information for his own private use or
commercial purposes or in any way detrimental to the Employer. The
Associate agrees that "Confidential Information" includes but is not
limited to: (a) any financial, business, planning, software, operations,
services, potential services, products, potential products, designs,
technical information and/or know-how, formulas, production, purchasing,
marketing, sales, personnel, customer, broker, supplier, or other
information of the Employer; (b) any papers, data, records, processes,
methods, techniques, systems, models, samples, devices, equipment,
compilations, invoices, customer lists, or documents of the Employer; (c)
any confidential information or trade secrets of any third party provided
to the Employer in confidence or subject to other use or disclosure
restrictions or limitations; and (d) any other information, written, oral,
or electronic, whether existing now or at some time in the future, whether
pertaining to current or future developments, and whether previously
accessed during the Associate's tenure with the Employer or to be accessed
during his future employment with the Employer, which pertains to the
Employer's affairs or interests or with whom or how the Employer does
business. The Employer acknowledges and agrees that Confidential
Information does not include (i) information properly in the public domain,
or (ii) information in the Associate's possession prior to the date of his
original employment with the Employer.
H. During and after the term of employment hereunder, the Associate will
not remove from the Employer's premises any documents, records, files,
notebooks, correspondence, computer printouts, computer programs, computer
software, price lists, microfilm, or other similar documents containing
Confidential Information, including copies thereof, whether prepared by him
or others, except as his duty shall require, and in such cases, will
promptly return such items to the Employer. Upon termination of his
employment with the Employer, all such items including summaries or copies
thereof, then in the Associate's possession, shall be returned to the
Employer immediately. The Associate agrees to return of such items, which
shall be a requirement in order for the Associate to receive, at the time
of such termination, or any time thereafter, any compensation due him
pursuant to any paragraphs hereunder or otherwise.
I. The Associate recognizes and agrees that all ideas, inventions,
enhancements, plans, writings, and other developments or improvements (the
"Inventions") conceived by the Associate, alone or with others, during the
term of his employment, whether or not during working hours, that are
within the scope of the Employer's business operations or that relate to
any of the Employer's work or projects, are the sole and exclusive property
of the Employer. The Associate further agrees that (a) he
5
<PAGE>
will promptly disclose all Inventions to the Employer and hereby assigns to
the Employer all present and future rights he has or may have in those
Inventions, including without limitation those relating to patent,
copyright, trademark or trade secrets; and (b) all of the Inventions
eligible under the copyright laws are "work made for hire." At the request
of and without charge to the Employer, the Associate will do all things
deemed by the Employer to be reasonably necessary to perfect title to the
Inventions in the Employer and to assist in obtaining for the Employer such
patents, copyrights or other protection as may be provided under law and
desired by the Employer, including but not limited to executing and signing
any and all relevant applications, assignments or other instruments.
Notwithstanding the foregoing, pursuant to the Employee Patent Act,
Illinois Public Act 83-493, the Employer hereby notifies the Associate that
the provisions of this Paragraph 8 shall not apply to any Inventions for
which no equipment, supplies, facility or trade secret information of the
Employer was used and which were developed entirely on the Associate's own
time, unless (a) the Invention relates (i) to the business of the Employer,
or (ii) to actual or demonstrably anticipated research or development of
the Employer, or (b) the Invention results from any work performed by the
Associate for the Employer.
J. The Associate acknowledges and agrees that all customer lists,
supplier lists, and customer and supplier information, including, without
limitation, addresses and telephone numbers, are and shall remain the
exclusive property of the Employer, regardless of whether such information
was developed, purchased, acquired, or otherwise obtained by the Employer
or the Associate. The Associate agrees to furnish to the Employer on demand
at any time during the term of this Agreement, and upon termination of this
Agreement, his complete list of the correct names and places of business
and telephone numbers of all of its customers served by him and located
within any and or all of the territories to which he has been assigned,
including all copies thereof wherever located. The Associate further agrees
to immediately notify the Employer of the name and address of any new
customer, and report all changes of location of old customers, so that upon
the termination of this Agreement, the Employer will have a complete list
of the correct names and addresses of all of its customers with which the
Associate has had dealings. The Associate also agrees to furnish to the
Employer on demand at any time during the term of this Agreement, and upon
the termination of this Agreement, any other records, notes, computer
printouts, computer programs, computer software, price lists, microfilm, or
any other documents related to the Employer's business, including originals
and copies thereof; and
K. It is agreed that any breach or anticipated or threatened breach of
any of the Associate's covenants contained in this Paragraph 8 will result
in irreparable harm and continuing damages to the Employer and its business
and that the Employer's remedy at law for any such breach or anticipated or
threatened breach will be inadequate and, accordingly, in addition to any
and all other remedies that may be available to the Employer at law or in
equity in such event, any court of competent jurisdiction may issue a
decree of specific performance or issue a temporary and permanent
injunction, without providing special damages or irreparable injury,
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enjoining and restricting the breach, or threatened breach, of any
such covenant, including, but not limited to, any injunction
restraining the Associate from disclosing, in whole or in part, any
Confidential Information. The Associate acknowledges the truthfulness
of all factual statements in this Agreement and agrees that he is
estopped from and will not make any factual statement in any
proceeding that is contrary to this Agreement or any part thereof. The
Associate further agrees to pay all of the Employer's costs and
expenses, including reasonable attorneys' fees and accountants' fees,
incurred in enforcing such covenants.
SECTION 9. TERMINATION. The Corporation shall have the right to discharge
Associate at any time. Unless otherwise stated under SECTION 2 of this
Agreement, or as defined hereafter:
a) The Corporation shall have the right to discharge Associate and to
cancel its obligations under this Agreement at any time upon written
notice to Associate if any of the following shall occur:
i) Associate commits significant fraud or gross misconduct which
arises in any manner out of his duties and responsibilities as an
officer or Associate of the Corporation.
b) In the event that Associate dies during the term of his Agreement,
the date of death shall constitute the date of termination.
c) In the event the Associate becomes disabled during the period of
this Agreement, the date of disability shall constitute the date of
termination. For the purposes of his Agreement, disability shall be
defined as occurring at the time at which the Associate has been
unable to be actively employed at work for any twelve (12) week period
within a six (6) month period and qualifies for the Corporation's long
term disability insurance. Actively at work means Associate is able to
perform all material and substantial duties of regular work while
working the usual number of hours at the normal place of business, or
other places of business as directed by the Corporation.
If Associate's service with the Corporation shall be terminated for any reason
other than as set forth in Subsections 9a), b) or c) above or in the event that
the Associate should voluntarily retire, including without limitation any
termination without cause, Associate shall continue to be paid and provided the
basic salary and insurance (as described in Section 3 hereof), as in effect on
the date of termination, in accordance with the following terms:
Twelve (12) months of severance pay will be given.
SECTION 10. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the state of Illinois, irrespective of the fact that Associate may
become a resident of a different state.
7
<PAGE>
SECTION 11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Corporation and Associate and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
SECTION 12. ENTIRE AGREEMENT. This Associate, and the stock option agreement
between you and the Corporation, collectively constitute the entire agreement
between the parties and contains all of the agreements between the parties with
respect to the subject matter hereof, and supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof. No change or modification of this Agreement shall
be valid unless the same be in writing and signed by the Associate and the
Corporation. No waiver of any provision of this Agreement shall be valid unless
in writing and signed by the person or party to be charged.
SECTION 13. SEVERABILITY. If any portion or portions of this Agreement shall
be for any reason invalid or unenforceable, the remaining portion or portions
shall nevertheless be valid, enforceable and carried into effect, unless to do
so would clearly violate the present legal and valid intention of the parties
hereto.
SECTION 14. HEADINGS. The headings in this Agreement are inserted for
convenience only and are not to be considered in construction of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
and sealed the day and year first above written.
CORPORATION ENTERPRISE ASSOCIATE:
SYSTEMS, INC.:
/s/ Glen E. Tullman /s/ James H. Ray
By: _______________________________ By: _____________________________________
Glenn E. Tullman James H. Ray
Chief Executive Officer Vice President, Finance
1-11-96 1-7-96
Date: _____________________________ Date: ___________________________________
8
<PAGE>
EXHIBIT 10.22
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is made as of May 31, 1996 by
and among LaSalle National Bank, a national banking association (the "Bank") and
Enterprise Systems, Inc., an Illinois corporation ("Borrower").
WITNESSETH:
----------
WHEREAS, in order to provide Borrower's working capital needs and to
finance certain permitted acquisitions, Borrower desires to borrow from the Bank
and has requested that Bank replace Borrower's existing financing arrangements
with Bank by making available and lending to Borrower a revolving line of credit
in an aggregate amount not to exceed Eighteen Million and No/100 Dollars
($18,000,000.00), upon the satisfaction of certain terms and conditions, all as
more fully set forth below; and
NOW, THEREFORE, for and in consideration of the foregoing premises,
which are hereby incorporated herein as true, and the terms, conditions,
representations, warranties, covenants, promises and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Certain Definitions.
-------------------
When used herein, the following terms have the meanings as set forth
below.
"Accounts" shall have the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, wheresoever located and whether now or hereafter owned, acquired,
arising or existing, including without limitation, contract rights, any and all
manner of accounts receivable and all security agreements, guaranties, letters
of credit and any other collateral security for any or all of the foregoing.
"Affiliate" means (i) any shareholder of the Borrower having an equity
or other ownership interest equal to or in excess of five percent (5%) of the
total equity or ownership interests in Borrower, (ii) any corporation or any
other Person that directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with the Borrower or
(iii) any officer, director, trustee, partner or shareholder of any corporation
or any other Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with the
Borrower.
<PAGE>
"Agreement" means, collectively, this Loan Agreement, together with
any and all exhibits, attachments and amendments thereto and modifications,
renewals, extensions, restatements and substitutions thereof and therefor.
"Bank" means the LaSalle National Bank, a national banking
association.
"Banking Day" means any day other than a Saturday, Sunday or legal
holiday.
"Borrower" has the meaning set forth in the preamble hereof.
"Default Interest Rate" means an interest rate equal to 3% in excess
of the Prime Rate.
"EBIT" means, with respect to Borrower, for any applicable measurement
period, the sum of (i) Net Income, (ii) income taxes, and (iii) Interest
Expense.
"Employee Plan" includes any pension, retirement, disability, medical,
dental or other health plan, life insurance or other death benefit plan, profit
sharing, deferred compensation, stock option, bonus or other incentive plan,
vacation benefit plan, severance plan, or other employee benefit plan or
arrangement, including, without limitation, those pension, profit-sharing and
retirement plans of the Borrower described from time to time in the Financial
Statements and any pension plan, welfare plan, Defined Benefit Pension Plans (as
defined in ERISA) or any multi-employer plan, maintained or administered by the
Borrower to which the Borrower is a party or may have any liability or by which
the Borrower is bound.
"Environmental Laws" means all federal, state and local Laws
(including, without limitation, the common law), statutes, ordinances, rules,
regulations and other requirements (including, without limitation,
administrative orders, consent agreements and conditions contained in applicable
permits), relating to health, safety, and the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq. the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., and
the Clean Air Act, 42 U.S.C. (S) 7401 et seq., as amended or hereafter amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
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<PAGE>
"Equipment" shall have the meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, including, without limitation, all machinery, apparatus, equipment,
furniture, trade fixtures and motor vehicles and all accession, parts and
appurtenances thereto and all substitutions or replacements thereof, wheresoever
located, whether now or hereafter owned, acquired, arising or existing.
"Event of Default" means an event or occurrence described in Article
VI of this Agreement.
"Financial Statements" means the balance sheets, statements of income
and retained earnings and statements of cash flow of the Borrower for each
Fiscal Year or each month thereof to be delivered to the Bank pursuant to
Section 5.1(c) and 3.1(g) of this Agreement.
"Fiscal Year" means the fiscal year of the Borrower ending December 31
of each calendar year.
"Floating Rate" has the meaning set forth in Section 2.3(a).
"Funds" has the meaning set forth in Section 5.1(n)(i).
"GAAP" means generally accepted accounting principles applied on a
basis consistent with that used by the Borrower in prior years.
"Guarantor" means Enterprise Systems, Inc., a Delaware corporation.
"Hazardous Materials" means (i) hazardous substances, as that term is
defined by CERCLA, and the Illinois Environmental Protection Act, Ill. Rev.
Stat. ch. 11 1/2, (S) 1001 et seq.; (ii) hazardous or toxic chemicals,
materials, or substances within the meaning of any other applicable
Environmental Law, all as amended or hereafter amended. Hazardous Materials
shall also include, but not be limited to: (a) crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute); (b) any
radioactive material, including but not limited to, any source, special nuclear
or by-product material, as defined at 42 U.S.C. (S) 2011 et seq., as amended or
hereafter amended; and (c) asbestos in any form or condition.
"Indebtedness" means, without duplication, letters of credit and all
items which, in accordance with GAAP, would be included as liabilities and shall
include, without limitation, capitalized leases, secured and unsecured debt and
contingent but accrued liabilities.
"Interest Coverage Ratio" means for any applicable measurement period,
the ratio of (a) EBIT to (b) Interest Expense for such period.
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"Interest Expense" means for any applicable measurement period, the
aggregate interest expense of the Borrower for such period on all Obligations of
the Borrower, including all capitalized interest and the portion of any interest
expense payable with respect to capitalized lease obligations, but excluding any
interest in respect of debt issuance cost (to the extent being amortized as a
non-cash charge).
"Inventory" shall have the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, all accessions, parts and appurtenances thereto and all substitutions
or replacements thereof, wheresoever located and whether now or hereafter owned,
acquired, arising or existing, including without limitation, raw materials,
supplies, work in process, finished goods, or inventory which has been returned
to or repossessed or stopped in transit.
"Laws" means all ordinances, statutes, rules, regulations, codes,
orders, injunctions, writs or decrees of any government, whether federal, state,
municipal or local, of any political subdivision or agency thereof, or of any
court, board or similar entity established by any of the foregoing having
jurisdiction over the Property, assets, business or operations of the Borrower.
"Leverage Ratio" means the ratio of Borrower's Liabilities to
Borrower's Net Worth.
"LIBOR-Based Rate" means that rate of interest per year equal to:
<TABLE>
<CAPTION>
If Borrower's Interest Coverage Ratio, as set
forth on the most recent Compliance
Certificate received by Bank pursuant to
Section 5.2(c)(ii) of this Agreement prior
to the start of any LIBOR Rate Borrowing
Period is: Then the Interest Rate will be:
- ------------------------------- -------------------------------
<S> <C>
Less than 2.0:1 LIBOR Rate plus 1.75%
Greater than or equal to 2.0:1
but less than or equal to 3.5:1 LIBOR Rate plus 1.50%
Greater than 3.5:1 LIBOR Rate plus 1.25%
</TABLE>
"LIBOR Rate" means during any LIBOR Rate Borrowing Period for each
Revolving Loan bearing interest at the LIBOR-Based Rate, that rate of interest
per year equal to the quotient obtained by dividing (x) the rate of interest
determined by the Bank to be the average (rounded upward to the nearest whole
multiple of one-eighth percent (1/8%) per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are generally
offered in the London Interbank Market at 11:00 A.M. London time, one
(1) Banking Day before the first day of such LIBOR Rate Borrowing Period, for a
period equal to such LIBOR Rate Borrowing Period, in the amount of the
applicable Revolving Loan, by (y) the difference between one hundred percent
(100%) and any
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<PAGE>
applicable reserve requirements (rounded upward to the nearest whole multiple of
one hundredth (1/100) of one percent (1%) per annum), including without
limitation, any statutory maximum requirement for the Bank to hold reserves for
"Eurocurrency Liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System (or any similar reserves under any successor regulation
or regulations).
"LIBOR Rate Borrowing Period" has the meaning set forth in Section
2.3(c).
"Liens" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include, without limitation,
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictments, leases and other title exceptions and encumbrances
affecting Property. For the purpose of this Agreement, the Borrower or a
Subsidiary shall be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
person for security purposes.
"Loans" means the Revolving Loans of the Borrower as described in
Section 2.1 hereof.
"Loan Supporting Documents" means those documents set forth in Section
3.1 hereof.
"Net Income" means, for any period, an amount equal to the net income
of the Borrower during such period, determined in accordance with GAAP.
"Net Worth" means the total of all assets of Borrower which, under
GAAP, would appear as assets on the balance sheet of Borrower, less the total of
all liabilities of Borrower, which, under GAAP, would appear as liabilities on
the balance sheet of Borrower.
"Note" means the Revolving Note executed by the Borrower, as defined
in Section 2.1(b) hereof.
"Obligations" means each and every promise, agreement, covenant, debt
and all other obligations and indebtedness of the Borrower to the Bank, its
successors or assigns, whether primary, secondary, contingent, direct, or
indirect, howsoever incurred, created, arising or evidenced, whether presently
or hereafter existing, evidenced, arising or becoming due, including, without
limitation, such obligations and indebtedness of the Borrower to the Bank
arising from or in connection with the Loans or under this Agreement, the Note
or any Loan Supporting Documents or any refinancings, substitutions, extensions,
renewals, replacements and modifications for or of the foregoing.
-5-
<PAGE>
"Operating Account" has the meaning set forth in Section 5.1(n)(ii).
"Permitted Liens" means Liens, security interests, charges, mortgages,
pledges or any other encumbrances (i) provided for on Schedule 5.2(b) hereto;
(ii) Liens arising out of judgments or awards in respect of which the Borrower
shall in good faith be prosecuting an appeal or proceedings for review and in
respect of which the Borrower shall have secured a subsisting stay of execution
pending such appeal or proceedings for review, provided the Borrower shall have
set aside accounting reserves which are adequate in accordance with prudent
business practices, with respect to such judgment or award; (iii) Liens for
taxes, assessments or governmental charges or levies, provided payment thereof
shall not at the time be required in accordance with the provisions hereof or
which are permitted pursuant to Section 4.10 hereof; (iv) deposits, Liens or
pledges to secure payments of worker's compensation, unemployment insurance or
social security benefits arising in the ordinary course of business which are
not overdue or are being contested in good faith by appropriate proceedings
diligently pursued, provided that Borrower maintains accounting reserves on its
books to cover the above which are adequate in accordance with prudent business
practices, and such contest does not have or cause a material adverse change in
the Borrower's financial condition or operations and does not impair Borrower's
ability to perform its Obligations; (v) mechanics', workmen's, materialmen's,
repairmen's, warehousemen's, vendors' or carriers' Liens, or other similar
statutory Liens, or any easements with respect thereto, arising in the ordinary
course of business and securing sums which are not past due or are being
contested in good faith by appropriate proceedings diligently pursued, provided
that Borrower maintains accounting reserves to cover the above which are
adequate in accordance with prudent business practices, and such contest does
not have or cause a material adverse change in the Borrower's financial
condition or operations and does not impair Borrower's ability to perform its
Obligations, or deposits or pledges to obtain the release of any such Liens;
(vi) statutory landlords' liens under leases to which the Borrower is a party;
(vii) Liens incurred in the ordinary course of business to secure the
performance of statutory obligations arising in connection with progress
payments or advance payments due under contracts with the United States
government or any agency thereof entered into in the ordinary course of
business, liens incurred or deposits made in the ordinary course of business to
secure the performance of tenders, statutory obligations, bids, leases,
performance bonds, fee and expense arrangements with trustees and fiscal agents
and other similar obligations (exclusive of obligations incurred in connection
with the borrowing of money or the payment of the deferred purchase price of
property) and Liens directly securing appeal and release bonds, provided that
adequate provision for all such obligations has been made on the books of
Borrower in accordance with GAAP; and (viii) purchase money security interests
in or purchase money mortgages on Property acquired after the date hereof to
secure purchase money Indebtedness of the type and amount permitted in Section
5.2(b) hereof, incurred in the acquisition of such Property, which security
interests cover only the Property so acquired.
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<PAGE>
"Person" means any individual, sole proprietorship, joint venture,
partnership, limited partnership, association, unincorporated organization,
joint-stock company or association, trust, corporation, entity, institution or
government body.
"Prime Rate" means that rate of interest announced or published
publicly from time to time by the Bank at its principal place of business as its
prime or equivalent rate of interest, which Prime Rate does not purport to be
the most favorable rate of interest offered by Bank to its commercial borrowers.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is greater than
the total amount of liabilities, including contingent and unliquidated
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in a business or a transaction, and is not about to engage in a business
or transaction, for which such Person's property would constitute an
unreasonably small capital. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Subordinated Debt" means any indebtedness of the Borrower which is
expressly subordinated to the Obligations and to the rights of the Bank
hereunder.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding common stock is owned, directly or indirectly, by the
Borrower or an Affiliate.
1.2 Accounting Terms.
----------------
Any accounting terms used but not otherwise defined herein shall have
their customary meanings as defined in, pursuant to, or in accordance with GAAP.
All other terms used but not otherwise defined herein shall have the meanings
provided by the version of the Uniform Commercial Code enacted in Illinois to
the extent such terms are used or defined therein.
ARTICLE II
THE CREDIT
----------
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<PAGE>
2.1 Revolving Loan
--------------
2.1 (a) Funding of the Revolving Loan. Subject to the terms and
conditions of this Agreement, the Bank agrees to lend to the
Borrower from time to time until June 1, 1999 (the "Revolving
Loan Termination Date") such sums, in a minimum amount of
$100,000 and integral multiples of $10,000 thereafter (except for
Revolving Loans bearing interest at the LIBOR-Based Rate, each of
which shall be in a minimum amount of $500,000 and integral
multiples of $100,000 thereafter), as Borrower may request by a
Revolving Loan Borrowing Notice, pursuant to Section 2.1(c)
hereof; provided, however, that the aggregate principal amount of
all loans outstanding under this Section 2.1 (the "Revolving
Loan" or "Revolving Loans") at any one time shall not exceed
Eighteen Million Dollars ($18,000,000) (the "Revolving Loan
Commitment"). The Borrower may borrow or repay and reborrow
hereunder, from the date hereof until the Revolving Loan
Termination Date, either the full amount of the Revolving Loan
Commitment or any lesser sum in the minimum amounts referred to
above. If, at any time, the Revolving Loans exceed the Revolving
Loan Commitment, the Borrower shall immediately notify the Bank
of the existence of and pay to the Bank the amount of such
excess.
2.1 (b) The Note; Repayment of Principal. In order to evidence the
Revolving Loans, on the date hereof, the Borrower will execute
and deliver a promissory note, in the form of Exhibit A hereto
(together with any and all amendments, modifications,
supplements, substitutions, renewals, extensions, and
restatements, thereof and therefor, the "Revolving Note" or the
"Note"), repayable and maturing in accordance with and bearing
interest as set forth therein.
2.1 (c) Revolving Loan Borrowing Request. The request of the Borrower
for a Revolving Loan shall be by the delivery of a written or
telecopied notice or a telephonic notice with simultaneous
written or telecopied confirmation addressed to the Bank
designating the amount of the requested Revolving Loan to be made
by the Bank, the date on which the Revolving Loan is to be made
available to the Borrower, whether the requested Revolving Loan
shall bear interest at the Floating Rate or the LIBOR-Based Rate,
and if the Revolving Loan is to bear interest at the LIBOR-Based
Rate, the applicable LIBOR Rate Borrowing Period for such
Revolving Loan; provided, however, that such notice is received
by the Bank not later than 2:00 p.m. on the Banking Day on which
the Borrower is requesting the Revolving Loan be made available
by the Bank in the case of a Revolving Loan to bear interest at
the Floating Rate and not later than two (2) Banking Days prior
to the Banking Day on which the Borrower is requesting the
Revolving Loan be made available by the Bank in the case of a
Revolving Loan to bear interest at the LIBOR-
-8-
<PAGE>
Based Rate. Each and every request for a Revolving Loan shall
constitute Borrower's representation and warranty that (i) as of
the date of said request, no Event of Default (or event which,
with the giving of notice or lapse of time or both, would
constitute an Event of Default) has occurred and is continuing,
(ii) no material adverse change has occurred in the operations or
financial condition of the Borrower since the date of the most
recent fiscal quarter for which the Borrower's Financial
Statements have been delivered to the Bank and received thereby,
subject to Bank's reasonable discretion to determine whether such
a material adverse change has occurred, (iii) the representations
and warranties of the Borrower set forth within Article IV are
true and correct as of the date of the request for a Revolving
Loan, (iv) the affirmative and negative covenants set forth in
Article V are not currently being breached and are inviolate as
of the date of such request for a Revolving Loan, and (v) the
aggregate Revolving Loans, including the Revolving Loan
requested, do not exceed the Revolving Loan Commitment.
2.2 The Borrower's Loan Account. The Bank shall maintain a loan account
("Loan Account") on its books in which shall be recorded (i) the Loans
made by the Bank to the Borrower pursuant to this Agreement, (ii) all
payments made by the Borrower on the Loans, and (iii) all other
appropriate debits and credits as provided in this Agreement, the Loan
Supporting Documents or the Note, including, without limitation, all
fees, charges, expenses and interest provided for hereunder or
thereunder. All advances to the Borrower and all other debits and
credits provided for in this Agreement or the Note, shall be evidenced
by entries made by the Bank in its internal data control systems, in
accordance with the Bank's customary accounting practices as in effect
from time to time, showing the date, amount and reason for each such
debit or credit. The Bank shall send the Borrower statements of all
amounts due hereunder as reflected in the Loan Account, which
statements shall be considered presumptively correct as to the
indebtedness due and owing by the Borrower to the Bank unless the
Borrower notifies the Bank within one hundred twenty (120) days of
receipt of such statement that the Borrower considers such statement
to be incorrect and the Borrower specifically identifies the items on
such statement which it considers to be incorrect and attaches any
evidence in its possession supporting its position.
2.3 Interest Rate; Payments.
-----------------------
2.3 (a) The Revolving Loans; Rate. Each Revolving Loan shall bear
interest at the Borrower's option at either of the following
rates: (i) the Prime Rate less one-half of one percent (1/2%),
computed on the basis of actual days elapsed over a 360-day year
(the "Floating Rate"); or (ii) a fixed interest rate per annum
(computed for the actual number of days elapsed on the basis of
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<PAGE>
a 360-day year) which shall be equal to the LIBOR-Based Rate in
effect on the date the Bank quotes such rate to the Borrower (the
"LIBOR-Based Rate"). The Borrower's acceptance of any LIBOR-
Based Rate shall be final and conclusive as to all matters with
respect to the determination thereof. Interest on Loans bearing
interest at the Floating Rate shall be payable monthly in arrears
beginning on June 30, 1996, and continuing on the last day of
each calendar month thereafter. The Floating Rate shall
fluctuate concurrently with and in an amount equal to any
increase or decrease in the Prime Rate. Interest on Loans bearing
interest at the LIBOR-Based Rate shall be payable in
arrears on the last day of the applicable LIBOR Rate Borrowing
Period.
2.3 (b) Interest Rate Election. Borrower shall make an election in writing
pursuant to Section 2.1 (c) as to whether such Revolving Loan shall
bear interest at the Floating Rate or the LIBOR-Based Rate. If
Borrower elects to have a Revolving Loan bear interest at the LIBOR-
Based Rate, Borrower shall also specify the applicable LIBOR Rate
Borrowing Period for such Revolving Loan; provided, however, no more
than eight (8) Revolving Loans may bear interest at the LIBOR-Based
Rate at any time and each Revolving Loan bearing interest at the
LIBOR-Based Rate shall be in a minimum amount of $500,000.
2.3 (c) Borrowing Periods. At any time when the Borrower shall select or renew
the LIBOR-Based Rate to apply to any Revolving Loan, it shall fix a
period for each such Revolving Loan during which such LIBOR-Based Rate
shall apply, such periods to be for periods (the "LIBOR Rate Borrowing
Periods") of 30, 60, 90 and 180 days; provided that (i) in no event
shall any LIBOR Rate Borrowing Period so selected expire later than
the Revolving Loan Termination Date; and (ii) if any LIBOR Rate
Borrowing Period expires on a day which is not a Banking Day, such
LIBOR Rate Borrowing Period shall expire on the next Banking Day.
2.3 (d) Conversion to LIBOR-Based Rate. Upon two (2) Banking Days prior
written or telephonic notice to Bank, Borrower may elect to convert
any Revolving Loan bearing interest at the Floating Rate into a
Revolving Loan bearing interest at the LIBOR-Based Rate in effect on
the date of the election. Borrower shall, in such notice, specify the
LIBOR Borrowing Rate Period for such LIBOR-Based Revolving Loan. Upon
such election, Bank shall make a notation on its books and records
evidencing such conversion.
2.3 (e) Renewal of Interest Rate Option. Upon the expiration of any LIBOR Rate
Borrowing Period, the Borrower may renew the LIBOR-Based Rate for one
or more additional LIBOR Rate Borrowing Periods; provided that
Borrower shall give to the Bank notice of the renewal date in
accordance with the provisions of Section 2.3(b) hereof. In
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<PAGE>
the absence of the receipt of a notice from the Borrower of renewal in
accordance with this Section 2.3(e) or of conversion in accordance
with Section 2.3(d), the interest rate with respect to any such
Revolving Loan as to which such notice is not properly received shall
automatically be converted to the Floating Rate on the last day of the
expiring LIBOR Rate Borrowing Period.
2.3 (f) LIBOR Rate Unascertainable; Impracticability. The Bank shall
promptly notify the Borrower in the event that:
(i) on any date on which a LIBOR-Based Rate selected by the Borrower
by notice to the Bank would otherwise be set (including any
conversion to or renewal thereof), the Bank shall have determined
in good faith (which determination shall be final and conclusive)
that adequate and reasonable means do not exist for determining
the LIBOR Rate; or
(ii) at any time the Bank shall have determined in its reasonable
business judgment (which determination shall be final and
conclusive) that the selection of a LIBOR-Based Rate or the
continuation of or the conversion or renewal of a LIBOR-Based
Rate has been made impossible or impracticable or unlawful by
compliance by Bank with any applicable law or governmental
regulation, guideline or order or interpretation thereof by any
governmental authority charged with the interpretation or
administration thereof or with any request or directive of any
such governmental authority (whether or not having the force of
law).
2.3 (g) Effect of Unascertainability or Impractibility. Once the Bank has
given notice of its determination under (i) or (ii) above, the
obligation of the Bank to allow conversion to or selection or renewal
of the LIBOR-Based Rate by the Borrower with respect to any Revolving
Loan shall be suspended until the Bank gives further notice to the
Borrower that the selection of a LIBOR-Based Rate or the continuation
of or the conversion or renewal of a LIBOR-Based Rate is no longer
impossible or impracticable or unlawful. If the Bank has determined in
accordance with (ii) above that it may no longer continue any LIBOR
Rate Revolving Loans, then upon the date specified in any notice of
determination under (ii) above (which shall not be earlier than the
date such notice is given), (x) the LIBOR-Based Rate shall cease to
apply and any Revolving Loans bearing interest at the LIBOR-Based Rate
shall automatically be converted to the Floating Rate and (y) the
Borrower shall pay to Bank the accrued and unpaid interest on any
Revolving Loans bearing interest at the LIBOR-Based Rate to (but not
including) such
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specified date. If, at the time notice of a determination is
given pursuant to this Section 2.3(g), the Borrower has
previously been offered the LIBOR-Based Rate by the Bank and has
previously notified the Bank that it wishes to convert to or
select or renew the LIBOR-Based Rate, but such rate has not yet
been set, such notification shall be of no force and effect, and
the Borrower shall, with respect to any Revolving Loan subject to
such notice, either (i) convert such Revolving Loan to the
Floating Rate or (ii) if such Revolving Loan is bearing interest
at the Floating Rate, retain the Floating Rate as to such
Revolving Loan.
2.3 (h) Indemnity. Without prejudice to any other provision of this
Agreement, the Borrower shall compensate the Bank upon written
request by the Bank for all losses (including, but not limited
to, lost profits) and expenses in respect of any interest paid by
the Bank to lenders of funds borrowed by the Bank or deposited
with the Bank to make or maintain any of the Revolving Loans
which accrue interest at the LIBOR-Based Rate, which the Bank may
sustain (i) if for any reason not due to an error or omission by
Bank, a borrowing to which the LIBOR-Based Rate is to apply does
not occur on a date specified therefor hereof; (ii) if any
prepayment or repayment of any of the Revolving Loans bearing
interest at the LIBOR-Based Rate occurs on a date which is not
the last date of the relevant LIBOR Rate Borrowing Period; (iii)
as a consequence of any Event of Default by the Borrower under
this Loan Agreement or any acceleration or mandatory prepayment
or principal reduction. Without limiting the generality of the
foregoing, the Borrower shall indemnify the Bank against any loss
or expense which the Bank may sustain or incur as a consequence
of the default by the Borrower in payment of principal of or
interest on any Revolving Loan bearing interest at the LIBOR-
Based Rate, including, but not limited to, any premium or penalty
incurred by the Bank in respect of funds borrowed by it or
deposited with it for the purpose of making or maintaining any of
the Revolving Loans, as determined by the Bank in the exercise of
its sole discretion. A certificate submitted by the Bank to the
Borrower shall, in the absence of error, be conclusive and
binding as to the amount thereof.
2.3 (i) Discretion of Bank as to Manner of Funding. Notwithstanding any
other provision of this Agreement, Bank shall be entitled to fund
and maintain its funding of all or any part of its Revolving
Loans in any manner it sees fit, it being understood, however,
that for purposes of this Agreement all determinations hereunder
shall be made as if Bank had actually funded and maintained each
Loan bearing interest at the LIBOR-Based Rate through the
purchase of deposits in the interbank market having a maturity
corresponding to such Loan bearing interest at the LIBOR-Based
Rate and
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bearing an interest rate equal to the LIBOR-Based Rate for such
LIBOR Rate Borrowing Period.
2.4 Fees and Expenses.
-----------------
2.4 (a) Unused Line Fee. The Borrower shall pay to the Bank an unused
line fee of 18.75 basis points per annum on the daily average of
the unused amount of the Revolving Loan Commitment. Such unused
line fee shall be payable quarterly in arrears on the last day of
each calendar quarter commencing with the quarter ending June 30,
1996.
2.4 (b) Expenses. The Borrower shall reimburse the Bank for all its
expenses incurred in connection with the preparation,
negotiation, documentation, amendment, modification,
administration or enforcement of this Agreement, the Note or any
Loan Supporting Documents, including reasonable attorney and
paralegal fees.
2.5 Optional Prepayment. The Borrower may, upon same day written
notice, prepay in whole or in part, at any time and from time to
time, without premium or penalty, the principal, accrued interest
and all other amounts of any Revolving Loans bearing interest at
the Floating Rate. The Borrower may from time to time prepay
Revolving Loans bearing interest at the LIBOR-Based Rate; however,
the Borrower shall pay to the Bank an amount equal to the amount
of interest which the Bank would have earned for the balance of
such LIBOR Rate Borrowing Period in respect of the Revolving Loan
so prepaid if such Revolving Loan had not been prepaid prior to
the end of such LIBOR Rate Borrowing Period, plus any reasonable
expense or penalty incurred by Bank on so relending or reinvesting
such Revolving Loan, reduced, if Bank is able to relend or
reinvest the principal amount of the Revolving Loan so prepaid for
the balance of such LIBOR Rate Borrowing Period, by the amount of
interest to Bank on so relending or reinvesting the Revolving
Loan. Such additional payment shall not exceed the difference
between the amount of interest the Bank would have earned for the
balance of such LIBOR Rate Borrowing Period in respect of the
Revolving Loan so prepaid if such Revolving Loan had originally
been made at the Floating Rate in effect as of the date of the
prepayment, plus any reasonable expenses incurred by Bank on so
relending or reinvesting such Revolving Loan.
2.6 Application of Payments and Prepayments. Any payments made by the
Borrower under this Agreement, the Note or any of the other Loan
Supporting Documents shall be applied to Obligations owing as of
the date of payment in the following order: (i) to any amounts
owing to the Bank pursuant to Sections 2.7 and 5.1(j) of this
Agreement;
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<PAGE>
(ii) regard to interest accrued pursuant to the terms of the Note;
and (iii) to the principal balance of the Loans.
2.7 Default Interest. In the event any amount of principal or
interest due hereunder or any other payment due under this
Agreement or any of the other Loan Documents becomes overdue, such
overdue amount shall accrue interest at the Default Interest Rate
from twenty-four hours after receipt of notice thereof from Bank
through the date of payment.
2.8 Service Charges. Borrower acknowledges that Bank will charge
Borrower monthly service charges for various services performed by
Bank, which service charges have been provided to the Borrower
from the Bank and shall be updated from time to time by Bank, in
connection with the Loans and/or other aspects of the relationship
between Borrower and Bank, and Borrower hereby agrees with Bank
that if such service charges arising in any one month exceed the
credit to Borrower in that month arising from earnings
attributable to funds on deposit with Bank in demand deposit
accounts, such service charge deficiency shall be charged by Bank
against Borrower's operating account.
2.9 Payment to the Bank. All sums payable to the Bank hereunder shall
be paid directly to the Bank, at the address set forth in Section
8.8, in immediately available funds. With the prior consent of
Borrower or after the occurrence of an Event of Default, the Bank,
in its sole discretion, may charge against or debit any deposit
account of the Borrower all or any part of any amount due
hereunder or under the Note. Any check, draft or similar item of
payment by or for the account of Borrower delivered to the Bank on
account of the Obligations shall, provided the same is honored and
final settlement is reflected by irrevocable credit to Bank, be
applied on account of Borrower's Obligations on the date of final
settlement. The Bank's right from time to time after the
occurrence or happening of an Event of Default hereunder (which
has not been waived in a writing signed by the Bank) to setoff
indebtedness owing by the Borrower to the Bank against the
Borrower's monies, deposits, credits, accounts or other property
now or at any time in the possession or control of the Bank, is
hereby acknowledged and agreed to by the Borrower.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
3.1 Delivery of Documents as Conditions Precedent. The delivery of
each of the following documents (the "Loan Supporting Documents")
by the
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Borrower to the Bank shall constitute separate and distinct
conditions precedent to the making of any additional Loans by the
Bank to the Borrower:
3.1 (a) A duly executed copy of this Agreement;
3.1 (b) The duly issued and executed Revolving Note, dated as of the date
hereof;
3.1 (c) The duly executed Guaranty of the Guarantor dated as of the date
hereof in the form of Exhibit B hereto, guaranteeing the payment
and performance of the Obligations (the "Guaranty");
3.1 (d) Uniform Commercial Code financing statement, judgment and tax lien
search results for the Borrower from the Office of the Secretary
of State of Illinois and the Recorder of Deeds of Cook County,
Illinois, and from such other offices or governmental agencies or
bodies as the Bank, in its sole discretion, may reasonably
request from the Borrower from time to time, indicating that
there are no licensors or creditors claiming any interest in the
Property of the Borrower except holders of Permitted Liens;
3.1 (e) A certificate of the President of the Borrower in the form of
Exhibit C hereto;
3.1 (f) The written opinion of Sachnoff & Weaver as counsel for the
Borrower, dated as of the date hereof and addressed to the Bank,
in the substance and form set forth on Exhibit D hereto;
3.1 (g) All information, Financial Statements, or notices to be delivered
to the Bank pursuant to Section 5.1(c) hereof;
3.1 (h) Certified copies of the unanimous written consent, or resolutions
duly adopted at meeting, of the Board of Directors of the Borrower
in the form attached hereto as Exhibit E hereto authorizing the
execution, delivery and performance by the Borrower of this
Agreement, the Note and the other Loan Supporting Documents;
3.1 (i) In form and substance satisfactory to the Bank, each and every
agreement, document, note, release, guaranty, certificate, notice,
affidavit, exhibit, schedule, resolution, legal opinion or
assignment which the Bank may reasonably request from the Borrower
to effect the intent of this Agreement.
3.2 Events as Conditions Precedent. Each of the following, which shall be
true as of the date of each Loan by the Bank hereunder, are conditions
precedent to the making of any Loans by the Bank to the Borrower:
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<PAGE>
3.2 (a) Material Adverse Change. No material adverse change in the
financial condition or affairs of the Borrower shall have
occurred, as determined by the Bank in its sole and complete
discretion, since the date of the most recent Fiscal Year-end for
which the Borrower's Financial Statements have been delivered to
the Bank, pursuant to Section 5.1(c)(iv) hereof, and received
thereby;
3.2 (b) Representations and Warranties. The representations and
warranties set forth in Section 4 hereof shall be true and
correct in all material respects as of the date on which the
Borrower has requested that a Loan be made available; and
3.2 (c) Event of Default. No Event of Default hereunder, or any event
which, with the passage of time or the giving of notice or both,
would constitute, mature into, or become an Event of Default
hereunder, shall have occurred and be continuing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
As further inducement to the Bank to enter into this Agreement and
make the Loans hereunder, the Borrower represents and warrants, as of the date
hereof and as of the date of each disbursement of the Revolving Loans, the
following, which shall survive the execution and delivery of this Agreement, the
Note and the Loan Supporting Documents and continue until all of the Obligations
and indebtedness of the Borrower have been paid, satisfied or discharged in
full, regardless of any investigation by the Bank of the Borrower's financial
condition or assets:
4.1 Organization of Borrower. The Borrower is a corporation, duly
organized, validly existing and in good standing under the Laws of the
State of Illinois and is duly qualified to do and transact business
and in good standing as a foreign corporation in each and every state
in which its failure to do so would have a material adverse effect on
its business.
4.2 Corporate Authority and Consents. The Borrower has all corporate
power and authority to own its property and assets and to carry on and
engage in its business as it is now conducted, and the Borrower has
all material licenses, permits, franchises, patents, copyrights,
trademarks, tradenames, consents, approvals and authorizations
(collectively, "Licenses") required in connection with the foregoing,
all of which Licenses are in full force and effect and no action or
claim is pending, nor, to Borrower's knowledge, is threatened, to
revoke or terminate any of the Licenses or declare any License invalid
in any material respect. No consent, approval or authorization of, or
filing, registration or qualification with, any Person, governmental,
regulatory, or otherwise, is required to be obtained or
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<PAGE>
effected by the Borrower or any Affiliates in connection with the
execution, issuance, delivery and performance of this Agreement, the
Note and the Loan Supporting Documents to which the Borrower or any
Affiliates are a party or signatory or the incurrence or performance
of the Obligations of the Borrower or any Affiliates, except where the
failure to obtain such consent, approval or authorization or to make
such filing, registration or qualification would have a material
adverse effect on the condition or operations of Borrower, Borrower's
Property or Borrower's ability to perform the Obligations, or, if so
required, has been duly obtained or effected before the date hereof.
The execution, issuance, delivery and performance of this Agreement,
the Note and the Loan Supporting Documents to which the Borrower is a
party or is a signatory and the incurrence or performance of the
Obligations and indebtedness of the Borrower hereunder (a) has been
duly and properly authorized by all necessary corporate, director,
shareholder and any other action of the Borrower and (b) has not
resulted in and will not result in:
(i) the creation or imposition of any Lien, security interest,
mortgage, charge or any encumbrance of any nature whatsoever
upon any of the Borrower's property or assets, or
(ii) the violation or contravention of, the occurrence of a
default, event of default or event, which with the passage
of time or giving of notice or both, would constitute,
mature into or become a default or event of default under,
any term or provision of the Certificate or Articles of
Incorporation or bylaws of the Borrower or any Affiliates,
any certificates of authority to do or transact business,
any order of any court, or any material contract, agreement,
mortgage, indenture, instrument, judgment or, to the best of
Borrower's knowledge, Laws to which the Borrower or any
Affiliates are parties or signatories or by which the
Borrower or any Affiliates are bound.
4.3 Binding Effect and Enforceability. Upon delivery hereof and thereof,
this Agreement, the Note and the Loan Supporting Documents to which
the Borrower is a party or signatory will be the legal, valid and
binding Obligations of the Borrower enforceable in accordance with
their terms and provisions (except as enforcement thereof may be
subject to applicable bankruptcy, insolvency, moratorium or similar
laws affecting creditors' rights generally and to general principles
of equity) and, on the date of delivery, the Borrower will not be in
violation or contravention of, and no Event of Default will exist
under, any of the foregoing.
4.4 Default of Indebtedness. The Borrower is not in default and no Event
of Default or event, which with the passage of time or giving of
notice or both,
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<PAGE>
would constitute, mature into or become a default or Event of Default,
has occurred and is continuing with respect to any indebtedness of any
kind or nature including, without limitation, any mortgage, deed, loan
agreement or other agreement relating to the borrowing of monies in
excess of $200,000.
4.5 Financial Condition and Litigation. The Financial Statements of the
Borrower heretofore delivered to the Bank have been prepared in
accordance with GAAP (except that no disclosures and notes are
prepared in connection with any interim Financial Statements), and
fully and fairly present the financial condition of the Borrower as at
the dates thereof and results of operations for the periods covered
thereby. Since the most recent fiscal quarter-end for which the
Borrower's Financial Statements have been delivered to the Bank and
received thereby, no material adverse change in the Borrower's
financial condition or affairs has occurred and no dividends on or
redemptions of the shares of Borrower's stock have been made. Except
as disclosed in writing to the Bank or as set forth on the most recent
Financial Statements delivered to the Bank pursuant to Section
5.1(c)(iii) hereof and received thereby: (a) the Borrower has no
indebtedness, except as permitted hereunder; and (b) no proceedings,
suits, orders, claims, investigations, or other actions are pending
before any court or governmental authority or, to the best of
Borrower's knowledge, threatened against the Borrower or any
Affiliates which could materially adversely affect the assets,
properties, business or condition, financial or otherwise, of the
Borrower or affect the ability of the Borrower to perform any
Obligations.
4.6 Title and Liens. Except for the Permitted Liens, the Borrower, has
good and marketable title to all of its Property and assets, including
all Property and assets listed on the Financial Statements for the
Borrower's most recent Fiscal Year-end and its Property is not subject
to any liens, claims, security interests, mortgages, pledges, charges
or other encumbrance of any Person, except holders of the Permitted
Liens.
4.7 Inventory Warranties. (a) The current address for the chief executive
office of the Borrower is set forth on Schedule 4.7 hereof ("Chief
Executive Office Location") and the Inventory of the Borrower used in
such Borrower's business is located at the Chief Executive Office
Location and at the locations set forth on Schedule 4.7 hereof, except
for immaterial amounts of Inventory that may be in the possession of
Borrower's salesmen from time to time (the "Additional Inventory
Locations"); (b) no Inventory will ever be located in any locations
other than the Chief Executive Office Location or the Additional
Inventory Locations, without 30 days' prior written notice to the
Bank, except for immaterial amounts of Inventory that may be in the
possession of Borrower's salesmen from time to time; (c) all Inventory
is presently owned and will continue to be owned by the Borrower,
except as otherwise permitted pursuant to the terms of this Agreement,
free and clear
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<PAGE>
of all liens and encumbrances, other than any Permitted Liens, in good
and saleable condition.
4.8 Employee Plans. The Borrower has no Employee Plans which must meet
the minimum funding standards of Section 302 of ERISA. No Employee
Plan is a multi-employer plan within the meaning of Section 3(37) of
ERISA. All payments and/or contributions required to have been made
under the provisions of any Employee Plan or by law have been timely
made.
4.9 Taxes. The Borrower has filed all federal, state, county, municipal,
and other tax returns, reports and declarations which Borrower in good
faith and in the exercise of prudent business practices believes to be
required to be filed by the Laws, has paid all taxes, including excise
taxes, assessments, penalties, interest and any other governmental
charges which Borrower in good faith and in the exercise of prudent
business practices believes are or were due and payable, unless the
Borrower is contesting in good faith, by an appropriate proceeding,
the validity, amount or imposition of the above while maintaining
accounting reserves on the books of Borrower in an amount not less
than the maximum potential liability of Borrower, and such contest
does not have or cause a material adverse change in the Borrower's
financial condition or operations and does not impair the Borrower's
ability to perform its Obligations, has made adequate provision for
the payment of all taxes, assessments, penalties, interest and other
governmental charges which are accruing but are not yet due and
payable, and has no knowledge and is not aware of any deficiency or
additional assessment which may have or has arisen in connection with
the foregoing.
4.10 Compliance with Laws. The Borrower has complied with all material
applicable Laws, the violation of which could have a material adverse
effect on the condition or operations of Borrower, the Borrower's
Property or Borrower's ability to perform the Obligations, with
respect to: (a) any restrictions, specifications or other
requirements pertaining to products that the Borrower manufactures,
leases, sells or distributes or to the services it performs; (b) the
conduct of its business; and (c) the use, maintenance and operation of
the real and personal properties owned or leased by it in the conduct
of its business.
4.11 Subsidiaries and Affiliates. The Borrower has no Subsidiaries and no
Affiliates except the officers, directors and shareholders of
Borrower.
4.12 Corporate Names. The Borrower has no assumed corporate names and is
not doing business under any corporate name other than Enterprise
Systems, Inc. and those assumed names listed on Schedule 4.12 hereto.
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<PAGE>
4.13 Solvency. The Borrower (i) is currently Solvent and, after the
incurrence of the Obligations and indebtedness hereunder, the
execution of this Agreement, the Note and any Loan Supporting
Documents to which the Borrower is a party or signatory, and the
consummation of the transactions contemplated hereunder or thereunder,
will be Solvent. No transfer of property is being made and no
Obligation is being incurred in connection with the transactions
contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of the Borrower or any
Affiliate.
4.14 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any of the
Loans made hereunder will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4.15 Capital Stock and Related Matters
---------------------------------
4.15(a) The authorized capital stock of Borrower, as of the date hereof,
pursuant to Borrower's Articles of Incorporation and by-laws,
consists of 1000 shares of common stock, $.01 par value, of which
1 share is owned beneficially and of record by Guarantor. Borrower
is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its common
stock. All of the outstanding shares of common stock are validly,
issued, fully paid and nonassessable.
4.15(b) To the best of Borrower's knowledge, Borrower has not violated any
applicable federal state or securities laws in connection with the
offer, sale or issuance of any of its common stock. There are no
agreements between any parties with respect to the voting or
transfer of common stock.
4.15(c) No Person has any option to acquire any of the shares of stock of
Borrower.
4.16 Occupational Safety and Health. Neither Borrower nor any Affiliate
has received any notice, citation, claim, assessment or proposed
assessment as to or alleging any material violation by the Borrower or
any such Affiliate from any division of any Federal or state
occupational safety and health administrations or agencies and no such
material violation presently exists. Neither Borrower nor any
Affiliates is a party to any pending dispute with respect to the
Borrower's compliance with any Federal or state occupational safety
and health laws.
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4.17 No Options. No Person has any option to acquire ownership of the
Borrower's Property or any portion thereof.
4.18 Environmental Protection.
------------------------
4.18 (a) To the best of Borrower's knowledge, no real property owned or
leased or otherwise used by the Borrower in connection with the
conduct of its business (the "Applicable Environmental Property")
has been used for the handling, treatment, storage or disposal of
any Hazardous Materials;
4.18 (b) Neither the Borrower nor any of its Affiliates has received any
order, letter or other written communication, from any
governmental unit or agency, concerning the violation of any
Environmental Laws or concerning any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging or
dumping of any Hazardous Materials, or with respect to any air or
water discharges or emissions, on the Applicable Environmental
Property so as to threaten any liability to the Borrower or any
of its Affiliates;
4.18 (c) To the best of Borrower's knowledge, no underground storage tanks
are present on the Applicable Environmental Property and no such
tanks were previously removed; and
4.18 (d) To the best of Borrower's knowledge, there is no hazardous
environmental condition of the Applicable Environmental Property
whether natural or man-made, which the Borrower has reason to
believe poses a present or potential threat of unreasonable risk
to the health of persons, property, or the environment or which
may violate any Environmental Law.
4.19 Disclosure. No representation or warranty by the Borrower or any of
its Affiliates in this Agreement or any of the other Loan Supporting
Documents, nor any statement furnished to the Bank by the Borrower or
any of its Affiliates or agents pursuant hereto or thereto, contains
or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact, necessary when made or while the
representation or warranty is continuing, to make the statements
contained herein or therein not misleading.
4.20 Labor Relations. The Borrower has withheld all amounts required by law
or agreement to be withheld by it from the wages, salaries and other
payments to its employees, and are not liable for any arrears or wages
or any taxes or penalties for failure to comply with the foregoing.
The Borrower is not a party to any collective bargaining agreements.
To the best knowledge of the Borrower, there are no pending,
threatened or anticipated (i) employment
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discrimination or unfair labor practice charges or complaints
against or involving the Borrower before any federal, state or
local board, department, commission or agency, (ii) material
grievances, disputes or controversies with any union or any other
organization of the Borrower's employees, (iii) pending or
threatened strikes, slowdowns, work stoppages or lockouts or (iv)
any asserted pending demands for collective bargaining by any union
or organization or efforts to organize any of the employees of any
Borrower.
4.21 Other Agreements. Borrower is not a party to any contract or
agreement or subject to any charge, restriction, judgment, decree
or order materially and adversely affecting its business, Property,
assets, operations or condition, financial or otherwise.
ARTICLE V
COVENANTS
---------
The Borrower hereby covenants and agrees with the Bank that, until
the Obligations and indebtedness of the Borrower to the Bank have been satisfied
and discharged in full, the Borrower will comply with the following covenants,
unless the Bank shall give its prior written consent to the contrary:
5.1 Affirmative Covenants.
---------------------
5.1(a) Payments. The Borrower shall pay, or cause to be paid, when due
(subject to any applicable grace or cure period) all principal and
interest under the Note and all other Obligations in respect of
this Agreement, the Note and the Loan Supporting Documents.
5.1(b) Financial Covenants. The Borrower shall (a) maintain at all times a
Net Worth (determined in accordance with GAAP) of not less than
$35,000,000, (b) not permit its Interest Coverage Ratio measured as
a rolling four (4) fiscal quarter average as of the last day of any
fiscal quarter for each fiscal quarter of each Fiscal Year of
Borrower, to be less than 1.75:1, and (c) at all times maintain a
Leverage Ratio not to exceed 1:1.
5.1(c) Financial Information and Reporting. The Borrower shall keep proper
books and records with respect to its Accounts and Inventory in
which full and true entries will be made of all dealings or
transactions relating to the business and affairs of the Borrower,
in accordance with GAAP, and the Borrower shall cause to be
furnished to the Bank:
(i) Thirty (30) days after the last day of each calendar month,
beginning with the calendar month ending June 30, 1996, a
certificate in the form of Exhibit F hereto showing compliance
by Borrower with the financial covenants set forth in Section
5.1(b) hereof;
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(ii) Beginning with the month ending June 30, 1996, as soon as
practicable, and in any event within thirty (30) days after the
end of each calendar month, the Borrower's statement of income
and retained earnings and a statement of cash flow for the month
then ended and a balance sheet of the Borrower as of the end of
such month, all in reasonable detail;
(iii) Beginning with Borrower's fiscal quarter ending June 30, 1996,
as soon as practicable, and in any event within forty-five (45)
days after the end of each of the first three fiscal quarter of
each Fiscal Year, the Borrower's and Guarantor's consolidated
statement of income [and retained earnings] and a consolidated
statement of cash flow for the quarter then ended and a
consolidated balance sheet of the Borrower and the Guarantor as
of the end of such quarter, all in reasonable detail, reviewed by
an independent certified public accountant selected by the
Borrower and acceptable to the Bank and prepared in accordance
with GAAP;
(iv) As soon as practicable and, in any event, within one hundred
twenty (120) days after the end of each Fiscal Year, beginning
with the Fiscal Year ended December 31, 1996, the Borrower's and
Guarantor's consolidated and consolidating statement of income
and retained earnings and a consolidated and consolidating
statement of cash flow for the Fiscal Year then ended and a
consolidated and consolidating balance sheet of the Borrower and
Guarantor as of the end of such Fiscal Year, all in reasonable
detail, audited by an independent certified public accountant
selected by the Borrower and acceptable to the Bank and prepared
in accordance with GAAP, together with a certificate of such
accountant (i) that in performing the audit such accountant has
not obtained knowledge of any Event of Default or condition or
event which constitutes or upon notice or lapse of time or both
would constitute, an Event of Default, or disclosing all Events
of Default of which it has obtained knowledge and (ii) that he is
aware that Bank is relying on such Financial Statements;
(v) Promptly upon receipt and, in any event, within fifteen (15) days
after receipt thereof, copies of all interim and supplemental
financial reports submitted to the Borrower by independent
certified public accountants in connection with any interim audit
or review of the books and records of the Borrower made by such
accountants;
(vi) Immediately after notice to the Borrower or any Affiliate of the
Borrower of the commencement thereof, notice, in writing, of any
actions, suits, arbitration or other proceedings instituted,
commenced
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or to the Borrower's knowledge, threatened against or
affecting the Borrower of the type described in Section 4.5 of
this Agreement;
(vii) Immediately after the occurrence thereof, notice, in writing,
of any Event of Default, or any event which, with the passage of
time or giving of notice or both, would constitute, mature into
or become such an Event of Default and what action, if any, the
Borrower is taking or proposes to take with respect thereto;
(viii) Promptly after the occurrence thereof, notice, in writing, of
any other matter which has resulted in, or might result in, a
materially adverse change in the financial or other condition or
operations of the Borrower or its ability to fully perform its
Obligations under the terms and conditions of this Agreement and
the Loan Supporting Documents or its ability to repay the Note;
(ix) With reasonable promptness, such other information respecting the
business, properties or the condition or operations, financial or
otherwise, of the Borrower, as the Bank may from time to time
reasonably request in writing; and
(x) Promptly after the occurrence thereof, notice, in writing, of any
default under any of the Permitted Liens and what action, if any,
the Borrower is taking or proposes to take with respect thereto.
5.1(d) Inventory and Equipment Covenants. The Borrower shall maintain its
Inventory and Equipment on the premises at the locations described in
Section 4.8 hereof or at such other addresses as the Bank shall be
informed pursuant to Section 8.8 hereof, except for immaterial amounts
of Inventory that may be in the possession of Borrower's salesmen from
time to time.
5.1(e) Insurance. The Borrower shall, at its own expense, maintain or
cause to be maintained and provide satisfactory evidence to the Bank
as to, insurance on Borrower's Properties as is customary for Persons
in Borrower's business, all in such form, substance and amounts and
with such insurance companies or associations acceptable to the Bank
in its discretion, reasonably exercised, and any insurance policies
issued in connection with the above shall provide that said policies
shall not be cancelled or terminated without thirty (30) days' prior
written notice to the Bank. Upon Bank's request, the Borrower shall
deliver to the Bank copies of all such policies. The Borrower shall
notify the Bank within thirty (30) days of obtaining any new policy or
increase of coverage under any existing policy. If the Borrower fails
to maintain any insurance or policies of insurance as required above,
or fails to pay any premium related thereto, the Bank may, without
waiving or releasing any of Borrower's Obligations or any Event of
Default thereunder, obtain or pay the same upon notice to Borrower
(which notice shall not be
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required if an Event of Default has occurred and is continuing), but
shall be under no obligation to do so. In the event the Bank obtains
such insurance, all sums so paid and any expenses incurred in
connection therewith shall be part of the Obligations payable by the
Borrower to the Bank on demand pursuant to Section 5.1(j) hereof. The
Borrower shall also maintain in effect, in addition to the above
mentioned insurance covering its Property, such other insurance in
such amounts with such insurers and covering such risks as now
maintained by the Borrower.
5.1(f) Corporate Existence. The Borrower will maintain and preserve its
corporate existence, good standing, certificates of authority,
licenses, permits, franchises, patents, trademarks, trade names,
service marks, copyrights, leases and all other material contracts and
rights necessary to continue its operations and business on the basis
presently conducted and will generally continue substantially the same
line of business as that being presently conducted.
5.1(g) Taxes and Laws. The Borrower will pay, and shall cause Guarantor
to pay, when due all taxes, assessments, charges and levies imposed on
the Borrower or any of its income, profits, Property or assets, or
which it is required to withhold and pay out, and will comply, and
shall cause Guarantor to comply, in all material respects with all
applicable present and future Laws unless the Borrower is contesting
in good faith, by an appropriate proceeding, the validity, amount or
imposition of the above, while maintaining reserves to cover the above
which are adequate in accordance with prudent business practices, and
such contest does not have or cause a material adverse change in the
Borrower's financial condition or operations and does not impair
Borrower's ability to perform its Obligations. In the event
the Borrower fails to pay any such taxes, assessments, charges or
levies, the Bank may, without waiving or releasing any of Borrower's
Obligations or any Event of Default hereunder, pay the same upon
notice to Borrower (which notice shall not be required if an Event of
Default shall have occurred and be continuing), but shall be under no
obligation to do so. All sums so paid by the Bank and any expenses
incurred in connection therewith shall be part of the Obligations
payable by the Borrower to the Bank on demand pursuant to Section
5.1(j) hereof.
5.1(h) Repair and Maintenance. The Borrower will maintain all of its
Property and assets, including, without limitation, its Equipment and
Inventory, in good condition and repair and in proper working order,
normal wear and tear excepted, and will pay and discharge, or cause to
be paid and discharged, when due, the cost of repairs, replacement or
maintenance to the foregoing and all rentals or mortgage payments on
the foregoing, and in the event the Borrower fails in the foregoing,
the Borrower hereby authorizes, without requiring the Bank, to perform
the same and to incur such reasonable costs,
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fees and expenses in connection therewith which shall be payable on
demand by the Borrower pursuant to Section 5.1(j) hereof.
5.1(i) Inspection. Upon notice to Borrower, the Borrower, during normal
business hours, will allow the Bank, and any of its officers,
employees or agents, to visit, for inspection and review, any and all
premises where any of the Borrower's Property is located, and to make
available and furnish to the Bank the Borrower's books and records and
such financial information concerning the Borrower's Property or
assets, business, affairs, operations or financial condition as
reasonably requested by the Bank; provided, however, such notice shall
not be required if an Event of Default shall have occurred and be
continuing. The Bank shall be permitted to perform annual field
audits of any of the Borrower's premises where any of the Borrower's
Property is located at the Borrower's cost and expense.
5.1(j) Bank Costs. The Borrower shall pay to the Bank upon demand, all
reasonable out-of-pocket fees, costs and expenses incurred or paid by
the Bank (i) in connection with the insurance to be maintained under
Section 5.1(e) hereof and taxes to be paid under Section 5.1(g)
hereof; (ii) in connection with the enforcement of its rights and
remedies hereunder including, without limitation, the costs of
reasonable attorney and paralegal fees and costs of field audits as
provided in Section 5.1(i) hereof; (iii) in the repair or maintenance
of the Property of the Borrower; and (iv) in connection with any
litigation, contest, suit or proceeding (whether instituted by the
Bank, the Borrower or where payment of the Obligations might be
materially adversely affected, by any other Person) in any way
relating to the this Agreement and the Loan Supporting Documents,
except where it is determined that Bank's action or failure to act
constituted gross negligence or willful misconduct.
5.1(k) Indemnity and Release. The Borrower agrees that it will indemnify
the Bank and hold the Bank harmless from any and all claims, demands,
liabilities, losses, damages, diminutions of value, costs and expenses
relating to or in any way arising out of or from this Agreement, the
Loan Supporting Documents and/or the Loans, except as the foregoing
relate to the Bank's gross negligence, reckless or intentional
misconduct. The Borrower hereby releases the Bank from any and all
claims or causes of action which the Borrower may have, now or
hereafter, relating to any act or omission to act on the part of Bank,
its officers, agents or employees, except those arising from the
Bank's gross negligence or reckless or intentional misconduct.
5.1(l) Employee Plans. The Borrower shall (i) keep in full force and
effect any and all Employee Plans which are presently in existence or
may, from time to time, come into existence under ERISA, and not
withdraw from any such Employee Plans, unless such withdrawal can be
effected or such Employee
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<PAGE>
Plans can be terminated without material liability to the Borrower;
(ii) make contributions to all of such Employee Plans in a timely
manner and in a sufficient amount to comply with the requirements of
ERISA, including the minimum funding standards of Section 302 of
ERISA; (iii) comply with all material requirements of ERISA which
relate to such Employee Plans; (iv) notify the Bank immediately upon
receipt by the Borrower of any notice concerning the imposition of any
withdrawal liability or of the institution of any proceeding or other
action which may result in the termination of any such Employee Plans
or the appointment of a trustee to administer such Employee Plans; and
(v) promptly advise the Bank of the occurrence of any Reportable Event
or Prohibited Transaction, as defined in ERISA, with respect to any
such Employee Plans.
5.1(m) Leases. The Borrower shall maintain and comply in all material
respects with all permissible leases as listed on Schedule 5.2(b)
covering Property used by the Borrower in accordance with their terms
so as to prevent any default thereunder which may result in the
exercise or enforcement of any landlord's or other lien against the
Borrower unless (i) the Borrower is contesting in good faith, by an
appropriate proceeding, the validity, amount or imposition of any
lease charges or expenses while maintaining reserves to cover the
above which are adequate in accordance with prudent business
practices, and such contest does not have or cause material adverse
changes in the Borrower's financial condition or operations and does
not impair the Borrower's ability to perform the Obligations or (ii)
the failure by Borrower to comply will not have a material adverse
effect on such lease and Borrower's ability to occupy the premises
covered by such leases or to use the Property covered by such lease.
5.1(n) Bank Deposits.
-------------
(i) The Borrower shall have established an account (the "Operating
Account") in the Borrower's name with the Bank, into which all
monies, checks, notes and drafts (the "Funds") shall be
deposited, and into which the Borrower will immediately deposit
all payments made for Inventory or services and received by the
Borrower in the identical form in which such payments were made,
whether by cash or check. The Borrower may have unlimited access
to the Operating Account until such time after the occurrence of
an Event of Default as the Bank notifies the Borrower in writing
that it intends to restrict the Borrower's access to the
Operating Account.
(ii) The Borrower agrees that at the Bank's option during the
continuance of an Event of Default, all cash Funds deposited in
the Operating Account will be applied to the Borrower's
Obligations on the Banking Day on which the cash Funds became
available for deposit. In such circumstance, all non-cash Funds
deposited in the
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Operating Account shall be applied on the next Banking Day
after which such Funds become available for deposit. The
Borrower agrees to pay all fees, costs and expenses which the
Bank incurs in connection with opening and maintaining the
Operating Account and depositing for collection by the Bank
any check or other item of payment received by the Bank on
account of the Borrower's Obligations. All of such fees, costs
and expenses shall be payable to the Bank by the Borrower upon
demand, and, until paid, shall bear interest at the rate then
applicable hereunder. All checks, drafts, instruments and
other items of payment shall be endorsed by the Borrower to
the Bank, and, if that endorsement of any such items shall not
be made for any reason, the Bank is hereby irrevocably
authorized to endorse the same on the Borrower's behalf.
(iii) The Borrower will maintain all its primary depository and
disbursement banking accounts at the Bank and shall be
responsible for all costs associated with such accounts as are
customarily charged by the Bank.
5.2 Negative Covenants.
------------------
5.2(a) Liens. The Borrower shall not, and shall not permit the Guarantor
to, create, incur, grant, pledge, permit or suffer to exist, any
Lien, charge, mortgage, security interest, pledge or any encumbrance
upon the Borrower's Property or assets of the Borrower, except the
Permitted Liens.
5.2(b) Debt. The Borrower shall not, and shall not permit the Guarantor to,
directly or indirectly, create, assume, incur, become or be liable
for or with respect to any manner of obligations, liabilities or
Indebtedness whatsoever to any Person, including purchase money
Indebtedness in excess of $1,000,000 in the aggregate per year, or
by way of any guaranties, except with respect to (i) the Obligations
of the Borrower hereunder; (ii) trade payables and indebtedness
arising or accruing in the ordinary course of business which
indebtedness does not give rise to a Lien or other security
interest, other than a Permitted Lien, and the holders thereof
executed and deliver to Bank (in form and substance satisfactory to
Bank and its counsel) subordination agreements subordinating their
claims against Borrower therefor to the payment of the Obligations;
(iii) renewals or extensions of existing indebtedness and interest
thereon (provided the same is not increased in connection therewith;
and (iv) indebtedness due to lessors under capital leases and
operating leases shown on Schedule 5.2(b) hereto.
5.2(c) Name Changes, Mergers and Acquisitions. The Borrower shall not (i)
change its corporate name or adopt an assumed corporate name without
providing the Bank prior written notice, and such name change shall
be done in compliance with any applicable laws, (ii) consolidate or
merge with
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<PAGE>
any Person, or allow any of its shares of common stock to be
sold, exchanged or otherwise transferred without the prior written
consent of Bank which consent shall not be unreasonably withheld or
(iii) acquire any stock in, or otherwise acquire all or substantially
all of the assets or properties of, any Person without the prior
written consent of Bank, which consent shall not be unreasonably
withheld.
Notwithstanding anything to the contrary contained herein, Borrower
shall have the right to merge or consolidate with any Person, acquire
stock in or otherwise acquire all or substantially all of the assets
or properties of any Person without the prior written consent of the
Bank under the following terms and conditions:
(A) in the event of any merger or consolidation, Borrower shall be
the surviving entity; and
(B) following such merger, consolidation or transfer of Borrower's
stock, Guarantor shall own not less than 100% of all of the
issued and outstanding stock of Borrower; and
(C) if any one of the following are true:
(1) the consideration paid by Borrower in connection with such
transaction is less than $5,000,000; or
(2) the outstanding principal balance of the Loans immediately
following such transaction is less than $5,000,000; or
(3) Borrower shall use less than $5,000,000 of proceeds of the
Loan to pay consideration in connection with such
transaction. Borrower shall give Bank notice of any such
proposed acquisition not less than five (5) days prior to
the proposed closing date, together with a certificate
signed by an authorized officer of Borrower, setting forth
the financial terms of the proposed acquisition and an
analysis of the sources and uses of funds to be used in
connection with said acquisition.
5.2(d) Redemptions, Dividends and Payments. The Borrower shall not declare
or pay any dividend on its common stock unless no Event of Default
would be created by the payment of such dividend, or make any
payment on account of or for the purchase, redemption or other
retirement of any shares of its common stock.
5.2(e) Transfer of Assets. The Borrower shall not sell, lease, transfer or
otherwise dispose of any of its Property, assets or rights, except
for sales, transfers,
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leases or other dispositions which are made in the ordinary course
of business.
5.2(f) Investments and Loans. The Borrower shall not (i) make any
investments in any Person, except in short-term direct obligations
of the United States of America, in negotiable certificates of
deposit or money market accounts issued by insured commercial banks
satisfactory to Bank, in tax-exempt municipal securities, in tax-
exempt municipal money market funds, in tax-exempt municipal funds,
or in commercial paper issued by insured commercial banks
satisfactory to Bank, or (ii) hereafter make any loans or advances
to any Affiliate, Subsidiary, director, shareholder, officer or
employee of the Borrower or any Person in excess of $200,000 in the
aggregate at any one time, except for loans or advances to
Guarantor.
5.2(g) Prepayment or Modification of Indebtedness. The Borrower will not
(i) prepay any indebtedness for money borrowed by the Borrower or
any indebtedness secured by any of its assets (except for the
Obligations), (ii) enter into or modify any agreement as a result
of which the terms of payment of any of the foregoing indebtedness
are amended or modified.
5.2(h) Issuance of Securities. The Borrower shall not authorize, issue,
grant or dispose of any securities, including, without limitation,
any common stock, options, warrants or securities convertible into
common stock of the Borrower without the prior written consent of
the Bank, which consent shall not be unreasonably withheld.
5.2(i) False Statements. The Borrower will not furnish the Bank any
certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material
fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
5.2(j) Transactions with Affiliates. The Borrower shall not enter into any
agreement or arrangement, written or oral, directly or indirectly,
with an Affiliate or Subsidiary, or provide services or sell goods
to, or for the benefit of, or pay or otherwise distribute monies,
goods or other valuable consideration to, an Affiliate or
Subsidiary, except upon fair and reasonable terms no less favorable
to the Borrower than terms in a comparable arm's length transaction
with an unaffiliated Person, except as permitted pursuant to
Section 5.2(f) hereof.
5.2(k) Property. The Borrower will not permit or suffer any receiver,
trustee or assignee for the benefit of creditors, or any other
custodian to be appointed to take possession of all or any of
Borrower's Property, or permit or suffer any levy, attachment or
restraint to be made which affects any of Borrower's Property
totalling, in the aggregate, $100,000 of more.
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<PAGE>
5.2(l) Modification of Organic Documents. The Borrower will not modify,
amend or supplement Borrower's Certificate or Articles of
Incorporation or similar documents in such a way as to materially
and adversely affect Borrower's ability to repay the Obligations or
the Indebtedness.
5.2(m) Ownership of the Shares. Borrower will not suffer or permit any
change in the record or beneficial ownership of any of the shares
of Borrower's common stock.
5.2(n) Transactions Not In the Ordinary Course. Borrower shall not enter
into any transaction not in the ordinary course of business which
materially and adversely affects Borrower's ability to repay the
Obligations or the Indebtedness.
5.2(o) Guarantees. The Borrower shall not guarantee, assume, endorse or
otherwise, in any way, become directly or contingently liable in
any manner with respect to the obligations or liabilities of any
Person, except by endorsement of instruments or items for payment
or deposit or collection.
5.2(p) Capital Structure. Without the prior written consent of the Bank,
the Borrower shall not make any material change in its capital
structure, enter into any new business or in any of its business
objectives, purposes and operations any of which might in any way
adversely affect its ability to repay the Obligations.
ARTICLE VI
EVENTS OF DEFAULT
-----------------
The following shall constitute and be deemed Events of Default
hereunder:
6.1 Payment Obligations. Failure by the Borrower to make any payment
within five (5) days after such payment Obligation becomes or is
declared due or demanded.
6.2 Performance Obligations. Failure by the Borrower to perform, keep or
observe any covenants or agreements hereunder or under the Note or any
other Loan Supporting Documents and the continuance of such failure
for fifteen (15) days after notice thereof from Bank to Borrower.
6.3 Representation and Warranties. Any warranty or representation now or
hereafter made by the Borrower hereunder or by any other party to the
Loan Supporting Documents under the Loan Supporting Documents, is
untrue or incorrect in any material respect or fails to state a
material fact necessary to make such warranty or representation not
misleading in light of the circumstances in which it was made, or any
schedule, certificate, statement,
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report, financial data, notice or writing furnished to the Bank at any
time by the Borrower or by a party or signatory to the Loan Supporting
Documents is untrue or incorrect in any material respect or fails to
state a material fact needed to make the foregoing not misleading in
light of the circumstances in which the foregoing were furnished, on
the date as of which the facts set forth therein are stated or
certified.
6.4 Judgments. Any judgment or order requiring payment of monies which is
not covered by insurance, shall be rendered against the Borrower, and
such judgment or order shall remain unsatisfied or undischarged and in
effect for sixty (60) consecutive days without a stay of enforcement
or execution thereof or posting of a bond pending appeal; provided,
however, that judgments or orders in an aggregate amount not to exceed
One Hundred Thousand Dollars ($100,000) shall not be deemed an Event
of Default hereunder.
6.5 Insolvency and Related Proceedings. If Borrower (i) authorizes or
makes an assignment for the benefit of creditors; (ii) generally shall
not pay its debts as they become due; (iii) shall admit in writing its
inability to pay its debts generally as they come due; or (iv) shall
authorize or commence (whether by the entry of an order for relief or
the appointment of a receiver, trustee, examiner, custodian or other
similar official therefor or for any part of its property) any
proceeding or voluntary case under any bankruptcy, reorganization,
insolvency, dissolution, liquidation, adjustment or arrangement of
debt, receivership or similar Laws or if such proceedings are
commenced or instituted, or an order for relief or approving any
petition commencing such proceedings is entered against the Borrower,
and the Borrower, by any action or failure to act, authorizes,
approves, acquiesces, or consents to the commencement or institution
of such proceedings, and such proceedings are not dismissed within
forty-five (45) days after the date of filing, commencement or
institution.
6.6 Material Agreements. If the Borrower defaults, or a default or an
event of default occurs, under or in the performance of any material
agreement, document or instruments, whether for borrowed money or
otherwise, and such default, breach, or event of default continues
beyond any applicable grace period thereunder and the effect of
which shall be to cause the holder of such obligation, agreement,
document or instrument, or the person to whom such obligation is owed
to cause such obligation to become due prior to its stated maturity or
otherwise accelerated.
6.7 State Action. If any proceeding is instituted or commenced by any
state or office thereof, including the State of Illinois or the
Secretary of State of or any commission or other instrumentality of
the State of Illinois, seeking a forfeiture of the Borrower's
Certificate or Articles of Incorporation or certificates of authority
to transact business as a foreign corporation or of a
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license or permit held by the Borrower necessary to the conduct of its
business, and the Borrower shall fail to vacate any order entered in
such proceeding within thirty (30) days; or if the Borrower ceases to
conduct its business as now conducted or is enjoined, restrained or in
any way prevented by court, governmental or administrative order from
conducting all or any material part of its business affairs.
6.8 Tax Liens. If a notice of lien, levy or assessment other than a
Permitted Lien, is filed or recorded with respect to all or a
substantial part of the assets owned by the Borrower totalling, in the
aggregate, $100,000 or more, by the United States, or any department,
agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency, or any taxes or debts owing
at any time or times hereafter to any one or more of the foregoing
become a lien other than a Permitted Lien, upon or a substantial part
of the Property owned by the Borrower, totalling in the aggregate
$100,000 or more, unless such notice or lien is removed within thirty
(30) days after filing or recording of such notice or becoming such
lien.
6.9 Loan Supporting Documents. If a default or Event of Default occurs
under any of the Loan Supporting Documents, including, without
limitation, the Guaranty, which is not cured within the time, if any,
specified in such Loan Supporting Documents.
6.10 Full Force and Effect. If this Agreement or any of the Loan
Supporting Documents shall cease for any reason deemed material by the
Bank in its reasonable discretion, to be in full force and effect
(other than by reason of the satisfaction of all of the Obligations or
the voluntary release by Bank of any of the Loan Supporting
Documents), or any Person (other than Bank) shall disavow its
obligations thereunder or shall contest the validity or enforceability
thereof.
ARTICLE VII
RIGHTS AND REMEDIES OF THE BANK
-------------------------------
7.1 Termination of Commitment and Acceleration. Upon the Revolving Loan
Termination Date or upon the happening or occurrence of an Event of
Default involving the Borrower and described in Section 6.5, the
Banks' commitment to make the Loans, if such commitment has not yet
terminated, shall immediately terminate, and upon the happening or
occurrence of any other Event of Default set forth in Article VI, such
Event of Default not having been previously cured or waived in writing
by the Bank, the Bank, may, at its sole and complete discretion and
option, declare the Note due and payable without any presentment,
demand, protest, notice of any of the foregoing or other notice of any
kind, all of which are hereby expressly waived notwithstanding
anything contained herein or in the Note to the
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contrary, and the Bank shall have all rights and remedies now or
hereafter provided by applicable Laws and without limiting the
generality of the foregoing, may, at its option, also appropriate and
apply toward the payment of the Note, any indebtedness of the Bank to
the Borrower, howsoever, created or arising, and may also exercise any
and all rights and remedies hereunder, under the Loan Supporting
Documents.
7.2 Access to Records. Upon notice to Borrower, the Bank shall have the
right to attain access to the Borrower's books, records, files,
journals or invoices relating to the Borrower's Property or business
affairs during the Borrower's normal business hours in order to copy,
extract, verify, audit or review the same at least every six months
prior to an Event of Default and at any time after the occurrence of
an Event of Default; provided, however, no notice shall be required if
an Event of Default shall have occurred and be continuing.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Waiver. The Bank's failure, at any time or times hereafter, either to
require strict performance by the Borrower of any provisions of this
Agreement, the Note or any Loan Supporting Documents, or to enforce
the Bank's rights under such terms or provisions, shall not waive,
effect or diminish or modify such terms or provisions, notwithstanding
any conduct or custom, actual or implied, of the Bank to the contrary
or in refraining from so doing at any time or times. Any suspension
or waiver by the Bank of an Event of Default hereunder or under any
Loan Supporting Documents or right or remedy hereunder or under any
Loan Supporting Document shall not suspend, waive, release or affect
any other Event of Default or right or remedy hereunder or under any
Loan Supporting Documents. No Obligations of the Borrower, Events of
Default or right or remedy hereunder or under any Loan Supporting
Documents shall be deemed suspended or waived by the Bank unless such
suspension or waiver is in writing signed by a duly authorized officer
of the Bank and directed to the Borrower detailing such suspension or
waiver.
8.2 Applicable Law. This Agreement, the Note and the Loan Supporting
Documents have been executed, issued, delivered and accepted in and
shall be deemed to have been made under and shall be governed by and
construed in accordance with the internal law and not the conflict of
law rules of the State of Illinois.
8.3 Severability. This Agreement, the Note and Loan Supporting Documents
shall be construed and interpreted in such manner as to be effective,
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enforceable and valid under all applicable Laws. If any provision of
this Agreement, the Note or the Loan Supporting Documents shall be
held invalid, prohibited or unenforceable under any applicable Laws of
any applicable jurisdiction, such invalidity, prohibition or
unenforceability shall be limited to such provision and shall not
affect or invalidate the other provisions hereof or thereof or affect
the validity or enforceability of such provision in any other
jurisdiction, and to the extent, the provisions hereof and thereof are
severable.
8.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
8.5 Section Headings. Section headings used in this Agreement are for
convenience only and shall not effect the construction or
interpretation of this Agreement.
8.6 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Bank and the Borrower, and their respective successors
and assigns; provided, however, that the Borrower has no right to
assign any of its rights or Obligations hereunder without the prior
written consent of the Bank.
8.7 Merger Clause. This Agreement, the Note and the Loan Supporting
Documents constitute the entire agreement between the parties hereto
and thereto with respect to the Loans and may be amended only by a
writing signed on behalf of each such party. If any provision
contained in this Agreement is in conflict with, or inconsistent with,
any provision in the Note or the Loan Supporting Documents, the
provision contained in this Agreement shall govern and control.
8.8 Notices. Any notices or consents required or permitted by this
Agreement shall be (i) in writing and (ii) delivered in person,
telecopied or sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below, unless such
address is changed by written notice hereunder, and (iii) deemed duly
given upon compliance with the above.
(i) If to the Borrower:
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Attn: Mr. James Ray
Mr. David Mullen
With a copy to:
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<PAGE>
Jeffrey L. Schumacher
Sachnoff & Weaver
30 S. Wacker Drive
Chicago, Illinois
(ii) If to the Bank:
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Attention: James Minich
With a copy to:
Jeffrey L. Elegant
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
8.9 Consent to Service. The Borrower expressly submits and consents to
the jurisdiction of any state or federal court located within Cook
County, Illinois in any action, suit or proceeding commenced therein
in connection with or with respect to the Obligations, this Agreement,
the Note or any Loan Supporting Documents and waives any right to jury
trial and objection to venue in connection therewith. The Borrower
hereby waives personal service of any and all process or papers issued
or served in connection with the foregoing and agrees that service of
such process or papers may be made by registered or certified mail,
postage prepaid, return receipt requested, directed to the Borrower as
set forth in Section 8.8 above.
8.10 Waiver of Jury Trial. THE BANK AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN SUPPORTING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF SUCH
BANK OR SUCH BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE BANK TO ENTER INTO THIS AGREEMENT.
8.11 Participations. The Borrower hereby consents to the Bank's
participation, sale, assignment or transfer, at any time or times
hereafter of this Agreement or the Loan Supporting Documents, or any
portion hereof or thereof, without affecting the liability of the
Borrower hereunder; provided, however, Bank shall be responsible for
the daily administration and servicing of the Loans and shall be the
sole contact with Borrower.
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<PAGE>
8.12 Survival of Undertakings. Except to the extent provided to the
contrary in this Agreement or in the Loan Supporting Documents, no
termination or cancellation (regardless of cause or procedure) shall
in any way affect or impair the powers, obligations duties, rights and
liabilities of Borrower or Bank in relation to (i) any transaction or
event occurring prior to such termination or cancellation, and/or (ii)
any of the undertakings, agreement, covenants, warranties and
representation of Borrower contained in this Agreement or in the Loan
Supporting Documents.
8.13 Repayment of Proceeds. To the extent that Bank receives any payment
on account of Borrower's Obligations are applied on account of
Borrower's Obligations, any such payment(s) and/or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver of any other Person under any bankruptcy act,
state or federal law, common law or equitable cause, then, to the
extent of such payment(s) or proceeds received, Borrower's Obligations
or part thereof intended to be satisfied shall be revived and
continued in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of
Borrower's Obligations.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ENTERPRISE SYSTEMS, INC.
By: /s/ James H. Ray
------------------------------
Title: Treasurer
--------------------------
LASALLE NATIONAL BANK
By: /s/ James M. Minich
------------------------------
Title: Vice-President
--------------------------
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A Revolving Note
Exhibit B Guaranty
Exhibit C President's Certificate
Exhibit D Opinion of Sachnoff & Weaver
Exhibit E Secretary's Certificate
Exhibit F Compliance Certificate
SCHEDULES
---------
Schedule 4.7 Chief Executive Office and Inventory Locations
Schedule 4.12 Corporate Names
Schedule 5.2(b) Debt; Leases
</TABLE>
<PAGE>
Exhibit F
---------
COMPLIANCE CERTIFICATE
----------------------
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Re: Loan Agreement dated as of May 31, 1996 (the "Loan Agreement") between
Enterprise Systems, Inc. ("Borrower") and LaSalle National Bank
("Bank")
Gentlemen:
In accordance with Section 6.1 (c)(i) of the Loan Agreement, the Borrower
hereby certifies to Bank that:
A. On ___________, 199_, the Net Worth of Borrower was $_____________. [must
be at least $35,000,000]
B. For the period ended __________, the Interest Coverage Ratio of Borrower
was ______:1. [must be at least 1.75:1, tested quarterly as a rolling four
fiscal quarter average]
C. On ___________, 199_, the Leverage Ratio of Borrower was ______:1. [must
not exceed 1:1]
D. As of the date hereof, no Event of Default has occurred and is continuing.
E. As of the date hereof, the representations and warranties of Borrower
contained in Article IV of the Loan Agreement are true and correct (as
though remade as of that date).
F. As of the date hereof, the affirmative and negative covenants contained in
Article V of the Loan Agreement are not currently being breached.
IN WITNESS WHEREOF, Borrower has caused this Certificate to be
executed and delivered this _____ day of ________, 19__.
ENTERPRISE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
<PAGE>
GUARANTY
This Guaranty dated as of May 31, 1996, by the undersigned, Enterprise
Systems, Inc., formerly known as Enterprise Systems International, Inc., a
Delaware corporation (hereinafter referred to as "Guarantor"), to LaSalle
National Bank ("Bank"), has reference to the following facts and circumstances:
WHEREAS, Guarantor is the sole shareholder of Enterprise Systems,
Inc., an Illinois corporation ("Borrower") and is financially interested in
Borrower, and Borrower has accordingly solicited Guarantor's execution and
delivery of this Guaranty to Bank;
WHEREAS, by reason of the foregoing, it will be to Guarantor's direct
interest and financial advantage to enable Borrower to obtain loans, advances
and other financial assistance from Bank.
WHEREAS, Bank, as a condition precedent to making loans, advances,
extensions of credit and/or other financial accommodations to Borrower requires
that Guarantor execute and deliver this Guaranty.
NOW, THEREFORE, in consideration of the foregoing, Guarantor agrees as
follows:
1. Definitions.
(A) "Borrower's Liabilities": all obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims and indebtedness)
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing, under the "Loan Agreements" (hereinafter
defined), and all terms, conditions, agreements, representations, warranties,
undertakings, covenants, guaranties and provisions to be performed, observed or
discharged by Borrower under the Loan Agreements.
(B) "Guarantor's Liabilities": all of Guarantor's obligations and
liabilities to Bank under this Guaranty.
(C) "Loan Agreements": all agreements, instruments and documents,
including, without limitation, a certain Loan Agreement dated as of the date
hereof, between Bank and Borrower (the "Loan Agreement"), and all security
agreements, guaranties, pledges, powers of attorney, consents, assignments,
contracts, notices, financing statements and all other written matter
heretofore, now and/or from time to time hereafter executed by and/or on behalf
of Borrower and delivered to Bank.
(D) "Person": any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or
<PAGE>
government (whether national, federal, state, county, city, municipal or
otherwise, including without limitation, any instrumentality, division, agency,
body or department thereof).
2. Guaranty. In consideration of the financial accommodations now,
or from time to time hereafter extended by Bank to Borrower, Guarantor
unconditionally, absolutely, continuingly and irrevocably guaranties to Bank,
Borrower's prompt payment in full, when due or declared due, and Borrower's
prompt performance, of Borrower's Liabilities.
As a condition to payment or performance of Guarantor's Liabilities,
Bank is not required to (i) prosecute collection or seek to enforce or resort to
any remedies against Borrower or any other party liable to Bank on account of
Borrower's Liabilities or any guaranty thereof, or (ii) seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to Bank by Borrower or any other party liable to Bank on
account of Borrower's Liabilities or any guaranty thereof. Bank shall have no
obligation to protect, secure or insure any of the foregoing security interests,
liens or encumbrances or the properties or interests in properties subject
thereto. Guarantor's Liabilities shall in no way be impaired, affected, reduced
or released by reason of (i) Bank's failure or delay to do or take any of the
actions or things described in this Guaranty, or (ii) the invalidity,
unenforceability, loss of or change in priority or reduction in or loss of value
of any of the aforesaid security interests, liens and encumbrances.
3. Representations and Warranties. Guarantor represents and warrants
to Bank that:
(A) The statements contained in the preamble to this Guaranty are true and
correct.
(B) Guarantor is a corporation duly organized and validly existing under
the laws of the State of Delaware.
(C) Guarantor has full corporate power and authority to enter into,
execute, deliver and perform this Guaranty and to own its property and assets
and to carry on and engage in its business as it is now conducted.
(D) This Guaranty, when duly executed and delivered, will constitute a
legal, valid and binding obligation of Guarantor, enforceable against Guarantor
in accordance with its terms.
(E) The execution, delivery and/or performance by Guarantor of this
Guaranty shall not, by the lapse of time, the giving of notice or otherwise,
conflict with or result in a breach of the Certificate of Incorporation or
Bylaws of Guarantor or constitute a violation of any provision of applicable
law, or contained in any agreement, instrument or document
-2-
<PAGE>
to which Guarantor is now or may hereafter become a party or by which Guarantor
is or may become bound.
(F) Guarantor is now and at all times hereafter, shall be solvent and
generally able to pay its debts as such debts become due and Guarantor now owns
and shall at all times hereafter own property which, at a fair valuation,
exceeds the sum of Guarantor's debts.
(G) There are no actions or proceedings which are pending or to the best of
Guarantor's knowledge, threatened against Guarantor which might result in any
material and adverse change in Guarantor's financial condition or materially
affect Guarantor's ability to perform Guarantor's Liabilities.
(H) Guarantor has reviewed independently all agreements, instruments and
documents executed by Borrower, and Guarantor has made an independent
determination as to the validity and enforceability thereof upon the advice of
Guarantor's own counsel, and in executing and delivering the Guaranty to Bank,
Guarantor is not in any manner relying upon Bank as to the validity and/or
enforceability of any security interests of any kind or nature granted by
Borrower to Bank.
(I) Guarantor agrees to keep informed with respect to all pertinent facts
relating to Borrower's ability to pay and perform Borrower's Liabilities.
Guarantor acknowledges and agrees that Bank has relied and will continue to rely
upon the facts and information to be furnished to it by Guarantor. Guarantor
further acknowledges and agrees that in executing this Guaranty and at all times
hereafter, Guarantor has relied and will continue to rely upon Guarantor's own
investigation and upon sources other than Bank for all information and facts
relating to the ability of Borrower to pay and perform Borrower's Liabilities,
and Guarantor has not and will not hereafter rely upon Bank for any such
information or facts.
(J) The Guarantor has filed all federal, state, county, municipal an other
tax returns, reports and declarations which Guarantor in good faith and in the
exercise of prudent business practices believes to be required to be filed by
law, has paid all taxes, including excise taxes, assessments, penalties,
interest and other governmental charges which Guarantor in good faith and in the
exercise of prudent business practices believes are or were due and payable,
unless Guarantor is contesting in good faith, by an appropriate proceeding, the
validity, amount or imposition of the above while maintaining reserves, deemed
adequate by the Bank to cover the above, and as to which no foreclosure,
distraint, sale or similar proceedings have been commenced.
(K) The Guarantor is in material compliance with all laws, governmental
rules and regulations, and orders and decrees applicable to it and its
properties.
(L) Neither this Agreement nor any document, financial statement, credit
information, certificate or statement furnished to the Bank by the Guarantor
contains, or
-3-
<PAGE>
will contain, any untrue statement of a material fact or omits, or will omit, to
state a material fact necessary to make the statements made not misleading.
4. Covenants. Guarantor covenants and agrees with Bank that:
(A) The Guarantor shall cause to be paid on a timely basis all taxes and
assessments, special or otherwise, and any other such charges which are due and
payable.
(B) The Guarantor shall comply in all material respects with all laws,
ordinances, regulations, and orders of all governmental authorities applicable
to its business or the use of its properties. The Guarantor may contest, in
good faith, any such law, ordinance, regulation, or order and withhold
compliance during any proceeding, including appropriate appeals, so long as
Guarantor maintains reserves that are sufficient in accordance with prudent
business practices.
(C) Except for the lease, transfer, sale or other disposition of its assets
to Borrower, the Guarantor shall not sell, lease, transfer, or otherwise dispose
of all or any substantial part of the assets of the Guarantor or enter into any
sale and leaseback transaction or arrangement with respect to any properties of
the Guarantor, or wind up, liquidate, or dissolve, or agree to do any of the
foregoing. The Guarantor shall not create any subsidiaries other than Borrower.
(D) The Guarantor shall not (i) change its corporate name or adopt an
assumed corporate name without providing the Bank prior written notice, and such
name change shall be done in compliance with any applicable laws, (ii)
consolidate or merge with any Person, or allow any of its shares of common stock
to be sold, exchanged or otherwise transferred without the prior written consent
of Bank which consent shall not be unreasonably withheld or (iii) acquire any
stock in, or otherwise acquire all or substantially all of the assets or
properties of, any Person without the prior written consent of Bank, which
consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained herein, Guarantor shall
have the right to merge or consolidate with any Person, acquire stock in or
otherwise acquire all or substantially all of the assets or properties of any
Person without the prior written consent of the Bank under the following terms
and conditions:
(1) in the event of any merger or consolidation, Guarantor shall be
the surviving entity;
(2) the consideration paid by Guarantor in connection with such
transaction is less than $5,000,000; or
(3) Guarantor shall use less than $5,000,000 of proceeds of loans by
Bank to Borrower (which proceeds have been distributed, loaned or
otherwise disbursed to Guarantor from Borrower) to pay the
-4-
<PAGE>
consideration in connection with such transaction. Guarantor
shall give Bank notice of any such proposed acquisition not less
than five (5) days prior to the proposed closing date, together
with a certificate signed by an authorized officer of Guarantor,
setting forth the financial terms of the proposed acquisition and
an analysis of the sources and use of funds to be used in
connection with said acquisition.
(E) The Guarantor shall maintain its principal deposit relationship with
the Bank.
(F) The Guarantor shall not create, incur, assume, or suffer to exist any
funded or current debt, or guarantee, endorse or otherwise be or become
contingently liable in connection with the obligations, stock, or dividends of
any person, except: (a) the guaranty of Borrower's Obligations; (b) contingent
liabilities arising out of the endorsement in the ordinary course of business of
negotiable instruments in the course of collection thereof; and (c) current
liabilities arising in the ordinary course of business of the Guarantor and
which are not incurred for money borrowed.
(G) The Guarantor shall not create, incur, grant, pledge, permit or suffer
to exist any lien, charge, mortgage, security interest, pledge or encumbrance
upon any of Guarantor's property or assets, except for (i) Liens arising out of
judgments or awards in respect of which the Guarantor shall in good faith be
prosecuting an appeal or proceedings for review and in respect of which the
Guarantor shall have secured a subsisting stay of execution pending such appeal
or proceedings for review, provided the Guarantor shall have set aside
accounting reserves which the Bank, in its sole but reasonable discretion, deems
adequate with respect to such judgment or award; (ii) Liens for taxes,
assessments or governmental charges or levies, provided payment thereof shall
not at the time be required in accordance with the provisions hereof; (iii)
deposits, Liens or pledges to secure payments of worker's compensation,
unemployment insurance or social security benefits arising in the ordinary
course of business which are not overdue or are being contested in good faith by
appropriate proceedings diligently pursued, provided that Guarantor maintains
accounting reserves on its books deemed adequate by the Bank in its sole but
reasonable discretion to cover the above, and such contest does not have or
cause a material adverse change in the Guarantor's financial condition or
operations and does not impair Borrower's ability to perform its Obligations;
(iv) statutory landlords' liens under leases to which the Guarantor is a party;
and (v) Liens directly securing appeal and release bonds, provided that adequate
provision for all such obligations has been made on the books of Guarantor in
accordance with GAAP;
(H) The Guarantor shall provide to Bank such financial reports as set forth
in the Loan Agreement;
(I) The Guarantor will maintain and preserve its corporate existence, good
standing, certificates of authority, licenses, permits, franchises, patents,
trademarks, trade
-5-
<PAGE>
names, service marks, copyrights, leases and all other material contracts and
rights necessary to continue its operations and business on the basis presently
conducted; and
(J) The Guarantor shall not guarantee, assume, endorse or otherwise, in any
way, become directly or contingently liable in any manner with respect to the
obligations or liabilities of any Person, except by endorsement of instruments
or items for payment or deposit or collection and the guaranty of Borrower's
Liabilities hereunder.
5. Waivers.
(A) Guarantor waives any and all right to assert against Bank any claims or
defenses based upon any failure of Bank to furnish to Guarantor any information
or facts relating to the ability of Borrower to pay and perform Borrower's
Liabilities.
(B) Guarantor waives all defenses, counterclaims and offsets of any kind or
nature, in connection with the validity and/or enforceability of this Guaranty,
arising directly or indirectly from the perfection, sufficiency, validity and/or
enforceability of any security interest granted, or any agreement, instrument or
document executed and delivered, by Borrower to Bank, or acquired by Bank from
Borrower.
(C) Guarantor waives, but only in favor of Bank, any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution, assignment,
implied contract or any other claim which it may now or hereafter have against
the Borrower or any other Person directly or contingently liable for Borrower's
Liabilities, or against or with respect to the Borrower's property (including,
without limitation, property collateralizing Borrower's Liabilities), arising
from the existence or performance of this Guaranty until all of Borrower's
Liabilities are paid in full.
(D) Guarantor waives any right to assert against Bank as a defense,
counterclaim, setoff or crossclaim to the payment or performance of Guarantor's
Liabilities, any defense (legal or equitable), setoff, counterclaim or claim
which Guarantor may now or at any time or times hereafter have against Borrower
or any other party liable to Bank in any way or manner with respect to
Borrower's Liabilities.
(E) Guarantor hereby waives notice of the following events or occurrences
and agrees that Bank may do any or all of the following in such manner, upon
such terms and at such times as Bank in its sole discretion deems advisable
without in any way impairing, affecting, reducing or releasing Guarantor from
Guarantor's Liabilities: (i) Bank's acceptance of this Guaranty; (ii) Bank's
heretofore, now or from time to time hereafter loaning monies or giving or
extending credit to or for the benefit of Borrower, whether pursuant to the Loan
Agreements or any amendments, modifications or additions thereto or alterations
or substitutions made heretofore, now or at any time or times hereafter; (iii)
Borrower's heretofore, now or at any time or times hereafter granting to Bank
security interests, liens or encumbrances in any of Borrower's assets or Bank's
heretofore, now or from time to time hereafter obtaining, substituting for,
releasing, waiving or modifying any
-6-
<PAGE>
such security interests, liens or encumbrances; (iv) Bank's heretofore, now or
at any time or times hereafter obtaining, releasing, waiving or modifying of any
other party's guaranty of Borrower's Liabilities or any security interest, lien
or encumbrance in any other party's assets given to Bank to secure such party's
guaranty of Borrower's Liabilities; (v) Bank's heretofore, now or at any time or
times hereafter obtaining, amending, substituting for, releasing, waiving or
modifying any of the Loan Agreements; (vi) presentment, demand, notices of
default, nonpayment, partial payment and protest, and all other notices or
formalities to which Guarantor may be entitled; (vii) Bank's heretofore, now or
at any time or times hereafter granting to Borrower (and any other party liable
to Bank on account of Borrower's Liabilities) of any indulgences or extensions
of time of payment of Borrower's Liabilities; and (viii) Bank's heretofore, now
or at any time or times hereafter accepting from Borrower or any other party any
partial payment or payments on account of Borrower's Liabilities or any
collateral securing the payment thereof or Bank's settling, subordinating,
compromising, discharging or releasing the same.
6. Subordination. Guarantor covenants and agrees with Bank that:
(a) all indebtedness, liability or liabilities owed and at any time or times
hereafter owing by Borrower to Guarantor are hereby subordinated to Borrower's
Liabilities; (b) all security interests, liens and encumbrances which Guarantor
now has and from time to time hereafter may have upon any of Borrower's assets
are hereby subordinated to all security interests, liens and encumbrances which
Bank now has and from time to time hereafter may have thereon; and (c) all
indebtedness, liability or liabilities now and at any time or times hereafter
owing to Guarantor by any party liable to Bank by reason of any security
interests, liens or encumbrances granted by Borrower to Bank are hereby
subordinated to all indebtedness, liability or liabilities owed by such party to
Bank.
7. Security. Guarantor agrees that any and all security interests,
liens and encumbrances in any collateral ("Collateral") heretofore, now or at
any time or times hereafter granted by Guarantor to Bank shall secure the prompt
payment, and the prompt, full and faithful performance, of Guarantor's
Liabilities. Regardless of the adequacy of any Collateral securing Guarantor's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Guarantor, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Guarantor in possession or
control of Bank or its bailee for any purpose may at anytime be reduced to cash
and applied by Bank to or setoff by Bank against Guarantor's Liabilities
hereunder.
8. Default. The occurrence of any one of the following events
shall, at the election of Bank, be deemed a default by Guarantor ("Event of
Default"), under this Guaranty: (a) if Guarantor fails or neglects to perform,
keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Guaranty, which is required to be performed,
kept or observed by Guarantor; (b) occurrence of a default or Event of Default
under any other agreement, instrument or document heretofore, now or at any time
hereafter delivered by Guarantor to Bank; (c) if Guarantor fails to pay any of
Guarantor's Liabilities when the same are due and payable or declared due and
payable; (d) if any material portion of Guarantor's assets are seized, attached,
subjected to a
-7-
<PAGE>
writ or distress warrant, or are levied upon, or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors and
the same is not terminated or dismissed within forty-five (45) days thereafter;
(e) if a petition under the Bankruptcy Reform Act of 1978 or any similar law or
regulation shall be filed by Guarantor, or if Guarantor shall make an assignment
for the benefit of creditors; (f) if Guarantor is enjoined, restrained or in any
way prevented by court order from conducting all or any material part of
Guarantor's business affairs or if a petition under any section or chapter of
the Bankruptcy Reform Act of 1978 or any similar law or regulation is filed
against Guarantor or if any case or proceeding is filed against Guarantor for
liquidation of Guarantor's assets and such injunction, restraint or petition is
not dismissed or stayed within forty-five (45) days after the entry or filing
thereof; (g) if an application is made by Guarantor for the appointment of a
receiver, trustee or custodian for any of Guarantor's assets; (h) if an
application is made by any person other than Guarantor for the appointment of a
receiver, trustee, custodian or conservator for any of Guarantor's assets and
the same is not dismissed within forty-five (45) days after the application
therefor; (i) if a notice of lien, levy or assessment is filed of record with
respect to all or any material portion of Guarantor's assets by the United
States or any department, agency or instrumentality thereof or by any state,
county, municipal or other governmental agency, or if any taxes or debts owing
at any time or times hereafter to any one of them becomes a lien or encumbrance
upon any material portion of Guarantor's assets; (j) if Guarantor is in default
in the payment of any material liabilities owed by Guarantor to any person for
borrowed money (other than Guarantor's Liabilities) and such default is declared
and is not cured within the time, if any, specified therefor in any agreement
governing the same; or (k) if an "Event of Default" occurs under the Loan
Agreements.
9. Remedies. Upon the occurrence of an Event of Default, and the
delivery of notice thereof to Guarantor, at the address set forth below,
Guarantor's Liabilities shall be due and payable and enforceable against
Guarantor, forthwith, at Bank's principal place of business, whether or not
Borrower's Liabilities are then due and payable and Bank may, in its sole
discretion, exercise any one or more of the following remedies which are
cumulative and non-exclusive: (a) if Guarantor's Liabilities are not paid
forthwith by Guarantor to Bank at Bank's principal place of business, proceed to
suit against Guarantor; at Bank's election, one or more successive or concurrent
suits may be brought hereunder by Bank against Guarantor, whether suit has been
commenced against Borrower, and in any such suit Borrower may be joined (but
need not be joined) as a party with Guarantor; (b) reduce to cash or the like
any of Guarantor's assets of any kind or nature in the possession, control or
custody of Bank, and, with notice to Guarantor, apply the same in reduction or
payment of Guarantor's Liabilities; or (c) exercise any other right or remedy
provided by law.
10. Costs, Fees and Expenses. If at any time or times after the
occurrence of an Event of Default Bank employs counsel for advice or other
representation (i) with respect to this Guaranty, and/or (ii) to represent Bank
in any litigation, contest, dispute, suit or proceeding or to commence, defend
or intervene or to take any other action in or with respect to any litigation,
contest, dispute suit or proceeding (whether instituted
-8-
<PAGE>
by Bank, Guarantor or any other person) in any way or respect relating to the
Collateral, if any, this Guaranty or Guarantor's affairs, the reasonable costs,
fees and expenses incurred by Bank in any manner or way with respect to the
foregoing shall be part of Guarantor's Liabilities, payable by Guarantor to Bank
on demand. Without limiting the generality of the foregoing, such costs, fees
and expenses include: (i) reasonable attorneys' fees, costs, and expenses; (ii)
accountants' fees, costs and expenses; (iii) court costs and expenses; and (iv)
court reporter fees, costs and expenses.
11. Jurisdiction. This Guaranty is submitted to Bank at Bank's
principal place of business and shall be deemed to have been made thereat. This
Guaranty shall be governed and controlled as to interpretation, enforcement,
validity, construction, effect and in all other respects by the laws, statutes
and decisions of the State of Illinois. Guarantor, in order to induce Bank to
accept this Guaranty, agrees that all actions or proceedings arising directly,
indirectly or otherwise in connection with, out of, related to or from this
Guaranty shall be litigated, at Bank's sole discretion and election, only in
courts having situs within the City of Chicago, State of Illinois. Guarantor
hereby consents and submits to the jurisdiction of any local, state or federal
court located within said city and state. Guarantor hereby waives any right
Guarantor may have to transfer or change the venue of any litigation brought
against Guarantor in accordance with this paragraph. Guarantor acknowledges
that the right to a trial by jury is a constitutional right, but that the right
may be waived. Guarantor knowingly, voluntarily and without coercion, waives
all rights to trial by jury.
12. Miscellaneous. If any provision of this Guaranty or the
application thereof to any party or circumstance is held invalid or
unenforceable, the remainder of this Guaranty and the application of such
provision to other parties or circumstances will not be affected thereby, the
provisions of this Guaranty being severable in any such instance.
This Guaranty shall continue in full force and effect until Borrower's
Liabilities are fully paid, performed and discharged and Bank gives Guarantor
written notice thereof at Guarantor's address or addresses specified below.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time payment of any of Guarantor's Liabilities is rescinded or
must otherwise be returned by Bank upon the insolvency, bankruptcy or
reorganization of Guarantor or Borrower or otherwise, all as though such payment
had not been made. This Guaranty shall be binding upon Guarantor and its
successors and assigns and shall inure to the benefit of the Bank, its
successors and assigns. Written notice to Guarantor shall be to the address or
addresses specified below.
Bank's failure at any time hereafter to require strict performance by
Guarantor of any provision of this Guaranty shall not waive, effect or diminish
any right of Bank thereafter to demand strict compliance and performance
therewith.
ENTERPRISE SYSTEMS, INC.,
a Delaware corporation
-9-
<PAGE>
By: /s/ James H. Ray
--------------------------
Title: Treasurer
-----------------------
Address:
1400 South Wolf Road
Wheeling, Illinois 60090
SUBSCRIBED AND SWORN TO before the
undersigned, a notary public in and for
the State of Illinois, County of Cook,
this 31st day of May, 1996.
Lisa R. Hanna
- ------------------------
Notary Public
My Commission Expires:
9/13/98
- ------------------------
-10-
<PAGE>
AMENDMENT TO GUARANTY
This Amendment to Guaranty is made as of May 31, 1996 by and between
Enterprise Systems, Inc. (formerly known as Enterprise Systems International,
Inc.), a Delaware corporation ("GUARANTOR") and LaSalle National Bank ("BANK"),
has reference to the following facts and circumstances.
WHEREAS, Guarantor has made a guaranty in favor of Bank dated as of May 31,
1996 (the "GUARANTY") with respect to financial accommodations made by Bank to
Enterprise Systems, Inc., an Illinois corporation; and
WHEREAS, Guarantor and Bank desire to amend the Guaranty to correct an
ambiguity contained therein.
Now Therefore, in consideration of the foregoing Recitals, each of which is
made a part hereof, the parties hereby delete the first paragraph in Section
4(D) of the Guaranty and substitute the following therefor:
(D) THE GUARANTOR SHALL NOT (I) CHANGE ITS CORPORATE NAME OR ADOPT AN
ASSUMED CORPORATE NAME WITHOUT PROVIDING THE BANK PRIOR WRITTEN NOTICE, AND
SUCH NAME CHANGE SHALL BE DONE IN COMPLIANCE WITH ANY APPLICABLE LAWS, (II)
CONSOLIDATE OR MERGE WITH ANY PERSON, WITHOUT THE PRIOR WRITTEN CONSENT OF
BANK, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, (III) AT ANY TIME
THAT THE OUTSTANDING PRINCIPAL BALANCE UNDER THE LOAN AGREEMENT IS
$9,000,00 OR MORE, ISSUE SHARES OF STOCK IN A NEW PUBLIC OFFERING, WITHOUT
THE PRIOR CONSENT OF BANK WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD,
OR (IV) ACQUIRE ANY STOCK IN, OR OTHERWISE ACQUIRE ALL OR SUBSTANTIALLY ALL
OF THE ASSETS OR PROPERTIES OF, ANY PERSON, FOR CASH OR THE ISSUANCE OR
TRANSFER OF SHARES OF STOCK OF GUARANTOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF BANK, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.
The parties agree that the substitute language shall be deemed to have been
in effect from and after May 31, 1996, and the deleted text shall be void ab
initio and deemed never to have taken effect. Except as expressly amended
hereby, the Guaranty shall remain in full force and effect, unamended hereby.
Guarantor hereby reaffirms and remakes the Guaranty as of the date hereof, as if
fully set forth herein. From and after the date hereof, all references to the
Guaranty in the Guaranty and the other Loan Documents, shall mean the Guaranty,
as amended hereby.
This Agreement may be signed in one or more counterparts, each of which
shall be an original, but all of which together shall constitute one agreement,
binding on all of the parties hereto notwithstanding that all of the parties
hereto are not signatories to the same counterpart. For purposes of negotiating
and finalizing this Agreement (including any subsequent amendments thereto), any
signed document transmitted by facsimile machine ("FAX") shall be treated in all
manner and respects as an original document. The signature of any party by FAX
shall be considered for these purposes as an original signature. Any such FAX
document shall
<PAGE>
be considered to have the same binding legal effect as an original document. At
the request of either party, any FAX document subject to this Agreement shall be
re-executed by both parties in an original form. The undersigned parties hereby
agree that neither shall raise the use of the FAX or the fact that any signature
or document was transmitted or communicated through the use of a FAX as a
defense to the formation of this Agreement.
Guarantor of Bank have executed this Amendment as of the date set forth
herein.
Enterprise Systems, Inc.
By: /s/ James H. Ray
---------------------------------
Title: Treasurer
-------------------------------
LaSalle National Bank
By: /s/ James Minich
---------------------------------
Title: Vice-President
-------------------------------
2
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
ENTERPRISE SYSTEMS, INC.,
CONTINENTAL HEALTHCARE SYSTEMS, INC.
AND
INFORMATION HANDLING SERVICES GROUP, INC.
DATED MAY 28, 1996
<PAGE>
TABLE OF CONTENTS
Page
PURCHASE AND SALE OF ASSETS............................................ 1
Assets to be Transferred............................................... 1
Excluded Assets........................................................ 3
ASSUMPTION OF CERTAIN LIABILITIES...................................... 5
Certain Liabilities to be Assumed...................................... 5
Liabilities Not to be Assumed.......................................... 5
PURCHASE PRICE - PAYMENT............................................... 7
Purchase Price......................................................... 7
Payment of Purchase Price.............................................. 7
Payments Received...................................................... 7
Prorations............................................................. 8
Other Payments and Adjustments......................................... 8
Allocation of Purchase Price........................................... 9
REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER.............. 9
Corporate.............................................................. 9
Authority.............................................................. 10
No Violation........................................................... 10
Financial Statements................................................... 11
Tax Matters............................................................ 11
Accounts Receivable.................................................... 11
Relationships.......................................................... 12
Absence of Certain Changes............................................. 12
Absence of Undisclosed Liabilities..................................... 13
No Litigation.......................................................... 13
Compliance with Laws and Orders........................................ 13
Title to and Condition of Properties................................... 14
Insurance.............................................................. 15
Contracts and Commitments.............................................. 15
Labor Matters.......................................................... 17
Employee Benefit Plans................................................. 17
Employment Compensation................................................ 19
Intellectual Property.................................................. 19
Product Development and Claims......................................... 21
Affiliates' Relationships to Company................................... 22
Stockholder............................................................ 22
Assets Necessary to Matkon Business.................................... 22
No Brokers or Finders.................................................. 22
Disclosure............................................................. 22
REPRESENTATIONS AND WARRANTIES OF BUYER................................ 23
Corporate.............................................................. 23
Authority.............................................................. 23
No Violation........................................................... 23
<PAGE>
No Brokers or Finders.................................................. 24
Disclosure............................................................. 24
TRANSFEREE LIABILITY................................................... 24
Payment of Creditors................................................... 24
Severance.............................................................. 24
OTHER MATTERS.......................................................... 24
CHS-Canada Agreement................................................... 24
Libertyville........................................................... 24
Warehouse.............................................................. 24
Allocation of Assets and Space......................................... 24
Noncompetition......................................................... 25
Confidential Information............................................... 25
Unemployment Compensation.............................................. 26
Assistance............................................................. 26
Records Retention...................................................... 26
Communication Software License......................................... 26
Indemnification Agreement.............................................. 26
Transfer of Licenses-In/VAR Contracts.................................. 27
Consents to Assignments................................................ 27
Franciscan Agreement................................................... 27
INDEMNIFICATION........................................................ 28
By Company and Stockholder............................................. 28
By Buyer............................................................... 28
Indemnification of Third-Party Claims.................................. 29
Payment................................................................ 29
Limitations on Indemnification......................................... 30
CLOSING................................................................ 31
Documents to be Delivered by Company and Stockholder................... 31
Documents to be Delivered by Buyer..................................... 32
RESOLUTION OF DISPUTES................................................. 32
Arbitration............................................................ 32
Arbitrators............................................................ 33
Procedures; No Appeal.................................................. 33
Authority.............................................................. 33
Entry of Judgment...................................................... 33
Confidentiality........................................................ 33
Continued Performance.................................................. 34
Tolling................................................................ 34
MISCELLANEOUS.......................................................... 34
Further Assurance...................................................... 34
Disclosures and Announcements.......................................... 34
Assignment; Parties in Interest........................................ 34
ii
<PAGE>
Equitable Relief....................................................... 35
Law Governing Agreement................................................ 35
Amendment and Modification............................................. 35
Notice................................................................. 35
Expenses............................................................... 36
Entire Agreement....................................................... 37
Counterparts........................................................... 37
Headings............................................................... 37
Glossary of Terms...................................................... 37
iii
<PAGE>
DISCLOSURE SCHEDULE
-------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 1.1(a) - Software
Schedule 1.1(b) - Personal Property
Schedule 1.1(c) - Inventory
Schedule 1.1(d) - Personal Property Leases
Schedule 2.1 - Miscellaneous Assumed Contracts
Schedule 3.6 - Allocation of Purchase Price
Schedule 4.1(c) - Foreign Corporation Qualification
Schedule 4.3 - Consents and Violations
Schedule 4.4 - Financial Statements
Schedule 4.6 - Accounts Receivable (Billed and Unbilled)
Schedule 4.7 - Changes in Relationships
Schedule 4.8 - Material Changes
Schedule 4.9 - Undisclosed Liabilities
Schedule 4.10 - Litigation Matters
Schedule 4.11(b) - Licenses and Permits
Schedule 4.13 - Insurance
Schedule 4.14(a) - Licenses-Out
Schedule 4.14(b) - Licenses-In
Schedule 4.14(i) - Other Material Contracts
Schedule 4.14(j) - No Default
Schedule 4.15 - Labor Matters
Schedule 4.16(a) - Employee Plans/Agreements
Schedule 4.17 - Employees and Compensation
Schedule 4.18(a) - Intellectual Property
Schedule 4.18(h) - Form of Non-Disclosure Agreement
Schedule 4.19 - Product Development and Claims
Schedule 4.20 - Affiliate Relationships
Schedule 7.13 - Certain Assumed Contracts Requiring Consents
EXHIBITS
--------
Exhibit A Plan of Separation
Exhibit B Company Counsel Opinion
Exhibit C Buyer Counsel Opinion
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated May 28, 1996, by and
among Enterprise Systems, Inc., a Delaware corporation ("BUYER"), Continental
Healthcare Systems, Inc., a Delaware corporation ("COMPANY"), and Information
Handling Services Group, Inc., a Delaware corporation ("STOCKHOLDER").
RECITALS
A. Company, is engaged in the business of designing, developing,
marketing, selling and servicing a variety of healthcare information systems,
which includes a line of systems and products relating to materials management,
including the product lines and software described in Schedule 1.1(a) hereto
(such line of business is hereafter referred to as the "MATKON BUSINESS").
B. Stockholder is the owner of all the issued and outstanding capital
stock of Company.
C. Buyer desires to purchase from Company, Company desires to sell to
Buyer, and Stockholder desires to cause Company to sell to Buyer, the Matkon
Business.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree
as follows.
1. PURCHASE AND SALE OF ASSETS
1.1. Assets to be Transferred. Subject to the terms and conditions of
this Agreement, simultaneously with the execution of this Agreement by the
parties, Company shall sell, transfer, convey, assign and deliver to Buyer (or
upon Buyer's request, to one or more wholly-owned subsidiaries of Buyer as
designated by Buyer), and Buyer shall purchase and accept, the Matkon Business
and all rights, properties and assets (of every kind, nature, character and
description, whether real, personal or mixed, whether tangible or intangible,
whether accrued, contingent or otherwise, and wherever situated) used in or
pertaining to the Matkon Business, together with all rights and privileges
associated with such assets and with the Matkon Business, other than the
Excluded Assets (as hereinafter defined) (collectively the "PURCHASED ASSETS").
The Purchased Assets shall include, but not be limited to, the following:
1.1.(a) Intellectual Property. Any and all of the following which is
owned by, licensed by, licensed to, used or held for use by Company (including
all copies and embodiments thereof, in electronic, written or other media) in
connection with or which
<PAGE>
is related to the Matkon Business: (i) all registered and unregistered U.S. and
foreign trademarks, trade dress, service marks, logos, trade names, corporate
names (including the names "Matkon," "Matkon 2000," "Interkon" and "Matkon
Synergy" and all applications to register the same ("TRADEMARKS"); (ii) all
issued U.S. and foreign patents and pending patent applications, patent
disclosures and improvements thereto ("PATENTS"); (iii) all registered and
unregistered copyrights, mask work rights and all applications to register the
same ("COPYRIGHTS"); (iv) all computer software and databases, object and source
code, routines, subroutines and algorithms, and related documentation owned,
developed, under development or used by Company or under development for Company
by third parties including, but not limited to, the software and systems
identified on Schedule 1.1.(a) ("SOFTWARE"); (v) all categories of trade
secrets, know-how, inventions (whether or not patentable and whether or not
reduced to practice), processes, procedures, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans,
customer and supplier lists and information and other confidential and
proprietary information ("PROPRIETARY RIGHTS"); (vi) all licenses and agreements
pursuant to which Company has acquired rights in or to any of the Trademarks,
Patents, Copyrights, Software or Proprietary Rights or any software or other
intellectual property or proprietary Rights incorporated therein or used in
connection therewith ("LICENSES-IN"), all of which are set forth on Schedule
4.14(b); and (vii) all licenses and agreements pursuant to which Company has
licensed or transferred any rights to any of the Trademarks, Patents,
Copyrights, Software or Proprietary Rights, all of which are set forth on
Schedule 4.14(a) ("LICENSES-OUT") (collectively, "INTELLECTUAL PROPERTY").
1.1.(b) Personal Property. All computer hardware, machinery,
equipment, vehicles, tools, supplies, spare parts, furniture, leasehold
improvements and all other personal property (other than personal property
leased pursuant to Personal Property Leases as hereinafter defined) owned,
utilized or held for use by Company on the date hereof primarily for use
by or in connection with the Matkon Business including, but not limited to,
the items described on Schedule 1.1(b) and any assets which are to be
transferred to Buyer as provided in the Plan of Separation (as hereinafter
defined).
1.1.(c) Inventory. All inventories of computer hardware, raw
materials, work-in-process and finished goods (including all such in transit),
and service and repair parts, supplies and components held for resale by
Company for use in connection with the Matkon Business on the date hereof,
together with related packaging materials including, but not limited to, the
items described on Schedule 1.1(c) (collectively, "INVENTORY").
1.1.(d) Personal Property Leases. The leases of machinery,
equipment, vehicles, furniture and other personal property leased by
Company for use by or in connection with the Matkon Business, but only
such leases set forth in Schedule 1.1.(d) ("PERSONAL PROPERTY LEASES").
2
<PAGE>
1.1.(e) Contracts. All of Company's rights in, to and under all
contracts, licenses, leases, installment sales contracts, purchase orders and
sales orders of Company associated with or related to the Matkon Business,
including Licenses-Out, to the extent such contracts are Assumed Contracts
(as hereinafter defined) ("CONTRACTS").
1.1.(f) Literature. All sales literature, promotional literature,
advertising materials, catalogs and similar materials for use in connection
with the Matkon Business.
1.1.(g) Records and Files. All records and files of every kind
associated with or related to the Matkon Business including, without
limitation, invoices, customer and vendor lists, blueprints, specifications,
designs, drawings, and operating and marketing plans, and all other documents,
tapes, discs, programs or other embodiments of information related thereto.
1.1.(h) Accounts Receivable. All accounts receivable, whether
billed or unbilled, associated with or related to the Matkon Business.
1.1.(i) Licenses and Permits. All licenses, permits, approvals and
certifications primarily associated with the Matkon Business.
1.1.(j) Other Assets. All lease receivables, bonds, all causes of
action arising out of occurrences before or after the Closing, and other
intangible rights and assets associated with or related to the Matkon Business.
1.2. Excluded Assets. The provisions of Section 1.1 notwithstanding,
Company shall not sell, transfer, assign, convey or deliver to Buyer, and Buyer
will not purchase or accept, the following assets used in, associated with or
related to the Matkon Business (collectively, the "EXCLUDED ASSETS"):
1.2.(a) Cash and Cash Equivalents. All cash and cash equivalents,
other than petty cash balances at Company's various places of business.
1.2.(b) Consideration. The consideration delivered by Buyer to
Company pursuant to this Agreement.
1.2.(c) Tax Credits and Records. Federal, state and local income
and franchise tax credits and tax refund claims, any amounts due under tax
sharing agreements and associated returns and records; provided, however,
Buyer shall have reasonable access to such returns and records and may make
excerpts therefrom and copies thereof.
1.2.(d) Corporate Franchise. Company's franchise to be a
corporation, its certificate of incorporation, corporate seal, stock books,
minute books and other corporate
3
<PAGE>
records having exclusively to do with the corporate organization and
capitalization of Company.
1.2.(e) Lutheran Invoices. An interest in the amount of $360,924.94
in the accounts receivable represented by invoice #97796 dated May 17, 1996
("FIRST LUTHERAN INVOICE") issued to Lutheran Health Systems ("LUTHERAN")
pursuant to that Software License and Equipment Purchase Agreement dated May 13,
1996 and a receivable for $362,402.00 remaining to be billed ("SECOND LUTHERAN
INVOICE") for base system hardware for Lutheran processing centers 1 and 4
(collectively, the "LUTHERAN INVOICES").
1.2.(f) Pharmakon Assets. All rights, properties and assets
primarily used in or pertaining to the Company's healthcare information
systems relating to the Pharmakon pharmacy management or to any other lines
of business of the Company, other than the Matkon Business, and any assets
which are to remain with the Company as provided in the Plan of Separation.
1.2.(g) Mainframe Computer. All computer hardware and related
assets used by the Company which is owned by the Company's Affiliate and
located in Englewood, Colorado.
1.2.(h) Excluded Contracts. Rights under contracts not assumed
by Buyer.
1.2.(i) Continental Name. All registered and unregistered U.S.
and foreign trademarks, trade dress, service marks, logos, trade names and
corporate names with respect to the names "Continental Healthcare Systems",
"Continental", "Information Handling Services", "IHS Group", "IHS" or any
variation thereof or any name or mark similar thereto.
1.2.(j) Accounting Records. All corporate accounting journals
and corporate books of account.
1.2.(k) Benefits Plans. All assets relating to employee benefit
plans.
1.2.(l) Insurance Policies. All insurance policies, rights to
prepaid premiums and claims against insurers under such policies.
1.2.(m) Prepayments. All prepayments.
1.2.(n) Communications Software. Communications routines used
by both the Matkon Business and other lines of business of the Company
(the "COMMUNICATIONS SOFTWARE") (except as set forth in Section 7.10).
4
<PAGE>
2. ASSUMPTION OF CERTAIN LIABILITIES
2.1. Certain Liabilities to be Assumed. Subject to the terms and
conditions of and simultaneously with the execution of, this Agreement, Buyer
shall assume and agree to perform the Company's Liabilities associated with the
Matkon Business arising after or remaining to be performed after the date hereof
under and pursuant to Contracts described in any of Schedule 1.1(d), 4.14(a) and
2.1 (collectively, the "ASSUMED LIABILITIES" or the "ASSUMED CONTRACTS") and no
other Liabilities except as otherwise provided in this Agreement. As used in
this Agreement, the term "LIABILITY" shall mean and include any direct or
indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency,
cost, expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, liquidated or unliquidated, secured or unsecured.
2.2. Liabilities Not to be Assumed. Except as and to the extent
specifically set forth in Section 2.1 or in any other provision of this
Agreement, Buyer is not assuming any Liabilities of Company and all such
Liabilities shall be and remain the responsibility of Company. Company shall,
in the ordinary course of business through and from and after the date hereof,
pay any and all obligations of the Matkon Business not assumed by Buyer
hereunder. In particular, and notwithstanding the provisions of Section 2.1,
Buyer is not assuming and Company shall not be deemed to have transferred to
Buyer any of the following Liabilities of Company:
2.2.(a) Certain Contracts. The Liabilities of Company under and
pursuant to the following contracts and leases:
(i) Software Development Agreement dated March 31, 1994
by and between Wipro Systems Limited and Company;
(ii) Independent Contractor Agreement executed December 9,
1994 by and between Wipro Systems Limited and Company;
(iii) Amendment No. 1 dated September 29, 1995 to the
Independent Contractor Agreement executed December 9, 1994 by and between
Wipro Systems Limited and Company;
(iv) Software License and Equipment Purchase Agreement
(the "FRANCISCAN AGREEMENT") dated January 4, 1995 by and between
Franciscan Health System ("FRANCISCAN") and Company (but only with
respect to the obligation to reimburse Franciscan for the cost of a third
party's accounts payable module);
(v) Business Park Gross Lease dated as of August 23, 1995
by and between The Realty Associates Fund III, L.P. and Company;
5
<PAGE>
(vi) Lease Agreement dated December 24, 1985 by and
between Commerce Plaza Partners I, L.P. and Company, as amended as of
June 7, 1995; and
(vii) Computer Software Systems License Agreements between
Company and Abbott Laboratories.
2.2.(b) Taxes Arising from Transaction. Any taxes applicable to,
imposed upon or arising out of the sale or transfer of the Purchased Assets
to Buyer and the other transactions contemplated by this Agreement, including
but not limited to any income, transfer, sales, use, gross receipts or
documentary stamp taxes; provided, that any sales taxes arising from or related
to the Purchase Price paid or to be paid to Company shall be paid one-half by
Company and one-half by Buyer.
2.2.(c) Insured Claims. Any Liability of Company insured against,
to the extent such Liability is or will be paid by an insurer for matters
arising or events or actions which occurred before the date hereof.
2.2.(d) Product Liability. Any Liability of Company arising out of
or in any way relating to or resulting from any Software or system installed
or sold or product manufactured, assembled or sold prior to the date hereof
(including any Liability of Company for claims made for injury to person,
damage to property or other damage, whether made in product liability, tort,
breach of warranty or otherwise), except only that Buyer is assuming Company's
Liabilities (including any of the foregoing Liabilities) under and pursuant to
the Assumed Contracts.
2.2.(e) Litigation Matters. Any Liability with respect to any action,
suit, proceeding, arbitration, investigation or inquiry, whether civil,
criminal or administrative pending on the date hereof ("LITIGATION"), whether or
not described in Schedule 4.10.
2.2.(f) Transaction Expenses. All Liabilities incurred by Company
in connection with this Agreement and the transactions contemplated herein.
2.2.(g) Liability for Breach. Liabilities of Company for any breach
or failure, arising prior to the date hereof, to perform any of Company's
covenants and agreements contained in, or made pursuant to, this Agreement, or
any other contract (other than contracts for software or hardware which have
not been fully installed, all of which are set forth in the Unbilled
Recievables (the "CURRENT INSTALLATION CONTRACTS")), whether or not assumed
hereunder.
2.2.(h) Liabilities to Affiliates. Liabilities of Company to its
present or former Affiliates. Unless otherwise defined, for purposes of this
Agreement, the term "AFFILIATE" shall mean (i) any corporation, partnership,
trust, person or other entity directly or indirectly controlling, controlled
by, or under common control with, an
6
<PAGE>
individual or entity; (ii) any officer, director or holder or beneficial owner
of five percent (5%) or more of the outstanding voting securities, of an entity;
or (iii) the spouse; descendants, parents or siblings of a natural person. For
the purposes of clause (ii), the term "BENEFICIAL OWNER" shall include any group
of individuals acting in concert. A party shall be deemed the "beneficial
owner" of any securities held by any person whose ownership would be attributed
to such party under Section 318 of the Internal Revenue Code of 1986, as
amended. For the purposes hereof, "PERSON" shall mean any individual, trust,
corporation, partnership, limited liability company or other business
association or entity, court, governmental body or governmental agency.
2.2.(i) Violation of Laws or Orders. Liabilities of Company for any
violation of or failure to comply with any statute, law, ordinance, rule or
regulation (collectively, "LAWS") or any order, writ, injunction, judgment, plan
or decree (collectively, "ORDERS") of any court, arbitrator, department,
commission, board, bureau, agency, authority, instrumentality or other
governmental body, whether federal, state, municipal, foreign or other
(collectively, "GOVERNMENT ENTITIES").
2.2.(j) Severance and Sick Pay. Liabilities, if any, of Company
with respect to the payment of accrued sick pay or severance arrangements with
respect to employees of Company.
3. PURCHASE PRICE - PAYMENT
3.1. Purchase Price. The purchase price ("PURCHASE PRICE") for the
Purchased Assets shall be $13,892,926.00.
3.2. Payment of Purchase Price. The Purchase Price shall be paid by
Buyer simultaneously with the execution of this Agreement as follows:
3.2.(a) Assumption of Liabilities. Buyer shall deliver to Company
such documents and instruments as are reasonably required to evidence the
assumption of the Assumed Liabilities.
3.2.(b) Cash to Company. Buyer shall deliver to Company the Purchase
Price by wire transfer of immediately available funds to an account designated
by the recipient.
3.3. Payments Received. After the date hereof, Buyer shall have the
right and authority to collect, for its own account, all Billed Receivables
(as hereinafter defined) and Unbilled Receivables (as hereinafter defined) and
to endorse with the name of Company any checks received by Buyer on account of
such Billed Receivables or Unbilled Receivables. The Company agrees that any
payments received with respect to the Matkon Business with respect to the
Purchased Assets after May 20, 1996 shall be
7
<PAGE>
held in trust for the benefit of Buyer (other than the Lutheran Invoices) and
for a period of one year following the date hereof, Company, Stockholder and
their Affiliates shall cooperate with Buyer in the collection of Billed
Receivables and Unbilled Receivables. Company, Stockholder or their Affiliates
shall promptly transfer or deliver to Buyer any cash or other property received
by them after May 20, 1996 in respect of any Billed Receivables or Unbilled
Receivables or otherwise with respect to the Matkon Business that are included
in the Purchased Assets. The Company has satisfied all requirements required to
issue the First Lutheran Invoice in accordance with the contract with Lutheran.
The Company will satisfy all requirements to issue the Second Lutheran Invoice
in accordance with the contract with Lutheran except for the provision of
installation and implementation services required under the contract. Company
has purchased and will pay for all computer and other equipment covered by the
Second Lutheran Invoice (which is not included in Inventory), and Company will
reimburse Buyer for the cost of preparing, storing and delivering such
equipment.
3.4. Prorations. The following prorations relating to the Purchased
Assets will be made as of the date hereof, with Company liable to the extent
such items relate to any time period up to and including the date hereof and
Buyer liable to the extent such items relate to periods subsequent to the date
hereof. The net amount of all such prorations will be settled and paid within
30 days after the date hereof. If the actual expense is not payable within 30
days after the date hereof, the proration shall be made as soon as possible
after the amounts become known.
3.4.(a) Personal property taxes, real estate taxes and assessments,
and other taxes, if any, on or with respect to the Purchased Assets.
3.4.(b) Rents, additional rents, taxes and other items payable by
Company under any lease, license, permit, contract or other agreement or
arrangement to be assigned to or assumed by Buyer.
3.4.(c) The amount of rents, taxes and charges for sewer, water,
fuel, telephone, electricity and other utilities; provided that, if practicable,
meter readings shall be taken at the date hereof and the respective obligations
of the parties determined in accordance with such readings.
3.5. Other Payments and Adjustments. Company will timely pay to all
employees of the Company who are employed by Buyer after the Closing ("AFFECTED
EMPLOYEES") the amount of wages and other remuneration due with respect to
periods to and including the date hereof, the amount of bonuses due to employees
for all such periods and commission for all contracts executed or other sales
made prior to and including the date hereof, whether or not due and payable as
of the date hereof. Notwithstanding any policy or agreement to the contrary,
such payments shall be made regardless of whether or not individuals are
employed by Company at the time such payments are to be made. Buyer shall
assume any and all obligations with respect to all
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vacation unpaid by Company as of the date hereof attributable to any period or
partial period of employment by Company prior to the date hereof, for Affected
Employees who have not as of the date hereof taken vacation time earned prior to
the date hereof. Buyer shall accord each Affected Employee credit for the
length of service of such employee with the Company for purposes of Buyer's
vacation policy. Company, at its expense, shall cause its health insurance
coverage, as it exists on the date of this Agreement, to cover all Affected
Employees until June 1, 1996, and at Buyer's request and expense, until July 1,
1996. Thereafter, each Affected Employee shall, to the extent eligible, be
covered by Buyer's health insurance plan as then in effect.
3.6. Allocation of Purchase Price. The aggregate Purchase Price
(including the assumption by Buyer of the Assumed Liabilities) shall be
allocated among the Purchased Assets for tax purposes in accordance with
Schedule 3.6, subject to the valuation to be performed by Buyer's valuation
consultant. If the allocation set forth in Schedule 3.6 does not correspond with
such valuation, the parties shall make adjustments in accordance with such
valuation as they reasonably agree. Company and Buyer will follow and use such
allocation in all tax returns, filings or other related reports made by them to
any governmental agencies. To the extent that disclosures of this allocation are
required to be made by the parties to the Internal Revenue Service ("IRS") under
the provisions of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "CODE") or any regulations thereunder, Buyer and Company will disclose such
reports to the other prior to filing with the IRS.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
Company and Stockholder, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall be unaffected by any investigation made by Buyer
(provided, however, that Buyer represents to Company and Stockholder that Buyer
does not have knowledge that any of Company's and Stockholder's representations
and warranties set forth herein are false), and shall survive the Closing of the
transactions provided for herein.
4.1. Corporate.
4.1.(a) Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Stockholder is a corporation duly organized, validly existing and in good
standing under the laws of Delaware.
4.1.(b) Corporate Power. Company has all requisite corporate power
and authority to own, operate and lease its properties, to carry on its Matkon
Business as and where such is now being conducted, and Company and Stockholder
have all required
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corporate power and authority to enter into this Agreement and the other
documents and instruments to be executed and delivered by them pursuant hereto
and to carry out the transactions contemplated hereby and thereby.
4.1.(c) Qualification. Company is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by it,
or the nature of its business, makes such licensing or qualification necessary
except where failure to qualify would not have a material adverse effect on the
Matkon Business. The states in which Company is licensed or qualified to do
business are set forth in Schedule 4.1.(c).
4.1.(d) No Subsidiaries. Company does not own any interest in any
corporation, partnership or other entity with respect to the Matkon Business.
4.2. Authority. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Company and
Stockholder pursuant hereto and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors and Stockholder of Company, respectively. No other or further
corporate act or proceeding on the part of Company or Stockholder is necessary
to authorize this Agreement or the other documents and instruments to be
executed and delivered by Company or Stockholder pursuant hereto or the
consummation of the transactions contemplated hereby and thereby. This
Agreement constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Company or Stockholder pursuant
hereto will constitute, valid and binding agreements of Company, enforceable in
accordance with their respective terms.
4.3. No Violation. Except as set forth in Schedule 4.3, neither the
execution and delivery of this Agreement or the other documents and instruments
to be executed and delivered by Company or Stockholder pursuant hereto, nor the
consummation by Company and Stockholder of the transactions contemplated hereby
and thereby (i) will violate any applicable Law or Order; (ii) will require any
authorization, consent, approval, exemption or other action by or notice to any
Government Entity by Company or Stockholder (including, without limitation,
under any "plant closing" or similar law); or (iii) subject to obtaining the
consents required under any Assumed Contracts, will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
(as hereinafter defined) upon any of the assets of Company under, any term or
provision of the charter or By-Laws of Company or Stockholder or of any
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Company or Stockholder is a party or by which
Company or Stockholder or any of its assets or properties may be bound or
affected.
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4.4. Financial Statements. Included as Schedule 4.4 are true and
complete copies of the financial statements of Company consisting of (i) balance
sheets of Company as of November 30, 1994 and 1995 (the "BALANCE SHEETS"), and
the related statements of income for the years then ended; (ii) balance sheet of
Company as of April 30, 1996, the related statement of income for the five
months then ended; and (iii) the pro forma balance sheet of the Matkon Business
as of November 30, 1995, and the related statement of income for the year then
ended and the pro forma balance sheet of the Matkon Business as of April 30,
1996, and the related statement of income for the five months then ended. All
such financial statements have been prepared in accordance with Company's
accounting policies, consistently applied, and for the November 30 financial
statements, in accordance with accounting principles that are reviewed annually
by Price Waterhouse and approved for consolidation in Stockholder's audited
financial statements, and on that basis fairly present the financial position
and the results of operations of the Matkon Business and Company (to the extent
they reflect the assets, operations or results of the Matkon Business) as of the
dates and for the periods indicated.
4.5. Tax Matters.
4.5.(a) Taxes. All federal and all material state, foreign, county,
local and other tax returns required to be filed by or on behalf of Company
have been timely filed (or filing extensions applied for) and when filed were
true and correct in all material respects, and the taxes shown as due thereon
were paid or adequately accrued (and accrued amounts will be paid when due) and
the Company is not liable for any additional taxes or tax payments. Company
has duly withheld and paid all taxes which it was required to withhold and pay
relating to salaries and other compensation heretofore paid to the employees
of Company.
4.5.(b) Other. Company has not (i) filed any consent or agreement
under Section 341(f) of the Code, (ii) applied for any tax ruling, (iii)
entered into a closing agreement with any taxing authority, or (iv) filed
an election under Section 338(g) or Section 338(h)(10) of the Code (nor has a
deemed election under Section 338(e) of the Code occurred).
4.6. Accounts Receivable. Schedule 4.6 sets forth an accurate, correct
and complete description of all Billed Receivables and Unbilled Receivables of
Company as of May 20, 1996, with an indication of which have been billed (and
the aging) and which are unbilled. The Purchase Price reflects a discounted
amount paid for Billed Receivables, and no representation is made as to
collectibility. "BILLED RECEIVABLES" shall mean accounts receivable of Company
for which invoices have been delivered to customers and which represent valid
billing pursuant to arm's length sales actually made, billed, dated and
delivered in the ordinary course of business in accordance with the terms of the
underlying contracts pursuant to which Company was entitled to issue invoices
and Company met all contractual conditions required under the applicable
contract to issue such invoices. The members of the executive management
committee of
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Company are not aware of any material disputes, counterclaims or claims for
offset with respect to Billed Receivables which have been issued within 90 days
of the date hereof. All unbilled accounts receivable ("UNBILLED RECEIVABLES")
represent accounts for receivables recorded in the ordinary course of business
pursuant to arm's length sales.
4.7. Relationships. Except as set forth on Schedule 4.7, the members of
the executive management committee of Company do not have actual knowledge, that
(i) any material customer will not continue to be a customer of the Matkon
Business after the date hereof, (ii) any customer intends to return the core
modules of Matkon software or ADS software or cancel any material agreement with
the Company relating to the Matkon Business; (iii) any material supplier will
not continue to supply the Matkon Business with substantially the same quantity
and quality of goods or services at competitive prices; or (iv) any employee of
Company which Buyer has indicated a willingness to hire would not accept
employment with Buyer.
4.8. Absence of Certain Changes. Except as and to the extent set forth
in Schedule 4.8, since April 30, 1996 there has not been:
4.8.(a) Adverse Change. Any material adverse change in the
financial condition, assets, Liabilities, business or operations of the
Matkon Business;
4.8.(b) Damage. Any material loss, damage or destruction, whether
covered by insurance or not, affecting the Matkon Business or Purchased Assets;
4.8.(c) Increase in Compensation. Any increase in the compensation,
salaries or wages payable or to become payable to any employee or agent of
Company (including, without limitation, any increase or change pursuant to any
bonus, pension, profit sharing, retirement or other plan or commitment), or any
bonus or other employee benefit granted, made or accrued other than in the
ordinary course of business;
4.8.(d) Labor Disputes. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the Matkon
Business, financial condition or results of operations of the Matkon Business;
4.8.(e) Commitments. Any commitment or transaction by Company with
respect to the Matkon Business (including, without limitation, any borrowing
or capital expenditure) other than in the ordinary course of business
consistent with past practice;
4.8.(f) Disposition of Property. Any sale, lease or other transfer
or disposition of any properties or assets of the Matkon Business, except for
the sale of inventory items or licenses entered into in the ordinary course of
business;
4.8.(g) Amendment of Contracts. Any entering into, amendment or
termination by Company of any contract, or any waiver of material rights
thereunder,
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associated with or related to the Matkon Business which is not listed on a
schedule hereto;
4.8.(h) Matkon Business. Any material change in the manner in which
the Matkon Business has been conducted;
4.8.(i) Accounting Principles. Any change in the accounting
principles, methods or practices (except as contemplated by this Agreement)
or any change in the depreciation or amortization policies or rates; or
4.8.(j) Unusual Events. Any other event or condition not in the
ordinary course of business that is materially adverse to the Matkon Business.
4.9. Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed, reflected or reserved against in the balance sheet of
the Company dated as of April 30, 1996 or in Schedule 4.9 or any other schedules
to this Agreement, Company does not have any Liabilities with respect to the
Matkon Business required to be disclosed, reflected or reserved against in a
balance sheet prepared in accordance with generally accepted accounting
principles other than commercial liabilities and obligations incurred since
April 30, 1996 in the ordinary course of Matkon Business and consistent with
past practice and none of which has or will have a material adverse effect on
the Matkon Business, financial condition or results of operations of the Matkon
Business.
4.10. No Litigation. Except as set forth in Schedule 4.10, there is no
Litigation pending or, to the knowledge of Company or Stockholder threatened
against Company, its directors (in such capacity), or any of its assets related
to or which might be reasonably anticipated to affect the Matkon Business or the
Purchased Assets. Schedule 4.10 also identifies all Litigation to which Company
or any of its directors have been parties since January 1, 1994 which is related
to or which might be reasonably anticipated to affect the Matkon Business or the
Purchased Assets. Except as set forth in Schedule 4.10, neither Company nor any
of the Purchased Assets is subject to any Order.
4.11. Compliance with Laws and Orders.
4.11.(a) Compliance. Company is in compliance in all material
respects with all applicable Laws and Orders with respect to the Matkon
Business, including, without limitation, those applicable to discrimination
in employment, occupational safety and health, trade practices, competition
and pricing, product warranties, zoning, building and sanitation, employment,
retirement and labor relations, product advertising and the Environmental Laws
(as hereinafter defined). Company has not received notice of any violation or
alleged violation of, and is subject to no Liability for past or continuing
violation of, any Laws or Orders. All material reports and returns required
to be filed by Company with any Government Entity have been filed, and were
accurate and complete when filed.
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4.11.(b) Licenses and Permits. Company has all material licenses,
permits, approvals, authorizations and consents of all Government Entities
and all certification organizations required for the conduct of the Matkon
Business (as presently conducted) and operation of its facilities. All such
licenses, permits, approvals, authorizations and consents are described in
Schedule 4.11.(b), are in full force and effect. Except as set forth in
Schedule 4.11.(b), Company (including its operations, properties and assets)
is and has been in compliance in all material respects with all such permits
and licenses, approvals, authorizations and consents.
4.11.(c) Environmental Matters. The applicable Laws relating to
pollution or protection of the environment, including Laws relating to
emissions, discharges, generation, storage, releases or threatened releases
of pollutants, contaminants, chemicals or industrial, toxic, hazardous or
petroleum or petroleum-based substances or wastes ("WASTE") into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Waste including, without limitation, the Clean Water Act, the Clean
Air Act, the Resource Conservation and Recovery Act, the Toxic Substances
Control Act and the Comprehensive Environmental Response Compensation Liability
Act ("CERCLA"), as amended, and their state and local counterparts are herein
collectively referred to as the "ENVIRONMENTAL LAWS". Without limiting the
generality of the foregoing provisions of this Section 4.11, Company is in
compliance in all material respects with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in any regulations,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder. There is no Litigation nor any
demand, claim, hearing or notice of violation pending or, to the knowledge of
Company or Stockholder, threatened against Company relating in any way to the
Environmental Laws or any Order issued, entered, promulgated or approved
thereunder. There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans which may
interfere with or prevent compliance or continued compliance in all material
respects with the Environmental Laws or with any Order issued, entered,
promulgated or approved thereunder, or which may give rise to any material
Liability, including, without limitation, Liability under CERCLA or similar
state or local Laws, or otherwise form the basis of any material Litigation,
hearing, notice of violation, study or investigation, based on or related to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened
release into the environment, of any Waste.
4.12. Title to and Condition of Properties.
4.12.(a) Marketable Title. Company has good and valid title to all
the Purchased Assets (other than Purchased Assets leased or licensed by the
Company), free
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and clear of all mortgages, liens (statutory or otherwise), security interests,
claims (with respect to title), pledges, equities, options, conditional sales
contracts, assessments, levies, easements, covenants, reservations,
restrictions, rights-of-way, exceptions, limitations, charges or encumbrances of
any nature whatsoever (collectively, "LIENS") other than Liens that do not
interfere in any material way with the operation of the Matkon Business
("PERMITTED LIENS"). Except as disclosed in any Schedule hereto and for any
consents required for the assignment of contracts, none of the Purchased Assets
are subject to any restrictions with respect to the transferability thereof.
Company has complete and unrestricted power and right to sell, assign, convey
and deliver the Purchased Assets (other than Purchased Assets leased or licensed
by the Company) to Buyer as contemplated hereby. At Closing, Buyer will receive
good and valid title to all the Purchased Assets (other than Purchased Assets
leased or licensed by the Company), free and clear of all Liens of any nature
whatsoever except for Permitted Liens.
4.12.(b) Condition. All tangible assets constituting Purchased Assets
hereunder are in good operating condition and repair (subject to ordinary wear
and except for surplus assets not necessary for the conduct of business as
currently conducted), free from any defects (except such minor defects as do not
interfere with the use thereof in the conduct of the normal operations of the
Matkon Business), have been maintained consistent with the standards generally
followed in the industry and are sufficient to carry on the Matkon Business as
conducted during the preceding 12 months.
4.12.(c) Inventory. All Inventory reflected on the April 30, 1996
balance sheet consists of a quality and quantity usable and salable in the
ordinary course of Matkon Business, has a commercial value at least equal to
the value shown on the Balance Sheet and is valued in accordance with generally
accepted accounting principles. Except as set forth in Schedule 1.1(c)., all
inventory of Company is located at the Company's two leased facilities in
Overland Park, Kansas.
4.13. Insurance. Set forth in Schedule 4.13 is a complete and accurate
list and description of all policies of fire, liability, product liability,
workers compensation, health and other forms of insurance presently in effect
with respect to the Matkon Business.
4.14. Contracts and Commitments.
4.14.(a) Licenses-Out. Schedule 4.14.(a) contains a complete and
accurate list of all Licenses-Out or other contracts currently in effect with
customers arising from or related to the Matkon Business. Copies of all such
agreements have heretofore been made available to Buyer.
4.14.(b) Licenses-In and VAR Contracts. Schedule 4.14.(b) contains
a complete and accurate list of all value added reseller contracts or similar
arrangements to which the Company is a party and all Licenses-In contracts.
Any amounts accrued, owed
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or owing by Company for activities under such contracts through the date hereof
shall be paid by the Company on a timely basis.
4.14.(c) Personal Property Leases. Except as set forth in Schedule
1.1.(d) Company has no leases of personal property for use by or in connection
with the Matkon Business.
4.14.(d) Purchase Commitments. Company has no outstanding purchase
commitments for inventory items or supplies.
4.14.(e) Powers of Attorney. Company has not given a power of
attorney, which is currently in effect, to any person, firm or corporation
for any purpose whatsoever.
4.14.(f) Collective Bargaining Agreements. Company is not a party
to any collective bargaining agreements with any unions, guilds, shop
committees or other collective bargaining groups.
4.14.(g) Contracts Subject to Renegotiation. To Company's knowledge,
it is not a party to any contract with any governmental body which by its
terms is subject to renegotiation.
4.14.(h) Burdensome or Restrictive Agreements. Company is not a
party to nor is it bound by any agreement requiring Company to assign any
interest in any Intellectual Property (except for the Licenses-Out), or
prohibiting or restricting Company from competing in the Matkon Business in
any geographical area or soliciting customers for the Matkon Business or
otherwise restricting it from carrying on the Matkon Business anywhere in
the world.
4.14.(i) Other Material Contracts. Company has no material lease,
license, contract or commitment involving or related to the Matkon Business
or Purchased Assets, except as explicitly described in Schedule 4.14.(i) or
in any other schedule hereto.
4.14.(j) No Default. Except as set forth in Schedule 4.14.(j),
Company is not in material default under any lease, contract or commitment
referred to in this Section 4.14 or otherwise relating to the Matkon Business
(other than the Current Installation Contracts), nor has any event or omission
occurred which through the passage of time or the giving of notice, or both,
would constitute a material default thereunder or cause the acceleration of
any of Company's obligations thereunder or result in the creation of any Lien
on any of the Purchased Assets and, to the knowledge of Company or Stockholder,
no third party is in material default under any such lease, contract or
commitment to which Company is a party, nor has any event or omission occurred
which, through the passage of time or the giving of notice, or both, would
constitute a default thereunder or give rise to an automatic termination, or
the right of discretionary termination, thereof.
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Company has not received any written notice of default under the Current
Installation Contracts.
4.15. Labor Matters. Except as set forth in Schedule 4.15, within the
last five years Company has not experienced any labor strikes, union
organization attempts or any work stoppage due to labor disagreements in
connection with its Matkon Business and none are pending. Except to the extent
set forth in Schedule 4.15. Company is in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment wages and hours, and is not engaged in any unfair
labor practice; there is no unfair labor practice charge or complaint against
Company pending or, to the knowledge of Company or Stockholder, threatened with
respect to the Affected Employees or the Matkon Business; and there are no
administrative charges or court complaints against Company concerning alleged
employment discrimination or other employment related matters pending or, to the
knowledge of Company or Stockholder, threatened before the U.S. Equal Employment
Opportunity Commission or any Government Entity with respect to the Affected
Employees or the Matkon Business. None of the Affected Employees are employed
pursuant to a written employment agreement.
4.16. Employee Benefit Plans.
4.16.(a) For purposes of this Agreement, the term "PLANS" means (i) all
employee benefit plans as defined in Section 3(3) of ERISA; (ii) all other
severance pay, deferred compensation, excess benefit, vacation, stock, stock
option, and incentive plans, contracts, schemes, programs, funds, commitments,
or arrangements of any kind; and (iii) all other plans, contracts, programs,
funds, commitments, or arrangements providing money, services, property, or
other benefits, whether written or oral, qualified or nonqualified, funded or
unfunded, and including any that have been frozen or terminated, which pertain
to any employee, former employee, director, officer, stockholder, consultant, or
independent contractor of Company or any ERISA Affiliate of Company and (i) to
which Company or any ERISA Affiliate of Company is or has been a party or by
which any of them is or has been bound or (ii) with respect to which Company or
any ERISA Affiliate of Company has made any payments or contributions since
December 31, 1985 or (iii) to which Company or any ERISA Affiliate of Company
may otherwise have any liability (including any such plan or arrangement
formerly maintained by Company or any ERISA Affiliate of Company.) All Plans of
Company are listed and briefly described in Schedule 4.16.(a). "ERISA AFFILIATE"
shall mean any corporation or other business entity that is included in a
controlled group of corporations within which Company is also included, as
provided in Section 414(b) of the Code; or which is a trade or business under
common control with Company, as provided in Section 414(c) of the Code; or which
constitutes a member of an affiliated service group within which Company is also
included, as provided in Section 414(m) of the Code; or which is required to be
aggregated with Company pursuant to regulations issued under Section 414(o) of
the Code.
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4.16.(b) Each Plan is in compliance with its terms and with ERISA and other
applicable laws (including, without limitation, compliance with the health care
continuation requirements of COBRA and any proposed regulations promulgated
thereunder), and all agreements and instruments applicable to any Plan. Company
and each applicable ERISA Affiliate have received favorable determination
letters as to the qualification under the Code of each pension plan, as defined
in Section 3(2) of ERISA ("PENSION PLAN"), and there have been no amendments or
other developments since the date of such determination letters which would
cause the loss of such qualified status. No violation of ERISA has at any time
occurred in connection with the administration of any of the Plans, and there
are no actions, suits, or claims (other than routine, non-contested claims for
benefits) pending or, to the knowledge of Company or Stockholder, threatened
against the Plans, or any administrator or fiduciary thereof, which could result
in any liability.
4.16.(c) Neither Company nor any ERISA Affiliate nor any of their
employees, stockholders, or directors have engaged in any transaction in
connection with which any of them would be subject either to civil penalty
assessed pursuant to Section 502 of ERISA or a tax imposed by Section 4975 of
the Code. The execution and performance of this Agreement will not involve any
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code. None of the assets of any of the Plans is or has been invested
in any property constituting employer real property or any employer security
within the meaning of Section 407(d) of ERISA.
4.16.(d) Full payment as of the date hereof has been made of (i) all
amounts which Company and any ERISA Affiliate of Company are required, under the
terms of all Plans, to have paid as contributions to such Plans. Further, no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, exists with respect to any Plan, nor
has there been any lien imposed under Section 412(n) of the Code. The execution
and performance of this Agreement will not constitute a stated triggering event
under any Plan that will result in any payment (whether of severance pay or
otherwise) becoming due to any employee of Company or any ERISA Affiliate of
Company.
4.16.(e) Neither Company nor any ERISA Affiliate currently maintains,
administers or contributes, or at any time in the past has maintained,
administered or contributed to a multiemployer plan as defined in Section 3(37)
of ERISA, or a defined benefit plan as defined under Section 3(35) of ERISA with
respect to the Matkon Business.
4.16.(f) Company covenants and agrees that it shall be solely liable and
responsible for, and shall pay, all claims, if any, arising under each employee
benefit plan, arrangement, or practice of Company (other than accrued vacation
as of the date hereof), including but not limited to, all claims for sick pay or
severance pay or similar
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arrangements and Company shall offer coverage to any employee as required by
COBRA.
4.17. Employment Compensation. Schedule 4.17 contains a true and correct
list of all Affected Employees (and any current consultants) who perform
services in connection with the Matkon Business. In the case of salaried
employees such list identifies the current annual rate of compensation (and
anticipated bonus payments) for each employee and in the case of hourly or
commission employees identifies the rate of compensation.
4.18. Intellectual Property.
4.18.(a) Schedule 4.18.(a) contains a complete list (other than items
set forth on Schedules 1.1(a) and 4.14(b)) and an accurate functional
description by category and indication of status (completed or in process) of
all Patents, Trademarks, Software and Licenses-In which are owned, licensed by,
licensed to, used or held for use in the Matkon Business as such Matkon Business
is currently conducted (other than "off the shelf" software, the license fees
for which are immaterial), or as to which Company has a contractual right.
4.18.(b) The rights of Company in and to each item of the Intellectual
Property other than Intellectual Property subject to Licenses-In ("OWNED
INTELLECTUAL PROPERTY") are owned outright by Company, free and clear of any
security interests. Except as set forth on Schedule 4.18(a) all of Company's
rights in and to such Intellectual Property are freely assignable in its own
name, including the right to create derivatives, and Company is under no
obligation to pay any royalty or other compensation to any third party or to
obtain any approval or consent for use of any of the Owned Intellectual
Property. None of the Owned Intellectual Property is subject to any outstanding
judgment, order, decree, stipulation, injunction or charge; no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, to the knowledge of Company or Stockholder, threatened, which
challenges the legality, validity, enforceability, use or ownership of any of
the Owned Intellectual Property; and, except pursuant to the Licenses-Out,
Company has never agreed to indemnify any person for or against any
interference, infringement, misappropriation, or other conflict with respect to
Owned Intellectual Property.
4.18.(c) No material breach or default (or event which with notice or
lapse of time or both would result in a material breach or default) by Company
exists under any License-In or other agreement pursuant to which Company uses
any Intellectual Property, and, subject to obtaining any necessary consents to
transfer such licenses, the consummation of the transactions contemplated by
this Agreement will not violate or conflict with or constitute a breach or
default (or an event which, with notice or lapse of time or both, would
constitute a breach or default) or result in a forfeiture under, or constitute a
basis for termination of, any such License-In or other agreement.
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4.18.(d) Company owns or has the right to use all the Intellectual
Property necessary to provide, produce, sell and license the Software, systems,
services and products currently provided, produced, sold and licensed by the
Matkon Business, and to conduct Matkon Business as presently conducted, and,
subject to obtaining any necessary consents to the transfer of Licenses-In, the
consummation of the transactions contemplated hereby will not alter or impair
any such rights, including any right of Company to use or sublicense any
Intellectual Property owned by others. The Intellectual Property includes all
patents, trademarks, trade names, service marks, copyrights and trade secrets,
and the Software (together with the Licenses-In) includes all software, which
are necessary to operate the Matkon Business as it is presently conducted.
4.18.(e) The Owned Intellectual Property does not infringe any
trademark, trade name, copyright, trade secret, patent, right of publicity,
right of privacy or other proprietary right of any person give rise to an
obligation to render an accounting to any person as a result of co-authorship,
co-invention or an express or implied contract for any use or transfer. Company
has received no notice of any adversely held patent, invention, trademark,
copyright, service mark, trade name or trade secret of any other person alleging
or threatening to assert that Company's use of any of the Intellectual Property
infringes upon or is in conflict with any intellectual property or proprietary
rights of any third party. Neither Company nor Stockholder has any knowledge of
any basis for any charge or claim, threatened claim or any suit or action
asserting any such infringement or conflict by the Owned Intellectual Property
or asserting that Company does not have the legal right to own, enforce, sell,
license, sublicense, lease or otherwise use any Owned Intellectual Property, and
neither Company nor Stockholder has any knowledge of any facts which should give
such person reason to believe that there exists any basis for such claim,
threatened claim or suit or that any such claim, threatened claim or suit may be
asserted or instituted in the future.
4.18.(f) Company has not sent or otherwise communicated to any other
person any notice, charge, claim or assertion of, and neither Company nor
Stockholder has any knowledge of, any present, impending or threatened
infringement by any other person of any Owned Intellectual Property.
4.18.(g) All Company's Trademarks listed in Schedule 4.18.(a) as having
been issued by, registered with or filed with the United States Patent and
Trademark Office or the corresponding offices of other countries identified in
Schedule 4.18.(a) have been so duly registered, filed in or issued, as the case
may be, and have been properly maintained and renewed in accordance with all
applicable provisions of law and administrative regulations in the United States
and each such other country. Company has used reasonable efforts to protect its
rights in the Owned Intellectual Property and any related apparatus or processes
and to maintain the confidentiality of its trade secrets, know-how and other
confidential Owned Intellectual Property, and neither Company nor Stockholder is
aware of any acts or omissions, the result of which would be to
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compromise the rights of Company to apply for or enforce appropriate legal
protection of Owned Intellectual Property.
4.18.(h) It is the Company's policy to have each employee of the
Company hired since 1986 to sign an employee nondisclosure agreement
substantially in the form of Schedule 4.18.(h) (and all but approximately five
Matkon-related employees have executed such agreements) and Company is hereby
assigning to Buyer all of Company's rights under such agreements with respect to
the Matkon employees. No employees or independent contractors of Company have
any valid claims or rights to any of the Owned Intellectual Property. To the
knowledge of Company and Stockholder, no employee of Company is a party to or
otherwise bound by any agreement with or obligated to any other person
(including, any former employer) which in any respect conflicts with any
obligation, commitment or job responsibility of such employee to Company under
any agreement to which currently he or she is a party or otherwise.
4.18.(i) Schedule 4.14.(a) identifies each person to whom Company has
sold, licensed, leased or otherwise transferred or granted any interest or
rights to any Owned Intellectual Property, and the date of each such sale,
license, lease or other transfer or grant. Company has previously made available
to Buyer complete and accurate copies of all documents relating to each such
sale, license, lease or other transfer or grant. Company has made available to
Buyer copies of all copyright and trademark registration certificates.
4.18.(j) Without limiting the generality of the foregoing, Company has
never used, adopted, appropriated or disclosed to any person, and none of
Company's owned Software, systems or products incorporates, is based upon or is
derived or adapted from, or was developed using, any proprietary rights, trade
secrets, source code, intellectual property or confidential information of any
other person in violation of any statutory or common law obligation or any
agreement. In addition, Company is not in default under that certain License
Agreement between Company and Healthcare Purchasing Partner, Inc. (formerly
known as Health One) dated July 1, 1992 (the "HEALTH ONE AGREEMENT"); Company
has the right to assign its interest as set forth under the Health One
Agreement, including a nonexclusive license to use the software and the property
covered under the Health One Agreement; and neither Company nor Buyer will have
any further obligations to make royalty payments or satisfy other obligations
under the Health One Agreement.
4.18.(k) Dealers and Distributors. Company does not use any sales
representatives, dealers, distributors or franchisees in connection with the
Matkon Business.
4.19. Product Development and Claims. Schedule 4.19 sets forth the
Company's good faith estimate of the hours as of March 31, 1996 to complete all
Assumed Contracts and fulfill all requirements to allow Unbilled Receivables as
of March 31, 1996 to be billed to customers in accordance with the underlying
contracts. The amount of the
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"Deferred Revenue" liability for the Matkon Business on the Company's May 20,
1996 balance sheet exceeds the cost (based on Company's current business
practices) of work to be performed by the Matkon Business with respect to the
Unbilled Receivables and any claims or demands of customers of the Matkon
Business outstanding on the date hereof. Schedule 4.19 lists all customers who
have terminated, canceled or allowed to expire service or maintenance agreements
for the Software during the twelve months prior to the date hereof. Except as
set forth in Schedule 4.19, the Software owned by the Company conforms,
functions and operates in all material respects in accordance with its
specifications, and neither Company nor Stockholder is aware of any defects in
the design, coding, implementation or operation of the Software owned by the
Company that would substantially impair the operation of the Software owned by
the Company. The foregoing representation shall not apply with respect to any
Software under development, including, without limitation, the accounts payable
module. The Software owned by the Company complies with all governmental
standards and specifications currently in effect.
4.20. Affiliates' Relationships to Company. All lease, contract,
agreement or other arrangement (other than those relating to employment) with
respect to the Matkon Business between Company and any Affiliate are described
on Schedule 4.20. No Affiliate of the Company has any direct or indirect
interest in any entity which does business with Company or is competitive with
Company's Matkon Business. All obligations of, or services provided to, any
Company Affiliate, and all obligations of, or services provided to Company to
any Company Affiliate, are listed on Schedule 4.20.
4.21. Stockholder. Stockholder owns all of the capital stock of Company.
Stockholder has a net worth in excess of $90,000,000.
4.22. Assets Necessary to Matkon Business. The Purchased Assets include
all property and assets tangible and intangible, and all contracts, leases,
licenses and other agreements (except for the Excluded Assets and Licenses-
In), which are necessary to permit Buyer to carry on, or currently used or held
for use in, the Matkon Business as currently conducted by the Company.
4.23. No Brokers or Finders. Neither Company nor Stockholder nor any of
their respective directors, officers, employees, Stockholder or agents have
retained, employed or used any broker or finder in connection with the
transactions provided for herein or the negotiation thereof.
4.24. Disclosure. No representation or warranty by Company and/or
Stockholder in this Agreement, nor any statement, certificate, schedule,
document or exhibit furnished by Company or Stockholder on the date hereof
pursuant to this Agreement contains or shall contain any untrue statement of
material fact or omits or shall omit a material fact necessary to make the
statements contained therein not misleading.
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5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Company and
Stockholder, each of which is true and correct on the date hereof (provided that
Company represents to Buyer that Company does not have knowledge that any of
Buyer's representations and warranties set forth herein are false), shall be
unaffected by any investigation heretofore or hereafter made by Company or any
notice to Company, and shall survive the Closing of the transactions provided
for herein.
5.1. Corporate.
5.1.(a) Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.1.(b) Corporate Power. Buyer has all requisite corporate power to
enter into this Agreement and the other documents and instruments to be executed
and delivered by Buyer and to carry out the transactions contemplated hereby and
thereby.
5.2. Authority. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Buyer pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the Board of Directors of Buyer. No other corporate
act or proceeding on the part of Buyer is necessary to authorize this Agreement
or the other documents and instruments to be executed and delivered by Buyer
pursuant hereto or the consummation of the transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and delivered, the other
documents and instruments to be executed and delivered by Buyer pursuant hereto
will constitute, valid and binding agreements of Buyer, enforceable in
accordance with their respective terms.
5.3. No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by Buyer
pursuant hereto, nor the consummation by Buyer of the transactions contemplated
hereby and thereby (a) will violate any applicable Law or Order, (b) will
require any authorization, consent, approval, exemption or other action by or
notice to any Government Entity by Buyer (including, without limitation, under
any "plant closing" or similar law) or (c) will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the assets of Buyer under, any term or provision of the charter or
By-Laws of Buyer of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Buyer is a party
or by which Buyer or any of its assets or properties may be bound or affected.
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5.4. No Brokers or Finders. Other than Broadview Associates, L.P. (whose
fees will be paid by Buyer), neither Buyer nor any of its directors, officers,
employees or agents have retained, employed or used any broker or finder in
connection with the transactions provided for herein or the negotiation thereof.
5.5. Disclosure. No representation or warranty by Buyer in this
Agreement, nor any statement, certificate, schedule, document or exhibit
furnished by Buyer on the date hereof pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
6. TRANSFEREE LIABILITY
6.1. Payment of Creditors. Company and Stockholder covenant and agree to
pay the amounts due from the Company to its creditors related to the Matkon
Business and the Purchased Assets.
6.2. Severance. Company shall be solely responsible for, and shall pay
or cause to be paid, severance payments, other termination benefits; accrued
sick pay, COBRA obligations or any other Liability, if any, to employees of
Company who may become entitled to such benefits by reason of termination of
employment by Company or the failure by Buyer to hire as an employee of Buyer
any employee of Company. This provision shall not be deemed to imply that any
such benefits or rights exist.
7. OTHER MATTERS
7.1. CHS-Canada Agreement. Stockholder shall cause the agreement of
CHS-Canada Inc. related to the Matkon Business to be assigned to Buyer.
7.2. Libertyville. Company agrees to allow Buyer, without cost, sixty
(60) days from the date hereof in which to vacate the facility located in
Libertyville, Illinois.
7.3. Overland Park. Company and Buyer agree to allow Buyer, without
cost, sixty (60) days from the date hereof in which to vacate the warehouse
located at 9243 Cody, Overland Park, Kansas.
7.4. Allocation of Assets and Space. Company and Buyer agree to comply
with the Plan of Separation attached hereto as Exhibit A, pursuant to which
Buyer shall be allocated sufficient assets and physical space for Buyer to carry
on the Matkon Business as such business has been conducted during the past
twelve months without acquiring assets or rights in addition to the Purchased
Assets other than replacement for Excluded Assets. Company, Stockholder and
Buyer agree and acknowledge that the Plan
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of Separation may require modification and adaptation based upon future events
and needs and the parties agree to cooperate with one another in amending the
Plan of Separation to take into account such developments. In addition,
Company, Stockholder, Buyer and their respective Affiliates hereby agree to
cooperate with each other to facilitate the Plan of Separation and to resolve
any differences or disputes that arise in connection with the Plan of
Separation.
7.5. Noncompetition. Subject to the Closing, and as an inducement to
Buyer to execute this Agreement and complete the transactions contemplated
hereby, and in order to perserve the goodwill associated with the Matkon
Business being acquired pursuant to this Agreement, Company, Stockholder and all
entities controlled by, controlling or under common control with, Company or
Stockholder hereby covenant and agree that for a period of five (5) years from
the date hereof, they will not, directly or indirectly: (i) engage in, continue
in or carry on any business which competes with the Matkon Business, including
owning or controlling any financial interest in any corporation, partnership,
firm or other form of business organization which is so engaged; (ii) consult
with, advise or assist in any way, whether or not for consideration, any
corporation, partnership, firm or other business organization which is now or
becomes a competitor of Buyer in the Matkon Business with respect to the portion
of the business competitive with the Matkon Business (except for the ownership
of five percent (5%) or less of any class of stock of any publicly traded
company); or (iii) knowingly hire, offer to hire, solicit for employment, or
engage directly or indirectly as a consultant, any person who, at any time
during such five year period, has been an employee of Buyer, until such person
has been separated from employment by the Buyer for at least 180 days.
In the event a court of competent jurisdiction determines that the
provisions of this covenant not to compete are excessively broad as to duration,
geographical scope or activity, it is expressly agreed that this covenant not to
compete shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such over broad
provisions shall be deemed, without further action on the part of any person, to
be modified, amended and/or limited, but only to the extent necessary to render
the same valid and enforceable in such jurisdiction.
7.6. Confidential Information. Neither Company nor Stockholder nor their
Affiliates shall at any time subsequent to the Closing use for any purpose,
disclose to any person, or keep or make copies of documents, tapes, discs,
programs or other information storage media containing, any confidential
information concerning the Matkon Business, the Purchased Assets, or the Assumed
Liabilities, all such information being deemed to be transferred to the Buyer
hereunder (other than the Excluded Assets) and except as required for financial
reporting, tax returns and in connection with the Claims. For purposes here of,
"CONFIDENTIAL INFORMATION" shall mean and include, without limitation, all Owned
Intellectual Property in which Company has an interest, all customer and vendor
lists and related information of the Matkon Business, all information concerning
systems, processes, products, costs, prices, sales, marketing and distribution
methods,
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properties and assets, liabilities, financials, employees, all privileged
communications and work product of the Matkon Business, and any other
confidential information related to the Matkon Business.
7.7. Unemployment Compensation. Company shall, upon the request of
Buyer, cooperate with Buyer in any efforts by Buyer to obtain the transfer of
Company's rating or portion of any nonrefundable unemployment compensation funds
applicable to employees hired by Buyer, to the extent transferable.
7.8. Assistance. Through and for a period of six months after the
Closing, Company, Stockholder and their Affiliates shall, and shall cause their
respective employees who have knowledge of the operation and records of the
Matkon Business, to provide without charge such assistance, including but not
limited to providing all non-confidential information in their possession, to
Buyer, at reasonable times and places mutually convenient to the parties, as is
reasonably requested by Buyer in connection with the Matkon Business. In
addition, Company and its Affiliates shall provide such cooperation as Buyer or
its auditors may reasonably request in connection with the preparation of
audited financial statements incorporating or relating to the Matkon Business.
7.9. Records Retention. Company and Buyer shall each provide the other
with such assistance as may be reasonably requested by either of them in
connection with the preparation of financial statements or any return, audit or
other examination by any taxing authority or judicial or administrative
proceedings, and retain and provide the other with access to or copies of any
records or other information related to the Matkon Business or Purchased Assets.
Without limiting the generality of the foregoing, Buyer and Company or their
respective Affiliates shall each retain, for five years after the date hereof,
copies of all records or information related to the Matkon Business or Purchased
Assets, and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and copy
the same.
7.10. Communication Software License. Company hereby grants to Buyer the
perpetual, royalty-free, transferable right and license to use the Communication
Software. Buyer agrees that such license shall be nonexclusive; provided,
however, that Company may only license Communications Software in connection
with the sale of its other businesses.
7.11. Indemnification Agreement. Buyer covenants to use its best efforts
to cause Company to be released from the indemnification agreement between
Company and the insurance company issuing the bond to San Francisco General
Hospital. In the event that such a release cannot be obtained, Buyer hereby
agrees to indemnify, defend and hold harmless Company from and against all
Liabilities incurred under such indemnification agreement.
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7.12. Transfer of Licenses-In/VAR Contracts. Company shall use its best
efforts (which shall not be deemed to include providing any guarantees, deposits
or other financial assistance) to secure, on Buyer's behalf, agreements between
Buyer and the third parties to each of the Licenses-In/VAR contracts set forth
in Schedule 4.14(b) attached hereto on terms no less favorable than those
contained in such contracts currently.
7.13. Consents to Assignments.
(a) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign or transfer any of
the Assumed Contracts or part thereof or right or benefit arising thereunder or
resulting therefrom if any attempted assignment or transfer thereof, without the
consent of a third party thereto, would constitute a breach thereof. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights of Buyer so that Buyer would not in fact
receive all such rights, Company and Buyer (i) shall cooperate in endeavoring
to obtain such consent promptly at no cost to either party and (ii) if any such
consent is unobtainable, shall cooperate in any reasonable arrangement (the
"Assignment Substitute") designed to provide Buyer the benefits under any such
Assumed Contract or part thereof or any right or benefit arising thereunder or
resulting therefrom, including enforcement for the benefit of Buyer of any and
all rights of Company against a third party arising out of the breach or
cancellation by such third party or otherwise. Buyer shall, to the extent
necessary, perform under the Assignment Substitute without a fee to Company
except for the consideration to be paid under such contract.
(b) Notwithstanding anything in this Section 7.13 to the
contrary, if no consent to assignment is obtained for Assumed Contracts set
forth in Schedule 7.13, Company and Stockholder, jointly and severally, hereby
agree to indemnify Buyer from and against all amounts required to be refunded to
customers, and all lost profits on Unbilled Receivables relating to, such
Assumed Contracts for which no consent is obtained. With respect to Company's
contract with North Broward Hospital District, the indemnification provided for
under this paragraph 7.13(b) shall not apply if consent is denied as a result of
Buyer's failure of performance under such contract after the date hereof (other
than failure of performance solely with respect to the accounts payable module).
Upon obtaining consent to assignment of a contract, the indemnity in this
paragraph will terminate with respect to such contract.
7.14. Franciscan Agreement. Company and Stockholder, jointly and
severally, agree to indemnify Buyer from and against all amounts due and owing
from Company (or Buyer) under the Franciscan Agreement for the provision of an
accounts payable system from a third party provider. Buyer agrees to use its
reasonable efforts to attempt to convince Franciscan to accept one of Buyer's
accounts payable modules in satisfaction of such obligation under the Franciscan
Agreement. Buyer agrees to provide status reports related to progress under the
Franciscan Agreement at the request of the Company.
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8. INDEMNIFICATION
8.1 By Company and Stockholder. Subject to the terms and conditions of
this Article 8, Company and Stockholder, jointly and severally, hereby agree to
indemnify, defend and hold harmless Buyer, and its directors, officers,
employees and controlled and controlling persons (hereinafter "Buyer's
Affiliates"), from and against all Claims (as hereinafter defined) asserted
against, resulting to, imposed upon, or incurred by Buyer, Buyer's Affiliates or
the Matkon Business and Purchased Assets transferred to Buyer pursuant to this
Agreement, directly or indirectly, by reason of, arising out of or resulting
from (a) the inaccuracy or breach of any representation or warranty of Company
or Stockholder contained in this Agreement (regardless of whether such breach is
deemed "material"); (b) the breach of any covenant of Company or Stockholder
contained in this Agreement (regardless of whether such breach is deemed
"material"); (c) any Claim brought by or on behalf of any broker or finder
retained, employed or used by Company or any of its directors, officers,
employees, stockholders or agents in connection with the transactions provided
for herein or the negotiation thereof, whether or not disclosed herein; or (d)
any Claim of or against Company, the Purchased Assets or the Matkon Business
prior to the date hereof arising out of the Company's operation of the Matkon
Business not specifically assumed by Buyer pursuant hereto.
As used in this Article 8, the term "Claim" shall include: (i) all
Liabilities; (ii) all losses, damages (including, without limitation,
consequential damages), judgments, awards, penalties and settlements; (iii) all
demands, claims, suits, actions, causes of action, proceedings and assessments,
whether or not ultimately determined to be valid; and (iv) all costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated or arbitrated matter), court costs, fees and expenses,
and expenses of attorneys and expert witnesses) or investigating, defending or
asserting any of the foregoing or of enforcing this Agreement.
8.2. By Buyer. Subject to the terms and conditions of this Article 8,
Buyer hereby agrees to indemnify, defend and hold harmless Company, its
directors, officers, employees and controlled and controlling persons, and
Stockholder, its directors, officers, employees and controlled and controlling
persons from and against all Claims asserted against, resulting to, imposed upon
or incurred by any such person or entity, directly or indirectly, by reason of,
arising out of or resulting from (a) the inaccuracy or breach of any
representation or warranty of Buyer contained in this Agreement (regardless of
whether such breach is deemed "material"); (b) the breach of any covenant of
Buyer contained in this Agreement (regardless of whether such breach is deemed
"material"); (c) the Assumed Liabilities; (d) any Claim brought by or on behalf
of any broker or finder retained, employed or used by Buyer or any of its
directors, officers, employees, stockholders or agents in connection with the
transactions provided for herein or the negotiation thereof, whether or not
disclosed herein; or (e) any Claim arising out of
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Buyer's operation of the Matkon Business subsequent to the date hereof, except
any such claim for which Company indemnifies Buyer pursuant to 8.1 above.
8.3. Indemnification of Third-Party Claims. The following provisions
shall apply to any Claim subject to indemnification which is (i) a suit, action
or arbitration proceeding filed or instituted by any third party, or (ii) any
other form of proceeding or assessment instituted by any Government Entity:
8.3.(a) Notice and Defense. The party or parties to be indemnified
(whether one or more, the "Indemnified Party") will give the party from whom
indemnification is sought (the "Indemnifying Party") prompt written notice of
any such Claim, and the Indemnifying Party will undertake the defense thereof by
representatives chosen by it (subject to the Indemnified Party's reasonable
approval). The assumption of defense shall constitute an admission by the
Indemnifying Party of its indemnification obligation hereunder with respect to
such Claim, and its undertaking to pay directly all costs, expenses, damages,
judgments, awards, penalties and assessments incurred in connection therewith.
Failure to give such notice shall not affect the Indemnifying Party's duty or
obligations under this Article 8, except to the extent the Indemnifying Party is
prejudiced thereby. So long as the Indemnifying Party is defending any such
Claim actively and in good faith, shall not settle such Claim. The Indemnified
Party shall make available to the Indemnifying Party or its representatives
all records and other materials required by them and in the possession or under
the control of the Indemnified Party, for the use of the Indemnifying Party and
its representatives in defending any such Claim, and shall in other respects
give reasonable cooperation in such defense.
8.3.(b) Failure to Defend. If the Indemnifying Party, within 30 days
after notice of any such Claim, fails to defend such Claim actively and in good
faith, the Indemnified Party will have the right to undertake the defense,
compromise or settlement of such Claim or consent to the entry of a judgment
with respect to such Claim, on behalf of and for the account and risk of the
Indemnifying Party, and the Indemnifying Party shall thereafter have no right to
challenge the Indemnified Party's defense, compromise, settlement or consent to
judgment.
8.3.(c) Indemnified Party's Rights. The Indemnifying Party shall not,
without the written consent of the Indemnified Party, settle or compromise any
Claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all Liability in respect of such Claim.
8.4. Payment. The Indemnifying Party shall promptly pay the Indemnified
Party any amount due under this Article 8. Upon judgment, determination,
settlement or compromise of any third party Claim, the Indemnifying Party shall
pay promptly on behalf of the Indemnified Party, and/or to the Indemnified Party
in reimbursement of any
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amounts theretofore paid by it, the amount so determined by judgment,
determination, settlement or compromise and all other Claims of the Indemnified
Party with respect thereto, unless in the case of a judgment an appeal is made
from the judgment. If the Indemnifying Party desires to appeal from an adverse
judgment, then the Indemnifying Party shall post and pay the cost of the
security or bond to stay execution of the judgment pending appeal.
8.5. Limitations on Indemnification.
8.5.(a) Time Limitation. No claim or action shall be brought under
this Article 8 for breach of a representation or warranty after the lapse of two
(2) years following the date hereof. Regardless of the foregoing, however, or
any other provision of this Agreement:
(i) There shall be no time limitation on claims on
actions brought for breach of any representation or warranty made
in or pursuant to Sections 4.11(c), 4.12(a), 4.18(b), (e), and
(j).
(ii) Any claim or action brought for breach of any
representation or warranty made in or pursuant to Section 4.5 may
be brought at any time until the underlying tax obligation is
barred by the applicable period of limitation under federal and
state laws relating thereto (as such period may be extended by
waiver).
(iii) Any claim made by a party hereunder by sending
written demand to the other party specifying the nature of the
breach prior to the termination of the survival period for such
claim shall be preserved despite the subsequent termination of
such survival period.
(iv) If any act, omission, disclosure or failure to
disclose shall form the basis for a claim for breach of more than
one representation or warranty, and such claims have different
periods of survival hereunder, the termination of the survival
period of one claim shall not affect a party's right to make a
claim based on the breach of representation or warranty still
surviving.
8.5.(b) Amount Limitation. Except with respect to claims for breaches
of representations or warranties contained in Sections 4.12(a), 4.18(b), (e) and
(j), 4.23, or 5.4 an Indemnified Party shall not be entitled to indemnification
under this Article 8 for breach of a representation or warranty unless the
aggregate of the Indemnifying Party's indemnification obligations to the
Indemnified Party pursuant to this Article 8 (but for this Section 8.5(b))
exceeds $100,000 but in such event, the Indemnified Party shall be entitled to
indemnification in full for all breaches of representations and/or warranties.
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9. CLOSING
9.1. Documents to be Delivered by Company and Stockholder. At the
closing, which shall take place simultaneously with the execution of this
Agreement. Company and Stockholder shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
9.1.(a) Bills of Sale. Bills of sale and such other instruments of
assignment, transfer, conveyance and endorsement as will be sufficient in the
opinion of Buyer and its counsel to transfer, assign, convey and deliver to
Buyer the Purchased Assets as contemplated hereby.
9.1.(b) Compliance Certificate. A certificate signed by the chief
executive officer of Company that each of the representations and warranties
made by Company and Stockholder in this Agreement is true and correct on the
date hereof, and that Company and Stockholder have performed and complied with
all of Company's and Stockholder's obligations under this Agreement which are to
be performed or complied with on or prior to the date hereof.
9.1(c) Opinion of Counsel. A written opinion of Steve Green, counsel
to Company and Stockholder, dated as of the Closing Date, addressed to Buyer,
substantially in the form of Exhibit B hereto.
9.1.(d) Certified Resolutions. A certified copy of the resolutions of
the Board of Directors and Stockholder of Company authorizing and approving this
Agreement and the consummation of the transactions contemplated by this
Agreement.
9.1.(e) Real Property Sublease. The real property sublease for the
Overland Park, Kansas (the "REAL PROPERTY SUBLEASE".) property, duly executed by
Company and any necessary lessors.
9.1.(f) Real Property Lease. The real property lease for 6160 South
Syracuse Way, Arapahoe, Colorado (the "REAL PROPERTY LEASE".) duly executed by
Company and any necessary lessors.
9.1.(g) Articles; By-Laws. A copy of the By-Laws of Company certified
by the secretary of Company, and a copy of the Certificate of Incorporation of
Company certified by the secretary of the Company.
9.1.(h) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Buyer may
reasonably request.
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9.2. Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Company the following documents, in each case duly executed or
otherwise in proper form:
9.2.(a) Cash Purchase Price. The Purchase Price to Company (by wire
transfer).
9.2.(b) Assumption of Liabilities. Such undertakings and instruments
of assumption as will be reasonably sufficient in the opinion of Company and its
counsel to evidence the assumption of the Assumed Liabilities.
9.2.(c) Compliance Certificate. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made by Buyer
in this Agreement are true and correct on the date hereof, and that Buyer has
performed and complied with all of Buyer's obligations under this Agreement
which are to be performed or complied with on or prior to the date hereof.
9.2.(d) Opinion of Counsel. A written opinion of Sachnoff & Weaver,
Ltd., counsel to Buyer, dated as of the Closing Date, addressed to Company, in
substantially the form of Exhibit C hereto.
9.2.(e) Certified Resolutions. A certified copy of the resolutions of
the Board of Directors of Buyer authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement.
9.2.(f) Real Property. The Real Property Lease duly executed by Buyer
and the Real Property Sublease duly executed by Buyer.
9.2.(g) Other Documents. All other documents, instruments or writings
required to be delivered to Company at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Company may
reasonably request.
10. RESOLUTION OF DISPUTES
10.1. Arbitration. After the Closing, any dispute, controversy or claim
arising out of or relating to this Agreement or the negotiation hereof or entry
hereunto or any contract or agreement entered into pursuant hereto or the
performance by the parties of its or their terms shall be settled by binding
arbitration held in Kansas City, Missouri in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, except
as specifically otherwise provided in this Article 10. This Article 10 shall be
construed and enforced in accordance with the Federal Arbitration Act,
notwithstanding any other choice of law provision in this Agreement.
32
<PAGE>
Notwithstanding the foregoing:
10.1.(a) Either party may, in its discretion, apply to a court of
competent jurisdiction for equitable relief as provided in Section 11.4. Such an
application shall not be deemed a waiver of the right to compel arbitration
pursuant to this Article.
10.1.(b) No party shall be required to submit to arbitration hereunder
unless all persons who are not parties to this Agreement, but who are necessary
parties to a complete resolution of the controversy, submit to the arbitration
process on the same terms as the parties hereto. Without limiting the generality
of the foregoing, no claim under Article 8 for the indemnification of a third-
party claim shall be subject to arbitration under this Article 10 unless the
third party bringing such claim against the indemnitee shall agree in writing to
the application of this Article 10 of the resolution of such claim.
10.2. Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand for
arbitration, to exceed $1,000,000, then the panel to be appointed shall consist
of three neutral arbitrators; otherwise, one neutral arbitrator.
10.3. Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within 120 days after the selection of the arbitrator(s). The
arbitrator(s) shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have 30 days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days after the
decision. Thereafter, the decision of the arbitrator(s) shall be final,
binding, and nonappealable with respect to all persons, including (without
limitation) persons who have failed or refused to participate in the arbitration
process.
10.4. Authority. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief, and to allocate responsibility for the costs of the arbitration and to
award recovery of attorneys fees and expenses in such manner as is determined to
be appropriate by the arbitrator(s).
10.5. Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Company, Buyer and Stockholder hereby submit to the in personam
jurisdiction of the Federal and State courts in Chicago, Illinois, for the
purpose of confirming any such award and entering judgment thereon.
10.6. Confidentiality. All proceedings under this Article 10, and
all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties and by the arbitrators.
33
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10.7. Continued Performance. The fact that the dispute resolution
procedures specified in this Article 10 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party.
10.8. Tolling. All applicable statutes of limitation shall be tolled
while the procedures specified in this Article 10 are pending. The parties will
take such action, if any, required to effectuate such tolling.
11. MISCELLANEOUS
11.1. Further Assurance. From time to time, at Buyer's request and
without further consideration, Company and Stockholder will execute and deliver
to Buyer such documents, instruments and consents and take such other action as
Buyer may reasonably request in order to consummate more effectively the
transactions contemplated hereby, to discharge the covenants of Company and
Stockholder, and to vest in Buyer good and valid title to the Matkon Business
and Purchased Assets.
11.2. Disclosures and Announcements. Both the timing and the content of
all disclosure to third parties and public announcements concerning the
transactions provided for in this Agreement by either Company or Buyer shall be
subject to the approval of the other in all essential respects, except that the
Company's approval shall not be required as to any statements and other
information which Buyer may submit to the Securities and Exchange Commission,
the Nasdaq Stock Market, Inc. or Buyer's Stockholders or be required to make
pursuant to any rule or regulation of the Securities and Exchange Commission or
the Nasdaq Stock Market, Inc., or otherwise required by law. Company hereby
agrees to provide its consent, which may not be unreasonably withheld, to
Buyer's presentation of pro forma financial information related to Buyer's
acquisition of the Matkon Business, as may be required under the securities
laws, rules and regulations of the Securities and Exchange Commission.
11.3. Assignment; Parties in Interest.
11.3.(a) Assignment. Except as expressly provided herein, the rights
and obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Company hereunder. In addition, Buyer may assign this agreement
in connection with the transfer or sale of substantially its entire business to
which this Agreement pertains or
34
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in the event of its merger or consolidation with another entity, provided Buyer
will remain liable under this Agreement.
11.3.(b) Parties in Interest. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successors and
permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason of
this Agreement.
11.4. Equitable Relief. Company and each Stockholder agree that any
breach by Company or any stockholder of its or their obligations imposed by
Sections 7.6 hereof, will result in irreparable injury to Buyer for which a
remedy at law would be inadequate; and that, in addition to any relief at law
which may be available to Buyer for such breach and regardless of any other
provision contained in this Agreement, Buyer shall be entitled to injunctive and
other equitable relief as a court may grant. This Section 11.4 shall not be
construed to limit Buyer's and Company's right to obtain equitable relief for
other breaches of this Agreement under general equitable standards.
11.5. Law Governing Agreement. This Agreement shall be construed and
interpreted according to the internal laws of the State of Illinois, excluding
any choice of law rules that may direct the application of the laws of another
jurisdiction. Process and pleadings mailed to a party at the address provided
in Section 11.7 shall be deemed properly served and accepted for all purposes.
11.6 Amendment and Modification. Buyer, Company and Stockholder may
amend, modify and supplement this Agreement only in writing.
11.7. Notice. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents (with a written copy to be sent as otherwise
provided herein); or (c) sent to the parties at their respective addresses
indicated herein by registered or certified U.S. mail, return receipt requested
and postage prepaid, or by private overnight courier service. The respective
addresses to be used for all such notices, demands or requests are as follows:
(a) If to Buyer, to:
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Attention: Glen E. Tullman
Facsimile: (847) 537-4821
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(with a copy to)
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, 29th Floor
Chicago, Illinois 60606
Attn: Jeffrey A. Schumacher
Facsimile: (312) 207-6400
or to such other person or address as Buyer shall Company in writing.
(b) If to Company or Stockholder, to:
Information Handling Services Group, Inc.
15 Inverness Way East
Englewood, Colorado 80112
Attention: Chris Meyer
Facsimile: (302) 792-9034
(with a copy to)
TBG Services, Inc.
565 5th Avenue, 17th Floor
New York, New York 10017
Attn: Stephen Green
Facsimile: (212) 850-8530
or to such other person or address as Company shall furnish to Buyer in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this Section, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this Section, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this Section, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this Section.
11.8. Expenses. Regardless of whether or not the transactions
contemplated hereby are consummated:
11.8.(a) Expenses to be Paid by Company. Company shall pay, and
indemnify, defend and hold Buyer harmless from and against, each of the
following: all
36
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fees and expenses of Company's legal, accounting, investment banking and other
professional counsel in connection with the transactions contemplated hereby.
11.8.(b) Other. Except as otherwise provided herein, each of the parties
shall bear its own expenses and the expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
11.8.(c) Costs of Litigation or Arbitration. The parties agree that
(subject to the discretion, in an arbitration proceeding, of the arbitrator as
set forth in Section 10.4) the prevailing party in any action brought with
respect to or to enforce any right or remedy under this Agreement shall be
entitled to recover from the other party or parties all reasonable costs and
expenses of any nature whatsoever incurred by the prevailing party in connection
with such action, including without limitation attorneys' fees and prejudgment
interest.
11.9. Entire Agreement. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
11.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.11. Headings. The headings in this Agreement and the Schedules are
inserted for convenience only and shall not constitute a part hereof.
11.12. Glossary of Terms. The following sets forth the location of
definitions of capitalized terms defined in the body of this Agreement:
A
Affected Employees.............................................................9
Affiliate......................................................................7
Agreement......................................................................1
Assignment Substitute.........................................................28
Assumed Contracts..............................................................5
Assumed Liabilities............................................................5
B
Balance Sheets................................................................11
beneficial owner...............................................................7
Billed Receivables............................................................12
Buyer..........................................................................1
Buyer's Affiliates............................................................29
37
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C
CERCLA........................................................................15
Claim.........................................................................29
Code...........................................................................9
Communications Software........................................................5
Company........................................................................1
confidential information......................................................26
Contracts......................................................................3
Copyrights.....................................................................2
E
Environmental Laws............................................................15
ERISA Affiliate...............................................................18
Excluded Assets................................................................3
F
First Lutheran Invoice.........................................................4
G
Government Entities............................................................7
H
Health One Agreement..........................................................22
I
Indemnified Party.............................................................30
Indemnifying Party............................................................30
Intellectual Property..........................................................2
Inventory......................................................................2
IRS............................................................................9
L
Laws...........................................................................7
Liability......................................................................5
Licenses-In....................................................................2
Licenses-Out...................................................................2
Liens.........................................................................15
Litigation.....................................................................6
Lutheran.......................................................................4
Lutheran Invoices..............................................................4
M
Matkon Business................................................................1
O
Orders.........................................................................7
Owned Intellectual Property...................................................20
P
Patents........................................................................2
Pension Plan..................................................................18
Permitted Liens...............................................................15
38
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person.........................................................................7
Personal Property Leases.......................................................2
Plans.........................................................................18
Proprietary Rights.............................................................2
Purchase Price.................................................................7
Purchased Assets...............................................................1
R
Real Property Lease...........................................................32
Real Property Sublease........................................................32
S
Second Lutheran Invoice........................................................4
Software.......................................................................2
Stockholder....................................................................1
T
Trademarks.....................................................................2
U
Unbilled Receivables..........................................................12
W
Waste.........................................................................14
39
<PAGE>
Where any group or category of items or matters is defined collectively in the
plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
COMPANY: BUYER:
Continental Healthcare Systems, Inc. Enterprise Systems, Inc.
By: /s/ Steve Green By: /s/ David B. Mullen
-------------------------------- --------------------------------
Its: Vice-President Its: Chief Financial Officer
------------------------------- -------------------------------
STOCKHOLDER:
Information Handling Services Group, Inc.
By: /s/ Steve Green
--------------------------------
Its: Vice-President
-------------------------------
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<PAGE>
EXHIBIT 10.25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITION OF TERMS. 1
2. DELIVERY OF SOFTWARE FOR INTERNAL USE AND ASSISTANCE 2
3. CUSTOM ENHANCEMENTS BY FLEXI 3
4. SOFTWARE SUPPORT; MAINTENANCE; ERROR CORRECTION; AND SOURCE CODE BY
FLEXI 5
5. RESPONSIBILITIES OF ESI 6
6. DISTRIBUTION, MARKETING AND CLIENT SUPPORT ARRANGEMENTS 8
7. OWNERSHIP 9
8. FLEXI LICENSE GRANT 11
9. PAYMENTS AND ROYALTIES 14
10. WARRANTIES OF FLEXI 17
11. INDEMNIFICATION 18
12. CONFIDENTIAL INFORMATION; NON-SOLICITATION 19
13. FREEDOM OF INDEPENDENT DEVELOPMENT 20
14. TERM AND TERMINATION 20
15. REMEDIES 21
16. ARBITRATION 22
17. NOTICES 23
18. GENERAL 23
</TABLE>
ii
<PAGE>
DEVELOPMENT, TECHNOLOGY AND SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT, (this "Agreement"), made and entered into this 22 day of March
1996 by and between Enterprise Systems, Inc., ("ESI") a Delaware corporation
with offices at 1400 South Wolf Road, Wheeling, IL 60090-6524 and
FlexiInternational Software, Inc. ("FLEXI"), a Delaware corporation with its
principal offices at Two Enterprise Drive, Shelton, CT 06484.
WITNESSETH:
WHEREAS, FLEXI is the author of, or has acquired the rights to, certain computer
programs, documentation, and other related written materials, and ESI desires to
acquire a right and license to use and market such programs and materials under
the terms and conditions set forth herein; and
WHEREAS, FLEXI is willing to grant such rights and licenses and is further
willing to prepare certain enhancements and additions to the existing computer
programs, documentation, and other related written materials, as a valuable
addition to such programs and materials, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
intending to be legally bound, the parties hereby agree as follows:
DEFINITION OF TERMS.
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future:
"Acceptance." FlexiFinancials (with a subset of the agreed upon
FLEXIEnhancements as provided in Section 3.1.1) substantially conforms
with the FLEXIEnhancements specifications as provided in Exhibit
3.1.1.
"Code." Computer programming code.
"Documentation." All customary end-user materials, such as user manuals and
such other textual material relating to FlexiFinancials.
"Early Adopter License(s)." End User License(s) granted prior to
Acceptance of FlexiFinancials.
"End User License." An ESI Software License Agreement containing the same
or similar provisions and/or agreements for sublicensing for ESI
products as represented in Exhibit 0a, but in no event shall such
agreements fail to include the applicable "Restricted Rights" clause
nor the restrictions less than those contained in Exhibit 0b and those
other restrictions as are otherwise reasonably requested by FLEXI.
"End User." A Health Care Entity that receives an End User License from
ESI to use ESiFinancials or FlexiFinancials for such users own in-
house use and for the processing of its own financial data, and not
for the processing of financial data for another entity, resale or
further sublicensing.
"Enhancements." Changes or additions (other than Maintenance
Modifications), including all new releases, made by FLEXI to
FlexiFinancials that add significant new functions or substantially
improve the performance of FlexiFinancials by changes in system design
or coding and related FlexiFinancials Documentation.
"Error." A conflict between FlexiFinancials and FlexiFinancials
Documentation, or FLEXIEnhancements and FLEXIEnhancements
specifications, and such conflict is reproduced by FLEXI.
"ESiFinancials." A combination of FlexiFinancials and the
ESiModifications, if any.
"ESiFinancials Documentation." All documentation and related materials for
ESiFinancials.
"ESiModifications." ESI changes to FlexiFinancials that amend, alter,
supplement, add, remove or enhance certain features and functionality
of FlexiFinancials for ESiFinancials.
<PAGE>
"Executable Code." Machine readable form of the Code.
"FlexiFinancials Documentation." All FLEXI prepared and delivered
Documentation.
"FlexiFinancials." The existing Executable Code of the modules specified
in Exhibit 0 (including all subsequent updates, and revisions (other
than Enhancements thereto) during the term of this Agreement) and the
FLEXIEnhancements.
"FLEXIEnhancements." FLEXI and ESI agreed upon changes to FlexiFinancials,
which changes amend, alter, supplement, add, remove or enhance certain
features and functionality of FlexiFinancials.
"FlexiTemplates." The templates specified in Exhibit 1.16 (including all
subsequent updates, and revisions (other than Enhancements thereto)
during the term of this Agreement).
"FlexiTools." Certain FLEXI development tools specified in Exhibit 0,
including certain Source Code of FlexiFinancials as determined
necessary in FLEXI's sole discretion.
"Health Care Entity." A person (natural or otherwise) that operates solely
within the Health Care Industry.
"Health Care Industry." The institutions and businesses (or a subsidiary
or division thereof) that are primarily in the business of directly
providing patient care such as acute care hospitals, long term care
facilities, home care, community health services, ambulatory services
and other patient care support and ancillary services such as
laboratories, but excluding insurance companies, pharmaceutical
companies, and suppliers of services or goods to patient care
facilities, but including any businesses that wish to directly utilize
ESiFinancials in providing outsourcing services (with accounting
services incidental to the outsource contract) to the aforementioned
organizations providing patient care, providing such organizations do
not use ESiFinancials for the processing of its own in-house data nor
make ESiFinancials available to service bureaus or time share clients.
"Interface." Code that operates solely as a link or interface between
ESiFinancials and ESi's products identified in Exhibit 0.
"Maintenance Modifications." Modifications or revisions to FlexiFinancials
or FlexiFinancials Documentation, other than Enhancements or
FLEXIEnhancements, that correct Errors, support new releases or
provide other updates and corrections.
"Object Code." Code output by a compiler or translator, and corresponding
to Source Code.
"Source Code." Human readable form of the Code, including all comments and
procedural code, if any.
"Third Party Software." The computer software enumerated in Exhibit 1.24
as developed, marketed, distributed, and licensed by third party
software publishers.
"Trademarks." The marks of FLEXI enumerated in Exhibit 1.25 that are
licensed to ESI as provided in Section 8.1.3, and such other marks as
are used by FLEXI on or in relation to FlexiFinancials at any time
during this Agreement.
DELIVERY OF SOFTWARE FOR INTERNAL USE AND ASSISTANCE
Subject to the terms and conditions of this Agreement, FLEXI shall deliver
the FlexiTools and FlexiFinancials modules (without FLEXIEnhancements)
and Documentation as enumerated in Exhibit 0a. FLEXI shall also
provide to ESI two (2) print copies of the Documentation. Subject to
the FLEXI Pre-Release Agreement attached hereto in Exhibit 2.1b, FLEXI
may deliver pre-released versions of FlexiFinancials and
FlexiFinancials Documentation as such versions become available to
FLEXI licensees.
Upon the initial delivery of FlexiFinancials, FLEXI shall provide to ESI
the assistance specified in Exhibit 0 (excluding assistance for
internal use as specified in Section 8.1.1.1, which
2
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assistance shall be on such terms and conditions as mutually agreed by
the parties) at a mutually agreeable time and place. FLEXI may also
provide such other services as mutually agreed by the parties. ESI
agrees to pay for all reasonable out-of-pocket expenses, and travel,
meals and lodging expenses incurred by FLEXI, but in no event shall
ESi be required to reimburse FLEXI for travel, meals and lodging
expenses in excess of $25,000 for the services specifically enumerated
in Exhibit 0 unless the parties agree otherwise.
CUSTOM ENHANCEMENTS BY FLEXI
Custom Enhancements of FlexiFinancials.
FLEXI and ESi agree to cooperate with each other and complete the
specifications of FLEXIEnhancements no later than
April 30, 1996. On or before May 15, 1996, FLEXI
shall propose in good faith a subset of the
FLEXIEnhancement and ESi shall consent to the
proposed subset of FLEXIEnhancements, which
consent shall not be unreasonably withheld, that
FLEXI shall deliver to ESi as provided herein.
FLEXI shall enhance FlexiFinancials and shall
develop and incorporate the agreed upon subset of
FLEXIEnhancements described in Exhibit 3.1.1 and
shall use commercially reasonable efforts to
deliver FlexiFinancials (with such
FLEXIEnhancements) in substantial conformity with
the described FLEXIEnhancement specifications on
or before October 1, 1996. FLEXI agrees to use
reasonable efforts to deliver the remaining
FLEXIEnhancements as part of its first year
commitment of development resources as provided in
Section 4.2.1 of the Maintenance Plan unless
directed otherwise in writing by ESi.
FlexiFinancials and FlexiTools shall be recorded
on or embodied in such suitable medium as mutually
agreed by the parties. FLEXI also agrees to
deliver Documentation for such FLEXIEnhancements
to the extent such enhancements shall be
incorporated within the generally available
version of FlexiFinancials for sublicensing to
FLEXI licensees by FLEXI and its representatives
and agents. To the extent such enhancements are
omitted from the Documentation, FLEXI shall
provide materials in order for ESi to draft the
applicable documentation. FLEXI, in its own
discretion, shall determine the manner and means
for developing the FLEXIEnhancements and preparing
the Documentation, which includes the
FLEXIEnhancements, as provided above.
In the event FLEXI fails to deliver any FlexiFinancials (with the
agreed upon subset of FLEXIEnhancements) or not substantially
deliver the agreed upon FLEXIEnhancements on or before October
1, 1996, ESi may request upon Acceptance a credit of $10,000
per month for each full calendar month of delay not to exceed
three (3) months.
Should FLEXI not deliver any of the agreed upon
FLEXIEnhancements within 120 days after October 1,
1996, January 28, 1997 ("Trigger Date"), ESi may
terminate this Agreement with no further obligations
between the parties, except those provisions that
survive termination. Upon such termination, ESi shall
receive a full refund of the Royalty Payments and the
Payments and Exclusivity Payments provided in Sections
9.1 and 9.3, to the extent such payments have been made
to FLEXI
Should FLEXI not substantially deliver the agreed upon
FLEXIEnhancements within 120 days after October 1,
1996, January 29, 1997 ("Trigger Date"), ESi may
terminate this Agreement with no further obligations
between the parties, except those provisions that
survive termination. Upon such termination, ESi shall
receive a full refund of the Royalty
3
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Payments and the Payments and Exclusivity Payments provided
in Sections 9.1 and 9.3, to the extent such payments have
been made to FLEXI less $150,000.
Section 3.1.2.1 and Section 3.1.2.2 state the entire liability of
FLEXI with respect to FLEXI's failure to deliver the
FLEXIEnhancements as provided in Section 3.1.1.
It is understood and agreed that changes to the agreed upon
specifications subset of FLEXIEnhancements, or any changes to
the specifications for FLEXIEnhancements, or any additional
work not specified, or follow-on work shall be made only upon
written agreement as provided in Section 0, which shall
result in the expiration of ESi's option to terminate this
Agreement as provided in Section 3.1.2.1 and Section 3.1.2.2.
In addition, ESi's failure to notify FLEXI in writing of its
exercise of the option to terminate this Agreement as
provided in Section 3.1.2.1 and Section 3.1.2.2 within thirty
(30) business days after the Trigger Date shall result in
ESi's waiver of its option to terminate as provided in
Section 3.1.2.1 and Section 3.1.2.2 and such termination
option shall expire. Upon expiration or termination of ESi's
option to terminate this Agreement as provided in Section
3.1.2.1 and Section 3.1.2.2, ESi's sole and exclusive remedy
shall be as for FLEXI to correct Errors as provided in
Section 3.3.
Progress Review; Acceptance FLEXIEnhancements. During the development of
the FLEXIEnhancements under this Agreement, ESI and FLEXI
shall meet as mutually agreed at the offices of FLEXI to
assess progress on FLEXIEnhancements. Within thirty (30)
days of delivery of the agreed upon subset of
FLEXIEnhancements to ESi, or sixty (60) days thereafter if
ESi delivers FlexiFinancials containing FLEXIEnhancements to
an End User prior to the end of the thirty (30) day period,
ESI shall determine in good faith whether or not there is
Acceptance of FlexiFinancials containing FLEXIEnhancements.
ESi shall notify FLEXI of its Acceptance or rejection due to
Errors of FlexiFinancials as provided in Exhibit 3.1.1;
should ESI fail to notify FLEXI of its Acceptance on or
before the end of such period, FlexiFinancials containing
FLEXIEnhancements shall be deemed accepted. Should ESi
reject FlexiFinancials, ESi shall provide a report
describing in detail the basis for such rejection and
providing information in order for FLEXI to reproduce the
Error(s) in the FLEXIEnhancements. Upon request, ESi shall
provide such additional information for FLEXI to reproduce
such Errors. Failure to provide information or FLEXI's
failure to reproduce such Errors shall result in the
Acceptance of FlexiFinancials. Upon FLEXI's confirmation of
Errors, ESi's sole and exclusive remedy shall be for FLEXI
to correct such Errors as provided in Section 3.3.
Joint Testing; Correction of Error. ESi shall use commercially reasonable
efforts to test the delivered FLEXIEnhancements as incorporated
within FlexiFinancials at ESi's headquarters or at FLEXI's
headquarters. FLEXI shall use commercially reasonable efforts to
correct in a timely manner material Errors identified during such
testing as provided in Section 4.3.
Enhancements.
Additional FLEXIEnhancements. FLEXI shall prepare and develop
additional FLEXIEnhancements ("Additional
FLEXIEnhancements") to FlexiFinancials as mutually agreed
by FLEXI and ESi. To the extent such enhancements are not
prepared as part of FLEXI's development resource
commitment specified in Section 4.2.1, FLEXI shall propose
reasonable additional compensation for such enhancements.
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General Enhancements; Extra Cost Options. FLEXI shall advise ESi as
to its plans for preparation of any General Enhancements, which
shall mean Enhancements prepared and/or licensed for additional
compensation ("Extra Cost Options") or prepared and/or licensed
for no additional compensation to existing FLEXI licensees. Upon
request, FLEXI shall deliver to ESi General Enhancements prepared
and licensed for no additional compensation to existing FLEXI
licensees. If ESi elects to obtain Extra Cost Options, FLEXI
shall propose reasonable additional compensation for such
enhancements.
ESi and FLEXI agree to modify this Agreement to reflect the parties'
understanding with respect to General Enhancements or Additional
FLEXIEnhancements. Upon such modification of this Agreement, the
General Enhancements or Additional FLEXIEnhancements shall become
part of FlexiFinancials and FlexiFinancials Documentation. Under
no circumstances shall FLEXI be obligated to undertake any Extra
Cost Options or Additional FLEXIEnhancements without a written
agreement between the parties.
SOFTWARE SUPPORT; MAINTENANCE; ERROR CORRECTION; AND SOURCE CODE BY FLEXI
Launch Support. During calendar year 1996, FLEXI agrees to provide ESI
with technical support and classroom training (on a periodic basis) as
provided in Exhibit 0 for ESi's pre-sales, post-sales, and technical
support staff consistent with FLEXI's professional service policy for
ESi's preparation, launch, and support of ESiFinancials. If such
location is other than FLEXI's Shelton, Connecticut facility, then ESI
shall reimburse FLEXI for all out-of-pocket expenses, including
reasonable travel and lodging expenses subject to the limitation in
Section 0. ESi understands and agrees that FLEXI's support of End
Users or in support of ESi in connection with ESi prospects shall not
be subject to the limitation in established in Section 0.
Support and Maintenance. Provided ESI is current with all its obligations
during the term of this Agreement, FLEXI shall designate a project
manager and technical support specialist to work with ESi and provide
Support and Maintenance, and Error Correction Services, as defined
herein, (together, "Maintenance Plan"). The Maintenance Plan
provides ESI with Maintenance Modifications and all reasonable and
necessary technical support respecting the current release of
FlexiFinancials, and the previous release of such software for twelve
(12) months after the date on which the current release is generally
available ("Supported Release"). Maintenance Plan support shall occur
during FLEXI's regular business hours, excluding holidays, and after
regular business hours and during holidays through FLEXI's "on-call
beeper" service.
Development Resource Commitment. Pursuant to the Maintenance Plan,
FLEXI agrees to provide at no additional cost during the first
calendar year following Acceptance twenty (20) man-weeks of
development resources for the FLEXIEnhancements not scheduled for
delivery on or before October 1, 1996 or Additional
FLEXIEnhancements that are requested by ESi and mutually agreed
upon by the parties, subject in both instances to FLEXI's
development methodology and development schedules. During the
second calendar year following Acceptance, FLEXI agrees to
provide twenty (20) man-weeks of development resources for
Additional FLEXIEnhancements, subject to FLEXI's development
methodology and development schedules and ESi agrees to pay to
FLEXI at least $41,000, which payment may be based upon a credit
for any Maintenance and Enhancement Fees paid pursuant to Section
9.10.2 in the second year. For the third and fourth calendar
year, to the extent ESi paid to FLEXI at least $41,000 in
Maintenance and Enhancement Fees, FLEXI agrees to provide ESi
twenty (20) man-weeks of development resources during each such
year for Additional FLEXIEnhancements and, an additional man-week
of
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development resources not to exceed fifty (50)
man-weeks for each $10,000 in Maintenance and
Enhancement Fees in excess of $41,000, subject to
FLEXI's development methodology and development
schedules.
Error Correction Services. Subject to Section 4.2, should there occur an
Error in FlexiFinancials during the term of this Agreement,
and ESI notifies FLEXI in writing of the Error in sufficient
detail for FLEXI to reproduce such Error, FLEXI shall
provide at FLEXI's expense commercially reasonable
correction services to resolve the Error ("Error Correction
Services"), provided the Error is not the result of any
change or modifications in FlexiFinancials made by ESI or
any of its End-Users. FLEXI may furnish Error Correction
Services in any format that resolves the Error, including,
but not limited to, Product Temporary Fix ("PTF") format,
until such time as such correction can be conveniently
incorporated into the generally available release of
FlexiFinancials or the associated documentation.
Source Code Escrow. FLEXI agrees to deposit a copy of the Source Code of
FlexiFinancials with an escrow agent ("Escrow Agent") and
agrees to notify ESI of the Escrow Agent. FLEXI shall update
the Source Code with each Release as designated by FLEXI and
maintain such release in escrow.
In the event (a) FLEXI has filed a petition in bankruptcy,
or has made a general assignment for the benefit
of creditors or has had a receiver appointed for
all or substantially all of its business, or has
been liquidated or dissolved, (b) the institution
of bankruptcy, receivership, insolvency,
reorganization or other similar proceedings
against FLEXI under the Federal Bankruptcy Code or
any state court receivership proceedings, if such
proceedings have not been dismissed or discharged
within ninety (90) days after they are instituted,
or (c) a final adjudication of FLEXI as bankrupt
and, in each such case, FLEXI (its successor and
assigns) fails to continue to support the then
current release of the FlexiFinancials, ESI will,
upon payment of the duplication cost and other
handling charges of the Escrow Agent, be entitled
to obtain a copy of the Source Code of
FlexiFinancials from the Escrow Agent as long as
ESI is current with all its obligations to FLEXI
and licensed to use said release of
FlexiFinancials. ESI will, however, only use the
Source Code of FlexiFinancials to maintain
ESiFinancials as provided in this Agreement.
Attached hereto in Exhibit 4.4.2 is a form of escrow
agreement, "Preferred Escrow Agreement," to be
executed by Data Securities International, Inc.,
FLEXI's Escrow Agent, and FLEXI and ESi. Licensee
understands that the Preferred Escrow Agreement is
subject to the approval of the Escrow Agent. ESi
agrees to pay all fees and reasonable expenses of
the Escrow Agent imposed upon FLEXI in connection
with the Preferred Escrow Agreement or substitute
thereto. It is FLEXI's understanding that the
Escrow Agent's current fees are $2,300 with a
renewal fee on each anniversary of $1,300 and that
the Escrow Agent's current facility for notices
and deposit materials is: Data Securities
International, Inc., 9555 Chesapeake Drive, Suite
200, San Diego, CA 92123. ESi understands and
agrees that such fees are subject to determination
by the Escrow Agent."
RESPONSIBILITIES OF ESI
Development Assistance. ESI shall provide to FLEXI certain information and
software as determined by the parties and all other
information and technical support that is necessary for
FLEXI to create and maintain FLEXIEnhancements ("ESI
Information"). ESI shall deliver to FLEXI ESI Information
in a form mutually agreed upon by the parties. A listing of
such ESI Information shall be provided to FLEXI upon the
delivery of such information and incorporated by reference
as Exhibit 0. After delivery of
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FlexiFinancials, FLEXI shall retain copies of the ESI Information
while this Agreement is in effect, for use in the maintenance of
FlexiFinancials as provided pursuant to Section O. FLEXI shall return
to ESI or destroy all copies of such ESI Information as long as ESI
and FLEXI have no further continuing obligations as provided in
Section O (except such information provided to FLEXI under normal
commercial terms and conditions) upon termination of this Agreement.
Dedicated Client Workstation. During the term of this Agreement, ESI shall
dedicate a client workstation as reasonably specified by FLEXI solely
for use for FlexiFinancials and ESiFinancials. ESI acknowledges and
agrees that FLEXI may provide technical support and perform other
services for ESI through the dedicated client workstation (or through
such other means as the parties mutually agree) and, therefore, access
to FlexiFinancials or ESiFinancials as the case may be through the
dedicated client workstation and telecommunications facilities must be
maintained. Should ESI fail to maintain such dedicated client
workstation or telecommunications facilities access, FLEXI may impose
additional fees for technical support.
Designated ESI Personnel. ESI shall designate an ESI project manager and
technical support specialist at its own expense to work with FLEXI in
determining the specifications and test criteria, and to work with
FLEXI during the course of the development of the FLEXIEnhancements.
From time to time and as agreed by the parties, ESI further agrees to
provide such other staff at its own expense to assist FLEXI.
Notwithstanding ESi's assistance, FLEXI shall retain responsibility
for overall project management resulting in the development of the
FLEXIEnhancements and FlexiFinancials.
ESI Accounting for Royalties; Reporting. ESI shall maintain detailed and
accurate records with respect to License-Related Gross Revenues and
such other revenue that is the basis for payments to FLEXI and shall
pay to FLEXI royalties as set forth in Section O. ESI shall within
thirty (30) days after the end of each calendar month send to FLEXI a
statement identifying the End User and showing the number of copies of
ESiFinancials, FlexiFinancials, and Third Party Software licensed by
it during that month, the License-Related Gross Revenues of such
licenses as invoiced by FLEXI, and the Royalty Payments in respect of
such sales and Support Fees and Maintenance and Enhancement Fees to
which FLEXI is entitled pursuant to Section O and Section 9.10 hereof.
ESI shall keep separate and accurate records in respect of all
licenses of the ESiFinancials, FlexiFinancials, and Third Party
Software made by it during the term of this Agreement and for three
(3) years thereafter, and shall permit FLEXI or its authorized agent
to inspect all such records and make copies thereof for FLEXI's own
use as provided in Section O hereof.
Inspection and Audit. FLEXI, or any agent authorized by FLEXI, shall have
the right at all reasonable times upon seven (7) days prior written
notice, and in any event no more than semiannually (or as often as
FLEXI determines necessary if an audit reveals that actual Royalty
Payments with respect to any quarter were less than ninety percent
(90%) of the Royalty Payments paid by ESi), to inspect ESi's
facilities and audit ESi's relevant books, records and any other
relevant information at ESi's offices in order to determine whether
ESI is in compliance with the terms and conditions of this Agreement.
ESI agrees to reasonably cooperate and provide all reasonably
necessary documentation to enable FLEXI or its agent to conduct such
audit, including, but not limited to, providing the Source Code,
Object Code, and Executable Code of ESiModifications and
ESiFinancials. Should any such audit reveal that actual Royalty
Payments with respect to any quarter were less than ninety percent
(90%) of the Royalty Payments paid by ESI to FLEXI for such quarter,
ESI shall, in addition to paying all fees and expenses associated with
the audit, remit to FLEXI the amount of the unpaid Royalty Payments or
in the case two or more quarters within a four quarter period reveal
that actual Royalty Payments were less
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than ninety percent (90%), payment of twice the amount of the unpaid
Royalty Payments, and in each case interest as provided in Section 0
hereof.
ESI Compliance with Laws. ESI agrees to comply with all applicable laws,
rules and regulations in performance of its duties and obligations in
connection with this Agreement.
DISTRIBUTION, MARKETING AND CLIENT SUPPORT ARRANGEMENTS
ESI Determination of Marketing and Pricing. ESI shall retain full
discretion with respect to all decisions relating to distribution and
marketing of FlexiFinancials and ESiFinancials, including, without
limitation, the determination to introduce or withdraw ESiFinancials
or FlexiFinancials, and the terms, conditions, and pricing of
ESiFinancials and FlexiFinancials. ESI shall use commercially
reasonable efforts to promote ESiFinancials and FlexiFinancials. Under
no circumstances shall ESI misrepresent or mislead the features and
functionality of FlexiFinancials or ESiFinancials, or make any claims
detrimental to FLEXI.
ESI shall bear all costs of preparation and writing of FLEXIEnhancements
Documentation to the extent such enhancements shall not be
incorporated within the generally available version of FlexiFinancials
for sublicensing to FLEXI licensees, and delivery, duplication and
production of ESiFinancials, FlexiFinancials, and FlexiFinancials
Documentation and ESiFinancials Documentation delivered to End Users.
ESI shall, at its own cost, provide sales, marketing, and support staff
that are sufficiently trained in relation to ESiFinancials, and for
such purpose ESI shall upon payment of the then-current professional
service rates send to FLEXI suitably qualified employees of ESI for
on-going training by FLEXI in matters relating to FlexiFinancials, its
technical support and marketing. The numbers of such employees, the
times at which such employees are sent and the period for which such
employees are sent to FLEXI shall be mutually agreed upon in writing.
FLEXI agrees to provide the foregoing training at no additional cost
to ESi up to twenty-five (25) man-days for ESi employees, provided
such employees attend a regularly scheduled FLEXI training class for
which FLEXI has available space for such employees.
End User License. Any distribution of ESiFinancials or ESiFinancials
Documentation by ESI shall be pursuant to the terms and conditions of
an End User License.
Client Support. ESI shall provide, at a minimum, a telephone "hotline" for
technical support of ESiFinancials, FlexiFinancials, and Third Party
Software, if any, for End Users, which includes, among other things,
problem identification, verification, and resolution, to the extent
possible. Such hotline shall be available during regular business
hours of ESI and shall be maintained by a trained staff on sufficient
telephone lines to meet reasonably anticipated demand for service.
ESI understands and agrees that FLEXI is not obligated to support ESI
clients, except by providing support to ESI as provided in Section 0
and assistance to ESi for Early Adopter License End User Licenses as
agreed upon by the parties. ESi further agrees not to deliver to any
End User that is not subscribed to ESi's Maintenance or Enhancement
Plan, or the like, any Maintenance Modifications or Enhancements to
FlexiFinancials or ESiFinancials.
Notwithstanding any of the foregoing, ESI shall not without the express
written consent of FLEXI:
give or make on behalf of FLEXI any other warranties, conditions,
guarantees or representations or to vary or modify in any way
such warranties, conditions, guarantees or representations as
given or made by FLEXI, provided that ESI may itself give or
make such warranties, conditions, guarantees or
representations that are more favorable to End-Users upon the
clear understanding that any additional liability shall be
incurred solely by ESI and
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not by FLEXI, and ESI shall indemnify and hold FLEXI harmless
from any such additional liability during and after the term
of this Agreement, and such favorable terms and conditions
shall terminate upon termination of this Agreement.
reproduce, sublicense, market, distribute, sell, support or service
FlexiFinancials or ESiFinancials to any customer that is
outside the Health Care Industry; or
obtain FlexiFinancials for sublicensing from any person other than the
FLEXI;
Export Compliance. Notwithstanding the laws of any other jurisdiction, to
the extent that ESiFinancials or FlexiFinancials constitutes
"technical data" or such other classification for purposes
of the Export Control Regulations of the United States, no
copy of such software may be exported or re-exported to any
country that is at the time of export included in the
Department of Commerce's list of countries to which
exportation is restricted or prohibited unless that
exportation is authorized specifically by a special license
issued to ESI at ESi's own cost pursuant to the Exportation
Administration Regulations of the Department of Commerce or
any other United States government agency controlling the
export or re-export of software.
OWNERSHIP
Nothing herein shall be construed to assign or transfer any intellectual
property rights in FlexiFinancials Code and FlexiFinancials
Documentation, in which FLEXI retains all right, title, and
interest subject only to the rights and license hereby
granted.
Upon ESi's payment of the Payments specified in Section 9.1 and Section
9.2, if applicable, and provided ESi remains current with its
Royalties as provided in Section 9.3 0, ESI shall retain all
right, title, and interest in the Interface and
ESiModifications, except to the extent FlexiFinancials Code
or Documentation is included therein. Notwithstanding the
foregoing, ESI acknowledges and agrees that creation of any
unauthorized modifications or enhancements or any use of
ESiModifications or the Interface separate and apart from
ESiFinancials or FlexiFinancials constitutes copyright
infringement or other infringement of the proprietary rights
of FLEXI. ESI hereby grants to FLEXI an irrevocable,
worldwide and fully paid-up license in and to the Interface,
ESiModifications, and ESiFinancials for the sole purpose of
enabling FLEXI to support ESi and, to the extent necessary,
End-Users or ESi licensees. Upon FLEXI's request, the
Interface, ESiModifications, and ESiFinancials shall be
recorded on or embodied in such suitable medium as mutually
agreed upon by the parties, and shall be promptly delivered
to FLEXI.
ESI acknowledges and agrees that FlexiFinancials and portions of
ESiFinancials and the Interface constitutes confidential and
proprietary information and contains trade secrets of FLEXI.
Even should ESI license, distribute, market, service and
support ESiFinancials and the Interface under ESi's own name,
ESI agrees to attribute copyright, trade secret, and
trademark ownership of FlexiFinancials, FlexiFinancials
Documentation, ESiFinancials, ESiFinancials Documentation,
and the Interface in a form acceptable to and approved by
FLEXI, which form shall include at a minimum the information
provided in Exhibit 7.3 and the following language:
Copyright (C) 1992-1996 FlexiInternational Software, Inc.
All Rights Reserved.
FLEXI also agrees that portions of ESiFinancials and the
Interface contain confidential and proprietary information,
and contains trade secrets of ESI, and agrees to treat such
information as it treats its confidential and proprietary
information and trade secrets of a similar nature.
ESI agrees that it shall not:
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alter, remove, or tamper with any trademarks, copyrights or other
means of identification used on or in relation to FlexiFinancials
or FlexiFinancials Documentation, including, but not limited to
ESi's incorporation of FlexiFinancials into ESiFinancials and the
Interface and ESiFinancials Documentation;
use any of the trademarks, trade secrets, copyrights, or other
intellectual property rights in any way that might prejudice the
distinction, validity or goodwill of FLEXI; and
acquire any rights and goodwill in the trademarks, trade secrets,
copyrights, and other intellectual property rights.
ESI further agrees that it shall:
reproduce all trademarks, copyrights, or other means of identification
used on or in relation to FlexiFinancials, the ESiFinancials,
Interface, and documentation thereto;
use the trademarks in compliance with all relevant laws and
regulations;
provide samples of ESiFinancials and the Interface, and such other
materials that ESi uses of such trademarks, and use such
trademarks in compliance with this Agreement.
Failure to comply with the provisions of Section 7.4 and this Section
shall constitute a material breach of this Agreement entitling Owner
to terminate this Agreement or suspend ESi's use of the Trademarks,
effective immediately, until such time that ESI has cured such failure
and confirms in writing that ESi shall thereafter comply with this
Section.
ESI agrees that it will not claim any ownership rights in or to
FlexiFinancials and FlexiFinancials Documentation and, to the extent
necessary, shall, at the request and sole expense of FLEXI, execute,
acknowledge, deliver or file all further acts, deeds, transfers,
conveyances, assignments or assurances that FLEXI shall reasonably
require to release any rights that might appear to have been acquired
by ESI in FlexiFinancials, FLEXIEnhancements.
Enforcement of Copyright. ESi agrees to promptly notify FLEXI of any
infringement of any copyrights or other intellectual property rights
of FLEXI in connection with or in relation to FlexiFinancials,
ESiFinancials, the Interface, FlexiFinancials Documentation, and
ESiFinancials Documentation. ESI shall use commercially reasonable
efforts to fully enforce FLEXI's rights against infringers of its
copyrights or other intellectual property rights in FlexiFinancials,
ESiFinancials, the Interface, FlexiFinancials Documentation, and
ESiFinancials Documentation by End Users and shall provide FLEXI
reasonable assistance at its own expense in FLEXI's enforcement of its
copyrights and intellectual property rights. ESI shall have materially
breached this Agreement if it fails to so enforce rights against
infringers within thirty (30) days after appropriate notification, if
such failure results in a material loss of value in FlexiFinancials,
ESiFinancials, FlexiFinancials Documentation, and ESiFinancials
Documentation.
U.S. Government Rights. ESi shall not provide ESiFinancials,
FlexiFinancials, or Third Party Software ("Software") or Documentation
to any unit or agency of the United States Government or such other
government unless specified in an agreement between ESi and End User.
Should ESi provide Software or Documentation to a unit or agency of
the United States Government or such other government, ESi shall
include any necessary provision in its contract with such unit or
agency to limit the rights of the United States Government or such
other government (as the case may be) in such Software or
Documentation to the terms and conditions set forth in the End User
License between ESi and End User. Such provision in the case of the
United States Government shall note
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that such Software or Documentation is "commercial computer software"
or "commercial computer software documentation" and that the United
States Government's rights with respect to such Software or
Documentation are limited by the terms and conditions of the End User
License, pursuant to FAR (S)12.212(a) and/or DFARS (S)227.7202-1(a),
as applicable. ESI agrees to place a legend "Restricted Rights
Legend", in addition to the applicable copyright notices, on the
Documentation, and on the tape and diskette labels, or on such other
medium, as may be required.
Nothing in this Agreement shall be deemed to preclude or prevent FLEXI from
using in any manner it sees fit any expertise or know-how, or
information embedded in the code, system design and configuration
gained in the performance of this Agreement.
FLEXI LICENSE GRANT
Scope of License.
During the term of this Agreement and subject to the terms and
conditions of this Agreement, FLEXI hereby grants to ESI the non-
transferable, non-assignable licenses described herein.
License for Internal Use. FLEXI hereby grants to ESI a non-exclusive
license to:
use FlexiFinancials (containing the FLEXIEnhancements, when
available) for the internal, in-house, operations of ESI and
for the processing of ESi's own financial data within the
United States with the Designated Client/Server System at
the Site(s) specified in Exhibit 0 upon prior written
notification. Site shall mean the right to use
FlexiFinancials on client workstations connected either
directly or remotely to the database server(s) in
combination with the application server(s) (together,
"Server Site") located at each of the Site(s) as specified
on the above exhibit;
create ESiModifications with the use of the FlexiTools and
separately acquired and licensed Third Party Tools
enumerated in Exhibit 0 in the United States for the purpose
of altering the graphical user interface(s) and adding
columns to tables of FlexiFinancials or ESiFinancials for
accounting and financial reporting processes within the
Health Care Industry, provided such ESiModifications (w) do
not infringe upon any parties' intellectual property rights,
(x) are only incorporated within FlexiFinancials or
ESiFinancials, not used separate and apart from
FlexiFinancials or ESiFinancials, and not for resale or
distribution except under the terms and conditions specified
by this Agreement, (y) are recorded through use of PVCS or
such other computer software program, and (z) ESI does not
use the FlexiTools or any know-how, knowledge or expertise
derived through the use of FlexiTools, ESiFinancials or
FlexiFinancials to develop competing, replacement, or
substitute computer software programs to FlexiFinancials or
ESiFinancials; and
the license to use FlexiFinancials and FlexiFinancials
Documentation in the United States and Canada for the
purpose of creating, testing, and supporting the Interface,
provided the Interface (y) does not infringe upon any
parties' intellectual property rights and (z) is recorded
through use of PVCS or such other computer software program;
License to Sublicense. FLEXI hereby grants to ESI
A non-exclusive license to:
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reproduce, sublicense, market, distribute, and support FlexiTemplates, the
Executable Code of FlexiFinancials and FlexiFinancials Documentation
prior to Acceptance, and ESiFinancials and ESiFinancials
Documentation, and the Interface in the United States and Canada
solely to and for application to the accounting and financial
reporting processes for the Health Care Industry;
reproduce, sublicense, market, distribute, and support the FlexiTools
enumerated in Exhibit 1.17 solely in combination with the Third Party
Tools enumerated in Exhibit 8.1.1.2 for the sole purpose of altering
the graphical user interface(s) and adding columns to tables of
FlexiFinancials and ESiFinancials for accounting and financial
reporting processes within the Health Care Industry in the United
States and Canada, provided such alterations (w) do not infringe upon
any parties' intellectual property rights, (x) are only incorporated
within FlexiFinancials or ESiFinancials, not used separate and apart
from FlexiFinancials or ESiFinancials, and not for resale or
distribution by End Users, (y) are recorded through use of PVCS or
such other computer software program, and (z) the use of FlexiTools
or any know-how, knowledge or expertise derived through the use of
FlexiTools, FlexiFinancials or ESiFinancials is not used to develop
competing, replacement, or substitute computer software programs to
FlexiFinancials or ESiFinancials
use the FlexiTemplates, FlexiFinanicals ESiFinancials in the United States
and Canada solely for training, benchmarking, testing, demonstrating,
supporting, creating marketing and promotional materials, and client
training on computer systems owned, leased, or otherwise controlled by
ESI;
reproduce, sublicense, market, distribute, and support the Executable Code
of the Third Party Software identified in Exhibit 1.24 only in
conjunction with FlexiFinancials or ESiFinancials, subject to such
other terms and conditions as FLEXI and the Third Party Software
Publisher have mutually agreed upon and may agree upon from time to
time.
(singly, "Non-Exclusive License," and together, "Non-Exclusive Licenses");
and
An exclusive license to:
reproduce, sublicense, market, distribute, and support the Executable Code
of ESiFinancials and FlexiFinancials and ESiFinancials Documentation
and FlexiFinancials Documentation, and the Interface in the United
States and Canada solely to and for application to the accounting and
financial reporting processes for the Health Care entities that are
currently licensees of ESI and subscribed to and are paying
maintenance to ESi as provided in Exhibit 8.1.2.5; and
reproduce, sublicense, market, distribute, and support the Executable Code
of ESiFinancials, ESi Documentation, FlexiFinancials and
FlexiFinancials Documentation, and the Interface in the United States
and Canada solely to and for application to the accounting and
financial reporting processes for the Health Care Industry,
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upon ESi's written notification ("Notification") to FLEXI of
its exercise of its option to expand its exclusive
license as provided herein and payment to FLEXI as
provided in Section 9.2 on or before Acceptance or
December 31, 1996, whichever comes first, or
upon ESi's written notification ("Notification") to FLEXI
after ESi has paid to FLEXI the Minimum Exclusivity
Royalty Payments for a given year, provided ESi failed
to elect exclusivity as provided in Section 8.1.2.6.1;
(singly, "Exclusive License," and together, "Exclusive Licenses").
Trademark License. FLEXI hereby grants to ESI a non-exclusive license
to use FLEXI's Trademarks in the United States and Canada on or
in relation to FlexiFinancials and ESiFinancials for the purpose
of licensing, sublicensing, advertising, marketing, promoting,
and supporting ESiFinancials, provided use of the Trademarks are
in a manner consistent with the current pre-approved form of
trademarks or otherwise approved in writing.
The license to use, for the same purposes and upon the applicable
terms, including exclusivity, described in this Section 0, any
subsequent updates, revisions, Maintenance Modifications,
Additional FLEXIEnhancements, General Enhancements, and Extra
Cost Options of FlexiFinancials, FlexiTools or Trademarks from
time to time made available by FLEXI to ESi, provided in the case
of ESi End Users, such End Users are subscribed to ESi's Support,
Maintenance and Enhancement Plan that provides for the
aforementioned.
(together, "Licenses")
Continuing Rights of FLEXI. Notwithstanding the Exclusive Licenses,
FLEXI shall retain all ownership of and full rights to continue,
among other things, to use, reproduce, license, market,
distribute, support, service and sublicense (either directly or
through a FLEXI distributor) FlexiFinancials, and FLEXI
Documentation or any modifications or Enhancements thereto,
including, but not limited to the Health Care Industry (except as
such rights conflict the with the Exclusive Licenses granted
herein), but nothing in this Agreement, including the Exclusive
Licenses granted herein, shall prevent or limit FLEXI's right to
enter into the following agreements (either directly or through a
service provider) in respect of FlexiFinancials or any
modifications or Enhancements thereto:
a professional service agreement involving, among other things,
consulting and training;
an agreement similar to this Agreement with parties outside the
United States and Canada, provided ESi has not exercised its
Exclusivity Option or ESi failed to agree with FLEXI on the
terms and conditions of an agreement within fifteen (15)
days of FLEXI's notification of FLEXI's desire or intention
to seek, or enter into discussions or enter into such
similar agreement;
a license agreement with a FLEXI End User that is either an
affiliate of a present or future client of FLEXI ("FLEXI
Client") or said license is made in connection with a
license or series of licenses of FlexiFinancials to said
client of FLEXI and the sole motive of FLEXI for entering
into the license agreement is not to license FlexiFinancials
to the FLEXI End-User in violation of the Exclusive
License(s) and such other ancillary agreements in support of
the license agreement, provided FLEXI shall obtain ESi's
consent, which consent shall not be unreasonably withheld
nor require additional compensation, when an affiliate
represents more than twenty-five percent (25%) of the
consolidated FLEXI Client's gross revenue; or
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a worldwide license agreement in respect of FlexiFinancials where the
sole motive of FLEXI for entering into the license agreement is
not to license FlexiFinancials to an End User in United States or
Canada, and such other ancillary agreements in support of the
license agreement, provided FLEXI shall obtain ESi's consent,
which consent shall not be unreasonably withheld nor require
additional compensation, when the prospective licensee's US and
Canadian operations represent more than twenty-five percent (25%)
of the consolidated prospective licensee's gross revenue or
and ESI shall not be entitled to make any claim or seek any
compensation in respect of any such agreements for any version of
FlexiFinancials.
Competing Products.
Provided the Licenses are in effect: ESI shall not promote any the
financial accounting software programs of any software products
that compete with FlexiFinancials, except ESi may promote the
following two products which may be considered to be competitive
with FlexiFinancials, ESiFinancials and Third Party Software to
be marketed by ESi hereunder, (y) its own proprietary Btrieve
File System based accounts payable software program, provided the
features and functionality of the such software program shall be
substantially similar to the current features and functionality
of such program and as such programs are enhanced for its current
intended use, but in no event shall such programs be client
server enabled, and (z) its own proprietary client server windows
based invoicing matching program (as such program is commonly
known in the industry as of the Effective Date of this
Agreement), and, in both instances (y) and (z), ESi's proprietary
software shall not include any programs acquired through, but not
limited to, the purchase of another entity's programs, or the
sale of or merger with another entity; and
Provided the Exclusive Licenses are in effect, FLEXI shall not enter
into any agreement to allow promotion and marketing of
FlexiFinanicals in the Health Care Industry to any entity other
than ESI as named herein, except as provided in Section 8.2 of
this Section.
Notwithstanding any provisions in this Agreement, FLEXI agrees not to
market or solicit FlexiFinancials to those entities enumerated in
Exhibit 8.1.2.5, enter into an agreement similar to this
Agreement with any entity identified in Exhibit 8.3.2, nor
promote a materials management computer software program (as such
program is commonly known in the industry as of the Effective
Date of this Agreement) in the Health Care Industry.
Except for the rights granted herein to ESI, no right or license is granted
under this Agreement by implication or otherwise.
PAYMENTS AND ROYALTIES
In consideration for the Licenses granted under this Agreement, ESI agrees to
make the following payments to FLEXI.
Payments. ESI shall pay FLEXI Five-Hundred-Thousand Dollars ($500,000) non-
refundable cash payment, except as provided in Section 3.1.2. Such
payment shall be in accordance with the schedule in Exhibit 0.
Exclusivity Payment. Upon ESi's election to expand its license grant as
provided in Section 8.1.2.6, in addition to the payment made pursuant
to Section 0 hereof, ESI shall make a one-time non-refundable cash
payment of Two-Hundred-Thousand Dollars ($200,000) to FLEXI as
provided in Exhibit 9.2.
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Royalty Payments. Upon execution of this Agreement, ESI shall make
payments ("Royalty Payments") to FLEXI equal to the applicable
percentage specified in Exhibit 9.3 ("Royalty Rate") multiplied by the
License-Related Gross Revenues. As used herein, the term License-
Related Gross Revenues shall mean the cumulative amount of all ESI
executed licenses for ESiFinancials and/or FlexiFinancials from the
date hereof respecting any and all licenses of ESiFinancials and
FlexiFinancials (exclusive of implementation, consulting, support,
education, maintenance, enhancements, and Third Party Software).
Royalty Payments shall be paid in accordance with the Schedule enumerated
in Exhibit 9.4 and shall commence no later than the 15th day of each
month immediately after the execution by each End User of the End User
License, but in no event shall Royalty Payments for an End User
License be paid to FLEXI later than six (6) months after execution of
each End User License. Such Royalty Payments shall be reduced by the
cumulative Non-Refundable Quarterly Payments made pursuant to Section
9.5. ESi may withhold a portion of the Royalty Payment associated
with an End User License if ESi demonstrates in good faith that
FlexiFinancials contains a material Error substantially precluding
the End User from substantially using FlexiFinancials or ESiFinancials
and FLEXI reproduces such error and fails to correct such error as
provided in Section 4.3. Upon FLEXI's correction of the material
Error, ESi shall promptly pay to FLEXI that portion of the Royalty
Payment withheld.
Non-Refundable Scheduled Quarterly Royalty Payments. To the extent the Non-
Refundable Scheduled Quarterly Royalty Payments as provided in Exhibit
9.5a (or as adjusted due to a buy down of the Royalty Rate as provided
in Exhibit 9.5b), exceed the aggregate actual royalty payments paid to
FLEXI for such quarter, ESi shall make a non-refundable payment to
FLEXI of the difference ("Non-Refundable Quarterly Payment") on or
before the tenth (10th) day of the month following the end of the
quarter. At the end of each quarter, to the extent the cumulative
royalty payments paid to FLEXI exceed the corresponding cumulative
Non-Refundable Scheduled Quarterly Royalty Payments as provided in
Exhibit 9.5a or Exhibit 9.5b, the difference shall be credited toward
the next quarter's Non-Refundable Scheduled Quarterly Royalty
Payments, and each quarter thereafter until such credit is exhausted.
Non-Refundable Scheduled Quarterly Royalty Payments shall cease upon
ESi's payment to FLEXI of $2,000,000 as provided in Exhibit 9.5a or
such other amount as reflected in the applicable tables in Exhibit
9.5b.
Minimum Royalty Payment per End User License. ESI agrees that the minimum
Royalty Payment in connection with an End User License shall not be
less than Royalty Rate specified in Exhibit 9.3 of (i) the then-
current ESI suggested retail price for ESiFinancials as specified in
Exhibit 9.6a and modified by ESi from time-to-time multiplied by
discounted rate specified in such exhibit ("Discounted Rate") or (ii)
the actual license fee for the End User, whichever is greater. In the
case of the Third Party Software specified in Exhibit 1.7, ESI agrees
to pay FLEXI the Royalty Payments enumerated in Exhibit 9.6b.
ESI further agrees to act in good faith towards FLEXI with respect to the
Royalty Payments and shall not intentionally take any action with
respect to the pricing of ESiFinancials to End Users where a
motivation of such action is to reduce the amount of the Royalty
Payments owing by ESI to FLEXI hereunder, including, but not limited
to, disproportionately discounting or decreasing the suggested retail
prices of ESiFinancials vis-a-vis ESI license fees or suggested retail
prices for other products and services or disproportionately
increasing ESI suggested retail prices for other products and services
of ESI vis-a-vis the ESiFinancials or FlexiFinancials.
Minimum Royalty Payment. Upon Acceptance, the minimum annual Royalty
Payments from ESI to FLEXI for ESiFinancials or FlexiFinancials shall
be as provided in Exhibit 9.8
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("Minimum Royalty Payment"). Minimum Royalty Payments shall cease upon
ESi's payment to FLEXI of the actual cumulative Royalty Payments as
provided in such Exhibit 9.8.
Minimum Exclusivity Royalty Payment. Upon ESi's exclusivity Notification
as provided in Section 8.1.2.6, the Minimum Royalty Payment in order
to maintain the Exclusive Licenses for ESiFinancials shall be as
provided in Exhibit 9.9 ("Minimum Exclusivity Royalty Payments"). In
the event ESI fails to pay to FLEXI during the course of the
applicable period the Minimum Exclusivity Royalty Payment, ESI may pay
to FLEXI on the fifteenth (15th) day after each anniversary following
Notification the difference between the Minimum Exclusivity Royalty
Payments and the actual Royalty Payments and the Non-Refundable
Quarterly Payment, if any, to maintain the Exclusive Licenses granted
herein or, notwithstanding any other provision in this Agreement, such
Exclusive Licenses shall become non-exclusive for the remaining Term
of this Agreement or any renewals thereto.
Support and Maintenance Fees and Enhancement Fees.
Support and Maintenance Fees. ESI shall pay FLEXI an annual cumulative
support fee and renewal support fees corresponding to each End
User License equal to (i) 2-1/2% of the total cumulative License-
Related Gross Revenue for such End User License ("Base Support
and Maintenance Fee") or (ii) the Base Support and Maintenance
Fee plus any pro rata increase in ESi's actual support and
maintenance fee to such End User, whichever is greater ("Support
and Maintenance Fee"). On the fifteenth (15th) day of each month
following the sixtieth (60th) day after ESi and an End User sign
an End User License ("Anniversary Date") and every month
thereafter, ESi shall pay FLEXI the Support Fee pro-rated
monthly. The maximum Support Fee for all End User Licenses in any
given month shall be $5,000.
ESi may withhold the Support and Maintenance Fee of an End User
if ESi demonstrates in good faith that FlexiFinancials
contains a material Error substantially precluding the End
User from substantially using FlexiFinancials or
ESiFinancials and FLEXI reproduces such error and fails to
correct such error as provided in Section 4.3. Upon FLEXI's
correction of the material Error, ESi shall promptly pay to
FLEXI that portion of the Support and Maintenance Fee
withheld.
Enhancement Fees. ESI also agrees that on the fifteenth (15th) day of
each month following the first and each subsequent Anniversary
Date to pay FLEXI an Enhancement Fee equal to (i) 5% of the total
License-Related Gross Revenue ("Base Enhancement Fee") or (ii)
the Base Enhancement Fee plus any pro rata increase in ESi's
actual enhancement fee to an End User, whichever is greater
("Enhancement Fee").
Termination of Support and Maintenance Fees, and Enhancement Fees;
Reinstatement Fees. Should an End User terminate its
participation in the ESi Maintenance Plan or cease to pay ESi
ESi Support and Maintenance Fees, and ESi Enhancement Fees
(except as provided in Section 9.10.1.1), ESi shall cease to
provide such End User support, maintenance, and enhancements. In
such event, FLEXI is not obligated to provide support,
maintenance, and enhancements to ESi on behalf of such End User
and ESi shall not be obligated to pay FLEXI Support and
Maintenance Fees, and Enhancement Fees for such End User. In the
event such End User resumes participation in ESi's support and
maintenance plan, and/or enhancement plan, ESi shall pay to FLEXI
a reinstatement fee equal to the same pro rata reinstatement
charge, if any, such End User pays to
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ESi to resume participation in ESi's support and maintenance
plan, and/or enhancement plan.
Third Party Fees. ESi also agrees to pay FLEXI a Support and
Maintenance Fee and an Enhancement Fee for Third Party Software
as specified in Exhibit 9.10.3.
ESI further agrees to act in good faith towards FLEXI with respect to
the above fees and shall not intentionally take any action with
respect to the pricing of such enhancements, maintenance and
support to End Users where a motivation of such action is to
reduce the amount of the payments owing by ESI to FLEXI
hereunder, including, but not limited to, disproportionately
discounting or decreasing the suggested retail prices of such
enhancement, maintenance and support vis-a-vis ESI fees or
suggested retail prices for other products and services or
disproportionately increasing ESI suggested retail prices for
other products' maintenance and support of ESI vis-a-vis the
FlexiFinancials or ESiFinancials maintenance and support fees.
Taxes. ESI agrees to pay to FLEXI or make direct payments of the amount of
any sales, excise or similar taxes other than income, or
franchise tax payable by FLEXI which applicable law requires
FLEXI to (i) collect from ESI in connection with the Licenses and
support and maintenance of such Licenses, and (ii) pay to the
applicable taxing authority.
No Royalties for Demonstration, Evaluation or Educational Use. No
royalties shall be payable to FLEXI for ESi's demonstration of
ESiFinancials or FlexiFinancials by ESi or use in educational and
training activities conducted by ESi for End Users or prospective
End Users who ESi is engaged in soliciting or licensing
ESiFinancials or FlexiFinancials. Under limited circumstances,
but for no more than three (3) End Users prior to Acceptance
without the consent of FLEXI and in the case of more than three
(3) End Users prior to Acceptance with the consent of FLEXI,
which consent shall not be unreasonably withheld, ESi may provide
FlexiFinancials for "Evaluation Use" for an End User who has
executed an Evaluation License Agreement. "Evaluation Use" in
excess of three (3) months shall subject the license to a Royalty
Payment equivalent to the amount that would be due and owing if
the End User had licensed FlexiFinanicals.
No Right of Off-set. ESI shall not have the right to set-off any amounts
claimed to be owed by FLEXI to ESI hereunder against any Payments
or Royalty Payments provided in this Section unless, and only to
the extent that, ESI obtains an enforceable judgment against
FLEXI or unless ordered or allowed by a court of competent
jurisdiction.
WARRANTIES OF FLEXI
Ownership; Right to License. FLEXI represents and warrants to ESI that
FLEXI has the authority to grant all Licenses granted herein.
FLEXI warrants that as of the day and year first written above that it is
not aware of any pending or threatened legal action challenging
FLEXI's authority to perform its obligations hereunder, nor is FLEXI
aware of any claim that FlexiFinancials violates or infringes any
copyright, patent, or other intellectual property rights of a third
party.
Diligence; Conformity to Specifications. FLEXI represents and warrants to
ESI that FlexiFinancials delivered hereunder has been or shall be
prepared by FLEXI with due diligence and skill, and during the term of
this Agreement, FlexiFinancials and FlexiTools shall conform in all
material respects to the applicable documentation. FLEXI does not
represent, warrant or undertake that FlexiFinancials, including any
future versions of FlexiFinancials, nor FlexiTools, including any
future versions of the FlexiTools, is free from errors, omissions or
inconsistencies that may prevent it or certain features from operating
as described in the FLEXIDocumentation or as intended and whether
alone or in conjunction with certain hardware configurations,
operating systems
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or other software, or will perform in an acceptable manner on any
given hardware under any given operating system (whether or not
recommended as a sufficient configuration in the Documentation or on
the packaging).
Pre-Release Software. To the extent ESI receives a pre-release
FlexiFinancials module, ESI understands that such module is not at the
level of performance and compatibility of the final, generally
available release product offering and is designated as pre-release
code ("Beta Release"). It is understood that a Beta Release is not
intended for production use and, therefore, is provided without any
warranty of any kind and is distributed on an "AS IS" basis.
The extent of FLEXI's liability under this warranty, TO THE EXCLUSION OF
ALL OTHER REMEDIES IN CONTRACT, TORT, OR OTHERWISE, shall be limited
to the correction or replacement of any defective item(s) in the
physical media on which FLEXI delivers FlexiFinancials, Additional
FLEXIEnhancements, and FlexiFinancials Documentation and, in the case
of FlexiFinancials, shall be limited to Error Correction Services
which FLEXI determines to be necessary at FLEXI's own cost and expense
("Warranty Correction Services"), provided, in both instances, written
notice of any defective item(s) or Error is given to FLEXI during the
warranty period and reduced to a writing in sufficient detail for
FLEXI to reproduce the defective item. FLEXI shall provide
commercially reasonable Warranty Correction Services consistent with
FLEXI's Maintenance Plan and Error Correction Services as provided in
Section 4.2 and Section 4.3, respectively, during FLEXI's regular
business hours, excluding holidays.
This warranty is invalidated and shall not apply if: (w) FlexiFinancials
and FlexiTools shall not be used in accordance with FLEXI's
instructions as evidenced in writing in the current user documentation
and other materials provided by Flexi; (x) FlexiFinancials (except as
authorized pursuant to Section 8.1.1.2) or FlexiTools is altered,
modified, translated, or reverse engineered; (y) any of ESi's
equipment shall malfunction; or (z) any other cause within the control
of ESI shall result in a feature or function of FlexiFinancials, and
FlexiTools becoming inoperative.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE SOFTWARE, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
INDEMNIFICATION
Infringement of Intellectual Property Rights. FLEXI hereby agrees to
indemnify and defend ESI and its respective directors, officers,
employees, representatives and agents against all claims losses,
liabilities, damages, costs or expenses that FlexiFinancials and
FlexiTools infringes against any U.S. or Canadian copyright,
servicemark, trademark, trade name, or allegations that FLEXI has
misappropriated trade secrets of a third party (excluding ESi and
subsidiaries), and FLEXI will pay all costs, damages, and reasonable
attorney fees finally awarded by a court of competent jurisdiction
arising from or in connection with any such claim, provided, however,
that said indemnification shall not apply to: (i) the use of a
superseded or altered version of FlexiFinancials and FlexiTools if
such infringement would have been reasonably avoided by use of the
latest release of FlexiFinancials and FlexiTools; (ii) any such
claims, losses, liabilities, damages, costs or expenses to the extent
caused by any changes, modifications, to FlexiFinancials and
FlexiTools by ESi or End Users; or (iii) any actions of ESI in
violation of this Agreement.
FLEXI shall have no obligation to defend ESI, or to pay any such costs,
damages, and attorney fees for any claim based upon the combination,
operation, or use of FlexiFinancials or FlexiTools with any programs
or data not supplied by FLEXI if such infringement would
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have been avoided by the combination, operation, or use of
FlexiFinancials without such particular programs or data.
In the event that FlexiFinancials or FlexiTools, or part thereof, as
furnished under this Agreement and used within the scope of the
Licenses hereunder is held in such a suit or proceeding to infringe a
third party's proprietary right, and the use of FlexiFinancials or
FlexiTools, or part thereof, is enjoined, FLEXI may, at its sole
option: (y) procure for ESI the right to continue to use the Licenses
granted hereunder; or (z) replace or modify FlexiFinancials or
FlexiTools with non-infringing software. If FLEXI determines in its
own discretion that neither of the foregoing options is commercially
practicable, and only in the event that use of FlexiFinancials or
FlexiTools, or part thereof, is determined in an administrative
proceeding or by a court to actually infringe upon a third party's
proprietary rights, or that in connection with a settlement of such
claim, FLEXI shall cease to distribute FlexiFinancials or FlexiTools,
or part thereof, FLEXI may terminate the Licenses, or part thereof,
for FlexiFinancials or FlexiTools. Notwithstanding any other provision
in this Agreement, upon such termination, FLEXI's maximum liability
shall be no more than the amortized amount of the Royalty Payment
received by FLEXI corresponding to the terminated End User License(s),
or part thereof, based upon straight line amortization over a period
of five (5) years. Sections 11.1 and 11.2 and 11.3 states the entire
liability of FLEXI with respect to infringements of any patents,
copyrights, trade secrets or other proprietary rights by
FlexiFinancials or FlexiTools, or any part thereof.
ESI hereby agrees to indemnify, defend and hold harmless FLEXI and its
respective directors, officers, employees, representatives and agents
from and against any and all claims, losses, liabilities, damages,
costs or expenses which FLEXI may at any time suffer, incur or be
required to pay by reason of any claim, action, suit or proceeding
that may be made or instituted against FLEXI and its respective
directors, officers, employees, distributors, representatives or
agents for damages or other relief based upon any breach of any
obligation of ESi under this Agreement or actual or alleged violation
or infringement of any, U.S. or Canadian trademark, servicemark, trade
name, copyright or allegations that ESi has misappropriated trade
secrets of a third party due to any changes, modifications, or
FLEXIEnhancements (to the extent FLEXI adhered to ESi's written
specifications or other written instructions, if any),
ESiModifications to FlexiFinancials, the Interface, and/or
ESiFinancials.
Conditions to Indemnification. The foregoing indemnities are conditioned on
(1) prompt written notice of any claim or proceeding subject to
indemnity; (2) reasonable cooperation by the indemnified party in the
defense and settlement of such claim at the expense of the
indemnifying party; and (3) prior written approval by the indemnifying
party of any settlement, which approval shall not be unreasonably
withheld.
To the extent indemnified party delays notifying the indemnifying party of
any demand, suit, claim or judgment, or adversely affects indemnifying
party's ability to defend, settle, compromise or appeal any demand,
suit, claim or judgment, the indemnifying party's obligation to
indemnify Licensee shall be reduced accordingly.
Notwithstanding the foregoing, indemnified party may participate in the
defense or appeal of any such demand, suit, claim, or judgment should
the indemnified party choose to participate, at its own expense (such
expense not being indemnified by indemnifying party) and with
attorneys of its own choice, provided, however, indemnifying party
shall have sole control and authority with respect to any such
defense, compromise, settlement, appeal or similar action.
CONFIDENTIAL INFORMATION; NON-SOLICITATION
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Confidential Information. This Agreement incorporates by reference the
Confidentiality and Non-Disclosure Agreement executed by and between
Enterprise Systems, Inc. and FlexiInternational Software, Inc. dated
as of July 21, 1995. All confidential information exchanged between
the parties during the term of this Agreement shall be governed by
such Confidentiality and Non-Disclosure Agreement. This paragraph
shall survive termination of this Agreement.
Confidentiality of Terms. Neither FLEXI nor ESI shall, without written
authorization from the other party, disclose to any third party the
terms and conditions of this Agreement except as may be necessary to
establish or assert rights hereunder or as required by law; provided,
however, that either party may, on a confidential basis, disclose this
Agreement to its accountants, attorneys, and financing organizations.
Press Release. FLEXI and ESI agree that within ten (10) days after
execution of this Agreement, the parties shall have prepared a
mutually agreeable joint press release announcing the relationship
between the parties.
Non-Solicitation. The parties agree that neither it nor its subsidiaries
shall directly or indirectly solicit for employment, employ, or
otherwise retain employees of the other during the term of this
Agreement and for a period of one (1) year thereafter without the
express written consent of the other party.
FREEDOM OF INDEPENDENT DEVELOPMENT
Nothing in this Agreement shall be construed as prohibiting or restricting
either party from independently developing or acquiring and marketing
materials or programs that are competitive with each others product
lines, except as otherwise expressly provided herein. Neither party
has any expectation nor has received any assurances that the business
relationship established by this Agreement will continue beyond the
stated term of this Agreement, nor that either party has any
expectation of any anticipated amount of profits by virtue of this
Agreement.
Nothing in this Agreement shall be construed to constitute or create a
joint venture, partnership, or formal business organization of any
kind and the rights and obligations of each party shall be only those
expressly set forth herein. Neither party shall have authority to bind
the other, and neither party assumes any liabilities of the other
party.
TERM AND TERMINATION
Basic Term and Renewals. This Agreement shall be effective on the date
first above written and shall remain in force until the fourth
anniversary from the date of Acceptance (or as such term may be
extended as specified herein), unless sooner terminated as provided
below.
This Agreement shall automatically renew without the Exclusive
Licenses for an additional year and successive one year terms
with no Minimum Royalty Payment as provided in Section 9.8,
provided ESi is current with all its obligations to FLEXI, and
ESi has not materially breached this Agreement.
This Agreement shall automatically renew with the Exclusive Licenses
for an additional year and successive one year terms, provided
the Exclusive Licenses were in effect for the previous year, ESi
is current with all its obligations to FLEXI, and ESi has not
materially breached this Agreement and, provided further, ESi
paid to FLEXI $2,000,000 in actual Royalty Payments for the
previous year or at the end of the such year ESi paid the
difference between $2,000,000 and the actual Royalty Payments for
such year as provided in Section 9.9.
Discretionary Termination. ESI and FLEXI may agree in writing at any time
to terminate this Agreement.
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Termination by ESI for FLEXI Material Breach. ESI may at its own
discretion terminate this Agreement in writing upon FLEXI's breach of
any of its material obligations hereunder, which obligations are not
cured within ninety (90) days after delivery thereof.
Termination by Flexi for ESI PAYMENT DEFAULT. If ESI fails to pay any sum
due to FLEXI in full by the due date thereof and fails to cure any
such payment default within thirty (30) days after receiving written
notice of such default from FLEXI, FLEXI shall be entitled (without
prejudice to any other right or remedy it may have) to treat the non-
payment as a breach of this Agreement entitling FLEXI to terminate the
Agreement.
Termination by FLEXI for ESI Material Breach. FLEXI shall have the right to
furnish notice of termination of this Agreement in the event of a
material and continuing breach by ESI of its obligations hereunder.
Written notice to such effect identifying the breach upon which notice
of termination is based shall be furnished to ESI and shall become
effective ninety (90) days after delivery thereof unless ESI shall
have cured the breach during such 90-day period. Curing of such breach
shall render the notice void.
Termination for Cessation of Business. Either FLEXI or ESI may terminate
this Agreement if the other party ceases conducting business in the
normal course, becomes insolvent, makes a general assignment for the
benefit of creditors, suffers or permits the appointment of a receiver
for its business or assets or avails itself of or becomes subject to
any proceeding under the Federal Bankruptcy Code or any other statute
of any state relating to insolvency or the protection of rights of
creditors.
Continuing Rights and Obligations. In the event of the termination of this
Agreement for any reason, the provisions of this Section, and those
other Sections or provisions of this Agreement which by their nature
are intended to extend beyond the term of this Agreement, shall remain
in full force and effect. Provided ESI makes all payments pursuant to
Section O and the Agreement was not terminated pursuant to Section O,
ESI shall have a license to continue to reproduce, sublicense, market,
distribute, support and service ESiFinancials in connection with ESi's
obligations to fulfill certain reasonable number of orders received
prior to the effective date of termination of this Agreement. ESI
shall have a license to continue to support clients in connection with
the fulfillment of ESi's obligations under orders received during the
term of the Agreement, provided ESI pays FLEXI the Support Fees
provided in Section 9.10.1. Except to the extent the Licenses remain
in force as provided in the foregoing sentence and except as provided
elsewhere in this Agreement, upon any termination of this Agreement,
all Licenses shall terminate (except End User Licenses granted to End
Users by ESi entered into prior to termination) and the parties shall
promptly destroy or return all copies of Confidential Information
received hereunder, but may retain one copy of such information,
provided such copy is retained with corporate counsel for archival
purposes in case of a subsequent dispute between the parties.
REMEDIES
Except as provided in Section 15.8, in the event that FLEXI violates the
provisions of Sections 11 or O hereof, there shall be no limit on
FLEXI's liability for the amount of monetary damages owed to ESI.
Except as provided in Section 15.8, with respect to all other violations of
this Agreement by FLEXI not described in Section 15.1, should a court
of competent jurisdiction award monetary damages, FLEXI's liability
for such damages to ESI shall be limited to the amount of any Royalty
Payments theretofore paid by ESI to FLEXI for the previous twelve
months. ESI agrees to waive any further recovery of damages in excess
of the limit established pursuant to this Agreement.
In the event that ESI violates the provisions of Section O or such other
sections that require ESi to make payments to FLEXI, in addition to
all other remedies, FLEXI may
21
<PAGE>
Cancel or suspend all services and any further delivery of
FlexiFinancials and ESiFinancials, and any other
deliverables; and/or
Charge ESI interest on the outstanding balance due from time to time
at the rate of one and one-half percent (1%) per month or the
maximum lawful amount, whichever is less, compounded with
interest on the last day of each calendar month.
Except as provided in Section 15.8, in the event ESi violates the
provisions of Sections 8.1.1 and 8.1.2 hereof, ESi's liability for
such violation shall be limited to an amount equal to the License-
Related Gross Revenues and Maintenance and Support Fees and such
other fees received by ESi as a result of such violation, or an
amount equal to the license fee revenues and maintenance and support
fees or such other fees, e.g., Royalty Payments and Maintenance and
Support Fees, whichever is greater, FLEXI would have received but
for ESi's violation of such section(s), whichever is greater, and
interest on the amounts from the date of each violation until paid
at the rate of one and one-half percent (1%) per month or the
maximum lawful amount, whichever is less, compounded with interest
on the last day of each calendar month.
Except as provided in Section 15.8, in the event ESi violates the
provisions of Section 11 and Section 12 hereof, there shall be no
limit on ESi's liability for the amount of monetary damages owed to
FLEXI.
Except as provided in Section 15.8, with respect to all other violations of
this Agreement by ESI not described in Section O, 15.3, and 15.4
there shall be no limit on ESi's liability for the amount of
monetary damages owed to FLEXI and should such liability be the
result of an infringement upon FLEXI's intellectual property rights
subsequent to a sale of shares, sale of assets, merger,
consolidation or similar transaction where control of ESI or its
assets is transferred to a competitor of FLEXI by such competitor,
such damages shall be multiplied by three. Nothing in this provision
shall waive any right to obtain such damages for any other
violations.
In the event that any party hereto shall default in the performance of any
of said party's obligations hereunder, in addition to any and all
other rights or remedies which a non-defaulting party hereto may
have against said defaulting party, said defaulting party shall be
liable to the non-defaulting party for all court costs and
reasonable attorneys' fees incurred by the non-defaulting party in
connection with the enforcement of said non-defaulting party's
rights and remedies against said defaulting party.
Notwithstanding any of the foregoing, under no circumstances shall either
party be liable to the other party for any loss of profits or any
incidental, special, exemplary punitive, indirect, or consequential
damages, even if advised of the possibility of such matters.
The parties agree that neither party shall be required to post any bond or
similar payment in any proceedings wherein an injunction or similar
relief is being sought by a party to enforce any of its rights or
remedies hereunder.
ARBITRATION
All disputes and claims arising under or in connection with this Agreement
(except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a
preliminary injunction, or other equitable relief to preserve the
status quo or prevent irreparable harm) shall be submitted to the
American Arbitration Association under and in accordance with its
then-prevailing commercial arbitration rules, to the extent such
rules do not conflict with this Agreement. The Arbitration will be
governed by the laws of the State of Connecticut and held in the
county of the charging party; in the case of ESi, Cook County
Illinois, and in the case of FLEXI, Fairfield County,
22
<PAGE>
Connecticut. The award rendered, if any, by the arbitrator shall be
final and binding upon the parties and any judgment may be entered in
any court having jurisdiction.
NOTICES
Each notice, request, demand, approval or other communication which may be
or is required to be given under this Agreement shall be in writing
and shall be deemed to have been properly given when delivered
personally at the address set forth below for the intended party
during normal business hours at such address, when sent by facsimile
or other electronic transmission to the respective facsimile
transmission numbers of the parties set forth below with telephone
confirmation of receipt or when sent by recognized overnight courier
or by U.S. registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
(i) If to ESI, to: (ii) If to FLEXI, to:
Enterprise FlexiInternational Software, Inc.
Systems, Inc. Two Enterprise Drive
1400 South Wolf Road Shelton, Connecticut 06484
Wheeling, IL 60090-6524 Attention: Chief Exective Officer
Attention: Chief Executive Officer with Copy to Vice President, Legal
with Copy to Chief Financial Officer Affairs
Facsimile: (847) 537-4866 Facsimile: (203) 925-3044
Confirm: (847) 537-4800 Confirm: (203) 925-3040
Notices shall be given to such other addressee or address or both, or by
way of such other facsimile transmission number, as a particular party
may from time to time designate by written notice to the other party
hereto. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given
and received for all purposes of this Agreement as of two (2) business
days after the date of deposit thereof for mailing in a duly
constituted U.S. post office or branch thereof, one (1) business day
after deposit with a recognized overnight courier service or upon
confirmation of receipt of any facsimile transmission. Notice given to
a party hereto by any other method shall only be deemed to be given
and received when actually received in writing by such party.
GENERAL
Entire Agreement. The provisions herein constitute the entire agreement
between the parties with respect to the subject matter hereof and
supersede all prior agreements, oral or written, and all other
communications relating to the subject matter hereof. No amendment or
modification of any provision of this Agreement will be effective
unless set forth in a document that purports to amend this Agreement
and is executed by both parties.
Waiver. No waiver by either of the parties to this Agreement of any
condition, term or provision hereof shall be valid unless set forth in
an instrument in writing signed on behalf of such party, and no such
waiver shall be deemed a waiver of any preceding or subsequent breach
of the same of any other condition, term or provision of this
Agreement.
No Assignment. Neither party shall without the prior written consent of the
other party assign or transfer this Agreement, except by merger,
reorganization, consolidation or sale of all or substantially all of
the party's assets; provided in the case of ESI:
In the event of an official announcement that ESi shall engage in a
"Transaction" with a business entity (or an affiliate of such
business entity) that is primarily engaged in the Health Care
Industry that elects to terminate this Agreement, or a competitor
of FLEXI enumerated in Exhibit 18.3.1a, the Licenses shall
immediately terminate upon closing and ESi or its successor or
assign shall pay to FLEXI at the closing of the Transaction the
amount specified in Exhibit
23
<PAGE>
18.3.1b. In the event ESi enters into any discussions involving
the exchange of information with a direct competitor of FLEXI in
contemplation of a Transaction or otherwise, ESi shall not
disclose any FLEXI Confidential and Proprietary Information.
In the event of an official announcement that ESi shall engage in a
"Transaction" with a business entity (or an affiliate of such
business entity) that is not a competitor of FLEXI and primarily
engaged in the Health Care Industry, who elects to accept
assignment of this Agreement within thirty (30) days after the
announcement of the Transaction, the Licenses shall remain in
effect without the prior written consent of FLEXI, provided upon
prompt written notice and written assumption thereof by the
assignee to FLEXI, assign this Agreement in its entirety,
provided further, ESi is current with all its obligations under
this Agreement and continues to remain obligated hereunder.
provided in the case of FLEXI,
In the event of an official announcement that FLEXI shall engage in a
"Transaction" with a business entity (or an affiliate of such
business entity) that is a competitor of ESi as specified in
Exhibit 8.3, ESi may terminate this Agreement. In the event FLEXI
enters into any discussions involving the exchange of information
with a direct competitor of ESi in contemplation of a Transaction
or otherwise, FLEXI shall not disclose any ESi Confidential and
Proprietary Information.
For purposes of this Section, "Transaction" shall mean ESi or FLEXI
merges, reorganizes, consolidates, or sells all or substantially
all of its respective assets, or engages in a similar transaction
where control of ESi or FLEXI or its respective assets are
assigned by virtue of such transaction.
Assignment. Notwithstanding the foregoing, FLEXI reserves the right
to assign payment under this Agreement or grant a security
interest in this Agreement or such payment right to any third
party without requiring that such third party be liable for the
obligations of FLEXI under this Agreement.
Force Majeure. Neither party shall be held liable for failure to fulfill
its obligations hereunder if such failure is due to a natural
calamity, act of government, or other cause beyond the control of such
party.
Days. Should the date on which any payment or other performance of either
of the parties hereto is due fall on a date that is a Saturday, Sunday
or legal holiday (recognized as such by the Federal Government) or
such other holiday recognized by one of the parties (together,
"Holiday"), then payment or performance shall not be due until the
next day which is not a Saturday, Sunday or Holiday.
Governing Law. The validity, construction, and performance of this
Agreement shall be governed by the substantive law of the State of
Connecticut.
Consent to Jurisdiction. ESI hereby consents to the jurisdiction of any
Federal or state court located in the State of Connecticut in
connection with any action or lawsuit instituted by FLEXI against ESI
to enforce any provision of this Agreement. FLEXI hereby consents to
the jurisdiction of any Federal or state court located in the State of
Illinois in connection with any action or lawsuit instituted by ESI
against FLEXI to enforce any provision of this Agreement.
Notwithstanding the foregoing, neither ESI nor FLEXI shall be
prohibited from instituting actions against the other in any other
court having jurisdiction over the parties.
Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, the remaining provisions
of the Agreement will remain in full force and effect.
24
<PAGE>
Rights Outside of Agreement. Nothing contained in this Agreement shall be
construed as limiting rights that the parties may enjoy outside the
scope of the licenses granted and the obligations and restrictions set
forth or treated herein.
Captions. The captions and headings contained in this Agreement and in the
Exhibits attached hereto are for reference purposes only and are not
to be construed as part of the agreements between the parties.
Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS THEREOF, the parties have caused this Agreement to be signed below by
their duly authorized representatives:
FLEXIINTERNATIONAL SOFTWARE, INC. ENTERPRISE SYSTEMS, INC.
BY: /s/ Stefan Bothe BY: Joseph E. Carey, President
Date: _ 3/27/96 Date: March 22, 1996
25
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' REPORT AND CONSENT
Board of Directors and Stockholders
Enterprise Systems Inc.:
The audits referred to in our reports dated February 12, 1996, included the
related consolidated financial statement schedule as of December 31, 1995, and
for each of the years in the three-year period ended December 31, 1995, included
in the registration statement. The consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports dated February 12, 1996 on the consolidated
financial statements of Enterprise Systems, Inc. and subsidiary as of December
31, 1994 and 1995, and for each of the years in the three-year period ended
December 31, 1995, included herein, and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
October 7, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Continental Health Systems, Inc.
We consent to the use of our report dated July 10, 1996 on the financial
statements of the Matkon Product Line of Continental Health Systems, Inc. as of
November 30, 1994 and 1995, and for the years ended November 30, 1994 and 1995,
included herein, and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
October 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,601
<SECURITIES> 2,122
<RECEIVABLES> 16,639
<ALLOWANCES> 825
<INVENTORY> 601
<CURRENT-ASSETS> 28,267
<PP&E> 9,445
<DEPRECIATION> 4,999
<TOTAL-ASSETS> 45,553
<CURRENT-LIABILITIES> 7,840
<BONDS> 0
<COMMON> 75
0
0
<OTHER-SE> 36,909
<TOTAL-LIABILITY-AND-EQUITY> 45,553
<SALES> 10,589<F1>
<TOTAL-REVENUES> 21,043
<CGS> 0
<TOTAL-COSTS> 19,511
<OTHER-EXPENSES> 8,453<F2>
<LOSS-PROVISION> 469
<INTEREST-EXPENSE> (467)
<INCOME-PRETAX> (6,923)
<INCOME-TAX> (2,646)
<INCOME-CONTINUING> (4,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,277)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
<FN>
<F1> Includes software and hardware
<F2> Write-off of acquired in process technology
</FN>
</TABLE>
