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DRAFT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-21031
QUADRAMED CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1992861
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 E. SIR FRANCIS DRAKE BLVD., SUITE 2A, 94939
LARKSPUR, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 461-7725
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1997, there were 10,195,753 shares of the Registrant's
Common Stock outstanding, par value $0.01.
This quarterly report on Form 10-Q consists of 22 pages of which this is page
1. The Exhibit Index is located at page 22.
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QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL
INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as
of September 30, 1997 and December 31,
1996 3
Condensed Consolidated Statements of
Operations for the three and nine months 4
ended September 30, 1997 and 1996
Condensed Consolidated Statements of
Cash Flows for the nine months ended 5
September 30, 1997 and 1996
Notes to Condensed Consolidated 6
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 8
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of 17
Security Holders
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 6,928 $18,486
Restricted cash.............................. 33 30
Accounts receivable, net..................... 11,418 4,040
Prepaid expenses and other................... 479 328
Deferred offering costs...................... 211 -
------- -------
Total current assets................. 19,069 22,884
------- -------
EQUIPMENT:
Equipment.................................... 5,589 3,528
Accumulated depreciation..................... (2,346) (1,533)
------- -------
Equipment, net....................... 3,243 1,995
------- -------
Long-term investments........................ 3,700 -
Capitalized software development costs, net.. 1,253 950
Acquired software, net....................... 1,374 1,617
Goodwill, net................................ 10,234 2,038
Other........................................ 232 85
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$39,105 $29,569
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease
obligations................................. $ 175 $ 79
Notes payable................................ 300 -
Accounts payable............................. 1,029 1,523
Accrued liabilities.......................... 2,584 1,410
Deferred revenue............................. 1,341 1,515
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Total current liabilities............ 5,429 4,527
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Capital lease obligations, less current
portion..................................... 320 149
Notes payable, less current portion.......... 1,156 -
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Total liabilities.............................. 6,905 4,676
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STOCKHOLDERS' EQUITY:
Common stock................................. 61 57
Additional paid-in capital................... 44,485 40,244
Deferred compensation........................ (54) (336)
Accumulated deficit.......................... (12,292) (15,072)
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Total stockholders' equity........... 32,200 24,893
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$39,105 $29,569
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Licenses .................................... $ 6,371 $ 3,989 $ 14,849 $ 11,798
Services .................................... 3,042 507 7,300 2,147
-------- -------- -------- --------
Total revenues ...................... 9,413 4,496 22,149 13,945
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of licenses ............................ 2,325 1,703 5,618 5,415
Cost of services ............................ 1,816 714 4,220 2,137
General and administration .................. 1,155 892 2,947 2,368
Sales and marketing ......................... 1,118 579 2,887 1,873
Research and development .................... 817 598 2,227 1,861
Amortization of goodwill .................... 297 120 659 338
Non-recurring start-up charges .............. 346 -- 1,040 --
-------- -------- -------- --------
Total operating expenses ............ 7,874 4,606 19,598 13,992
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS ................. 1,539 (110) 2,551 (47)
OTHER INCOME (EXPENSE):
Interest income (expense) ................... 117 (167) 505 (450)
Other income (expense) ...................... (5) 1 (11) (23)
-------- -------- -------- --------
Total other income (expense) ........ 112 (166) 494 (473)
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 1,651 (276) 3,045 (520)
Provision for income taxes .................. 216 -- 265 --
-------- -------- -------- --------
NET INCOME (LOSS) ............................. $ 1,435 $ (276) $ 2,780 $ (520)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE .................. $ 0.18 $ (0.06) $ 0.37 $ (0.11)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING ........... 7,897 4,859 7,532 4,784
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................... $ 2,780 $ (520)
-------- --------
Adjustments to reconcile net income
(loss) to net cash used for operating
activities:
Depreciation and amortization ...... 1,348 1,011
Amortization of deferred
compensation .................... 282 --
Changes in assets and liabilities
net of acquisitions:
Accounts receivable, net ........... (5,518) (1,243)
Restricted cash .................... (3) 132
Prepaid expenses and other ......... (283) (42)
Other assets ....................... (4) 11
Accounts payable and accrued
liabilities ..................... (1,579) 801
Deferred revenue ................... (316) (103)
-------- --------
Cash (used for) provided by
operating activities ........ (3,293) 47
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for the acquisition of
Synergy ............................ (2,776) --
Cash paid for the acquisition of
Queen City Microsystems ............ (160) --
Cash acquired in acquisition of
Healthcare Revenue Management .... 120 --
Additions to equipment ................ (1,300) (305)
Long-term investments ................. (3,700) --
Purchased technology .................. (140) --
Capitalization of computer
software development costs ......... (419) (343)
-------- --------
Cash used for investing
activities ................. (8,375) (648)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on capital
lease obligations .................. (89) (119)
Borrowings(repayments) under notes
payable to related parties ......... -- (3,750)
Borrowings under line of credit ....... -- 973
Payments under notes payable .......... (32) --
Deferred offering costs ............... -- (737)
Issuance of convertible preferred
stock .............................. -- 3,991
Proceeds from the issuance of
common stock ....................... 231 187
-------- --------
Cash provided by financing
activities ................... 110 545
-------- --------
Net increase (decrease) in cash
and cash equivalents .................. (11,558) (56)
CASH AND CASH EQUIVALENTS,
beginning of period ................... 18,486 266
-------- --------
CASH AND CASH EQUIVALENTS, end
of period ............................. $ 6,928 $ 210
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements and notes thereto
should be read in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 1996 included in the Company's Annual
Report on Form 10-KSB. The unaudited information contained herein has been
prepared on the same basis as the Company's audited consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The interim
results presented herein are not necessarily indicative of the results of
operations that may be expected for the full fiscal year ending December 31,
1997 or any other future period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company licenses a variety of software products and provides a variety of
services. License revenue includes license, installation, consulting and
post-contract support fees, third-party hardware sales and other revenues
related to licensing of the Company's software products. Service revenue is
composed of business office outsourcing services. The Company's product suite is
comprised of three primary elements: financial management, decision support and
EDI (electronic data interchange) software. Each of these elements includes a
variety of products which can be licensed individually or as a suite of
interrelated products. Products are generally licensed under term arrangements
(which range from one year to three years) which typically include monthly
payments over the term of the arrangement. However, the product suite can also
be licensed on a perpetual basis.
Revenues from term licenses of EDI products are generally recognized ratably
over the term of the license arrangement, beginning on the date of installation.
Revenues from perpetual licenses of the financial management and decision
support products are recognized upon shipment of the software if there are no
significant post-delivery obligations, payment of the license fee is due within
one year and collectibility is probable. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
The Company provides business office outsourcing services to certain
hospitals under contract service arrangements. Business office outsourcing
revenues typically consist of contingency or fixed monthly fees plus
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The contingency or
monthly fees are recognized as revenue when earned at the end of each month.
Incentive fees are recognized as the conditions upon which such fees are based
are realized based on collection of accounts from payors.
Other services are also provided to certain of the Company's licensees of
software products, which consist primarily of consulting and post-contract
customer support. Consulting services generally consist of installation of
software at customer sites and revenues for such services is recognized upon
completion of installation. Such services generally do not include customization
or modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers. If
customization of the software code is performed, the license and service fees
are recognized together on a percentage-of-completion basis during the
customization period. Post-contract customer support is recognized ratably over
the term of the support period. If support is included in a perpetual license
agreement such amounts are unbundled from the license fee at its fair market
value based on the value established by the independent sale of such support to
customers.
Cost of license revenues consist primarily of salaries, benefits and allocated
costs related to the installation process and customer support and royalties to
third parties.
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Cost of service revenues consist primarily of salaries, benefits and allocated
costs related to providing such services.
Deferred revenue primarily consists of revenue deferred under annual maintenance
and annual license agreements.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares include Convertible Preferred Stock (using the if converted method in the
three and nine months ended September 30, 1996) and stock options and warrants
in both periods (using the treasury stock method). Common stock options and
warrants are excluded from the computation if their effect is antidilutive
except that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins and staff policy, such computations for the three and nine months
ended September 30, 1996 include all common and common equivalent shares issued
within the 12 months preceding the filing date of the Company's initial public
offering as if they were outstanding for all periods presented (under the
treasury stock method using an assumed initial public offering price).
Convertible Preferred Stock outstanding during the 1996 period is included
(using the if converted method) in the computation as common equivalent shares
even though the effect is antidilutive. Primary and fully diluted earnings per
share were substantially the same in all periods presented.
In March 1997, the Financial Accounting Standards Board issued Statement No.
128 (SFAS No. 128), "Earnings per Share" and requires adoption of such
provisions in the fourth quarter of 1997. The Company will adopt the provisions
of SFAS No. 128 effective December 31, 1997 for its year ending December 31,
1997. The pro forma effect of SFAS No. 128 for the three and nine months ended
September 30, 1997, would be as follows:
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30,
1997 1997
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<S> <C> <C>
Reported earnings per share $0.18 $0.37
Basic earnings per share (pro forma) $0.23 $0.45
Diluted earnings per share (pro forma) $0.18 $0.37
</TABLE>
3. ACQUISITIONS
In September 1997, the Company acquired Healthcare Revenue Management, Inc.,
a provider of managed care department outsourcing and audit services, for an
aggregate purchase price of 112,706 shares of the Company's common stock, the
aggregate fair market value of which was $2,200,000 and approximately
$246,000 in cash. The acquisition was accounted for as a purchase and the
Company recorded goodwill in the amount of $3,017,000 which will be amortized
over ten years. The unaudited pro forma results of operations of the Company
and Healthcare Revenue Management, Inc. for the periods noted below are as
follows (in thousands):
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 30, 1997 Ended September 30, 1996
------------------------ ------------------------
<S> <C> <C>
Revenues $24,759 $17,311
Net income (loss) 1,927 $(619)
Net income (loss) per share $0.25 $(0.17)
</TABLE>
4. SUBSEQUENT EVENTS
In October 1997, the Company completed a follow-on offering of 3,300,000
shares of common stock at $17.625 per share, of which 2,972,198 shares were
offered by the Company and 327,802 were offered by selling stockholders. In
addition, the
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overallotment option granted to the underwriters to purchase an additional
495,000 shares was exercised. Total proceeds to the Company were approximately
$58,000,000.
In November 1997, the Company entered into an agreement pursuant to which the
Company will acquire Medicus Systems Corporation and simultaneously entered into
separate agreements with certain stockholders of Medicus to purchase shares of
Medicus Common Stock constituting approximately 56.7% of the total number of
outstanding shares of Medicus Common Stock. The terms of the acquisition provide
that Medicus stockholders will be entitled to receive, at their individual
election, any of (1) cash in the amount of $7.50 per share of Medicus Common
Stock or (2) 0.3125 shares of QuadraMed Common Stock, subject to certain
adjustments and limitations as provided in the acquisition agreement, or (3) a
combination thereof. The Company agreed to purchase the shares of Medicus Common
Stock from certain stockholders of Medicus at a price of $7.50 per share plus
warrants that entitle the holders to purchase, at an exercise price of $24.00
per share, 0.3125 shares of QuadraMed Common Stock for each share of Medicus
Common Stock sold to the Company, subject to adjustment. The warrants are
exercisable only at the time the merger becomes effective and will terminate at
that time to the extent they are not exercised.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical financial information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q may be considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements include declarations regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties and that
actual results could differ materially from those indicated by such
forward-looking statements. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are: (i) that the information is of a preliminary nature and may be
subject to further adjustment, (ii) variability in quarterly operating results,
(iii) identification, consummation and assimilation of acquisitions, (iv)
dependence on large orders and customer concentration, (v) demand for the
Company's products and services in the health care information systems and
services markets, (vi) legislative or market-driven reforms in the health care
industry, (vii) the Company's ability to develop and introduce new products,
(viii) management of the Company's changing operations, (ix) dependence on key
personnel, (x) development by competitors of new or superior products or entry
into the market of new competitors, (xi) risks related to product defects, (xii)
dependence on intellectual property rights, (xiii) volatility in the Company's
stock price and historically low trading volume, (xiv) the success or failure of
strategic alliances, (xv) risk of interruption in data processing, (xvi) other
risks identified from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission, including the
registration statement on Form S-3 which became effective on October 20, 1997
and the Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
OVERVIEW
QuadraMed develops, markets and sells software products and services
designed to enable health care providers and payors to increase operational
efficiency, improve cash flow, measure the cost of care and effectively
administer managed care contracts. The Company was incorporated in September
1993 and has completed a number of acquisitions. In October 1993, QuadraMed
acquired the net assets of Coast Micro, Inc., through which the Company acquired
the predecessor of the Company's EDI product. In November 1993, the Company
acquired the net assets of Seton Financial, through which the Company acquired
the foundation of its business office outsourcing business. In December 1995,
the Company purchased the net assets of Healthcare Design Systems, and thereby
acquired several of the predecessor Company's decision support and other related
software products. In December 1996, the Company completed the acquisition and
merger of InterMed Healthcare Systems Inc., a provider of client-server
information systems that assist health care payors in managing administrative
and financial transactions with providers.
In April 1997, the Company purchased all of the outstanding stock of
Healthcare Recovery, Inc., an accounts receivable management company based in
New Jersey and doing business as Synergy HMC ("Synergy"), for an aggregate
purchase price of $3,400,000 paid in cash and common stock of the Company. The
acquisition was accounted for as a purchase. In connection with the acquisition,
the Company repaid substantially all of the debt of Synergy, totaling
approximately $1,700,000.
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In September 1997, the Company acquired Healthcare Revenue Management, Inc.,
a provider of managed care department outsourcing and audit services, for an
aggregate purchase price of 112,706 shares of the Company's common stock, the
aggregate fair market value of which was $2,200,000 and approximately $246,000
in cash. The acquisition was accounted for as a purchase.
In November 1997, the Company entered into an agreement pursuant to which the
Company will acquire Medicus Systems Corporation and simultaneously entered into
separate agreements with certain stockholders of Medicus to purchase shares of
Medicus Common Stock constituting approximately 56.7% of the total number of
outstanding shares of Medicus Common Stock. The terms of the acquisition provide
that Medicus stockholders will be entitled to receive, at their individual
election, any of (1) cash in the amount of $7.50 per share of Medicus Common
Stock or (2) 0.3125 shares of QuadraMed Common Stock, subject to certain
adjustments and limitations as provided in the acquisition agreement, or (3) a
combination thereof. The Company agreed to purchase the shares of Medicus Common
Stock from certain stockholders of Medicus at a price of $7.50 per share plus
warrants that entitle the holders to purchase, at an exercise price of $24.00
per share, 0.3125 shares of QuadraMed Common Stock for each share of Medicus
Common Stock sold to the Company, subject to adjustment. The warrants are
exercisable only at the time the merger becomes effective and will terminate at
that time to the extent they are not exercised.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses. The Company expects this trend to continue with the acquisition of
Synergy.
The signing of a major perpetual license agreement could generate an increase
in revenues and net income for any given quarter or fiscal year. In addition,
the Company typically experiences long sales cycles for new customers that may
extend over several quarters. As a result, the Company believes that quarterly
results of operations will continue to be subject to significant fluctuations
and that its results of operations for any particular quarter or year may not be
indicative of results of operations for future periods.
The Company capitalizes a portion of its software costs for internally
developed software products. These capitalized costs relate primarily to the
development of new products and the extension of applications to new markets or
platforms using existing technologies. The capitalized costs are amortized on a
straight-line basis over the estimated lives (usually five years), commencing
when each product is available to the market.
In February 1997, the Company entered into an arrangement with EDI USA to
provide EDI processing and management services for EDI USA's transactions. The
Company recorded non-recurring charges of $346,000 and $1,040,000 in the third
quarter and nine month period ended September 30, 1997, related to start-up
costs incurred in connection with the processing arrangement. QuadraMed expects
to incur similar charges in the fourth quarter of 1997, until the electronic
transaction network is operational.
REVENUES
License. License revenues for the quarter ended September 30, 1997 increased
59.7% to $6,371,000, compared to $3,989,000 in the same period last year. For
the nine months ended September 30, 1997, license revenues increased 25.9% to
$14,849,000 compared to $11,798,000 in the same period last year. The increase
in license revenues was due principally to an increase in new customers and
several perpetual license agreements entered into during the third quarter of
1997.
Service. Service revenues for the quarter ended September 30, 1997 increased
500.0% to $3,042,000, compared to $507,000 in the same period last year. For the
nine months ended September 30, 1997, service revenues increased 240.0% to
$7,300,000, compared to $2,147,000 in the same period last year. The increase in
service revenues was due principally to new customers acquired from the Synergy
acquisition in April 1997.
COST OF REVENUES
Cost of Licenses. Cost of license revenues for the quarter ended September
30, 1997 increased 36.5% to $2,325,000 from $1,703,000 in the same period last
year. Cost of licenses includes installation, customer support and royalties. As
a percentage of license revenues, cost of licenses decreased to 36.5% in the
third quarter of 1997 from 42.7% in the same period last year. For the nine
months ended September 30, 1997, cost of license revenues increased 3.7% to
$5,618,000 from $5,415,000 in the same period last year. As a percentage of
license revenues, cost of licenses decreased to 37.8% in the nine months ended
September 30, 1997 from 45.9% in the same period last year. The increase in cost
of licenses was principally due to an increase in third-party hardware sales
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and royalties on certain software contracts during the third quarter of 1997.
The decrease in cost of licenses as a percentage of license revenues is
principally due to several perpetual contracts entered into during the third
quarter which had relatively few costs associated with such contracts.
Cost of Services. Cost of service revenues for the quarter ended September
30, 1997 increased 154.3% to $1,816,000 from $714,000 in the same period last
year. Cost of services includes expenses associated with services performed in
connection with business office outsourcing. As a percentage of service
revenues, cost of services decreased to 59.7% in the third quarter of 1997 from
140.8% in the same period last year. For the nine months ended September 30,
1997, cost of service revenues increased 97.5% to $4,220,000 from $2,137,000 in
the same period last year. As a percentage of service revenues, cost of services
decreased to 57.8% in the nine months ended September 30, 1997 from 99.5% in the
same period last year. The increase in cost of services was principally due to
additional operating costs associated with Synergy, which was acquired in April
1997. Cost of services as a percentage of service revenues decreased principally
due to increased revenues which had relatively moderate costs associated with
such revenues.
OPERATING EXPENSES
General and Administration. General and administration expenses for the
quarter ended September 30, 1997 increased to $1,155,000 from $892,000 in the
same period last year, and decreased as a percentage of total revenues to 12.3%
from 19.8% in the same period last year. For the nine months ended September 30,
1997, general and administration expenses increased to $2,947,000 from
$2,368,000 in the same period last year, and decreased as a percentage of total
revenues to 13.3% from 17.0% in the same period last year. The increase in
general and administration expenses reflects the hiring of two officers and
significant legal costs incurred during 1997 to settle certain litigation. The
Company believes that general and administration expenses will increase in the
future, but should decline slightly as a percentage of total revenues, although
there can be no assurance in this regard.
Sales and Marketing. Sales and marketing expenses for the quarter ended
September 30, 1997 increased to $1,118,000 from $579,000 in the same period last
year, and decreased as a percentage of total revenues to 11.9% from 12.9% in the
same period last year. For the nine months ended September 30, 1997, sales and
marketing expenses increased to $2,887,000 from $1,873,000, and remained
constant as a percentage of total revenues at 13.0% for the nine months ended
September 30, 1997 and 1996, respectively. The increase in sales and marketing
expenses resulted principally from the addition of sales personnel hired by the
Company during 1997, including Synergy personnel, and higher advertising costs
incurred by the Company. The Company believes sales and marketing expenses will
continue to increase primarily due to the hiring of additional sales and
marketing personnel, but should remain relatively constant as a percentage of
total revenues, although there can be no assurance in this regard.
Research and Development. Research and development expenses for the quarter
ended September 30, 1997 increased to $817,000 from $598,000 in the same period
last year, and decreased as a percentage of total revenues to 8.7% from 13.3% in
the same period last year. For the nine months ended September 30, 1997,
research and development expenses increased to $2,227,000 from $1,861,000 in the
same period last year, and decreased as a percentage of total revenues to 10.1%
from 13.3% in the same period last year. The increase in research and
development expenses in the third quarter and for the nine months ended
September 30, 1997 was principally due to the hiring of additional software
programmers. The Company intends to continue to make substantial investments in
the development of new products and in the further integration of acquired
technologies into the Company's suite of products and, accordingly, believes
that these expenses will increase significantly in the future.
Amortization of Goodwill. Amortization of goodwill for the quarter ended
September 30, 1997 was $297,000 compared to $120,000 in the same period last
year. For the nine months ended September 30, 1997, amortization of goodwill was
$659,000 compared to $338,000 in the same period last year. Goodwill is
principally due to the acquisitions of Healthcare Design Systems Inc. in
December 1995 and Synergy in April 1997.
Non-Recurring Start-Up Charges. The Company recorded non-recurring start-up
charges of $346,000 and $1,040,000 in the third quarter ended and nine months
ended September 30, 1997, respectively, associated with start-up costs incurred
for the claims processing arrangement entered into with EDI USA, Inc. during the
first quarter of 1997. The Company expects to incur similar charges in the
fourth quarter of 1997, until the electronic transaction network is
operational.
Interest Income (Expense). Interest income was $117,000 in the quarter ended
September 30, 1997, compared to interest expense of $167,000 for the same period
last year. For the nine months ended September 30, 1997, interest income was
$505,000, compared
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to interest expense of $450,000 in the same period last year. Interest income is
the result of the Company's initial public offering in October 1996, which
raised net proceeds of approximately $26,400,000. Interest expense during 1996
was principally the result of debt the Company incurred for the acquisition of
Healthcare Design Systems Inc. and for working capital purposes.
LIQUIDITY AND CAPITAL RESOURCES
From inception until the Company's initial public offering in October 1996,
the Company's primary source of working capital was private placements of
Preferred Stock through which it raised approximately $12,800,000, net of
expenses. In 1994 and 1995, Series A Preferred Stock was issued for cash and
forgiveness of indebtedness totaling $4,200,000. Also in 1995, Series B
Preferred Stock was issued for cash of $4,000,000 and the conversion of notes
payable and accrued interest of $680,000. In June 1996, the Company completed a
second Series B Preferred Stock financing for the conversion of notes payable of
$3,900,000, which provided the downpayment for the acquisition of the net assets
of Healthcare Design Systems Inc. In October 1996, the Company completed its
initial public offering of 2,500,000 shares of common stock, which raised net
proceeds of approximately $26,400,000. In October 1997, the Company completed a
follow-on offering of 3,300,000 shares of common stock, of which 2,972,198
shares were offered by the Company and 327,802 were offered by selling
stockholders. In addition, the overallotment option granted to the underwriters
to purchase an additional 495,000 shares was exercised. Total proceeds to the
Company were approximately $58,000,000.
Net cash provided by (used in) operating activities was ($3,293,000) and
$47,000 in the nine months ended September 30, 1997 and 1996, respectively. Net
cash used in operating activities in the nine months ended September 30, 1997
was principally due to a decrease in accounts payable and accrued liabilities
and an increase in accounts receivable partially offset by net income. Accounts
payable and accrued liabilities decreased due to payments to vendors using the
proceeds from the initial public offering in October 1996. Accounts receivable
increased primarily due the acquisition of Synergy, which significantly
increased receivables and the volume of monthly billings. Net cash used in
operating activities in the nine months ended September 30, 1996 was principally
due to investments in the Company's infrastructure.
Net cash used in investing activities was $8,375,000 and $648,000 in the nine
months ended September 30, 1997 and 1996, respectively. Investing activities in
1997 primarily included additions to capital equipment, the investment in EDI
USA, cash paid for the acquisition of Synergy and the capitalization of computer
software development costs. Investing activities in 1996 related to additions to
capital equipment and the capitalization of computer software development costs.
Net cash provided by financing activities was $110,000 and $545,000 in the
nine months ended September 30, 1997 and 1996, respectively. Financing
activities in the nine months ended September 30, 1997 related to the issuance
of common stock through the Company's Stock Purchase Plan, offset by payments
made under capital lease obligations and notes payable. Financing activities in
the nine months ended September 30, 1996 related to the issuance of convertible
notes and common stock, offset by borrowings under a note payable and the
Company's line of credit.
In July 1997, the Company entered into a line of credit arrangement to borrow
up to $5,000,000 at the bank's prime rate. The line expires in July 1998 and
contains certain restrictions, including among others, maintaining a minimum
quick ratio, minimum tangible net worth and a minimum ratio of total liabilities
to tangible net worth retroactive to June 30, 1997. The Company was in
compliance with these covenants at September 30, 1997. The line of credit is
unsecured. There were no outstanding balances at September 30, 1997.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
DEPENDENCE ON HOSPITAL MARKET; MARKET ACCEPTANCE; DEPENDENCE ON STRATEGIC
ALLIANCES; SYSTEM ENHANCEMENTS
The Company's customers are typically hospitals and other health care
providers, and substantially all of the Company's revenues have been derived
from the sale of software products and services to hospitals. The Company's
performance is dependent on continued demand for its products. Consolidation in
the health care information industry, particularly in the hospital market, could
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cause a decrease in the number of potential purchasers of the Company's products
and services or the loss of one or more of the Company's significant customers
as a result of the acquisition of that customer by another company that uses
products or services provided by a competitor of the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operation. Legislative or market-driven reforms could also have
material adverse effects on the Company's business, financial condition and
results of operations. In addition, the decision to purchase the Company's
products often involves the approval of several members of management of a
hospital or health care provider. Consequently, it is difficult for the Company
to predict the timing or outcome of the buying decisions of customers or
potential customers.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has expanded, and intends to continue to expand, in substantial
part through acquisitions of products, technologies and businesses. The
Company's ability to expand successfully through acquisitions depends on many
factors, including the successful identification and acquisition of products,
technologies or businesses and management's ability to effectively negotiate and
consummate acquisitions and integrate and operate the new products, technologies
or businesses. There is significant competition for acquisition opportunities in
the Company's industry, which may intensify due to consolidation in the health
care industry, increasing the costs of capitalizing on acquisition
opportunities. The Company competes for acquisition opportunities with other
companies that have significantly greater financial and management resources
than the Company. The inability to successfully identify appropriate acquisition
opportunities, consummate acquisitions or successfully integrate acquired
products, technologies, operations, personnel or businesses could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, acquisitions may divert management's
attention from other business concerns, expose the Company to the risks of
entering markets in which the Company has no direct prior experience or to risks
associated with the market acceptance of acquired products and technologies, or
result in the loss of key employees of the Company or the acquired company.
Moreover, future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and the
recognition of amortization expenses related to goodwill and other intangible
assets, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The purchase of approximately 57 percent of Medicus Systems Corporation in
November 1997 and the subsequent merger with Medicus, will involve a number of
risks and uncertainties. The integration of Medicus's products and operations
into the products and operations of the Company will divert managements
attention from other matters and may result in additional operational and
administrative expense. The acquisition of Medicus will substantially increase
the number of employees and software products offered by the Company. In
addition, the acquisition of Medicus will require the reduction of operating
expenses and the successful integration of the Company's operations with those
of Medicus. The failure to reduce operating expenses or integrate the products
and services of Medicus would have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: variability in demand
for the Company's products and services; the number, timing and significance of
announcements and releases of product enhancements and new products by the
Company and its competitors; the timing and significance of announcements
concerning the Company's present or prospective strategic alliances; the
termination of, or a reduction in, offerings of the Company's products and
services; the loss of customers due to consolidation in the health care
industry, delays in product delivery requested by customers; the timing of
sales; the amount of new potential contracts at the beginning of any particular
quarter; customer budgeting cycles and changes in customer budgets; investments
by the Company in marketing, sales, research and development, and administrative
personnel necessary to support the Company's anticipated operations; marketing
and sales promotional activities; software defects and other quality factors;
and general economic conditions.
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The timing of customer purchases is difficult to predict given the complex
procurement decision process associated with most health care providers. As a
result, the Company typically experiences sales cycles that extend over several
quarters for new customers. The Company expects that these factors will result
in variations in quarterly revenues and operating results. Moreover, the
Company's operating expense levels are relatively fixed. If revenues are below
expectations, net income is likely to be disproportionately affected. Further,
it is likely that in some future quarter the Company's revenues or operating
results will be below the expectations of securities analysts and investors. In
such event, the trading price of the Company's Common Stock would likely be
materially adversely affected.
HIGHLY COMPETITIVE MARKET
Competition in the market for the Company's products and services is intense
and is expected to increase. The Company's competitors include other providers
of health care information software and services, as well as health care
consulting firms. The Company's principal competitors include (i) CIS
Technologies, Inc., a division of National Data Corporation, Inc., and
Sophisticated Software, Inc. in the market for its EDI products; (ii) Envoy
Corp. and MedE AMERICA in the market for its claims processing service;
(iii)Healthcare Cost Consultants, Inc., a division of CIS Technologies, Inc. and
Trego Systems, Inc. in the market for its contract management products; (iv)
IMNET Systems, Inc., Optika Imaging Systems, Inc. and LanVision Systems, Inc. in
the market for its electronic document management products; (v) Transition
Systems, Inc. ("TSI") and Healthcare Microsystems, Inc., a division of Health
Management Systems Inc., HCIA Inc. and MediQual Systems, Inc., a division of
Cardinal Health, Inc., in the market for its decision support products; and (vi)
HMS and ARTRAC, a division of Medaphis Corp., in the market for its business
office outsourcing services. In addition, current and prospective customers
evaluate the Company's capabilities against the merits of their existing
information systems and expertise. Furthermore, major software information
systems companies, including those specializing in the health care industry, not
presently offering products that compete with those offered by the Company may
enter the Company's markets. Increased competition could result in price
reductions, reduced gross margins, and loss of market share, any of which could
materially adversely affect the Company's business, financial condition and
results of operations. In addition, many of the Company's competitors and
potential competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than the
Company. Many of the Company's competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, the Company's competitors 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 and sale of their
products than the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.
NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL
The Company's anticipated future operations may place a strain on its
management systems and resources. The Company expects that it will be required
to continue to improve its financial and management controls, reporting systems
and procedures, and will need to expand, train and manage its work force. There
can be no assurance that the Company will be able to effectively manage these
tasks, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has hired in the last year a significant number of sales personnel. Thus, a
substantial percentage of the Company's sales force is currently inexperienced
in selling the Company's products and will remain so for some time. In addition,
competition for experienced sales personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain highly
qualified employees in the future. If the Company is unable to hire and retain
such personnel, particularly those in key positions, the Company's business,
financial condition and results of operations could be materially adversely
affected. The Company's future success also depends in significant part upon the
continued service of its executive officers, its product managers and other key
sales, marketing, and development personnel. In July 1997, the Company hired
Lemuel C. Stewart, Jr. as President of its EDI Division, who must be
successfully integrated into its management team. Additions of new and
departures of existing personnel can be disruptive and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company relies on a combination of trade secrets, copyright and trademark
laws, nondisclosure and other contractual provisions to protect its proprietary
rights. The Company has not filed any patent applications covering its
technology. There can be no assurance that measures taken by the Company to
protect its intellectual property will be adequate or that the Company's
competitors will not independently develop products and services that are
substantially equivalent or superior to those of the Company. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segment grows and the functionality of products overlaps.
Although the Company believes that its products do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable ruling on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company has recently received notice of a claim filed with the United States
Trademark Appeal Board for the cancellation of its registered QuanTIM(R)
trademark, and has also recently received a letter from a separate third party
challenging this trademark. The Company believes it has meritorious defenses to
these claims and it intends to defend these claims vigorously. However, there
can be no assurance that the Company will be successful in its defense of these
or similar claims.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as those offered by the Company frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although the Company conducts extensive testing, the Company has discovered
software errors in certain of its enhancements and products after their
introduction. The Company is currently developing various new applications and
has recently introduced versions of certain of its existing applications
designed to function with the Microsoft Windows(TM) NT operating system. There
can be no assurance that, despite testing by the Company and by current and
potential customers, errors or performance failures will not occur in these
products under development or in other enhancements or products after
commencement of commercial shipments, resulting in loss of revenues or delay in
market acceptance, diversion of development resources, damage to the Company's
reputation or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
RISK OF INTERRUPTION OF DATA PROCESSING
The Company currently processes substantially all of its customer data at its
facilities in Larkspur, California and Neptune, New Jersey. While the Company
has safeguards for emergencies such as power interruption or breakdown in
temperature controls, the Company has no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. The occurrence of a major catastrophic event at either the
Larkspur facility or the Neptune facility could lead to an interruption of data
processing and could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS RELATED TO OUTSOURCING BUSINESS
The Company provides business office outsourcing and cash flow management
services, including the billing and collection of receivables. The
infrastructure for the Company's outsourcing business was acquired by the
Company from Seton Financial in November 1993 and from Synergy in April 1997,
and the Company often uses its software products to provide outsourcing
services. As a result, the Company has not been required to make significant
investments since the acquisition of Seton Financial in order to service
existing outsourcing contracts. However, if the Company experiences a period of
substantial expansion in its outsourcing business, the Company may be required
to make substantial investments in capital assets and personnel, and there can
be no assurance that the Company will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of the
outsourcing contracts it may be awarded. The Company's failure to estimate
accurately the resources and related expenses required for a project or its
failure to complete its contractual obligations in a manner consistent with the
project plan upon
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which its contract was based could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's failure to meet a client's expectations in the performance of its
services could damage the Company's reputation and adversely affect its ability
to attract new business. Finally, the Company could incur substantial costs and
expend significant resources correcting errors in its work, and could possibly
become liable for damages caused by such errors.
GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA") is responsible for
assuring the safety and effectiveness of medical devices under the Federal Food,
Drug and Cosmetic Act. Computer products are subject to regulation when they are
used or are intended to be used in the diagnosis of disease or other conditions,
or in the cure, mitigation, treatment or prevention of disease, or are intended
to affect the structure or function of the body. The FDA could determine in the
future that any predictive aspects of the Company's products make them clinical
decision tools subject to FDA regulation. Compliance with these regulations
could be burdensome, time consuming and expensive. The Company also could become
subject to future legislation and regulations concerning the development and
marketing of health care software systems. These could increase the cost and
time necessary to market new products and could affect the Company in other
respects not presently foreseeable. The Company cannot predict the effect of
possible future legislation and regulation.
The confidentiality of patient records and the circumstances under which such
records may be released for inclusion in the Company's databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the hospital, physician or other health care
provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by the Company. There can be
no assurance that changes to state or federal laws will not materially restrict
the ability of health care providers to submit information from patient records
using the Company's products.
UNCERTAINTY IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care organizations. Changes in current health care financing and
reimbursement systems could result in the need for unplanned product
enhancements, in delays or cancellations of product orders or shipments or in
the revocation of endorsement of the Company's products by hospital associations
or other customers. Any of such occurrences could have a material adverse effect
on the Company's business, financial condition and results of operations. During
the past several years, the United States health care industry has been subject
to an increase in governmental regulation of, among other things, reimbursement
rates. Certain proposals to reform the U.S. health care system are periodically
under consideration by Congress. These programs may contain proposals to
increase government involvement in health care and otherwise change the
operating environment for the Company's customers. Health care organizations may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments in cost containment tools and related
technology such as the Company's products. The Company cannot predict what
impact, if any, such factors might have on its business, financial condition and
results of operations. In addition, many health care providers are consolidating
to create integrated health care delivery systems with greater regional market
power. As a result, these emerging systems could have greater bargaining power,
which may lead to price erosion of the Company's products. The failure of the
Company to maintain adequate price levels would have a material adverse effect
on the Company's business, financial condition and results of operations. Other
legislative or market-driven reforms could have unpredictable effects on the
Company's business, financial condition and results of operations.
RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products and services relate to the payment,
collection, coding and billing of health care claims. Any failure by employees
of the Company or by the Company's products to accurately process or collect
such claims could result in claims against the Company by its customers. The
Company has been and currently is involved in claims for money damages related
to services provided by its accounts receivable management business. The Company
maintains insurance to protect against certain claims associated with the use of
its products, but there can be no assurance that its insurance
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coverage would adequately cover any claim asserted against the Company. A
successful claim brought against the Company in excess of, or excluded from, its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Even unsuccessful
claims could result in the Company's expenditure of funds in litigation and
management time and resources. There can be no assurance that the Company will
not be subject to material claims in the future, that such claims will not
result in liability in excess of its insurance coverage, that the Company's
insurance will cover such claims or that appropriate insurance will continue to
be available to the Company in the future at commercially reasonable rates. In
addition, if liability of the Company were to be established, substantial
revisions to its products could be required that may cause the Company to incur
additional unanticipated research and development expenses.
POSSIBLE VOLATILITY OF STOCK PRICE; LOW TRADING VOLUME
The stock market historically has experienced volatility which has affected
the market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. The trading price of
the Company's Common Stock could also be subject to significant fluctuations in
response to variations in quarterly results of operations, announcements of new
products or acquisitions by the Company or its competitors, governmental
regulatory action, other developments or disputes with respect to proprietary
rights, general trends in the industry and overall market conditions, and other
factors. The market price of the Company's Common Stock may also be
significantly affected by factors such as announcements of new products by the
Company's competitors, as well as variations in the market conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general. In
addition, the average daily trading volume of the Company's Common Stock since
public trading of the Common Stock commenced has been low. To the extent this
trading pattern continues, the price of the Common Stock may fluctuate
significantly as a result of changes in demand for such shares and sales of
stock by stockholders.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Between July 1, 1997 and September 30, 1997, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"): the Registrant granted stock options to its employees
under its 1996 Stock Incentive Plan covering an aggregate of 405,500 shares of
the Registrant's Common Stock, all at an exercise price of $9.13 per share. On
September 29, 1997, the Company issued 112,706 shares of its common stock in
exchange for approximately 91% of the outstanding capital stock of Healthcare
Revenue Management, Inc.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
During the period covered by this report, there were no changes in the
rights of holders of any class of securities of the Company.
On October 10, 1996, the Company's registration statement on Form SB-2 (SEC
File No. 333-39487) was declared effective pursuant to which the Company
completed its initial public offering (the "Offering"). During the quarter
ended September 30, 1997, the Company used approximately $1,200,000 of the net
proceeds of the Offering to purchase equity a 10% interest in VantageMed
Corporation. No other net proceeds from the Offering were used by the Company
during the quarter ended September 30, 1997 for purposes which used in excess
of five percent of the total Offering proceeds or $100,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION.
In November 1997, the Company entered into an agreement pursuant to which
the Company will acquire Medicus Systems Corporation and simultaneously entered
into separate agreements with certain stockholders of Medicus to purchase
shares of Medicus Common Stock constituting approximately 56.7% of the total
number of outstanding shares of Medicus Common Stock. The terms of the
acquisition provide that Medicus stockholders will be entitled to receive, at
their individual election, any of (1) cash in the amount of $7.50 per share of
medicus Common Stock or (2) 0.3125 shares of QuadraMed Common Stock, subject to
certain adjustments and limitations as provided in the acquisition agreement,
or (3) a combination thereof. The Company agreed to purchase the shares of
Medicus Common Stock from certain stockholders of Medicus at a price of $7.50
per share plus warrants that entitle the holders to purchase, at an exercise
price of $24.00 per share, 0.3125 shares of QuadraMed Common Stock for each
share of Medicus Common Stock sold to the Company, subject to adjustment. The
warrants are exercisable only at the time the merger becomes effective and will
terminate at that time to the extent they are not exercised.
On November 13, 1997, QuadraMed Corporation (the "Company") entered into
both a Stock Repurchase Agreement with EDI-USA, Inc. ("EDI-USA") and a Mutual
Release with EDI-USA.
Under the provisions of the Stock Repurchase Agreement, EDI-USA has agreed
to repurchase 100,000 shares of Series A Convertible Preferred Stock of EDI-USA
(the "Shares") for a total purchase price of $2,500,000. The Shares represent
all of the capital stock of EDI-USA owned by the Company and were acquired by
the Company in April 1997 for a purchase price of $2,500,000. The purchase of
80,000 of such Shares for $2,000,000 will take place on or before December 1,
1997, and the remaining 20,000 Shares will be purchased for $500,000 on or
before January 30, 1998.
Under the provisions of the Mutual Release, the Company and EDI-USA each
release the other party and all affiliated persons from any claims or
liabilities arising out of any business, financial or investment dealings or
relationships between the parties and all contracts or agreements between the
parties. The Mutual Release also terminates all contracts or agreements between
the parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
2.1 Form of Agreement and Plan of Merger by and between QuadraMed
Corporation, a Delaware corporation and QuadraMed Corporation, a
California corporation.(1)
2.2 Assets Purchase Agreement dated December 31, 1995, by and among
QuadraMed Acquisition Corporation, Kaden Arnone, Inc. and its
stockholders.(1)
2.3 Exchange Agreement dated June 25, 1996, by and among QuadraMed
Holdings, Inc., QuadraMed Corporation, and certain stockholders
listed on Schedule A thereto.(1)
2.4 Acquisition Agreement and Plan of Merger dated December 2, 1996,
between the Company and InterMed Acquisition Corporation, a
wholly owned subsidiary of the Company, and InterMed Healthcare
Systems Inc. and its Stockholders.(2)
2.5 Acquisition Agreement and Plan of Merger, dated as of March 1,
1997, by and among QuadraMed Corporation, Healthcare Recovery
Acquisition Corporation, Healthcare Recovery Incorporated and
its Shareholders (the "HRI Acquisition Agreement and Plan of
Merger"). (3)
2.6 First Amendment to HRI Acquisition Agreement and Plan of Merger,
dated as of April 22, 1997. (3)
2.7 Second Amendment to HRI Acquisition Agreement and Plan of
Merger, dated as of April 24, 1997. (3)
2.8 Agreement and Plan of Reorganization by and between QuadraMed
Corporation and Medicus Systems Corporation dated November 9,
1997.
2.9 Form of Stock Purchase Agreement between Quadramed Corporation
and Certain Stockholders of Medicus Systems Corporation, dated
November 10, 1997.
2.10 Form of Warrant to Purchase Common Stock of QuadraMed
Corporation granted to certain stockholders of Medicus dated
November 10, 1997.
3.1 Reserved.
3.2 Second Amended and Restated Certificate of Incorporation of the
Company.(1)
3.3 Reserved.
3.4 Amended and Restated Bylaws of the Company.(1)
4.1 Reference is made to Exhibits 3.2 and 3.4.(1)
4.2 Form of Common Stock certificate.(1)
4.3 Form of Exchange Agreement dated March 16, 1994, by and among
the Company, THCS Holding, Inc. and certain stockholders listed
on Schedule A thereto.(1)
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4.4 Reserved.
4.5 Reserved.
4.6 Reserved.
4.7 Amended and Restated Agreement Regarding Adjustment Shares dated
June 25, 1996, by and among the Company, QuadNet Corporation and
the individuals listed on Schedule A thereto.(1)
4.8 Amended and Restated Shareholder Rights Agreement dated June 25,
1996, by and between the Company and the investors listed on
Schedule A thereto.(1)
4.9 Stock Purchase Warrant dated September 27, 1995 issued to James
D. Durham and amendment #1 thereto dated July 10, 1997.
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Reserved.
10.1 1996 Stock Incentive Plan of the Company.(1)
10.2 1996 Employee Stock Purchase Plan of the Company.(1)
10.3 Summary Plan Description, QuadraMed Corporation 401(k) Plan.(1)
10.4 Form of Indemnification Agreement between the Company and its
directors and executive officers.(1)
10.5 Reserved.
10.6 Lease dated February 26, 1996 for facilities located at 1345
Campus Parkway, Building M, Block #930, Lot #51.02, Neptune, New
Jersey.(1)
10.7 Lease dated May 23, 1994 for facilities located at 80 East Sir
Francis Drake Boulevard, Suite 2A, Larkspur, California.(1)
10.8 Lease Agreement dated December 14, 1989 for facilities located
at 1130 East Shaw Avenue, Suites 108 and 209, Fresno,
California.(1)
10.9 Employment Agreement dated March 1, 1994 by and between James D.
Durham and the Company.(1)
10.10 Stock Purchase Agreement dated March 3, 1994, by and between the
Company and James D. Durham.(1)
10.11 Letter dated April 17, 1995 from James D. Durham, as President
and Chief Executive of QuadraMed Corporation, to John V.
Cracchiolo regarding terms of employment.(1)
10.12 Letter dated March 14, 1996 from James D. Durham, as President
and Chief Executive Officer of QuadraMed Corporation, to Robert
Burrows regarding terms of employment.(1)
10.13 Letter from Walter Channing to Thomas McNulty effective December
1995, regarding service as Chairman of the Board of
Directors.(1)
10.14 Agreement dated May 11, 1994, by and between Colson Investments
and the Company.(1)
10.15 Credit Terms and Conditions dated July 2, 1997, by and between
Imperial Bank and the Company, with addendum thereto.
10.16 Reserved.
10.16.1 Reserved.
10.17 Reserved.
10.18 ERA/Secondary Billing and Claimstar Licenses Agreement dated
April 10, 1995, by and between the Company and Blue Cross of
California, as amended by the Second Amendment dated April 19,
1995.(1)
10.19 Cooperative Agreement dated June 30, 1995, by and between The
Compucare Company and the Company, with Amendment thereto.(1)
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<PAGE> 19
10.20 Agreement dated April 1, 1995, by and between the Company and
National Electronic Information Corporation (now Envoy
Corporation).(1)
10.21 QuadraMed Corporation Cooperative Marketing Agreement dated
August 15, 1995, by and between the Company and Health Systems
Design Corporation.(1)
10.22 Agreement to Market QuadraMed Software dated June 1, 1996
between the Company and Health Communication Services, Inc.(1)
10.23 Joint Marketing and Services Agreement dated November 1, 1995,
by and between QuadraMed Acquisition Corporation, the Company
and Kaden Arnone, Inc.(1)
10.24 License Agreement dated November 1, 1994, by and between the
Company and Learned-Mahn, Inc.(1)
10.25 Master Agreement dated June 1, 1995, by and between Premier
Health Alliance, Inc. and the Company.(1)
10.26 Agreement dated October 3, 1995, by and between Shared Services
Healthcare, Inc. and the Company.(1)
10.27 Letter Agreement dated March 3, 1994 by and between NJUP Plus
and the Company.(1)
10.28 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to ContraQ.(1)
10.29 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to ClaimStar.(1)
10.30 Memorandum of Understanding dated October 24, 1995, by and
between the Company and St. Anthony Publishing, Inc. (now NexUS
Capital Healthcare Information Corp.).(1)
10.31 Software Development Agreement dated August 3, 1995, by and
between St. Joseph's Hospital of Atlanta, Inc. and the
Company.(1)
10.32 Letter Agreement dated December 27, 1995, by and between the
Company and UniHealth, with related Joint Development Proposal
for a Capitation Management System dated October 20, 1995.(1)
10.33 Employment Agreement with Kevin H. Arner, President of EDI
Services Division.(6)
10.34 Letter dated March 6, 1997 from James D. Durham, as President
and Chief Executive Officer of QuadraMed Corporation, to Keith
M. Roberts regarding terms of employment.(7)
10.35 Employment Agreement dated December 19, 1996 by and between
Frederick Stodolak and the Company.(7)
10.36 Letter dated January 1, 1997 from the Company to James Durham
regarding terms of employment.(7)
10.37 Letter dated April 22, 1997 from the Company to Eugene M. Arnone
regarding terms of employment.(3)
27.1 Financial Data Schedule.
- ------------
(1) Incorporated by reference from the exhibit with the same number to the
Company's Registration Statement on Form SB-2, No. 333-5180-LA, as filed
with the Commission on June 28, 1996, as amended by Amendment No. 1,
Amendment No. 2 and Amendment No. 3 thereto, as filed with the Commission on
July 26, 1996, September 9, 1996, and October 2, 1996, respectively.
(2) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on
January 9, 1997.
(3) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on May 9,
1997.
(4) Incorporated by reference from Exhibit 99.16 to the Company's Registration
Statement on Form S-8, No. 333-16385, as filed with the Commission and
declared effective on November 19, 1996.
(5) Incorporated by reference from Exhibit 10.16 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1996, as filed
with the Commission on November 14, 1996.
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<PAGE> 20
(6) Incorporated by reference from Exhibit 10.32 to the Company's Current
Report on Form 8-K, as filed with the Commission on January 9, 1997.
(7) Incorporated by reference from the exhibit with the same number to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996,
as filed with the Commission on March 28, 1997, as amended by Amendment No.
1 thereto, as filed with the Commission on April 18, 1997.
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on October 10, 1997 in which it
reported the acquisition and merger of Healthcare Revenue Management, a Nevada
corporation.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUADRAMED CORPORATION (Company)
Date: November 14, 1997 By: /s/ JOHN V. CRACCHIOLO
-----------------------------------
John V. Cracchiolo
Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NO.
-------
2.8 Agreement and Plan of Reorganization by and between QuadraMed
Corporation and Medicus Systems Corporation dated November 9, 1997.
2.9 Form of Stock Purchase Agreement between Quadramed Corporation
and Certain Stockholders of Medicus Systems Corporation, dated
November 10, 1997.
2.10 Form of Warrant to Purchase Common Stock of QuadraMed
Corporation granted to certain stockholders of Medicus dated
November 10, 1997.
27.1 Financial Data Schedule
22
<PAGE> 1
EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
QUADRAMED CORPORATION
AND
MEDICUS SYSTEMS CORPORATION
November 9, 1997
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of November 9, 1997, by and among QuadraMed
Corporation, a Delaware corporation ("QuadraMed"), and Medicus Systems
Corporation, a Delaware corporation ("Medicus").
RECITALS
A. The Boards of Directors of Medicus and QuadraMed believe it
is in the best interests of their respective companies and the stockholders of
their respective companies that Medicus and a wholly owned subsidiary of
QuadraMed to be formed for the purposes hereof ("Merger Sub") combine into a
single company through the statutory merger of Merger Sub with and into Medicus
(the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding
shares of Medicus Common Stock, $.01 par value ("Medicus Common Stock"), shall
be converted into shares of QuadraMed Common Stock, $.01 par value ("QuadraMed
Common Stock"), or cash, or a combination thereof, on the terms set forth
herein.
C. Medicus and QuadraMed desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. Concurrent with the execution of this Agreement and as an
inducement to QuadraMed to enter into this Agreement, certain of the
stockholders of Medicus who in the aggregate beneficially own in excess of 50%
of the outstanding Common Stock of Medicus have on the date hereof entered into
stock purchase agreements (the "Stock Purchase Agreements") to sell the shares
of Medicus' Common Stock owned by such person in exchange for a cash payment and
a warrant to purchase QuadraMed Common Stock (the "Warrants").
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, a
Certificate of Merger to be filed in
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<PAGE> 3
respect of the Merger (the "Certificate of Merger") and the applicable
provisions of the Delaware General Corporation Law ("DGCL"), Merger Sub shall be
merged with and into Medicus, the separate corporate existence of Merger Sub
shall cease and Medicus shall continue as the surviving corporation. Medicus as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Brobeck, Phleger &
Harrison LLP, One Market, Spear Street Tower, San Francisco, California 94105,
or at such other location as the parties hereto agree. In connection with the
Closing, the parties hereto shall cause the Merger to be consummated by filing
the Certificate of Merger with the Secretary of State of the State of Delaware
and with the Recorder of the County in which the registered office of each of
Medicus and Merger Sub is located, in accordance with the relevant provisions of
the DGCL (the time of such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Medicus and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Medicus and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by the DGCL and such Certificate of
Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors
and officers of Merger Sub shall become the directors and officers of the
Surviving Corporation, until their respective successors are duly elected or
appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without
any action on the part of Merger Sub, Medicus or the holders of any of the
following securities, subject to the provisions of this Section 1.6:
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<PAGE> 4
(a) Conversion of Medicus Common Stock. At the
Effective Time, each share of Medicus Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Medicus Common
Stock to be canceled pursuant to Section 1.6(b)) will be canceled and
extinguished and be converted automatically into (i) the right to receive $7.50
in cash, without interest (the "Per Share Cash Amount"); or (ii) the right to
receive 0.3125 shares of QuadraMed Common Stock (the "Exchange Ratio");
provided, however, that (1) if the QuadraMed Stock Value (as defined below)
exceeds $27.60, then the Exchange Ratio shall be the quotient obtained by
dividing (A) $8.625 by (B) the QuadraMed Stock Value, and (2) if the QuadraMed
Stock Value is less than $24.00, then the Exchange Ratio shall be the quotient
obtained by dividing (A) $7.50 by (B) the QuadraMed Stock Value; provided
further, however, that if the QuadraMed Stock Value is less than $20.40, then
QuadraMed may, at its sole discretion, elect to have all or any portion of the
shares of Medicus Common Stock converted into the Per Share Cash Amount (the
"QuadraMed Cash Election"); or (iii) the right to receive a combination of
shares of QuadraMed Common Stock and cash, all in accordance with the provisions
of this Section 1.6. In the event of the QuadraMed Cash Election in which less
than all of the outstanding shares of Medicus Common Stock will be converted
into cash, the shares of Medicus Common Stock to be converted into cash as a
result of the QuadraMed Cash Election will be selected pro rata according to the
number of shares with respect to which a Stock Election (as defined below) has
been made. The amounts paid in the Merger in exchange for shares of Medicus
Common Stock shall be referred to herein as the "Merger Consideration". For
purposes hereof, the "QuadraMed Stock Value" shall be equal to the average of
the closing prices of QuadraMed Common Stock during the fifteen (15) days prior
to the second day prior to the date of the Medicus Stockholders Meeting (as
defined in Section 2.23).
(b) Cancellation of Medicus Common Stock Owned by
QuadraMed or Medicus. At the Effective Time, all shares of Medicus Common Stock
that are owned by Medicus as treasury stock and each share of Medicus Common
Stock owned by QuadraMed or any direct or indirect wholly owned subsidiary of
QuadraMed or of Medicus immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Medicus Stock Option Plans. At the Effective Time,
the Medicus 1989 Stock Option Plan, the Medicus 1991 Stock Option Plan, the
Medicus 1993 Stock Option Plan, the Medicus 1993 Performance Stock Option Plan,
the Medicus 1994 Stock Option Plan, the Medicus 1994 Directors' Stock Option
Plan, the Medicus 1995 RCM Stock Option Plan, the Medicus 1996 C.E.O. Stock
Option Plan, the Medicus 1996 C.E.O. Replacement Stock Option Plan, the Medicus
1996 C.E.O. Special Stock Option Plan, the Medicus 1997 Employee Stock Option
and Restricted Stock Plan, the Medicus 1997 Directors' Stock Option Plan
(collectively, the "Medicus Stock Option Plans"), the Stock Exchange and
Subscription warrants dated March 19, 1997 issued by Medicus to Richard C.
Jelinek and a trust for his benefit (the "Jelinek Warrants") and the Stock
Subscription Warrant dated March 1, 1996 issued by Medicus to TriHealth, Inc.
(the "TriHealth Warrant") and all options or rights to purchase Medicus Common
3
<PAGE> 5
Stock then outstanding under the Medicus Stock Option Plans, the Jelinek
Warrants and the TriHealth Warrant shall be assumed by QuadraMed in accordance
with Section 5.11.
(d) Capital Stock of Merger Sub. At the Effective Time,
each share of Common Stock, $.01 par value, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $.01 par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio and Per Share Cash
Amount. The Exchange Ratio and the Per Share Cash Amount shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into QuadraMed
Common Stock or Medicus Common Stock), reorganization, recapitalization or other
like change with respect to QuadraMed Common Stock or Medicus Common Stock
occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of
QuadraMed Common Stock will be issued in the Merger. In lieu of any fractional
shares that would otherwise be issuable in the Merger in exchange for shares of
Medicus Common Stock, QuadraMed shall pay the proportionate amount of the Per
Share Cash Amount that would be payable in respect of such fractional share.
(g) Limitation on Shares Issuable. In no event shall
the aggregate number of shares of QuadraMed Common Stock which QuadraMed is
obligated to issue (1) upon the exercise of Warrants and (2) in exchange for
outstanding shares of Medicus Common Stock pursuant to this Agreement exceed a
total of 1,800,000 shares. In the event that the aggregate number of shares of
Common Stock that holders of Warrants and holders of Medicus Common Stock have
elected to receive as described in clauses (1) and (2) in the immediately
preceding sentence exceeds 1,800,000 shares, QuadraMed shall only be required to
issue 1,800,000 shares of QuadraMed Common Stock and such holders shall be
entitled to receive shares of QuadraMed Common Stock equal to each holder's pro
rata portion of the total amount of shares issued by QuadraMed as described in
clauses (1) and (2), based on the total number of shares each holder and each
elected to receive.
(h) Election for Shares or Cash. Each record holder
immediately prior to the Effective Time of shares of Medicus Common Stock will
be entitled (i) to elect to receive cash for none, some or all of such shares (a
"Cash Election"), (ii) to elect to receive QuadraMed Common Stock for none, some
or all of such shares (a "Stock Election"), or (iii) to indicate that such
record holder has no preference as to the receipt of cash or QuadraMed Common
Stock for such shares (a "Non-Election"). All such elections shall be made on a
form designed for that
4
<PAGE> 6
purpose (a "Form of Election"). Holders of record of shares of Medicus Common
Stock who hold such shares as nominees, trustees or in other representative
capacities (a "Representative") may submit multiple Forms of Election, provided
that such Representative certifies that each such Form of Election covers all
the shares of Medicus Common Stock held by each Representative for a particular
beneficial owner. All shares of Medicus Common Stock covered by Stock Elections
(the "Stock Election Shares") and all shares of Medicus Common Stock covered by
Non-Elections (the "Non-Election Shares") shall be converted into the right to
receive QuadraMed Common Stock, and the Cash Election Shares shall be converted
into the right to receive cash, without interest.
(i) Election Procedures. Elections shall be made by
holders of Medicus Common Stock by mailing or otherwise delivering to the
Exchange Agent (as defined in Section 1.7) a Form of Election. To be effective,
a Form of Election must be properly completed, signed and submitted to the
Exchange Agent and accompanied by the certificates representing the shares of
Medicus Common Stock as to which the election is being made (or by an
appropriate trust company in the United States or a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc. (the "NASD")). QuadraMed will have the discretion which it may delegate in
whole or in part to the Exchange Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of QuadraMed (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither
QuadraMed nor the Exchange Agent will be under any obligation to notify any
person of any defect in a Form of Election submitted to the Exchange Agent. The
Exchange Agent shall also make all computations contemplated by this Section 1.6
and all such computations shall be conclusive and binding on the holders of
Medicus Common Stock. For the purposes hereof, a holder of Medicus Common Stock
who does not submit a Form of Election which is received by the Exchange Agent
prior to the Election Deadline (as hereinafter defined) shall be deemed to have
made a Non-Election. If QuadraMed or the Exchange Agent shall determine that any
purported Cash Election or Stock Election was not properly made, such purported
Cash Election or Stock Election shall be deemed to be of no force and effect and
the stockholder making such purported Cash Election or Stock Election shall for
purposes hereof, be deemed to have made a Non-Election. QuadraMed and Medicus
shall each use its reasonable best efforts to mail the Form of Election to all
persons who become holders of Medicus Common Stock during the period between the
record date for the Medicus Stockholders Meeting (as defined in Section 2.23)
and 10:00 a.m. California time, on the date seven calendar days prior to the
anticipated Effective Time and to make the Form of Election available to all
persons who become holders of Medicus Common Stock subsequent to such day and no
later than the close of business on the business day prior to the Effective
Time. A Form of Election must be received by the Exchange Agent by the close of
business on the last business day prior to the Effective Time (the "Election
Deadline") in order to be effective. All elections may be revoked until the
Election Deadline.
1.7 Surrender of Certificates.
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<PAGE> 7
(a) Exchange Agent. The First National Bank of Boston
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) QuadraMed to Provide Common Stock and Cash.
Promptly after the Effective Time, QuadraMed shall make available to the
Exchange Agent for exchange in accordance with this Article I, through such
reasonable procedures as QuadraMed may adopt, (i) the shares of QuadraMed Common
Stock issuable in exchange for Stock Election Shares and Non-Election Shares and
(ii) cash in an amount sufficient to purchase Cash Election Shares and permit
payment of cash in lieu of fractional shares pursuant to Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Medicus Common
Stock, whose shares were converted into the right to receive shares of QuadraMed
Common Stock (and cash in lieu of fractional shares) pursuant to Section 1.6,
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
receipt of the Certificates by the Exchange Agent, and shall be in such form and
have such other provisions as QuadraMed may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of QuadraMed Common Stock (and cash in lieu
of fractional shares) or cash. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
QuadraMed, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) a certificate
representing the number of whole shares of QuadraMed Common Stock and payment in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 1.6 or (ii) cash, as the case may be, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Medicus Common Stock
will be deemed for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of QuadraMed Common Stock
or cash, as the case may be, into which such shares of Medicus Common Stock
shall have been so converted and the right to receive an amount in cash in lieu
of the issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares.
No dividends or other distributions with respect to QuadraMed Common Stock with
a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of QuadraMed Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of QuadraMed Common Stock issued in
exchange therefor, without interest, at the time of
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<PAGE> 8
such surrender, the amount of any such dividends or other distributions with a
record date after the Effective Time theretofore payable (but for the provisions
of this Section 1.7(d)) with respect to such shares of QuadraMed Common Stock.
(c) Transfers of Ownership. If any certificate for
shares of QuadraMed Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to QuadraMed or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of QuadraMed Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of QuadraMed or any age. Notwithstanding anything to the contrary
in this Section 1.7, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 No Further Ownership Rights in Medicus Common Stock. All
shares of QuadraMed Common Stock issued upon the surrender for exchange of
shares of Medicus Common Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Medicus Common
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Medicus Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
QuadraMed Common Stock (and cash in lieu of fractional shares) as may be
required pursuant to Section 1.6; provided, however, that QuadraMed may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against QuadraMed, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
1.10 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Medicus and Merger Sub, the officers and directors of
Medicus and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as
7
<PAGE> 9
such action is not inconsistent with this Agreement.
1.11 Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Medicus QuadraMed Common Stock that
are outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have demanded properly in writing appraisal for such
shares in accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders shall be entitled to receive payment of
the appraised value of such shares of Medicus Common Stock held by them in
accordance with the provisions of Section 262, except that all Dissenting Shares
held by stockholders who shall have failed to perfect or who effectively shall
have withdrawn or lost their rights to appraisal of such shares of Medicus
Common Stock under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, shares of QuadraMed Common
Stock based on the Exchange Ratio determined in accordance with Section 1.1
hereof, as if such shares were covered by Non-Elections, upon surrender, in the
manner provided in this Article I, of the certificate or certificates that
formerly evidenced such shares of Medicus Common Stock.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MEDICUS
In this Agreement, any reference to any event, change, condition
or effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, business, operations or results of operations
of such entity and its subsidiaries, taken as a whole.
Except as disclosed in a document of even date herewith and
delivered by Medicus to QuadraMed prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "Medicus Disclosure Schedule"), Medicus represents and warrants to
QuadraMed and Merger Sub as follows:
2.1 Organization, Standing and Power Each of Medicus and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Medicus and
its subsidiaries has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in
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<PAGE> 10
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Medicus. Medicus has delivered a true and correct copy of the
Amended and Restated Certificate of Incorporation, as amended (the "Certificate
of Incorporation"), and Bylaws, as amended, or other charter documents, as
applicable, of Medicus and each of its subsidiaries, each as amended to date, to
QuadraMed. Neither Medicus nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. Medicus is the owner of all outstanding shares of
capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Medicus free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Medicus or any such subsidiary
to issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Medicus SEC Documents (as defined in
Section 2.4), Medicus does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Capital Structure. The authorized capital stock of Medicus
consists of 10,000,000 shares of Common Stock, $.01 par value, 1,000,000 shares
of Preferred Stock, $.01 par value, and 500 shares of Voting Preferred Stock,
$1,000 par value, of which there were issued and outstanding as of the close of
business on November 7, 1997, 5,487,971 shares of Common Stock and no shares of
Preferred Stock or Voting Preferred Stock. There are no other outstanding shares
of capital stock or voting securities and no outstanding commitments to issue
any shares of capital stock or voting securities other than pursuant to the
exercise of options outstanding as of such date under the Medicus Stock Option
Plans and the obligation to issue 34,800 restricted shares previously granted
under the Medicus Stock Option Plans. All outstanding shares of Medicus Common
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free of any liens or encumbrances created by, or resulting from the actions of,
Medicus, and are not subject to preemptive rights or rights of first refusal
created by statute, the Certificate of Incorporation or Bylaws of Medicus or any
agreement to which Medicus is a party or by which it is bound. As of the close
of business on November 7, 1997, Medicus has 1,501,350 shares subject to
outstanding, unexercised options. Since November 7, 1997, Medicus has not issued
or granted additional options under the Medicus Stock Option Plans. Except for
(i) the rights created pursuant to this Agreement or the Medicus Stock Option
Plans and (ii) Medicus' right to repurchase any unvested shares under the
Medicus Stock Option Plans, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Medicus is a party or by
which it is bound obligating Medicus to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Medicus or obligating Medicus to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right,
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commitment or agreement. There are no contracts, commitments or agreements
relating to voting, purchase or sale of Medicus' capital stock (i) between or
among Medicus and any of its stockholders and (ii) to the best of Medicus'
knowledge, between or among any of Medicus' stockholders. The terms of the
Medicus Stock Option Plans permit the assumption or substitution of options to
purchase QuadraMed Common Stock as provided in this Agreement, without the
consent or approval of the holders of such securities, the Medicus stockholders,
or otherwise and without any acceleration of the exercise schedule or vesting
provisions in effect for those options. True and complete copies of all forms of
agreements and instruments relating to or issued under the Medicus Stock Option
Plans have been made available to QuadraMed and such agreements and instruments
have not been amended, modified or supplemented, and there are no agreements to
amend, modify or supplement such agreements or instruments in any case from the
form made available to QuadraMed.
2.3 Authority. Medicus has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Medicus, subject only to the
approval of the Merger by Medicus' stockholders as contemplated by Section
6.1(a). This Agreement has been duly executed and delivered by Medicus and
constitutes the valid and binding obligation of Medicus enforceable against
Medicus in accordance with its terms. The execution and delivery of this
Agreement by Medicus does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Certificate of Incorporation
or Bylaws of Medicus or any of its subsidiaries, as amended, or (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Medicus or any of its subsidiaries
or any of their properties or assets, except where such conflict, violation,
default, termination, cancellation or acceleration with respect to the foregoing
provisions of (ii) would not have had and would not reasonably be expected to
have a Material Adverse Effect on Medicus. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to
Medicus or any of its subsidiaries in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby
and thereby, except for (i) the filing of the Certificate of Merger as provided
in Section 1.2, (ii) the filing with the Securities and Exchange Commission (the
"SEC") and the NASD of the Proxy Statement (as defined in Section 2.23) relating
to the Medicus Stockholders Meeting (as defined in Section 2.23), (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not
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have a Material Adverse Effect on Medicus and would not prevent, or materially
alter or delay any of the transactions contemplated by this Agreement.
2.4 SEC Documents; Financial Statements. Medicus has furnished
to QuadraMed a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act")), definitive proxy
statement and other filing filed with the SEC by Medicus since March 1, 1996,
and, prior to the Effective Time, Medicus will have furnished QuadraMed with
true and complete copies of any additional documents filed with the SEC by
Medicus prior to the Effective Time (collectively, the "Medicus SEC Documents").
In addition, Medicus has made available to QuadraMed all exhibits to the Medicus
SEC Documents filed prior to the date hereof, and will promptly make available
to QuadraMed all exhibits to any additional Medicus SEC Documents filed prior to
the Effective Time. All documents required to be filed as exhibits to the
Medicus SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those which have expired in
accordance with their terms, and neither Medicus nor any of its subsidiaries is
in default thereunder. As of their respective filing dates, the Medicus SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the Medicus SEC Documents 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 made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Medicus SEC Document. The financial statements
of Medicus, including the notes thereto, included in the Medicus SEC Documents
(the "Medicus Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Q,
as permitted by Form 10-Q of the SEC). The Medicus Financial Statements fairly
present the consolidated financial condition and operating results of Medicus
and its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments). There has been no change in Medicus accounting policies except as
described in the notes to the Medicus Financial Statements.
2.5 Absence of Certain Changes. Since August 31, 1997 (the
"Medicus Balance Sheet Date"), Medicus has conducted its business in the
ordinary course consistent with past practice and, except as disclosed in the
Medicus SEC Documents, there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted in, or might
reasonably be expected to result in, a Material Adverse Effect to Medicus; (ii)
any acquisition, sale or transfer of any material asset of Medicus or any of its
subsidiaries other than
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in the ordinary course of business and consistent with past practice; (iii) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by Medicus or any revaluation by Medicus of
any of its or any of its subsidiaries' assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Medicus, or any direct or indirect redemption, purchase or other acquisition
by Medicus of any of its shares of capital stock; (v) any material contract
entered into by Medicus or any of its subsidiaries, other than in the ordinary
course of business and as provided to QuadraMed, or any material amendment or
termination of, or default under, any material contract to which Medicus or any
of its subsidiaries is a party or by which it is bound; or (vi) any negotiation
or agreement by Medicus or any of its subsidiaries to do any of the things
described in the preceding clauses (i) through (v) (other than negotiations with
QuadraMed and its representatives regarding the transactions contemplated by
this Agreement).
2.6 Absence of Undisclosed Liabilities. Medicus has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Medicus' Quarterly Report on Form 10-Q for the period
ended August 31, 1997 (the "Medicus Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the Medicus
Balance Sheet under generally accepted accounting principles, (iii) those
incurred in the ordinary course of business since the Medicus Balance Sheet Date
and consistent with past practice; and (iv) those incurred in connection with
the execution of this Agreement.
2.7 Litigation. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Medicus or any
of its subsidiaries, threatened against Medicus or any of its subsidiaries or
any of their respective properties or any of their respective officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Medicus. There
is no judgment, decree or order against Medicus or any of its subsidiaries, or,
to the knowledge of Medicus and its subsidiaries, any of their respective
directors or officers (in their capacities as such), that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Medicus.
2.8 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Medicus or any of
its subsidiaries which has or reasonably could be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
Medicus or any of its subsidiaries, any acquisition of property by Medicus or
any of its subsidiaries or the conduct of business by Medicus or any of its
subsidiaries as currently conducted or as proposed to be conducted by Medicus or
any of its subsidiaries.
2.9 Governmental Authorization. Medicus and each of its
subsidiaries have
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obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Medicus or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the operation
of Medicus' or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Medicus Authorizations"), and
all of such Medicus Authorizations are in full force and effect, except where
the failure to obtain or have any of such Medicus Authorizations could not
reasonably be expected to have a Material Adverse Effect on Medicus.
2.10 Title to Property. Medicus and its subsidiaries have good
and valid title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Medicus Balance Sheet or
acquired after the Medicus Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Medicus Balance
Sheet Date in the ordinary course of business), or in the case of leased
properties and assets, valid leasehold interests therein, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Medicus
Balance Sheet. The plants, property and equipment of Medicus and its
subsidiaries that are used in the operations of their businesses are in good
operating condition and repair. All properties used in the operations of Medicus
and its subsidiaries are reflected in the Medicus Balance Sheet to the extent
generally accepted accounting principles require the same to be reflected.
Schedule 2.10 identifies each parcel of real property owned or leased by Medicus
or any of its subsidiaries.
2.11 Intellectual Property.
(a) Medicus and its subsidiaries own, or are
licensed or otherwise possess legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used in the business of Medicus and its subsidiaries as currently conducted
or as proposed to be conducted by Medicus and its subsidiaries, except to the
extent that the failure to have such rights have not had and would not
reasonably be expected to have a Material Adverse Effect on Medicus.
(b) Medicus has provided to QuadraMed (i) all patents
and patent applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and maskworks,
which Medicus considers to be material to its business and included in the
Intellectual Property, including the jurisdictions in which each
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such Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Medicus is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which Medicus is a
party and pursuant to which Medicus is authorized to use any third party
patents, trademarks or copyrights, including software ("Third Party Intellectual
Property Rights") which are incorporated in, are, or form a part of any Medicus
product that is material to its business.
(c) To Medicus' knowledge, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of Medicus or any of its subsidiaries, any trade secret material to
Medicus or any of its subsidiaries, or any Intellectual Property right of any
third party to the extent licensed by or through Medicus or any of its
subsidiaries, by any third party, including any employee of its subsidiaries has
entered into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in purchase orders arising in the ordinary course of business.
(d) Medicus is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights, the breach of which would have a Material Adverse Effect on Medicus.
(e) All patents, registered trademarks, service marks
and copyrights held by Medicus are valid and subsisting. Medicus (i) has not
been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party and (ii) has
not brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party. The manufacture, marketing, licensing or sale of
Medicus' products does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, except
where such infringement would not have a Material Adverse Effect on Medicus.
(f) Medicus has secured valid written assignments from
all consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Medicus does not
already own by operation of law.
(g) Medicus has taken all reasonable and appropriate
steps to protect and preserve the confidentiality of all Intellectual Property
not otherwise protected by patents, or patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by Medicus by or to a third party has been
pursuant to the terms of a written agreement between Medicus and such third
party. All use,
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disclosure or appropriation of Confidential Information not owned by Medicus has
been pursuant to the terms of a written agreement between Medicus and the owner
of such Confidential Information, or is otherwise lawful.
2.12 Environmental Matters
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean
any federal, state or local laws, ordinances, codes, regulations, rules,
policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require
reporting with respect to, or list or define air, water, groundwater, solid
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.
(ii) "Hazardous Materials" shall mean any toxic
or hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "Property" shall mean all real property
leased or owned by Medicus or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and
improvements on the Property of Medicus or its subsidiaries.
(a) Medicus represents and warrants as follows: (i) to
Medicus' knowledge, no methylene chloride or asbestos is contained in or has
been used at or released from the Facilities; (ii) all Hazardous Materials and
wastes disposed of by Medicus have been disposed of in accordance with all
Environmental and Safety Laws; (iii) Medicus and its subsidiaries have received
no notice (verbal or written) of any noncompliance of the Facilities or its past
or present operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or, to Medicus' knowledge,
threatened relating to a violation of any Environmental and Safety Laws; (v)
neither Medicus nor its subsidiaries have been notified that they are a
potentially responsible party under the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), or state analog statute,
arising out of events occurring prior to the Closing Date; (vi) to Medicus'
knowledge, there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vii) to
Medicus' knowledge, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, pumps, or water, gas
or oil wells; (viii) to Medicus' knowledge, there are no polychlorinated
biphenyls (PCBs) deposited, stored,
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disposed of or located on the Property or Facilities or any equipment on the
Property containing PCBs at levels in excess of 50 parts per million; (ix) to
Medicus' knowledge, there is no formaldehyde on the Property or in the
Facilities, nor any insulating material containing urea formaldehyde in the
Facilities; (x) Medicus' and its subsidiaries' uses of and activities within the
Facilities have at all times complied with all Environmental and Safety Laws;
and (xi) Medicus and its subsidiaries have all the permits and licenses required
to be issued and are in full compliance with the terms and conditions of those
permits, except where the failure to have or comply with such permits would not,
individually or in the aggregate, have a Material Adverse Effect of Medicus.
2.13 Taxes. Medicus and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Medicus or any of its subsidiaries is or has been a member have timely filed all
Tax Returns required to be filed by it, have paid all Taxes shown thereon to be
due and has provided adequate accruals in accordance with generally accepted
accounting principles in its financial statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax returns. Except as
disclosed in the SEC Documents, (i) no material claim for Taxes has become a
lien against the property of Medicus or any of its subsidiaries or is being
asserted against Medicus or any of its subsidiaries other than liens for Taxes
not yet due and payable, (ii) no audit of any Tax Return of Medicus or any of
its subsidiaries is being conducted by a Tax authority, (iii) no extension of
the statute of limitations on the assessment of any Taxes has been granted by
Medicus or any of its subsidiaries and is currently in effect, and (iv) there is
no agreement, contract or arrangement to which Medicus or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G, 162 or 404 of the Code. Medicus
has not been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Merger. Neither Medicus nor any of its subsidiaries is a party to any tax
sharing or tax allocation agreement nor does Medicus or any of its subsidiaries
owe any amount under any such agreement. For purposes of this Agreement, the
following terms have the following meanings: "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Entity (a "Tax
Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period and (iii) any liability for the
payment of any amounts of the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other person. As used herein,
"Tax Return" shall mean any return, statement, report or form (including,
without
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limitation,) estimated Tax returns and reports, withholding Tax returns and
reports and information reports and returns required to be filed with respect to
Taxes. Medicus and each of its subsidiaries are in full compliance with all
terms and conditions of any Tax exemptions or other Tax-sharing agreement or
order of a foreign government and the consummation of the Merger shall not have
any adverse effect on the continued validity and effectiveness of any such Tax
exemptions or other Tax-sharing agreement or order.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 lists, with respect to Medicus, any
subsidiary of Medicus and any trade or business (whether or not incorporated)
which is treated as a single employer with Medicus (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to a
non-officer employee in excess of $50,000, loans to officers and directors and
any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Medicus and that do not generally apply to all employees, and (v)
any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Medicus
of greater than $50,000 remain for the benefit of, or relating to, any present
or former employee, consultant or director of Medicus (together, the "Medicus
Employee Plans").
(b) Medicus has furnished to QuadraMed a copy of each
of the Medicus Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto) and has, with
respect to each Medicus Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the last three
plan years. Any Medicus Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Medicus has also furnished
QuadraMed with the most recent Internal Revenue Service determination letter
issued with respect to each such Medicus Employee Plan, and nothing has occurred
since the issuance of each such letter which could reasonably be expected to
cause the
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loss of the tax-qualified status of any Medicus Employee Plan subject to Code
Section 401(a).
(c) (i) Except as disclosed on Schedule 2.14, none of
the Medicus Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any person; (ii) there has been no "prohibited transaction,"
as such term is defined in Section 406 of ERISA and Section 4975 of the Code,
with respect to any Medicus Employee Plan, which could reasonably be expected to
have, in the aggregate, a Material Adverse Effect; (iii) each Medicus Employee
Plan has been administered substantially in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect, and Medicus and each subsidiary or ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any respect in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the Medicus Employee
Plans, which default or violation could reasonably be expected to have a
Material Adverse Effect on Medicus; (iv) neither Medicus nor any subsidiary or
ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any of the Medicus
Employee Plans, other than obligations for the payment of benefits in the normal
operation of the Plan, and obligations which would not in the aggregate have a
Material Adverse Effect on Medicus; (v) all material contributions required to
be made by Medicus or any subsidiary or ERISA Affiliate to any Medicus Employee
Plan have been made on or before their due dates and any accruals required by
general accepted accounting principles ("GAAP") for contributions to each
Medicus Employee Plan for the current plan years are reflected on the financial
statements of Medicus; (vi) with respect to each Medicus Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; and (vii) neither Medicus nor
any subsidiary or ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code. With respect to each Medicus
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Medicus has prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Medicus Employee Plan, except for failures which would
not have a Material Adverse Effect on Medicus. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Medicus is threatened, against or with respect to any such Medicus
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Medicus nor any Medicus subsidiary or other ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
(d) With respect to each Medicus Employee Plan,
Medicus and each of
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its United States subsidiaries have complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and
(ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, except to the extent that such failure to comply would
not, in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee or other
service provider of Medicus, any Medicus subsidiary or any other ERISA Affiliate
to severance benefits or any other payment, except as vesting, or increase the
amount of compensation due any such employee or service provider.
(f) Except as disclosed on Schedule 2.14, there has
been no amendment to, written interpretation or announcement (whether or not
written) by Medicus, any Medicus subsidiary or other ERISA Affiliate relating
to, or change in participation or coverage under, any Medicus Employee Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in Medicus' financial statements.
2.15 Certain Agreements Affected by the Merger. Neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Medicus or any of its
subsidiaries, (ii) materially increase any benefits otherwise payable by Medicus
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.16 Employee Matters. Medicus and each of its subsidiaries are
in compliance in all respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice, except where the
failure to be in compliance or the engagement in such unfair labor practices
would not have a Material Adverse Effect on Medicus. There are no pending claims
against Medicus or any of its subsidiaries under any workers compensation plan
or policy or for long term disability. Neither Medicus nor any of its
subsidiaries has any obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except for obligations that
would not have a Material Adverse Effect on Medicus. There are no controversies
pending or, to the knowledge of Medicus or any of its subsidiaries, threatened,
between Medicus or any of its subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect on Medicus. Neither Medicus nor any of its subsidiaries
is a party to any collective bargaining agreement or other labor union contract
nor does Medicus nor any of its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees.
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2.17 Interested Party Transactions. Except as disclosed in the
Medicus SEC Documents, neither Medicus nor any of its subsidiaries is indebted
to any director, officer, employee or agent of Medicus or any of its
subsidiaries (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to Medicus
or any of its subsidiaries, and there have been no other transactions of the
type required to be disclosed pursuant to Items 402 and 404 of Regulation S-K
under the Securities Act and the Exchange Act since March 1, 1996.
2.18 Insurance Medicus and each of its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of Medicus
and its subsidiaries. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and Medicus and its
subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. Medicus has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.19 Compliance With Laws. Each of Medicus and its subsidiaries
has complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Medicus.
2.20 Minute Books. The minute books of Medicus and its
subsidiaries made available to QuadraMed contain a complete and accurate summary
of all meetings of directors and stockholders or actions by written consent
since the time of incorporation of Medicus and the respective subsidiaries
through the date of this Agreement, and reflect all transactions referred to in
such minutes accurately in all material respects.
2.21 [Intentionally Omitted].
2.22 Brokers' and Finders' Fees. Medicus has not incurred, nor
will it incur without QuadraMed's prior written consent, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.23 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Medicus for inclusion in the registration statement on
Form S-4 (or such other or successor form as shall be appropriate) pursuant to
which the shares of QuadraMed Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement")
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shall not at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by Medicus for inclusion in the proxy statement/prospectus to be sent
to the stockholders of Medicus in connection with the meeting of Medicus'
stockholders to consider the Merger (the "Medicus Stockholders Meeting") (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Proxy Statement") shall not, on the date the Proxy Statement is first
mailed to Medicus' stockholders, at the time of the Medicus Stockholders Meeting
and at the Effective Time, contain any statement which, at such time, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Medicus
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Medicus
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Medicus shall promptly inform QuadraMed and
Merger Sub. Notwithstanding the foregoing, Medicus makes no representation,
warranty or covenant with respect to any information supplied by QuadraMed or
Merger Sub which is contained in any documents.
2.24 [Intentionally Omitted].
2.25 Vote Required. The affirmative vote of the holders of a
majority of the shares of Medicus Common Stock outstanding on the record date
set for the Medicus Stockholders Meeting is the only vote of the holders of any
of Medicus' capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.26 Board Approval. The Board of Directors of Medicus has (i)
unanimously approved this Agreement and the Merger and all transactions
comtemplated hereby, including the purchase of shares of Medicus Common Stock
pursuant to the Stock Purchase Agreements, (ii) determined that the Merger is in
the best interests of the stockholders of Medicus and is on terms that are fair
to such stockholders and (iii) recommended that the stockholders of Medicus
approve this Agreement and consummation of the Merger.
2.27 Section 203 of the DGCL Not Applicable. The Board of
Directors of Medicus has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
2.28 Customers and Suppliers. As of the date hereof, no
customer which
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individually accounted for more than 1% of Medicus' gross revenues during the 12
month period preceding the date hereof has indicated to Medicus that it will
stop, or decrease the rate of, buying services or products of Medicus, or has at
any time on or after May 31, 1997 decreased materially its usage of the services
or products of Medicus. As of the date hereof, no material supplier of Medicus
has indicated to Medicus that it will stop, or decrease the rate of, supplying
materials, products or services to Medicus. Medicus has not knowingly breached,
so as to provide a benefit to Medicus that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of Medicus.
2.29 Employee Nondisclosure Agreements. Each employee of
Medicus has executed and delivered to Medicus the Standard Key Employee
Nondisclosure Agreement in the form previously delivered to QuadraMed.
2.30 Representations Complete. None of the representations or
warranties made by Medicus herein or in any Schedule hereto, including Medicus
Disclosure Schedule, or certificate furnished by Medicus pursuant to this
Agreement, or the Medicus SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QUADRAMED AND MERGER SUB
Except as disclosed in a document of even date herewith and
delivered by QuadraMed to Medicus prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "QuadraMed Disclosure Schedule"), QuadraMed and Merger Sub represent and
warrant to Medicus as follows. All representations and warranties of Merger Sub
set forth below are made solely as of the Closing Date.
3.1 Organization, Standing and Power. Each of QuadraMed and its
subsidiaries, including Merger Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of QuadraMed and its subsidiaries has the corporate power to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on QuadraMed. QuadraMed has made available a true and correct
copy of the Certificate of Incorporation and Bylaws or other charter documents,
as applicable, of QuadraMed to Medicus. Neither QuadraMed nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent organizational documents.
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QuadraMed is the owner of all outstanding shares of capital stock of each of its
subsidiaries and all such shares are duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of each such
subsidiary are owned by QuadraMed free and clear of all liens, charges, claims
or encumbrances or rights of others. There are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any such subsidiary, or otherwise
obligating QuadraMed or any such subsidiary to issue, transfer, sell, purchase,
redeem or otherwise acquire any such securities. Except as disclosed in the
QuadraMed SEC Documents (as defined in Section 3.4), QuadraMed does not directly
or indirectly own any equity or similar interest in, or any interest convertible
or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
3.2 Capital Structure. Except as described in this Section 3.2,
the authorized and outstanding capital stock of QuadraMed is as set forth in the
section entitled "Description of Capital Stock" in QuadraMed's Prospectus dated
October 21, 1997 as filed with the Securities and Exchange Commission and as
previously delivered to Medicus. There are no other outstanding shares of
capital stock or voting securities of QuadraMed other than shares of QuadraMed
Common Stock issued after October 21, 1997 upon the exercise of options or
warrants. The authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, $.01 par value, all of which are issued and outstanding and are
held by QuadraMed. All outstanding shares of QuadraMed and Merger Sub have been
duly authorized, validly issued, fully paid and are nonassessable and free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. Other than pursuant to this Agreement, and
options or warrants that were outstanding as of October 21, 1997, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which QuadraMed or Merger Sub is a party or by which either of them
is bound obligating QuadraMed or Merger Sub to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of QuadraMed or Merger Sub or obligating QuadraMed
or Merger Sub to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. The shares of QuadraMed Common Stock to be
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid, and non-assessable.
3.3 Authority. QuadraMed and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of QuadraMed and Merger
Sub. This Agreement has been duly executed and delivered by QuadraMed and Merger
Sub and constitutes the valid and binding obligations of QuadraMed and Merger
Sub. The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination,
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cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of QuadraMed or any
of its subsidiaries, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to QuadraMed or any of its subsidiaries or their properties or
assets, except where such conflict, violation, default, termination,
cancellation or acceleration with respect to the foregoing provisions of (ii)
would not have had and would not reasonably be expected to have a Material
Adverse Effect on QuadraMed. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to QuadraMed or any of its subsidiaries in connection with
the execution and delivery of this Agreement by QuadraMed and Merger Sub or the
consummation by QuadraMed and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) the filing with the SEC of the Registration Statement, (iii)
the filing of a Form 8-K with the SEC within 15 days after the Closing Date,
(iv) any filings as may be required under applicable state securities laws and
the securities laws of any foreign country, (v) the filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of QuadraMed Common Stock issuable upon conversion of the
Medicus Common Stock in the Merger and upon exercise of the options under the
Medicus Stock Option Plans assumed by QuadraMed, and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on QuadraMed and would not
prevent or materially alter or delay any of the transactions contemplated by
this Agreement.
3.4 SEC Documents; Financial Statements. QuadraMed has made
available to Medicus a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by QuadraMed since March 31, 1997, and, prior to the
Effective Time, QuadraMed will have furnished Medicus with true and complete
copies of any additional documents filed with the SEC by QuadraMed prior to the
Effective Time (collectively, the "QuadraMed SEC Documents"). All documents
required to be filed as exhibits to the Medicus SEC Documents have been so
filed, and all material contracts so filed as exhibits are in full force and
effect, except those which have expired in accordance with their terms, and
neither QuadraMed nor any of its subsidiaries is in default thereunder. As of
their respective filing dates, the QuadraMed SEC Documents complied in all
material respects with the requirements of the Exchange Act and the Securities
Act, and none of the QuadraMed SEC Documents 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 made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed QuadraMed SEC Document. The financial statements of
QuadraMed, including the notes thereto, included in the QuadraMed SEC Documents
(the "QuadraMed Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and
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with the published rules and regulations of the SEC with respect thereto as of
their respective dates, and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The QuadraMed
Financial Statements fairly present the consolidated financial condition and
operating results of QuadraMed and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no material change in
QuadraMed accounting policies except as described in the notes to the QuadraMed
Financial Statements.
3.5 Absence of Certain Changes. Since June 30, 1997 (the
"QuadraMed Balance Sheet Date"), QuadraMed has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to QuadraMed; (ii) any acquisition, sale or transfer of any material
asset of QuadraMed or any of its subsidiaries other than in the ordinary course
of business and consistent with past practice; (iii) any material change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by QuadraMed or any revaluation by QuadraMed of
any of its assets; (iv) any declaration, setting aside, or payment of a dividend
or other distribution with respect to the shares of QuadraMed, or any direct or
indirect redemption, purchase or other acquisition by QuadraMed of any of its
shares of capital stock; or (v) any negotiation or agreement by QuadraMed or any
of its subsidiaries to do any of the things described in the preceding clauses
(i) through (iv) (other than negotiations with Medicus and its representatives
regarding the transactions contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. QuadraMed has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in QuadraMed's Quarterly Report on Form 10-Q for the
period ended June 30, 1997 (the "QuadraMed Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the
QuadraMed Balance Sheet under generally accepted accounting principles, and
(iii) those incurred in the ordinary course of business since the QuadraMed
Balance Sheet Date and consistent with past practice.
3.7 Litigation. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of QuadraMed or any
of its subsidiaries, threatened against QuadraMed or any of its subsidiaries or
any of their respective properties or any of their respective officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on QuadraMed.
There is no judgment, decree or order against QuadraMed or any of its
subsidiaries or, to the knowledge of
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QuadraMed or any of its subsidiaries, any of their respective directors or
officers (in their capacities as such) that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Material Adverse Effect on QuadraMed.
3.8 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon QuadraMed or any
of its subsidiaries which has or reasonably could be expected to have the effect
of prohibiting or materially impairing any current or future business practice
of QuadraMed or any of its subsidiaries, any acquisition of property by
QuadraMed or any of its subsidiaries or the conduct of business by QuadraMed or
any of its subsidiaries as currently conducted or as proposed to be conducted by
QuadraMed or any of its subsidiaries.
3.9 Governmental Authorization. QuadraMed and each of its
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which QuadraMed or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of QuadraMed's or any of its subsidiaries'
business or the holding of any such interest ((i) and (ii) herein collectively
called "QuadraMed Authorizations"), and all of such QuadraMed Authorizations are
in full force and effect, except where the failure to obtain or have any of such
QuadraMed Authorizations could not reasonably be expected to have a Material
Adverse Effect on QuadraMed.
3.10 Compliance With Laws. Each of QuadraMed and its
subsidiaries has complied with, are not in violation of, and have not received
any notices of violation with respect to, any federal, state, local or foreign
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or failures
to comply as could not be reasonably expected to have a Material Adverse Effect
on QuadraMed.
3.11 [Intentionally Omitted].
3.12 Broker's and Finders' Fees. QuadraMed has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby, other than with respect to its arrangements with Jeffries & Company,
Inc.
3.13 Registration Statement; Proxy Statement/Prospectus. The
information supplied by QuadraMed and Merger Sub for inclusion in the
Registration Statement shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances
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under which they were made, not misleading. The information supplied by
QuadraMed for inclusion in the Proxy Statement shall not, on the date the Proxy
Statement is first mailed to Medicus' stockholders, at the time of the Medicus
Stockholders Meeting and at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which it is made, not false or misleading; or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Medicus Stockholders Meeting which has become false or misleading. If at any
time prior to the Effective Time any event or information should be discovered
by QuadraMed or Merger Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, QuadraMed or
Merger Sub will promptly inform Medicus. Notwithstanding the foregoing,
QuadraMed and Merger Sub make no representation, warranty or covenant with
respect to any information supplied by Medicus which is contained in any of the
foregoing documents.
3.14 Board Approval. The Board of Directors of QuadraMed has
unanimously (i) approved this Agreement and the Merger and (ii) determined that
the Merger is in the best interests of its stockholders and is on terms that are
fair to such stockholders.
3.15 Representations Complete. None of the representations or
warranties made by QuadraMed or Merger Sub herein or in any Schedule hereto,
including the QuadraMed Disclosure Schedule, or certificate furnished by
QuadraMed or Merger Sub pursuant to this Agreement, or the QuadraMed SEC
Documents, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Medicus and QuadraMed. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Medicus and
QuadraMed agrees (except to the extent expressly contemplated by this Agreement
or as consented to in writing by the other), to carry on its and its
subsidiaries' business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay and to cause its
subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or taxes, to pay or perform other obligations when due, and to use
all reasonable efforts consistent with past
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practice and policies to preserve intact its and its subsidiaries' present
business organizations, use its best efforts consistent with past practice to
keep available the services of its and its subsidiaries' present officers and
key employees and use its best efforts consistent with past practice to preserve
its and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of Medicus and
QuadraMed agrees to promptly notify the other of any event or occurrence not in
the ordinary course of its or its subsidiaries' business, and of any event which
could have a Material Adverse Effect. Notwithstanding anything in this Section
4.1 to the contrary, QuadraMed may negotiate and consummate acquisitions of
businesses or assets without providing notice to or obtaining the consent of
Medicus. Without limiting the foregoing, except as expressly contemplated by
this Agreement, neither Medicus nor QuadraMed shall do, cause or permit any of
the following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of the other:
(a) Charter Documents. Cause or permit any amendments
to its Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; or
(c) Other. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) and (b) above, or any
action which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.2 Conduct of Business of Medicus. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Medicus shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of QuadraMed, which consent shall
not be unreasonably withheld:
(a) Material Contracts. Enter into any contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its contracts, other than in the ordinary course of business consistent
with past practice and in no event shall such contract, commitment, amendment,
modification or waiver be in excess of $250,000;
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(b) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement, except pursuant to the Medicus
1997 Directors' Stock Option Plan as currently in effect.
(c) Stock Option Plans, Etc. Accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its employee stock plans or director stock plans or authorize cash
payments in exchange for any options or other rights granted under any of such
plans.
(d) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(e) Exclusive Rights. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its products
or technology;
(f) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its subsidiaries' business, taken
as a whole, except in the ordinary course of business consistent with past
practice;
(g) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(h) Leases. Enter into any operating lease in excess of
an aggregate of $10,000;
(i) Payment of Obligations. Pay, discharge or satisfy
in an amount in excess of $10,000 in any one case or $100,000 in the aggregate,
any claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Medicus Financial Statements;
(j) Capital Expenditures. Make any capital
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additions or capital improvements except in the ordinary course of business
and consistent with past practice;
(k) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(l) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any employee benefit or stock purchase or option plan, or hire
any new director level or officer level employee (except that it may hire a
replacement for any current director level or officer level employee if it first
provides QuadraMed advance notice regarding such hiring decision), pay any
special bonus or special remuneration to any employee or director, or increase
the salaries or wage rates of its employees;
(m) Severance Arrangements. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to standard written agreements outstanding on
the date hereof or (B) grants which are made in the ordinary course of business
in accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with QuadraMed
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole, or
acquire or agree to acquire any equity securities of any corporation,
partnership, association or business organization;
(p) Taxes. Other than in the ordinary course of
business, make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Tax Return
or any amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
(q) Notices. Fail to give all notices and other
information required to be given to the employees of Medicus, any collective
bargaining unit representing any group of employees of Medicus, and any
applicable government authority under the WARN Act, the National Labor Relations
Act, the Internal Revenue Code, the Consolidated Omnibus Budget
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Reconciliation Act, and other applicable law in connection with the transactions
provided for in this Agreement;
(r) Revaluation. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(s) Other. Take or agree in writing or otherwise to
take, any of the actions described in Sections 4.2(a) through (r) above, or any
action which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing
4.3 No Solicitation. Medicus and its subsidiaries and the
officers, directors, employees or other agents of Medicus and its subsidiaries
will not, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Takeover Proposal (defined below) or (ii) subject to the terms of
the immediately following sentence, engage in negotiations with, or disclose any
nonpublic information relating to Medicus or any of it subsidiaries to, or
afford access to the properties, books or records of Medicus or any of its
subsidiaries to, any person that has advised Medicus that it may be considering
making, or that has made, a Takeover Proposal; provided, however, that nothing
herein shall prohibit Medicus' Board of Directors from taking and disclosing to
Medicus' stockholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act. Notwithstanding the
immediately preceding sentence, if an unsolicited Takeover Proposal, or an
unsolicited written expression of interest that can reasonably be expected to
lead to a Takeover Proposal, shall be received by the Board of Directors of
Medicus, then, to the extent the Board of Directors of Medicus believes in good
faith (after consultation with its financial advisor) that such Takeover
Proposal would, if consummated, result in a transaction more favorable to
Medicus' stockholders from a financial point of view than the transaction
contemplated by the Agreement (any such more favorable Takeover Proposal being
referred to in this Agreement as a "Superior Proposal") and the Board of
Directors of Medicus determines in good faith after consultation with outside
legal counsel that it is necessary for the Board of Directors of Medicus to
comply with its fiduciary duties to stockholders under applicable law, Medicus
and its officers, directors, employees, investment bankers, financial advisors,
attorneys, accountants and other representatives retained by it may furnish in
connection therewith information and take such other actions as are consistent
with the fiduciary obligations of Medicus' Board of Directors, and such actions
shall not be considered a breach of this Section 4.3 or any other provisions of
this Agreement, provided that in each such event Medicus notifies QuadraMed of
such determination by the Medicus Board of Directors and provides QuadraMed with
a true and complete copy of the Superior Proposal received from such third
party, if the Superior Proposal is in writing, or a complete written summary
thereof, if it is not in writing, and provides QuadraMed with all documents
containing or referring to non-public information of Medicus that are supplied
to such third party; provided further, that (A) the Board of Directors of
Medicus has determined, with the advice of Medicus' investment bankers, that
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such third party is capable of making a Superior Proposal upon satisfactory
completion of such third party's review of the information supplied by Medicus,
(B) the third party has stated that it intends to make a Superior Proposal, (C)
Medicus may not provide any non-public information to any such third party if it
has not prior to the date thereof provided such information to QuadraMed or
QuadraMed's representatives, (D) Medicus notifies QuadraMed in advance of any
disclosure of non-public information to any such third party, with a description
of the information proposed to be disclosed, and (E) Medicus provides such
non-public information pursuant to a non-disclosure agreement at least as
restrictive as the Confidentiality Agreement (as defined in Section 5.4).
Medicus will promptly notify QuadraMed after receipt of any Takeover Proposal or
any notice that any person is considering making a Takeover Proposal or any
request for non-public information relating to Medicus or any of its
subsidiaries or for access to the properties, books or records of Medicus or any
of its subsidiaries by any person that has advised Medicus that it may be
considering making, or that has made, a Takeover Proposal and will keep
QuadraMed fully informed of the status and details of any such Takeover Proposal
notice, request or any correspondence or communications related thereto and
shall provide QuadraMed with a true and complete copy of such Takeover Proposal
notice or request or correspondence or communications related thereto, if it is
in writing, or a complete written summary thereof, if it is not in writing. For
purposes of this Agreement, "Takeover Proposal" means any offer or proposal for,
or any indication of interest in, a merger or other business combination
involving Medicus or any of its subsidiaries or the acquisition of any
significant equity interest in, or a significant portion of the assets of,
Medicus or any of its subsidiaries, other than the transactions contemplated by
this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, Medicus and
QuadraMed shall prepare, and Medicus shall file with the SEC, preliminary proxy
materials relating to the approval of the Merger and the transactions
contemplated hereby by the stockholders of Medicus and, as promptly as
practicable following receipt of SEC comments thereon, QuadraMed shall file with
the SEC a Registration Statement on Form S-4 (or such other or successor form as
shall be appropriate), which complies in form with applicable SEC requirements
and shall use all reasonable efforts to cause the Registration Statement to
become effective as soon thereafter as practicable. Subject to the provisions of
Section 4.3, the Proxy Statement shall include the recommendation of the Board
of Directors of Medicus in favor of the Merger; provided that such
recommendation may not be included or may be withdrawn if previously included if
Medicus' Board of Directors believes in good faith that a Superior Proposal has
been made and, upon written advice of its outside legal counsel, shall determine
that to include such recommendation or not withdraw such recommendation if
previously included would constitute a breach of the Board's fiduciary duty
under applicable law.
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5.2 Meeting of Stockholders.
(a) Medicus shall promptly after the date hereof take
all action necessary in accordance with the DGCL and its Certificate of
Incorporation and Bylaws to convene the Medicus Stockholders Meeting within 45
days of the Registration Statement being declared effective by the SEC. Medicus
shall consult with QuadraMed regarding the date of the Medicus Stockholders
Meeting and use all reasonable efforts and shall not postpone or adjourn (other
than for the absence of a quorum) the Medicus Stockholders Meeting without the
consent of QuadraMed. Subject to Section 5.1, Medicus shall use its best efforts
to solicit from stockholders of Medicus proxies in favor of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders required to effect the Merger.
(b) QuadraMed shall vote or cause to be voted all
shares of Medicus Common Stock owned by QuadraMed in favor of the Merger.
5.3 Access to Information.
(a) Medicus shall afford QuadraMed and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of Medicus' and
its subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
Medicus and its subsidiaries as QuadraMed may reasonably request. Medicus agrees
to provide to QuadraMed and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. QuadraMed shall
afford Medicus and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Effective Time to (i) all of QuadraMed's and its subsidiaries' properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of QuadraMed and its
subsidiaries as Medicus may reasonably request. QuadraMed agrees to provide to
Medicus and its accountants, counsel and other representatives copies of
internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the
date hereof until the Effective Time, each of QuadraMed and Medicus shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that each of
QuadraMed and
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Medicus has previously executed a non-disclosure agreement (the "Confidentiality
Agreement"), which Confidentiality Agreement shall continue in full force and
effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this
Agreement, QuadraMed and Medicus shall consult with each other before issuing
any press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or with the NASD.
5.6 Consents; Cooperation. Each of QuadraMed and Medicus shall
use its best efforts to obtain all necessary consents, waivers and approvals
under any of its material contracts in connection with the Merger for the
assignment thereof or otherwise.
5.7 Affiliate Agreements. Schedule 5.7 sets forth those persons
who may be deemed "Affiliates" of Medicus within the meaning of Rule 145
promulgated under the Securities Act ("Rule 145"). Medicus shall provide
QuadraMed such information and documents as QuadraMed shall reasonably request
for purposes of reviewing such list. Medicus shall use its best efforts to
deliver or cause to be delivered to QuadraMed, concurrently with the execution
of this Agreement (and in each case prior to the Effective Time) from each of
the Affiliates of Medicus, an executed Affiliate Agreement in the form attached
hereto as Exhibit A. QuadraMed and Merger Sub shall be entitled to place
appropriate legends on the certificates evidencing any QuadraMed Common Stock to
be received by such Affiliates of Medicus pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for QuadraMed Common Stock, consistent with the terms of such Affiliates
Agreements.
5.8 [Intentionally Omitted].
5.9 Legal Requirements. Each of QuadraMed, Merger Sub and
Medicus will, and will cause their respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
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5.10 Blue Sky Laws. QuadraMed shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the QuadraMed Common Stock in connection
with the Merger. Medicus shall use its best efforts to assist QuadraMed as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of QuadraMed
Common Stock in connection with the Merger.
5.11 Treatment of Employee Benefit Plans and Outstanding
Warrants.
(a) At the Effective Time, the Medicus Stock Option
Plans and each outstanding option to purchase shares of Medicus Common Stock
under the Medicus Stock Option Plans, whether vested or unvested, the Jelinek
Warrants and the TriHealth Warrant will be assumed by QuadraMed. Schedule 5.11
hereto sets forth a true and complete list as of the date hereof of all holders
of outstanding options under the Medicus Stock Option Plans, including the
number of shares of Medicus capital stock subject to each such option, the
exercise or vesting schedule, the exercise price per share and the term of each
such option. On the Closing Date, Medicus shall deliver to QuadraMed an updated
Schedule 5.11 hereto current as of such date.
(b) Each such option so assumed by QuadraMed under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Medicus Stock Option Plans, and each of the Jelinek
Warrants and the TriHealth Warrant shall continue to have, and be subject to,
the same terms and conditions set forth therein, immediately prior to the
Effective Time, except that (i) each such option and each such warrant will be
exercisable for that number of whole shares of QuadraMed Common Stock equal to
the product of the number of shares of Medicus Common Stock that were issuable
upon exercise of such option or warrant immediately prior to the Effective Time
multiplied by 0.3565 and rounded down to the nearest whole number of shares of
QuadraMed Common Stock, and (ii) the per share exercise price for the shares of
QuadraMed Common Stock issuable upon exercise of such assumed option or warrant
will be equal to the quotient determined by dividing the exercise price per
share of Medicus Common Stock at which such option or warrant was exercisable
immediately prior to the Effective Time by 0.3565, rounded up to the nearest
whole cent.
(c) Consistent with the terms of the Medicus Stock
Option Plans and the documents governing the outstanding options under those
Plans, the Merger will not terminate any of the outstanding options under such
Plans or accelerate the exercisability or vesting of such options or the shares
of QuadraMed Common Stock which will be subject to those options upon the
QuadraMed's assumption of the options in the Merger. Within 10 business days
after the Effective Time, QuadraMed will issue to each person who, immediately
prior to the Effective Time was a holder of an outstanding option under the
Medicus Stock Option Plans a document in form and substance satisfactory to
Medicus evidencing the foregoing
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assumption of such option by QuadraMed.
(d) For purposes of QuadraMed employee benefit plans,
Medicus employees will receive full credit for years of service with Medicus.
5.12 Letter of QuadraMed's and Medicus' Accountants.
(a) QuadraMed shall use all reasonable efforts to
cause to be delivered to Medicus a Procedures Letter of QuadraMed's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to Medicus, in form
reasonably satisfactory to Medicus and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(b) Medicus shall use all reasonable efforts to cause
to be delivered to QuadraMed a Procedures Letter of Medicus' independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to QuadraMed, in
form reasonably satisfactory to QuadraMed and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
5.13 Form S-8. QuadraMed agrees to file, no later than thirty
(30) days after the Closing, a registration statement on Form S-8 covering the
shares of QuadraMed Common Stock issuable pursuant to outstanding options under
the Medicus Stock Option Plans assumed by QuadraMed and the shares of QuadraMed
Common Stock issuable pursuant to the Jelinek Warrants. Medicus shall cooperate
with and assist QuadraMed in the preparation of such registration statement.
5.14 Listing of Additional Shares. Prior to the Effective Time,
QuadraMed shall file with the Nasdaq National Market a Notification Form for
Listing of Additional Shares with respect to the shares referred to in Section
6.1(e).
5.15 Nasdaq Quotation. Medicus and QuadraMed agree to continue
the quotation of Medicus Common Stock and QuadraMed Common Stock, respectively,
on the Nasdaq National Market during the term of the Agreement.
5.16 Indemnification.
(a) After the Effective Time, QuadraMed will, and will
cause the Surviving Corporation to, indemnify and hold harmless the present and
former officers, directors, employees and agents of Medicus (the "Indemnified
Parties") in respect of acts or omissions occurring on or prior to the Effective
Time to the extent permitted by law and to the extent
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provided under Medicus' Certificate of Incorporation and Bylaws or any
indemnification agreement with Medicus' officers and directors to which Medicus
is a party, in each case in effect on the date hereof; provided, however, that
such indemnification shall be subject to any limitation imposed from time to
time under applicable law. Without limitation of the foregoing, in the event any
such Indemnified Party is or becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter relating to this
Agreement or the transactions contemplated hereby occurring on or prior to the
Effective Time, QuadraMed shall, or shall cause the Surviving Corporation to,
pay as incurred such Indemnified Party's reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith to the extent permitted by law and to the extent provided under
Medicus' Certificate of Incorporation and Bylaws or the indemnification
agreement with such Indemnified Party.
(b) For two years after the Effective Time, QuadraMed
will, or will cause the Surviving Corporation to, use its best efforts to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring on or prior to the Effective Time covering each such person
currently covered by Medicus' officers' and directors' liability insurance
policy on terms substantially similar to those of such policy in effect on the
date hereof ; provided, however, that in satisfying its obligation under this
Section 5.16, QuadraMed shall not be obligated to, or to cause the Surviving
Corporation to, pay premiums in excess of 150% of the amount per annum Medicus
paid in its last full fiscal year, which amount has been disclosed to QuadraMed,
and if the Surviving Corporation is unable to obtain the insurance required by
this Section 5.16, it shall obtain as much comparable insurance as possible for
an annual premium equal to such maximum amount.
(c) To the extent there is any claim, action, suit,
proceeding or investigation (whether arising before or after the Effective Time)
against an Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as a director, officer, employee, fiduciary or
agent of Medicus occurring prior to the Effective Time, or arises out of or
pertains to the transactions contemplated by this Agreement for a period of two
years after the Effective Time (whether arising before or after the Effective
Time), such Indemnified Party shall be entitled to be represented by counsel and
following the Effective Time (i) any counsel retained by the Indemnified Parties
shall be reasonably satisfactory to the Surviving Corporation and QuadraMed,
(ii) the Surviving Corporation and QuadraMed shall pay the reasonable fees and
expenses of such counsel, promptly after statements therefor are received and
(iii) the Surviving Corporation and QuadraMed will cooperate in the defense of
any such matter; provided, however, that neither the Surviving Corporation nor
QuadraMed shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); and provided,
further, however, that in the event that any claim or claim for indemnification
are asserted or made within such two-year period, all rights to indemnification
in respect of any such claim or claims shall continue until the disposition of
any and all such claims. The Indemnified Parties as a group may retain only one
law firm (in addition to local
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counsel) to represent them with respect to any single action unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any tow or more Indemnified Parties.
(d) The provisions of this Section 5.16 are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
5.17 Reasonable Best Efforts and Further Assurances. Each of
the parties to this Agreement shall use its reasonable best efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto, at
the reasonable request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the holders of a majority of the shares
of Medicus Common Stock outstanding as of the record date set for the Medicus
Stockholders Meeting.
(b) Registration Statement Effective. The SEC shall
have declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Proxy Statement, shall have been initiated or threatened by the SEC; and
all requests for additional information on the part of the SEC shall have been
complied with to the reasonable satisfaction of the parties hereto.
(c) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any
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of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal. In
the event an injunction or other order shall have been issued, each party agrees
to use its reasonable diligent efforts to have such injunction or other order
lifted.
(c) Governmental Approval. QuadraMed, Medicus and
Merger Sub and their respective subsidiaries shall have timely obtained from
each Governmental Entity all approvals, waivers and consents, if any, necessary
for consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and consents
as may be required under the Securities Act and under state Blue Sky laws.
(d) Listing of Additional Shares. The filing with the
Nasdaq National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of QuadraMed Common Stock issuable upon conversion of
the Medicus Common Stock in the Merger and upon exercise of the options under
the Medicus Stock Option Plans assumed by QuadraMed shall have been made.
6.2 Additional Conditions to Obligations of Medicus. The
obligations of Medicus to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Medicus:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of QuadraMed and Merger Sub in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
QuadraMed and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
(b) Certificate of QuadraMed. Medicus shall have been
provided with a certificate executed on behalf of QuadraMed by its President and
its Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by
QuadraMed and Merger Sub under this Agreement are true and complete in all
material respects; and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by QuadraMed and Merger Sub on or before such
date have been so performed
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in all material respects.
(c) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of QuadraMed and its
subsidiaries, taken as a whole.
(d) Third Party Consents. Medicus shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in connection with the
Merger under any material contract of QuadraMed or any of its subsidiaries or
otherwise.
(e) Injunctions or Restraints on Conduct of Business.
No temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting QuadraMed's business following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending.
6.3 Additional Conditions to the Obligations of QuadraMed and
Merger Sub. The obligations of QuadraMed and Merger Sub to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by QuadraMed:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Medicus in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Medicus shall have performed and complied
in all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Effective
Time.
(b) Certificate of Medicus. QuadraMed shall have been
provided with a certificate executed on behalf of Medicus by its President and
its Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by
Medicus under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of
this Agreement
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to be performed by Medicus on or before such date have been so performed in all
material respects.
(c) Third Party Consents. QuadraMed shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in connection with the
Merger under any material contract of Medicus or any of its subsidiaries or
otherwise.
(d) Injunctions or Restraints on Conduct of Business.
No temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting QuadraMed's conduct or operation of
the business of Medicus and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Medicus and its subsidiaries,
taken as a whole.
(f) Affiliate Agreements. QuadraMed shall have received
from each of the Affiliates of Medicus an executed Affiliate Agreement in
substantially the form attached hereto as Exhibit A.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Medicus, this Agreement may be terminated:
(a) by mutual consent of QuadraMed and Medicus;
(b) by either QuadraMed or Medicus, if, without fault
of the terminating party, the Closing shall not have occurred on or before May
1, 1998 (or such later date as may be agreed upon in writing by the parties
hereto);
(c) by QuadraMed, if (i) Medicus shall breach any of
its representations, warranties or obligations hereunder and such breach shall
not have been cured within ten business days of receipt by Medicus of written
notice of such breach or (ii) the Board
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of Directors of Medicus shall have withdrawn or modified its recommendation of
this Agreement or the Merger in a manner adverse to QuadraMed or shall have
resolved to do any of the foregoing;
(d) by Medicus, if QuadraMed shall breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured within ten days following receipt by QuadraMed of written notice
of such breach;
(e) by either QuadraMed or Medicus if (i) any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or (ii) if
any required approval of the stockholders of Medicus shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of QuadraMed, Merger
Sub or Medicus or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses) and this Section 7.2 shall remain in
full force and effect and survive any termination of this Agreement.
7.3 Expenses.
(a) Subject to subsections (b), (c) and (d) of this
Section 7.3, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense, except that expenses incurred in connection with printing the Proxy
Materials and the Registration Statement, registration and filing fees incurred
in connection with the Registration Statement, the Proxy Materials and the
listing of additional shares pursuant to Section 6.1(e) and fees, costs and
expenses associated with compliance with applicable state securities laws in
connection with the Merger shall be paid by QuadraMed.
(b) In the event that (i) QuadraMed shall terminate
this Agreement pursuant to Section 7.1(c) or (ii) QuadraMed shall terminate this
Agreement pursuant to Section 7.1(e)(ii) (but only in the event that all of the
shares owned by QuadraMed are voted in favor of the Merger), Medicus shall
promptly reimburse QuadraMed for all of the out-of-pocket costs and expenses
incurred by QuadraMed in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisors, accountants and legal counsel).
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7.4 Amendment. The boards of directors of the parties hereto
may cause this Agreement to be amended at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Medicus or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Medicus Common Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Medicus Common Stock or Merger Sub Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations,
warranties and agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.7 (Affiliates), 5.11 (Employee Benefit Plans), 5.13 (Form
S-8), 5.19 (Best Efforts and Further Assurances), 7.3 (Expenses), 7.4
(Amendment), and this Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to QuadraMed or Merger Sub, to:
QuadraMed Corporation
80 E. Sir Francis Drake Blvd., Suite 2A
Larkspur, CA 94939
Attention: Keith M. Roberts, Esq.
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<PAGE> 45
Vice President and General Counsel
Facsimile No.: (415) 464-3953
Telephone No.: (415) 461-7725
with a copy to:
Brobeck, Phleger & Harrison LLP
One Market, Spear Tower
San Francisco, CA 94105
Attention: Scott D. Lester, Esq.
Facsimile No.: (415) 442-1010
Telephone No.: (415) 442-0900
(b) if to Medicus, to:
Medicus Systems Corporation
One Rotary Center
Suite 1111
Evanston, Illinois 60201
Attention: Patrick Sommers, President and CEO
Facsimile No: (847) 570-7642
Telephone No.: (847) 570-7503
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
Attention: William G. Brown, Esq.
Facsimile No.: (312) 372-2098
Telephone No.: (312) 372-1121
8.3 Interpretation. When a reference is made in this Agreement
to Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to
this Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in
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<PAGE> 46
each case to be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to November , 1997. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Medicus Disclosure Schedule and the
QuadraMed Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth in Sections 1.6(a)-(c) and (f), 1.7-1.9, 5.11 and 5.14; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.
8.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction of any court
located within the State of Delaware in
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<PAGE> 47
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
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<PAGE> 48
IN WITNESS WHEREOF, Medicus and QuadraMed have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
MEDICUS SYSTEMS CORPORATION
By /s/ PATRICK C. SOMMERS
------------------------------------------
Name: Patrick C. Sommers
Title: Chairman, President and
Chief Executive Officer
QUADRAMED CORPORATION
By /s/ JOHN V. CRACCHIOLO
------------------------------------------
Name: John V. Cracchiolo
Title: Executive Vice President
and Chief Financial Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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<PAGE> 49
EXHIBIT A
FORM OF MEDICUS AFFILIATE AGREEMENT
______________ __, 1997
QuadraMed Corporation
80 East Sir Francis Drake Boulevard
Suite 2A
Larkspur, California 94939
Attention: James D. Durham
Affiliate Agreement
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Reorganization,
dated as of November 9, 1997 (the "Merger Agreement") between QuadraMed
Corporation, a Delaware corporation ("QuadraMed"), and Medicus Systems
Corporation, a Delaware corporation ("Medicus"). Capitalized terms used and not
otherwise defined herein are used herein as
defined in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, at the Effective
Time, outstanding shares of Medicus Common Stock will be converted into and
become exchangeable for, at the option of each Medicus stockholder, (a) cash in
the amount of $7.50 per share of Medicus Common Stock, (b) shares of QuadraMed
Common Stock, or (c) a combination of cash and shares on the basis set forth in
the Merger Agreement.
The undersigned has been advised that as of the date hereof [it]
[he] [she] may be deemed to be an "affiliate" of Medicus, as such term is
defined for purposes of paragraphs (c) and (d) of rule 145 ("Rule 145") of the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act").
The undersigned understands that the representations, warranties
and covenants set forth herein will be relied upon by QuadraMed, stockholders of
QuadraMed, Medicus and other stockholders of Medicus and their respective
counsel.
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<PAGE> 50
The undersigned hereby represents and warrants to and agrees with
QuadraMed that:
1. The undersigned has full power and authority to execute
and deliver this letter agreement and to make the representations and
warranties set forth herein and to perform [its] [his] [her] obligations
hereunder;
2. The undersigned has carefully read this letter
agreement and the Merger Agreement and, to the extent the undersigned
felt necessary, discussed the requirements of such documents and other
applicable limitations upon [its] [his] [her] ability to sell, transfer,
pledge or otherwise dispose of QuadraMed Common Stock with [its] [his]
[her] counsel or counsel for Medicus;
3. The undersigned is the beneficial owner of (has sole or
shared voting or investment power with respect to) the shares of Medicus
Common Stock and options or warrants to purchase Medicus Common Stock
specified beneath [its] [his] [her] name on the signature page hereto
(the "Medicus Securities"). Except for Medicus Securities, the
undersigned does not own beneficially any shares of Medicus Common Stock
or any other equity securities of Medicus or any options, warrants or
other rights to acquire any equity securities of Medicus;
4. The undersigned will not make any sale, transfer,
pledge or other disposition of QuadraMed Common Stock in violation of
the Securities Act or the Rules and Regulations;
5. The undersigned has been advised that the issuance of
QuadraMed Common Stock to the undersigned in connection with the Merger
has been or will be registered with the Commission under the Securities
Act on a Registration Statement on Form S-4. However, the undersigned
has also been advised that, since at the time the Merger was or will be
submitted for a vote of the stockholders of Medicus the undersigned may
be deemed to be or have been an affiliate of Medicus and the
distribution by the undersigned of any QuadraMed Common Stock has not
been registered under the Securities Act, the undersigned may not sell,
transfer, pledge or otherwise dispose of QuadraMed Common Stock issued
to [it] [him] [her] in the Merger unless (i) such sale, transfer, pledge
or other disposition has been registered under the Securities Act, (ii)
such sale, transfer, pledge or other disposition is made in conformity
with the volume and other limitations of Rule 145 or (iii) in the
opinion of counsel reasonably acceptable to, such sale, transfer, pledge
or other disposition is otherwise exempt from registration under the
Securities Act;
6. The undersigned understands that, except as provided in
the Merger Agreement, QuadraMed is under no obligation to register the
sale, transfer, pledge or other disposition of QuadraMed Common Stock by
the undersigned or on [its] [his] [her] behalf under the Securities Act
or to take any other action necessary in order to
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<PAGE> 51
make compliance with an exemption from such registration available;
7. The undersigned also understands that stop transfer
instructions will be given to QuadraMed's transfer agents with respect
to QuadraMed Common Stock issued to [it] [him] [her] and that there will
be placed on the certificates for QuadraMed Common Stock issued to [it]
[him] [her], or any substitutions therefor, a legend stating in
substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, AND NO REGISTRATION OF TRANSFER OF SUCH
SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER, UNLESS SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSAL IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT, THE RULES AND REGULATIONS
IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS";
8. The undersigned also understands that, unless the sale,
transfer, pledge or other disposition by [it] [him] [her] of QuadraMed
Common Stock issued to [it] [him] [her] has been registered under the
Securities Act or is a sale made in conformity with the provisions of
Rule 145, QuadraMed reserves the right to put the following legend on
the certificates issued to any transferee of the undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, APPLIES, AND WERE NOT ACQUIRED BY THE HOLDER WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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<PAGE> 52
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, AND NO REGISTRATION OF TRANSFER OF SUCH SECURITIES
WILL BE MADE ON THE BOOKS OF THE ISSUER, UNLESS SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSAL IS MADE
IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT, THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND
ANY APPLICABLE STATE SECURITIES LAWS";
9. Except to the extent written notification to the
contrary is received by QuadraMed from the undersigned prior to the
Merger, the representations contained herein will be true, complete and
correct at all times from the date hereof through the Closing Date; and
10. The undersigned currently intends to vote all Medicus
Common Stock held by [it] [him] [her] in favor of the Merger.
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<PAGE> 53
Execution of this letter should not be considered an admission on
the part of the undersigned that [it] [he] [she] is an affiliate of Medicus as
described above, or as a waiver of any rights the undersigned may have to object
to any claim that [it] [he] [she] is such an affiliate on or after the date of
this letter.
Very truly yours,
[__________________________________
[AFFILIATE]]
[[AFFILIATE]
By:________________________________
Name:
Title:]
Number of shares of Medicus Common Stock
beneficially owned:__________________________
Number of shares of Medicus Common Stock
subject to options, warrants or other rights
to acquire Medicus Common Stock beneficially
owned:_______________________________________
ACCEPTED AND AGREED
as of ________ __, 1997:
QUADRAMED CORPORATION
By:_____________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 2.9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
the 9th day of November, 1997, by and between QuadraMed Corporation, a Delaware
corporation (the "Purchaser"), and the seller indicated on the signature page
hereto (the "Seller"), which Seller is a stockholder of Medicus Systems
Corporation ("Medicus").
WHEREAS, the Purchaser and Medicus expect to enter into a Merger
Agreement simultaneously with the execution of this Agreement (the "Merger
Agreement") pursuant to which Medicus would be acquired by Purchaser through a
merger (the "Merger") of a wholly owned subsidiary of the Purchaser into
Medicus, and Medicus would become a wholly owned subsidiary of the Purchaser;
and
WHEREAS, Purchaser has offered to Seller and certain other
stockholders of Medicus to purchase their shares of Medicus common stock, par
value $.01 per share (the "Medicus Common Stock"), prior to the Merger on the
terms and conditions set forth herein; and
WHEREAS, Seller has agreed to sell shares of Medicus Common Stock
to Purchaser on the terms and conditions hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Medicus Common Stock.
1.1 Sale of Medicus Common Stock.
(a) Subject to the terms and conditions of this
Agreement, the Purchaser agrees to purchase at the Closing and the Seller agrees
to sell to the Purchaser at the Closing an amount of shares (as indicated on the
signature page hereto) of Medicus Common Stock (the "Shares") for the aggregate
Purchase Price set forth in Section 1.1(b) below.
(b) The purchase price to be paid for each Share to be
sold hereunder (the "Purchase Price") shall be $7.50, in cash, without interest
(the "Cash Consideration"), together with a warrant (the "Warrant"), in the form
attached hereto as Appendix A, entitling Seller to acquire .3125 shares of
QuadraMed Common Stock for each share of Medicus Common Stock sold hereunder, on
the terms and conditions set forth therein.
(c) At the Closing (as defined below), the Seller shall
deliver or cause to be delivered to the Purchaser a certificate or certificates
representing the Shares (duly endorsed for transfer or accompanied by an
executed stock power, medallion guaranteed) which the Purchaser is purchasing
against delivery to the Seller of the aggregate Purchase Price for the Shares.
1.2 Closing. The purchase and sale of the Shares under Article
1.1 (the "Closing") shall take place at 12:00 p.m. Chicago time on November 10,
1997 at the offices of Bell, Boyd & Lloyd, Three First National Plaza, 70 West
Madison Street, Suite 3300, Chicago, Illinois 60602-4207, or as soon as possible
as the Seller, using Seller's best efforts, is able to deliver or cause to be
delivered to Purchaser a certificate or certificates representing the Shares as
required by
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<PAGE> 2
Section 1.1(c) hereof.
2. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Seller as follows:
2.1 Organization, Standing and Power. Each of the Purchaser and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Purchaser
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Purchaser. Neither
Purchaser nor any of its subsidiaries is in violation of any of the provisions
of its Certificate of Incorporation or Bylaws or equivalent organizational
documents. Purchaser is the owner of all outstanding shares of capital stock of
each of its subsidiaries and all such shares are duly authorized, validly
issued, fully paid and nonassessable. All of the outstanding shares of capital
stock of each such subsidiary are owned by Purchaser free and clear of all
liens, charges, claims or encumbrances or rights of others. In this Agreement,
any reference to any event, change, condition or effect being "material" with
respect to any entity or group of entities means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity or group of entities. In this
Agreement, any reference to a "Material Adverse Effect" with respect to any
entity or group of entities means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such entity and
its subsidiaries, taken as a whole.
2.2 Capital Structure. Except as described in this Section 2.2,
the authorized and outstanding capital stock of Purchaser is as set forth in the
section entitled "Description of Capital Stock" in the Purchaser's Prospectus
dated October 21, 1997 delivered to the Seller as a part of the Purchaser SEC
Documents (as defined in Section 2.4 hereof). There are no other outstanding
shares of capital stock or voting securities of Purchaser other than shares of
Purchaser Common Stock issued after October 21, 1997 upon the exercise of
options or warrants that were outstanding as of October 21, 1997. All
outstanding shares of Purchaser have been duly authorized, validly issued, fully
paid and are nonassessable and free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof.
2.3 Authority. Purchaser has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes the valid and
binding obligations of Purchaser. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of Purchaser or any
of its subsidiaries, as amended, or (ii) any material contract or other
agreement or instrument, or any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or any of its subsidiaries
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<PAGE> 3
or their properties or assets, except where such conflict, violation, default,
termination, cancellation or acceleration with respect to the foregoing
provisions would not result in a Material Adverse Effect on Purchaser. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to
Purchaser or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Purchaser or the consummation by Purchaser of the
transactions contemplated hereby, except for (i) any filings as may be required
under applicable federal and state securities laws and the securities laws of
any foreign country, (ii) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Common Stock of the Purchaser issuable upon exercise of the Warrant, and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Purchaser
and would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
2.4 SEC Documents; Financial Statements. Purchaser has delivered
to Seller a copy of the following documents of the Purchaser: (1) the
Purchaser's Prospectus dated October 21, 1997, (2) a draft of Purchaser's Form
10-Q for the quarter ended September 30, 1997, (3) the Purchaser's Annual Report
on Form 10-K for the year ended December 31, 1996, (4) the Purchaser's 1996
Annual Report to Stockholders and (5) the Purchaser's Proxy Statement for the
1997 Annual Meeting of Stockholders (collectively, the "Purchaser SEC
Documents"). As of their respective filing dates, the Purchaser SEC Documents,
with the exception of the draft Form 10-Q for the quarter ended September 30,
1997, which has yet to be filed with the Securities and Exchange Commission
("SEC"), complied in all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of
1934 (the "Exchange Act"), and none of the Purchaser SEC Documents 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 made therein, in light
of the circumstances in which they were made, not misleading. The financial
statements of Purchaser, including the notes thereto, included in the Purchaser
SEC Documents (the "Purchaser Financial Statements") were complete and correct
in all material respects as of their respective dates, complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Purchaser
Financial Statements fairly present the consolidated financial condition and
operating results of Purchaser and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no material change in
Purchaser's accounting policies except as described in the notes to the
Purchaser Financial Statements.
2.5 Absence of Certain Changes. Since June 30, 1997 (the
"Purchaser Balance Sheet Date"), Purchaser has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in a Material Adverse Effect to Purchaser; (ii) any acquisition, sale
or transfer of any material asset of Purchaser or any of its subsidiaries other
than in the ordinary course of business and consistent with past practice; (iii)
any material change in accounting
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<PAGE> 4
methods or practices (including any change in depreciation or amortization
policies or rates) by Purchaser or any revaluation by Purchaser of any of its
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Purchaser, or any direct or indirect
redemption, purchase or other acquisition by Purchaser of any of its shares of
capital stock; or (v) any negotiation or agreement by Purchaser or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (iv) (other than negotiations regarding the transactions contemplated by
this Agreement).
2.6 Absence of Undisclosed Liabilities. Purchaser has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Purchaser's Quarterly Report on Form 10-Q for the
period ended June 30, 1997 included in the Purchaser SEC Documents (the
"Purchaser Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Purchaser Balance Sheet under
generally accepted accounting principles, and (iii) those incurred in the
ordinary course of business since the Purchaser Balance Sheet Date and
consistent with past practice.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Purchaser or any of
its subsidiaries, threatened against Purchaser or any of its subsidiaries or any
of their respective properties or any of their respective officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Purchaser. There is
no judgment, decree or order against Purchaser or any of its subsidiaries or, to
the knowledge of Purchaser or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Purchaser.
2.8 Compliance With Laws. Each of Purchaser and its subsidiaries
has complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Purchaser.
2.9 Complete Copies of Materials. Purchaser has delivered or made
available true and complete copies of each document which has been requested by
Seller in connection with Seller's legal and financial review of Purchaser and
its subsidiaries.
2.10 Execution of Merger Agreement. Purchaser and Medicus have
executed the Merger Agreement simultaneous with the execution of this Agreement.
3. Representations and Warranties of the Seller. The Seller
hereby represents and warrants that:
3.1 Valid Title. Seller now has and at the Closing Date will have
good and marketable title to the Shares to be sold by the Seller, free and clear
of any liens, encumbrances, equities and claims, and full right, power and
authority to effect the sale and delivery of such
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<PAGE> 5
Shares; and upon the delivery of, against payment for, the Shares pursuant to
this Agreement, the Purchaser will acquire good and marketable title thereto,
free and clear of any liens, encumbrances equities and claims.
3.2 Authorization. Seller has full right, power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation by
Seller of the transactions herein contemplated and the fulfillment by Seller of
the terms hereof will not require any consent, approval, authorization, or other
order of any court, regulatory body, administrative agency or other governmental
body and will not result in a breach of any of the terms and provisions of, or
constitute a default under, organizational documents of such Seller, if not an
individual, or any indenture, mortgage, deed of trust or other agreement or
instrument to which such Seller is a party, or of any order, rule or regulation
applicable to Seller of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction.
3.3 Purchase Entirely for Own Account. This Agreement is made
with Seller in reliance upon Seller's representation to the Purchaser, which by
Seller's execution of this Agreement Seller hereby confirms, that the Warrant to
be acquired by Seller will be acquired for investment for Seller's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that Seller has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Seller further represents that Seller does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the
Warrant.
3.4 Reliance upon Seller Representations. Seller understands that
the Warrant is not registered under the Securities Act on the ground that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to section 4(2)
thereof, and that the Purchaser's reliance on such exemption is predicated on
the Seller's representations set forth herein.
3.5 Receipt of Information. Seller believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Warrant. Seller further represents that it has had an opportunity
to ask questions and receive answers from the Purchaser regarding the terms and
conditions of the offering of the Warrant and the business, properties,
prospects and financial condition of the Purchaser and to obtain additional
information (to the extent the Purchaser possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Purchaser in Section 2 of this Agreement or the right of the Seller to
rely thereon.
3.6 Investment Experience. Seller represents that it is
experienced in evaluating and investing in securities of companies similar to
the Purchaser and acknowledges that it is able to fend for itself, can bear the
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant. If other than an individual, Seller also
represents it has not been organized for the purpose of acquiring the Warrant.
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<PAGE> 6
3.7 Accredited Investor. Seller represents to the Purchaser that
the Seller is an "Accredited Investor" within the meaning of SEC Rule 501 of
Regulation D, as presently in effect.
3.8 Restricted Securities. Seller understands that the Warrant
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Warrant or an available
exemption from registration under the Securities Act, the Warrant must be held
indefinitely.
3.9 Legends. To the extent applicable, each certificate or other
document evidencing the Warrant shall be endorsed with the legend set forth
below, and Seller covenants that, except to the extent such restrictions are
waived by the Purchaser, Seller shall not transfer the shares represented by any
such certificate without complying with the restrictions on transfer described
in the legend endorsed on such certificate:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED."
3.10 Proxy. Seller has executed and delivered to Purchaser a
Proxy in the form attached hereto as Appendix B for the Shares granting
Purchaser a proxy to vote the Shares purchased by the Purchaser hereunder.
4. Conditions of Seller's Obligations at Closing. The obligations
of Seller under subparagraph 1.1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Purchaser contained in Section 2 shall be true on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
4.2 Performance. The Purchaser shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing
Date.
4.3 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Seller.
4.4 Payment of Purchase Price. Purchaser shall have delivered the
Purchase Price specified in Section 1.1.
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<PAGE> 7
5. Conditions of the Purchaser's Obligations at Closing. The
obligations of the Purchaser to Seller under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
Seller:
5.1 Representations and Warranties. The representations and
warranties of the Seller contained in Section 3 shall be true on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
5.2 Delivery of Medicus Common Stock. Seller shall have delivered
all documents and instruments required to be delivered under Section 1.1 hereof.
6. Miscellaneous.
6.1 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties concerning the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
6.2 Survival of Warranties. The representations and warranties of
the Purchaser and Seller contained in or made pursuant to this Agreement shall
survive until the Effective Time of the Merger (as defined in the Merger
Agreement).
6.3 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successors and assigns
of the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective heirs,
legal representatives, successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
6.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
6.5 Counterparts; Facsimile Signatures. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
Facsimile signatures of the parties to this Agreement shall be sufficient to
evidence their execution hereof.
6.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or on the day of delivery by Federal Express, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
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<PAGE> 8
6.8 Expenses. Irrespective of whether the Closing is effected,
each party shall pay its own costs and expenses that it incurs with respect to
the negotiation, execution, delivery and performance of this Agreement.
6.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the parties hereto. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the Purchaser.
6.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUADRAMED CORPORATION
By: ____________________________________
Name:
Title:
SELLER SELLER
(if an individual) (if a corporation, partnership, trust or
other entity)
____________________________________ By: ____________________________________
Name:_______________________________ Name of Entity:_________________________
Address:____________________________ Name of Signatory:______________________
____________________________ Title of Signatory:_____________________
Address:________________________________
Total Number of Shares of
Medicus Common Stock owned by Seller:______________________________
Number of Shares of
Medicus Common Stock to be sold hereunder:________________________
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<PAGE> 10
APPENDIX A
FORM OF WARRANT
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<PAGE> 11
WARRANT TO PURCHASE
______________ SHARES OF COMMON STOCK
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THAT ACT OR AN OPINION OF COUNSEL TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
QUADRAMED CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, ____________________
("Investor") is entitled to purchase, on the terms hereof, __________________
(__________) shares of Common Stock ("Common Stock") of QuadraMed Corporation, a
Delaware corporation (the "Company"), subject to adjustment as provided herein
and at a purchase price as set forth herein. This Warrant is issued pursuant to
the terms of that certain Stock Purchase Agreement dated as of November 9, 1997
between the Company and Investor (the "Stock Purchase Agreement"), which was
entered into in connection with the Agreement and Plan of Reorganization dated
November 9, 1997 (the "Merger Agreement") between the Company and Medicus
Systems Corporation, a Delaware corporation ("Medicus"), pursuant to which the
Company will acquire Medicus by merger of a wholly owned subsidiary of the
Company with and into Medicus (the "Merger").
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby (the "Warrant Stock") may be purchased, are as
follows:
1.1 Exercise. Subject to the limitations set forth herein, this Warrant
may be exercised with respect to all or a portion of the shares of the Warrant
Stock at the effective time of the Merger under the laws of the State of
Delaware (the "Effective Time"). To the extent that this Warrant is not
exercised at the Effective Time or the number of shares issuable upon exercise
of this Warrant is limited as set forth herein, the portion of this Warrant
which is unexercised or subject to the limitations as set forth herein shall
terminate and shall be void and of no further force or effect with respect to
such Warrant Stock.
1.2 Purchase Price. The purchase price for the shares of Warrant Stock
to be issued upon exercise of this Warrant shall be $24.00 per share, subject to
adjustment as set forth herein.
<PAGE> 12
1.3 Method of Exercise. Not later than seven (7) days prior to the
Effective Time, the Company shall provide written notice to the holder of this
Warrant of the proposed Effective Time. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of subscription attached hereto,
to the Company or its designated agent no later than the Effective Time at its
principal offices or at the offices of such designated agent and (b) the
delivery of the purchase price by check or wire transfer for the number of
shares for which the purchase rights hereunder are being exercised.
1.4 Issuance of Shares. In the event the purchase rights evidenced by
this Warrant are exercised in whole or in part, the issuance of the Warrant
Stock shall be credited immediately on the official stock record books of the
Company and, if requested, a certificate or certificates for the purchased
shares shall be issued to the Investor as soon as practicable; provided,
however, the Warrant Stock shall only be so issued if the Form S-3 Registration
Statement (as defined in Section 3.1 hereof) has been declared effective by the
Securities Exchange Commission (the "SEC").
1.5 Limitation on Shares Issuable. In no event shall the aggregate
number of shares of Common Stock which the Company is obligated to issue (1)
upon conversion of warrants, including this Warrant, issued to stockholders of
Medicus pursuant to stock purchase agreements dated as of November 9, 1997
("Warrants") and (2) in exchange for outstanding shares of Medicus Common Stock
pursuant to the Merger Agreement exceed 1,800,000 shares. In the event that the
total number of shares of Common Stock which holders of Warrants, including
Investor, and stockholders of Medicus have elected to receive as described in
clauses (1) and (2) in the immediately preceding sentence exceeds 1,800,000, the
Company shall only be required to issue 1,800,000 shares of Common Stock and
such holders, including Investor, shall be entitled to receive shares of Common
Stock equal to each holder's pro rata portion of the total amount of shares
issued by the Company as described in clauses (1) and (2), based on the total
number of shares each holder and each stockholder elected to receive.
2. CERTAIN ADJUSTMENTS
2.1 Adjustment Due to Warrant Value Limitation. If at the Effective Time
the QuadraMed Stock Value (as defined below) exceeds $27.60, then the number of
shares of Warrant Stock issuable upon exercise of this Warrant shall be adjusted
downward such that the number of shares of Warrant Stock issuable upon exercise
of this Warrant shall be X, where X is equal to the Warrant Value (as defined
below) divided by the difference of (i) the QuadraMed Stock Value minus (ii)
$24.00. For purposes of this Warrant, the term "QuadraMed Stock Value" shall
mean that price per share equal to the average of the closing prices of Common
Stock during the fifteen (15) days prior to the second day prior to the date of
the Medicus Stockholders Meeting (as such term is defined in the Merger
Agreement). For purposes of this Warrant, the term "Warrant Value" shall mean
the product of $3.60 multiplied by the initial number of shares of Warrant Stock
issuable hereunder.
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<PAGE> 13
2.2 Mergers, Consolidations or Sale of Assets. If at any time there
shall be a capital reorganization of the Common Stock (other than a combination,
reclassification, exchange or subdivision of Warrant Stock otherwise provided
for herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation or in which
the Common Stock of the Company is converted into any other security or
property, or the sale of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation or sale, lawful provision shall be made so
that the Investor shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
purchase price then in effect, the number of shares of stock or other securities
or property of the successor or surviving corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the Warrant
Stock deliverable upon exercise of this Warrant would have been entitled under
the provisions of the agreement in such reorganization, merger, consolidation or
sale if this Warrant had been exercised immediately before that reorganization,
merger, consolidation or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Investor after the reorganization, merger, consolidation or
sale to the end that the provisions of this Warrant (including adjustment of the
purchase price then in effect and the number of shares of Warrant Stock) shall
be applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant.
3. COVENANTS OF THE COMPANY
3.1 Registration of Warrant Stock. As soon as practicable following the
date hereof, the Company shall prepare and file with the SEC a Registration
Statement on Form S-3 (the "Form S-3 Registration Statement") registering the
shares of Common Stock issuable upon the exercise of this Warrant and shall take
all necessary actions to have the Form S-3 Registration Statement declared
effective by the SEC as soon as practicable.
3.2 No Changes in Capital Structure. The Company covenants with Investor
that it shall not (i) subdivide its outstanding shares of Common Stock into a
greater number of shares, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iii) issue by
reclassification of its shares of Common Stock or capital reorganization other
securities of the Company.
4. FRACTIONAL SHARES
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as reasonably determined by the Company's Board of Directors.
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<PAGE> 14
5. RESERVATION OF COMMON STOCK; VALID ISSUANCE
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant such number of its shares of Common Stock
as shall from time to time be sufficient to effect the exercise of this Warrant;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of the entire Warrant, in
addition to such other remedies as shall be available to the holder of this
Warrant, the Company will use its reasonable best efforts to take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company represents and warrants to the Investor that any shares of Common
Stock issued upon exercise of this Warrant will be duly and validly issued and
fully paid and nonassessable.
6. NO PRIVILEGE OF STOCK OWNERSHIP
Prior to the exercise of this Warrant, the Investor shall not be
entitled, by virtue of holding this Warrant, to any rights of a stockholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
7. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the Warrant Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
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<PAGE> 15
8. TRANSFER RESTRICTION
This Warrant shall not be transferable without the prior written consent
of the Company.
9. PAYMENT OF TAXES
The Company shall pay all expenses in connection with, and all taxes and
other governmental charges (other than any thereof on, based on or measured by,
the net income of the holder thereof) that may be imposed in respect of, the
issue or delivery of the Warrant Stock. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of the Warrant Stock in any
name other than that of the Investor, and in such case, the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Company's satisfaction
that no such tax or other charge is due.
10. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall be binding upon the
Company and the Investor and their permitted successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to the
Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
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<PAGE> 16
12. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware.
QUADRAMED CORPORATION
By _________________________________
Name:
Title:
Dated: November 9, 1997
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<PAGE> 17
NOTICE OF EXERCISE
QuadraMed Corporation
Gentlemen:
The undersigned, hereby elects to purchase, pursuant to the provisions
of the November 9, 1997 Warrant held by the undersigned, ___________ shares of
the Common Stock of QuadraMed Corporation, a Delaware corporation.
Payment of the per share purchase price required under such Warrant
accompanies this Notice of Exercise.
Dated: __________________, 199__
___________________________________
By:________________________________
Address:___________________________
___________________________________
<PAGE> 18
APPENDIX B
FORM OF PROXY
11
<PAGE> 19
IRREVOCABLE PROXY
Reference is made to that certain Stock Purchase Agreement, dated
November ____, 1997, by and between QuadraMed Corporation, a Delaware
corporation ("QuadraMed"), and the undersigned stockholder of Medicus Systems
Corporation, a Delaware corporation ("Medicus"), pursuant to which the
undersigned stockholder of Medicus ("Stockholder") is selling to QuadraMed an
aggregate of __________ shares of Medicus Common Stock of Medicus owned of
record or beneficially by the Stockholder (the "Shares").
The Stockholder hereby appoints QuadraMed the attorney and proxy of
Stockholder, with full power of substitution and resubstitution, to the full
extent of Stockholder's rights, within the limitations of this proxy, with
respect to the Shares, and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof, until the Shares are
owned of record or beneficially by QuadraMed.
Upon the execution hereof, all prior proxies given by Stockholder with
respect to the Shares and any and all other shares of securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked.
The attorney and proxy named above will be empowered at any time prior
to the expiration of this proxy to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of Stockholder as such designees, or any of
them, in their or its sole discretion, deem proper in respect of any matter at a
meeting of stockholders, or any written consent in lieu of a meeting of
stockholders.
This proxy, which is coupled with QuadraMed's interest in the Shares, is
irrevocable.
Stockholder will, upon request, execute and deliver any additional
documents deemed by the above named attorneys and proxies to be necessary or
desirable to effect the proxy created hereby.
Any obligations of Stockholder hereunder shall be binding upon the
successors and assigns of Stockholder.
Dated: November ___, 1997.
STOCKHOLDER
By: ______________________________
Name: ____________________________
Title:____________________________
<PAGE> 1
EXHIBIT 2.10
WARRANT TO PURCHASE
______________ SHARES OF COMMON STOCK
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THAT ACT OR AN OPINION OF COUNSEL TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
QUADRAMED CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, ____________________
("Investor") is entitled to purchase, on the terms hereof, __________________
(__________) shares of Common Stock ("Common Stock") of QuadraMed Corporation, a
Delaware corporation (the "Company"), subject to adjustment as provided herein
and at a purchase price as set forth herein. This Warrant is issued pursuant to
the terms of that certain Stock Purchase Agreement dated as of November 9, 1997
between the Company and Investor (the "Stock Purchase Agreement"), which was
entered into in connection with the Agreement and Plan of Reorganization dated
November 9, 1997 (the "Merger Agreement") between the Company and Medicus
Systems Corporation, a Delaware corporation ("Medicus"), pursuant to which the
Company will acquire Medicus by merger of a wholly owned subsidiary of the
Company with and into Medicus (the "Merger").
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby (the "Warrant Stock") may be purchased, are as
follows:
1.1 Exercise. Subject to the limitations set forth herein, this Warrant
may be exercised with respect to all or a portion of the shares of the Warrant
Stock at the effective time of the Merger under the laws of the State of
Delaware (the "Effective Time"). To the extent that this Warrant is not
exercised at the Effective Time or the number of shares issuable upon exercise
of this Warrant is limited as set forth herein, the portion of this Warrant
which is unexercised or subject to the limitations as set forth herein shall
terminate and shall be void and of no further force or effect with respect to
such Warrant Stock.
1.2 Purchase Price. The purchase price for the shares of Warrant Stock
to be issued upon exercise of this Warrant shall be $24.00 per share, subject to
adjustment as set forth herein.
<PAGE> 2
1.3 Method of Exercise. Not later than seven (7) days prior to the
Effective Time, the Company shall provide written notice to the holder of this
Warrant of the proposed Effective Time. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of subscription attached hereto,
to the Company or its designated agent no later than the Effective Time at its
principal offices or at the offices of such designated agent and (b) the
delivery of the purchase price by check or wire transfer for the number of
shares for which the purchase rights hereunder are being exercised.
1.4 Issuance of Shares. In the event the purchase rights evidenced by
this Warrant are exercised in whole or in part, the issuance of the Warrant
Stock shall be credited immediately on the official stock record books of the
Company and, if requested, a certificate or certificates for the purchased
shares shall be issued to the Investor as soon as practicable; provided,
however, the Warrant Stock shall only be so issued if the Form S-3 Registration
Statement (as defined in Section 3.1 hereof) has been declared effective by the
Securities Exchange Commission (the "SEC").
1.5 Limitation on Shares Issuable. In no event shall the aggregate
number of shares of Common Stock which the Company is obligated to issue (1)
upon conversion of warrants, including this Warrant, issued to stockholders of
Medicus pursuant to stock purchase agreements dated as of November 9, 1997
("Warrants") and (2) in exchange for outstanding shares of Medicus Common Stock
pursuant to the Merger Agreement exceed 1,800,000 shares. In the event that the
total number of shares of Common Stock which holders of Warrants, including
Investor, and stockholders of Medicus have elected to receive as described in
clauses (1) and (2) in the immediately preceding sentence exceeds 1,800,000, the
Company shall only be required to issue 1,800,000 shares of Common Stock and
such holders, including Investor, shall be entitled to receive shares of Common
Stock equal to each holder's pro rata portion of the total amount of shares
issued by the Company as described in clauses (1) and (2), based on the total
number of shares each holder and each stockholder elected to receive.
2. CERTAIN ADJUSTMENTS
2.1 Adjustment Due to Warrant Value Limitation. If at the Effective Time
the QuadraMed Stock Value (as defined below) exceeds $27.60, then the number of
shares of Warrant Stock issuable upon exercise of this Warrant shall be adjusted
downward such that the number of shares of Warrant Stock issuable upon exercise
of this Warrant shall be X, where X is equal to the Warrant Value (as defined
below) divided by the difference of (i) the QuadraMed Stock Value minus (ii)
$24.00. For purposes of this Warrant, the term "QuadraMed Stock Value" shall
mean that price per share equal to the average of the closing prices of Common
Stock during the fifteen (15) days prior to the second day prior to the date of
the Medicus Stockholders Meeting (as such term is defined in the Merger
Agreement). For purposes of this Warrant, the term "Warrant Value" shall mean
the product of $3.60 multiplied by the initial number of shares of Warrant Stock
issuable hereunder.
2
<PAGE> 3
2.2 Mergers, Consolidations or Sale of Assets. If at any time there
shall be a capital reorganization of the Common Stock (other than a combination,
reclassification, exchange or subdivision of Warrant Stock otherwise provided
for herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation or in which
the Common Stock of the Company is converted into any other security or
property, or the sale of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation or sale, lawful provision shall be made so
that the Investor shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
purchase price then in effect, the number of shares of stock or other securities
or property of the successor or surviving corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the Warrant
Stock deliverable upon exercise of this Warrant would have been entitled under
the provisions of the agreement in such reorganization, merger, consolidation or
sale if this Warrant had been exercised immediately before that reorganization,
merger, consolidation or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Investor after the reorganization, merger, consolidation or
sale to the end that the provisions of this Warrant (including adjustment of the
purchase price then in effect and the number of shares of Warrant Stock) shall
be applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant.
3. COVENANTS OF THE COMPANY
3.1 Registration of Warrant Stock. As soon as practicable following the
date hereof, the Company shall prepare and file with the SEC a Registration
Statement on Form S-3 (the "Form S-3 Registration Statement") registering the
shares of Common Stock issuable upon the exercise of this Warrant and shall take
all necessary actions to have the Form S-3 Registration Statement declared
effective by the SEC as soon as practicable.
3.2 No Changes in Capital Structure. The Company covenants with Investor
that it shall not (i) subdivide its outstanding shares of Common Stock into a
greater number of shares, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iii) issue by
reclassification of its shares of Common Stock or capital reorganization other
securities of the Company.
4. FRACTIONAL SHARES
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as reasonably determined by the Company's Board of Directors.
3
<PAGE> 4
5. RESERVATION OF COMMON STOCK; VALID ISSUANCE
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant such number of its shares of Common Stock
as shall from time to time be sufficient to effect the exercise of this Warrant;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of the entire Warrant, in
addition to such other remedies as shall be available to the holder of this
Warrant, the Company will use its reasonable best efforts to take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company represents and warrants to the Investor that any shares of Common
Stock issued upon exercise of this Warrant will be duly and validly issued and
fully paid and nonassessable.
6. NO PRIVILEGE OF STOCK OWNERSHIP
Prior to the exercise of this Warrant, the Investor shall not be
entitled, by virtue of holding this Warrant, to any rights of a stockholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
7. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the Warrant Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
4
<PAGE> 5
8. TRANSFER RESTRICTION
This Warrant shall not be transferable without the prior written consent
of the Company.
9. PAYMENT OF TAXES
The Company shall pay all expenses in connection with, and all taxes and
other governmental charges (other than any thereof on, based on or measured by,
the net income of the holder thereof) that may be imposed in respect of, the
issue or delivery of the Warrant Stock. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of the Warrant Stock in any
name other than that of the Investor, and in such case, the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Company's satisfaction
that no such tax or other charge is due.
10. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall be binding upon the
Company and the Investor and their permitted successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to the
Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
5
<PAGE> 6
12. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware.
QUADRAMED CORPORATION
By _________________________________
Name:
Title:
Dated: November 9, 1997
6
<PAGE> 7
NOTICE OF EXERCISE
QuadraMed Corporation
Gentlemen:
The undersigned, hereby elects to purchase, pursuant to the provisions
of the November 9, 1997 Warrant held by the undersigned, ___________ shares of
the Common Stock of QuadraMed Corporation, a Delaware corporation.
Payment of the per share purchase price required under such Warrant
accompanies this Notice of Exercise.
Dated: __________________, 199__
___________________________________
By:________________________________
Address:___________________________
___________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NINE MONTHS
ENDED SEPTEMBER 30, 1997 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,928
<SECURITIES> 0
<RECEIVABLES> 12,030
<ALLOWANCES> 612
<INVENTORY> 0
<CURRENT-ASSETS> 19,069
<PP&E> 5,589
<DEPRECIATION> 2,346
<TOTAL-ASSETS> 39,105
<CURRENT-LIABILITIES> 5,429
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 32,139
<TOTAL-LIABILITY-AND-EQUITY> 39,105
<SALES> 22,149
<TOTAL-REVENUES> 22,149
<CGS> 9,838
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (494)
<INCOME-PRETAX> 3,045
<INCOME-TAX> 265
<INCOME-CONTINUING> 2,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,780
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
