<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MEDICAL MANAGER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 59-3396629
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3001 NORTH ROCKY POINT DRIVE -- SUITE 100
TAMPA, FLORIDA 33607
(813) 287-2990
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
JOHN H. KANG
PRESIDENT
MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE -- SUITE 100
TAMPA, FLORIDA 33607
(813) 287-2990
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Christopher T. Jensen, Esq. Peter J. Romeo, Esq.
Morgan, Lewis & Bockius LLP Michael C. Williams, Esq.
101 Park Avenue Hogan & Hartson L.L.P.
New York, New York 10178 555 Thirteenth Street, NW
(212) 309-6000 Washington, DC 20004
(202) 637-5600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value....................... 5,750,000 shares $16.00 $92,000,000 $31,724.14
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</TABLE>
(1) Includes 750,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
PROSPECTUS
, 1996
5,000,000 SHARES
MEDICAL MANAGER CORPORATION
COMMON STOCK
All of the 5,000,000 shares of Common Stock offered hereby are being sold
by Medical Manager Corporation. Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $14.00 and $16.00 per share. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price.
Application has been made to include the Common Stock in the Nasdaq
National Market under the symbol "MMGR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share......................... $ $ $
Total(3).......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days hereof, to purchase up to an aggregate of 750,000 additional shares of
Common Stock at the Price to the Public less Underwriting Discounts and
Commissions, for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions, including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE DEAN WITTER REYNOLDS INC.
SECURITIES CORPORATION
<PAGE> 3
[CHART LISTING FEATURES OF THE MEDICAL MANAGER CORE APPLICATION AND OTHER
MODULES]
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
---------------------
THE COMPANY OWNS OR OTHERWISE HAS RIGHTS TO TRADEMARKS AND TRADE NAMES THAT
IT USES IN CONJUNCTION WITH THE SALE AND LICENSING OF ITS PRODUCTS. THE MEDICAL
MANAGER(R) TRADEMARK MENTIONED IN THIS PROSPECTUS IS OWNED BY THE COMPANY. OTHER
TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE OWNERS.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. Simultaneously with the closing of this Offering, Medical
Manager Corporation ("MMC") will acquire, in separate transactions (the
"Mergers") in exchange for cash and shares of its Common Stock, five businesses
(each, a "Founding Company" and, collectively, the "Founding Companies")
involved in one or more aspects of the development, sale and support of The
Medical Manager practice management system. Unless otherwise indicated, all
references to the "Company" herein include MMC and the Founding Companies, and
references herein to "MMC" mean Medical Manager Corporation prior to the
consummation of the Mergers. Unless otherwise indicated, all share, per share
and financial data set forth herein (i) have been adjusted to give effect to all
of the Mergers; and (ii) assume no exercise of the Underwriters' over-allotment
option.
THE COMPANY
The Company is a leading provider of comprehensive physician practice
management systems to independent physicians, physician groups, management
service organizations ("MSOs"), independent practice associations ("IPAs"),
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager
practice management system, which addresses the financial, administrative,
clinical and practice management needs of physicians. The Company's system has
been implemented in a wide variety of practice settings from small physician
groups to multi-provider IPAs and MSOs and enables physicians and their
administrative staffs to efficiently manage their practices while delivering
quality patient care in a constantly changing health care environment. Since the
development of The Medical Manager in 1982, the Company's installed base has
grown to over 22,500 client sites with over 100,000 physicians, representing
more than 80 practice specialities, making it the most widely installed
physician practice management system in the United States.
Based on industry sources, there are over 650,000 physicians in more than
140,000 medical practices in the United States. Increasing economic and
regulatory pressures and the growth of managed care organizations have
significantly expanded the demand for all physicians to produce, maintain and
utilize better practice information while controlling costs. As a result, the
Company believes approximately 70% of physician practices now use some computer
system for all or a portion of their information processing requirements.
The Company's strategy is to integrate its research and development, sales,
marketing and support resources and to build upon its leadership position as the
most widely utilized physician practice management system. Key elements of this
strategy include: (i) capitalizing on the Company's national market presence and
the synergies to be created by the Mergers; (ii) consolidating and rationalizing
the existing national network of independent dealers for The Medical Manager
system; (iii) increasing penetration of MSOs and other large physician groups;
(iv) cross-selling existing and new products and services to its installed
client base; and (v) expanding the Company's offering of health care information
products and services.
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies. These five entities
include: (i) Personalized Programming, Inc. ("PPI"), the developer of The
Medical Manager practice management system; (ii) Systems Plus, Inc. ("SPI"), the
"master" distributor for The Medical Manager, which coordinates the sales,
support and training activities of approximately 180 independent dealers and
implements national marketing strategies; (iii) National Medical Systems, Inc.
("NMS"), a national dealer for The Medical Manager; (iv) RTI Business Systems,
Inc. ("RTI"), a regional dealer serving the Northeastern region of the United
States; and (v) Systems Management, Inc. ("SMI"), a regional dealer serving the
Midwestern region of the United States. The vertical integration of these five
entities will bring together the research and development, sales, marketing and
support resources for The Medical Manager in one entity covering the entire
United States.
3
<PAGE> 5
Although the five Founding Companies have not previously operated as a
single entity, they have successfully worked together for many years. PPI has
been expanding and improving The Medical Manager system since developing it in
1982, SPI has been the master distributor of The Medical Manager since 1982 and
NMS, RTI and SMI have been selling and supporting The Medical Manager as
independent dealers since 1994, 1988 and 1987, respectively.
The Company expects to realize significant benefits as a result of the
Mergers. The Company anticipates achieving economies of scale and scope with
respect to customer service, research and development, sales and marketing,
administrative functions and purchasing. The Mergers also will allow the Company
both to establish a national accounts group capable of assisting regional
dealers in marketing to, and addressing the support needs of, large health care
provider organizations and to establish resource centers, supported by
centralized corporate and regional operations, including help desks, EDI
departments and advanced technical and programming personnel. This structure is
expected to result in greater overall consistency and a higher level of client
support and service.
THE OFFERING
Common Stock offered by the
Company............................. 5,000,000 shares
Common Stock to be outstanding after
this Offering....................... 18,000,000 shares(1)
Use of Proceeds..................... To pay the cash portion of the purchase
price for the Founding Companies and
for working capital and other general
corporate purposes, including future
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol....... MMGR
- ---------------
(1) Includes 13,000,000 shares of Common Stock to be issued in connection with
the Mergers, but excludes 1,081,666 shares of Common Stock subject to
options to be granted in connection with this Offering at an exercise price
equal to the initial public offering price. See "Management -- 1996
Long-Term Incentive Plan" and "-- 1996 Non-Employee Directors' Stock Plan."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
4
<PAGE> 6
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
MMC will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, PPI has been identified as the accounting acquiror. The
following summary unaudited pro forma combined financial data present certain
data for the Company, as adjusted for (i) the effects of the Mergers on an
historical basis; (ii) the effects of certain pro forma adjustments to the
historical financial statements; and (iii) the consummation of this Offering.
See "Selected Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -------------------
1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenue.................................................. $ 36,308 $16,514 $19,916
Cost of revenue.......................................... 14,928 7,216 8,481
----------- -------- --------
--- ---
Gross profit............................................. 21,380 9,298 11,435
Selling, general and administrative expenses(2).......... 9,001 3,956 4,652
Research and development expenses........................ 2,123 1,006 1,537
Depreciation and amortization............................ 812 397 513
----------- -------- --------
--- ---
Income from operations................................... 9,444 3,939 4,733
Other income (expense) net............................... (24) 49 21
Income before income taxes............................... 9,420 3,988 4,754
Income taxes............................................. 3,627 1,535 1,830
----------- -------- --------
--- ---
Net income............................................... $ 5,793 $ 2,453 $ 2,924
=========== =========== ===========
Net income per share..................................... $ 0.32 $ 0.14 $ 0.16
=========== =========== ===========
Pro forma weighted average shares outstanding............ 18,000.... 18,000 18,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------
PRO FORMA(1) AS ADJUSTED(3)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 30,637 $ 37,887
Working capital.................................................. 29,957 37,207
Total assets..................................................... 44,048 51,298
Total debt....................................................... -- --
Stockholders' equity............................................. 37,965 45,215
</TABLE>
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(1) The pro forma combined statements of operations and the pro forma balance
sheet assume that the Mergers were closed on January 1 of each period
presented and as of June 30, 1996, respectively. These results are not
necessarily indicative of the results the Company would have obtained or of
the Company's future results. The pro forma combined financial information
contained in these statements (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate; and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined statements of operations include the effect of
certain reductions in salary and benefits to the owners and employees of
two of the Founding Companies to which they have agreed prospectively, as
follows: for fiscal 1995, $682,000; and for the six months ended June 30,
1995, $189,000 and June 30, 1996, $518,000. Additionally, the pro forma
combined statements include the effect of certain assets distributed to and
certain expenses assumed by the owners of certain of the Founding
Companies.
(3) Gives effect to the receipt and application of an estimated $67.5 million of
the net proceeds of this Offering. See "Use of Proceeds."
5
<PAGE> 7
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary data for each of the individual
Founding Companies for the three most recent years as well as the most recent
interim period and comparative period of the prior year, as applicable. See the
financial statements of each of the Founding Companies, the related notes
thereto and the other information relating to the Founding Companies contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -----------------
1993 1994 1995 1996
1995
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PPI:
Revenue................................... $ 6,890 $ 9,617 $11,020 $5,160 $5,774
Gross profit.............................. 6,080 8,250 9,438 4,364 4,842
Selling, general and administrative
expenses............................... 982 1,184 1,350 603 647
Research and development expenses......... 1,040 1,502 2,024 956 1,224
SPI:
Revenue................................... $10,836 $13,501 $15,179 $6,793 $8,237
Gross profit.............................. 3,723 5,182 6,078 2,555 3,238
Selling, general and administrative
expenses............................... 2,472 3,023 3,345 1,533 1,973
RTI:
Revenue................................... $ 3,047 $ 4,327 $ 4,954 $2,217 $3,033
Gross profit.............................. 505 1,751 2,253 705 1,268
Selling, general and administrative
expenses............................... 925 1,711 2,269 717 1,165
NMS(1):
Revenue................................... -- $ 241 $ 2,131 $ 755 $2,449
Gross profit (loss)....................... -- (62) 406 128 594
Selling, general and administrative
expenses............................... -- 201 396 145 614
Research and development expenses......... -- -- -- -- 263
SMI:
Revenue................................... $ 1,744 $ 2,129 $ 2,717 $1,151 $1,915
Gross profit.............................. 414 473 486 237 444
Selling, general and administrative
expenses............................... 314 371 426 200 237
</TABLE>
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(1) Information relating to 1994 is for the four months ended December 31, 1994.
6
<PAGE> 8
THE COMPANY
MMC was founded in July 1996 to bring together the research and
development, sales, marketing and support resources for The Medical Manager, a
leading physician practice management system for independent physicians,
physician groups, MSOs, IPAs, managed care organizations and other providers of
health care services in the United States. Simultaneously with the closing of
this Offering, MMC will acquire in the Mergers the five Founding Companies,
which will become separate, wholly-owned subsidiaries of MMC.
FOUNDING COMPANIES
PERSONALIZED PROGRAMMING, INC.
PPI was founded in 1981 and is the developer of The Medical Manager
practice management system. Its progressive and innovative approach to computer
programming has made it a leader in the health care information industry. PPI's
research and development staff works closely with its installed client base and
academic institutions to ensure that the product reflects the latest
technologies, changes in health care industry practices and modifications to
state and federal governmental regulations. PPI pioneered electronic claims
submission software as well as electronic data interfaces that allow a direct
interchange of data with hospitals, laboratories, pharmacies and other health
care providers. PPI representatives serve on the President's Workgroup for
Electronic Data Interchange and the American National Standards Institute ("ANSI
X12") committee. Its research and development facility is located in Alachua,
Florida. Michael A. Singer, the founder of PPI, has been employed by PPI since
its inception and will sign a five-year employment agreement with the Company
under which he will both become Chairman of the Board and Chief Executive
Officer of the Company following the consummation of this Offering and continue
in his present position with PPI.
SYSTEMS PLUS, INC.
SPI was founded in 1980 and is principally responsible for sales and
marketing of The Medical Manager. SPI coordinates the sales, support and
training activities of approximately 180 independent dealers. It markets
products, conducts user and dealer training programs, provides technical support
and performs quality assurance testing of The Medical Manager software prior to
general release. SPI also conducts market research, develops arrangements with
providers of complementary products and services, and directs national
advertising, press and media relations. SPI represents The Medical Manager at
major regional and national trade shows and hosts user events such as Basic and
Advanced Training Seminars and its annual MSO Users Conference. SPI is based in
Mountain View, California. Richard W. Mehrlich, the President of SPI, has been
employed by SPI since its inception and will sign a five-year employment
agreement with the Company under which he will become Executive Vice President
of Sales and Marketing of the Company following the consummation of this
Offering and continue in his present position with SPI.
NATIONAL MEDICAL SYSTEMS, INC.
NMS was founded in 1994 and is a national dealer for The Medical Manager
system. Based in Tampa, Florida, NMS maintains six offices located in various
regions of the United States that market, install and support The Medical
Manager and related hardware and software. NMS has entered into a Management
Services Agreement and Option Agreement (the "Agreements"), effective as of
September 1, 1996, with the Medical Manager Division (the "Division") of Medix,
Inc. ("Medix"), a wholly-owned subsidiary of Blue Cross and Blue Shield of New
Jersey, Inc. The Agreements provide for NMS to manage the Division, which is an
independent dealer of a private label physician practice management system
licensed from PPI, until December 31, 1996 or the date of its purchase by NMS,
if earlier. The Agreements provide for NMS to acquire the Division by December
31, 1996 for $3.2 million. If the sale to NMS is not completed by such date, the
Agreements provide for NMS to pay Medix $960,000 as liquidated damages. John H.
Kang, the President of NMS, has been employed by NMS for two years and will sign
a five-year employment agreement with the
7
<PAGE> 9
Company under which he will become President of the Company following the
consummation of this Offering and continue in his present position with NMS.
RTI BUSINESS SYSTEMS, INC.
RTI was founded in 1988 and is a regional dealer for The Medical Manager
system in the Northeastern region of the United States. It is based in Albany,
New York. Henry W. Holbrook, President and Director of Sales and Marketing of
RTI, has been with RTI since its inception and will sign a five-year employment
agreement with the Company under which he will both become Vice
President -- Northeast Region of the Company following the consummation of this
Offering and continue in his present position with RTI.
SYSTEMS MANAGEMENT, INC.
SMI was founded in 1987 and is a regional dealer for The Medical Manager
system in the Midwestern region of the United States. Its headquarters are in
South Bend, Indiana. Thomas P. Liddell, a founder of SMI, has been employed by
SMI since its inception and will sign a five-year employment agreement with the
Company under which he will both become Vice President -- Midwest Region of the
Company following the consummation of this Offering and continue in his present
position with SMI.
SUMMARY OF THE TERMS OF THE MERGERS
The aggregate consideration to be paid by MMC to acquire the Founding
Companies is approximately $255.3 million, consisting of cash and shares of
Common Stock. The consideration to be paid by MMC for the Founding Companies was
determined by arm's-length negotiations among representatives of MMC and each of
the Founding Companies. The following table sets forth the consideration being
paid for each Founding Company:
<TABLE>
<CAPTION>
COMMON
CASH STOCK(1) TOTAL
(IN THOUSANDS)
<S> <C> <C> <C>
PPI..................................................... $45,000 $ 95,550 $140,550
SPI..................................................... 12,000 33,150 45,150
RTI..................................................... 2,250 5,250 7,500
NMS..................................................... 0 58,353 58,353
SMI..................................................... 1,000 2,697 3,697
--------
--
------- --------
Total......................................... $60,250 $195,000 $255,250
========== ======= ========
</TABLE>
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(1) Represents the aggregate cash value of the shares of Common Stock issuable
as consideration, based upon an assumed initial public offering price of
$15.00 per share. The total number of shares of Common Stock issuable in
the Mergers is 13,000,000, and will consist of the following amounts of
shares payable to the owners of the Founding Companies: PPI -- 6,370,000;
SPI -- 2,210,000; NMS -- 3,890,175; RTI -- 350,000 ; SMI -- 179,825. The
owners of the Founding Companies will receive certain registration rights
applicable to the shares of Common Stock to be received by them in the
Mergers. See "Certain Transactions" and "Shares Eligible for Future Sale."
Upon consummation of the Mergers, each of the Founding Companies will
become a wholly-owned subsidiary of the Company.
The closing of each Merger is subject to a minimum price requirement for
the Common Stock sold in this Offering and to certain other conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Companies, their principal
stockholders and by the Company; the performance of each of their respective
covenants included in the merger agreements; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
the Company.
8
<PAGE> 10
In addition, the stockholders of NMS are obligated, on or prior to the
consummation of this Offering, (i) to cause a capital contribution estimated at
$32.2 million to be made to NMS (the "Estimated Capital Contribution"); (ii) to
pay down all indebtedness (approximately $2.5 million as of June 30, 1996) of
NMS (other than trade payables); and (iii) to pay to NMS $3.2 million,
representing the anticipated purchase price of an independent dealer to be
acquired by NMS, for an estimated total capital contribution of $37.9 million.
In the event that all or part of such capital contribution is not invested in
NMS, the aggregate number of shares of Common Stock of the Company to be
received by the stockholders of NMS pursuant to their merger agreement with the
Company (3,890,175) will be reduced by a number of shares equal to the shortfall
divided by the initial offering price of the Company's Common Stock to the
public. The Estimated Capital Contribution is based upon an estimated initial
public offering price of $15.00 and will be reduced or increased proportionately
to the extent such initial public offering price is below or above $15.00,
respectively. In addition, for purposes of determining if the Estimated Capital
Contribution has been met, the stockholders of NMS may include in the
computation of the Estimated Capital Contribution computation a credit of up to
12% for any fees, discounts and placement expenses actually incurred on any sale
of equity to meet such requirement. No assurance can be given that the
conditions to the closing of all the Mergers will be satisfied or waived or that
each Merger will close.
For additional information regarding the Mergers, including payments to be
made to principals of the Founding Companies who will become officers,
directors, key employees or holders of more than 5% of the Company's Common
Stock, see "Certain Transactions." For further information concerning the
employment agreements to be entered into by certain officers of the Founding
Companies, see "Management -- Executive Compensation."
Medical Manager Corporation is a Delaware corporation. Its executive
offices are located at 3001 North Rocky Point Drive, Suite 100, Tampa, Florida,
and its telephone number at that address is (813) 287-2990.
9
<PAGE> 11
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY
MMC was founded in July 1996 but has conducted no operations and generated
no revenue to date. MMC has entered into agreements to acquire the Founding
Companies simultaneously with the closing of this Offering. The Founding
Companies have been operating as separate independent entities, and there can be
no assurance that the Company will be able to successfully integrate the
operations of these businesses or institute the necessary Company-wide systems
and procedures to successfully manage the combined enterprise on a profitable
basis. The Company's management group has been assembled only recently, and
there can be no assurance that the management group will be able to successfully
manage the combined entity or effectively implement the Company's internal
growth strategy and acquisition program or that such strategy will be
successful. The pro forma financial results of the Company cover periods when
the Founding Companies and MMC were not under common control or management and,
therefore, may not be indicative of the Company's future financial or operating
results. The inability of the Company to successfully integrate the Founding
Companies would have a material adverse effect on the Company's results of
operations, financial condition or business and would negatively impact the
Company's ability to acquire dealers or otherwise execute its acquisition
strategy. See "Business -- Business Strategy" and "Management."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
independent dealers of The Medical Manager physician practice management system
and complementary technologies. Increased competition for acquisition candidates
among the independent dealers may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or profitably integrate and manage additional dealers or complementary
technologies, if any, into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a number
of special risks, including possible adverse effects on the Company's operating
results, diversion of management's attention, failure to retain key acquired
personnel, amortization of acquired intangible assets and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition or
business. Customer dissatisfaction or performance problems at a single acquired
company could have an adverse effect on the reputation of the Company and render
ineffective the Company's national sales and marketing initiative. In addition,
there can be no assurance that the Founding Companies or other dealers or
complementary technologies acquired in the future will achieve anticipated
revenue and earnings. There also can be no assurance that the existing dealer
network will be receptive to the Company's acquisition program or that dealers
who are not acquired by the Company will adhere to the Company's marketing,
training, support and pricing directives, thereby impairing the Company's plans
to rationalize its distribution network. See "Business -- Business Strategy."
POSSIBLE NEED FOR ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using
shares of its Common Stock for all or a substantial portion of the consideration
to be paid. In the event that its Common Stock does not maintain a sufficient
market value, or potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to initiate and maintain its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. The Company will seek to obtain one or more commitments to provide
it with a line of credit of approximately $30 million. There can be no assurance
that the Company will be able to obtain any or all the financing it will need on
terms it deems acceptable. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
10
<PAGE> 12
DEPENDENCE ON PRINCIPAL PRODUCTS
The Company currently derives a significant percentage of its revenue from
sales of The Medical Manager core system. As a result, any event adversely
affecting sales of its core product could have a material adverse effect on the
Company's results of operations, financial condition or business. Although the
Company, on a pro forma basis, has experienced increasing annual sales, revenue
associated with existing products could decline as a result of several factors,
including price competition and sales practices. There can be no assurance that
the Company will continue to be successful in marketing its current products or
any new or enhanced products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Research and
Development."
DEPENDENCE ON PROPRIETARY SOFTWARE
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company's software technology is not patented and existing copyright laws
offer only limited practical protection. The Company relies on a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
its proprietary rights in its products. There can be no assurance that the legal
protections afforded to the Company or the steps taken by the Company will be
adequate to prevent misappropriation of the Company's technology. In addition,
these protections do not prevent independent third-party development of
competitive products or services. The Company believes that its products,
trademarks and other proprietary rights do not infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing health care information systems increase in complexity and overall
capabilities and the functionality of these systems further overlap, providers
of such systems may become increasingly subject to infringement claims.
Responding to and defending any such claims may distract the attention of the
Company's management and otherwise have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business -- Proprietary Rights and Licenses."
RISKS RELATED TO TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapid change and
technological advances requiring ongoing expenditures for research and
development and the timely introduction of new products and enhancements of
existing products. The Company's future success will depend in part upon its
ability to enhance its current products, to respond effectively to technological
changes, to sell additional products to its existing client base and to
introduce new products and technologies that address the increasingly
sophisticated needs of its clients. The Company will devote significant
resources to the development of enhancements to its existing products and the
migration of existing products to new software platforms. There can be no
assurance that the Company will successfully complete the development of new
products or the migration of products to new platforms or that the Company's
current or future products will satisfy the needs of the market for practice
management systems. Further, there can be no assurance that products or
technologies developed by others will not adversely affect the Company's
competitive position or render its products or technologies noncompetitive or
obsolete. See "Business -- Research and Development."
QUALITY ASSURANCE AND PRODUCT ACCEPTANCE CONCERNS
Health care providers demand the highest level of reliability and quality
from their information systems. Although the Company devotes substantial
resources to meeting these demands, its products may, from time to time, contain
errors. Such errors may result in loss of, or delay in, market acceptance of its
products. Delays or difficulties associated with new product introductions or
product enhancements could have a material adverse effect on the Company's
results of operations, financial condition or business. See "Business --
Research and Development" and " -- Competition."
11
<PAGE> 13
COMPETITION
The market for practice management systems such as The Medical Manager is
highly competitive. The Company's competitors vary in size and in the scope and
breadth of the products and services that they offer. The Company competes with
different companies in each of its target markets. Many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, other entities not currently offering
products and services similar to those offered by the Company, including claims
processing organizations, hospitals, third-party administrators, insurers,
health care organizations and others, may enter certain markets in which the
Company competes. There can be no assurance that future competition will not
have a material adverse effect on the Company's results of operations, financial
condition or business. See "Business -- Competition."
RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract claims against the
Company by its clients, their patients or others. The Company's products manage
and report on financial data, and any errors in such financial data could result
in liability to the Company. In addition, because the Company's products
facilitate electronic claims submissions, any resulting loss of financial data
could result in liability to the Company. The Company intends, following this
Offering, to maintain insurance to protect against claims associated with the
use of its products, but there can be no assurance that such insurance coverage
will be available or, if available, will adequately cover any claim asserted
against the Company. A successful claim brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
results of operations, financial condition or business. Even unsuccessful claims
could result in the expenditure of funds in litigation, as well as diversion of
management time and resources. There can be no assurance that the Company will
not be subject to product liability or breach of contract claims, 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.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of the
executive officers and the senior management of the Founding Companies.
Furthermore, the Company will likely be dependent on the senior management of
any businesses acquired in the future. If any of these persons becomes unable or
unwilling to continue in his or her role with the Company, or if the Company is
unable to attract and retain other qualified employees, the Company's business
or prospects could be adversely affected. Although the Company will enter into
an employment agreement, which will include confidentiality and non-compete
provisions, with each of the Company's executive officers, there can be no
assurance that any individual will continue in his present capacity with the
Company for any particular period of time. The success of the Company is also
dependent to a significant degree on its ability to attract, motivate and retain
highly skilled sales, marketing and technical personnel, including software
programmers and systems architects skilled in the computer language with which
the Company's products operate. Competition for such personnel in the software
and information services industries is intense. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company's results of operations, financial condition or business.
Although the Company has been successful to date in attracting and retaining
skilled personnel, there can be no assurance that the Company will continue to
be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products and to continue to grow and
operate profitably. See "Business -- Employees" and "Management."
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT HEALTH CARE REFORM PROPOSALS
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. The
12
<PAGE> 14
Company's products are designed to function within the structure of the health
care financing and reimbursement system currently being used in the United
States. During the past several years, the health care industry has been subject
to increasing levels of government regulation of, among other things,
reimbursement rates and certain capital expenditures. From time to time, certain
proposals to reform the health care system have been considered by Congress.
These proposals, if enacted, may increase government involvement in health care,
lower reimbursement rates and otherwise change the operating environment for the
Company's clients. Health care organizations may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments, including those for the Company's products and services. The
Company cannot predict with any certainty what impact, if any, such proposals or
health care reforms might have on its results of operations, financial condition
or business.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. The FDA has issued a draft policy statement
under which manufacturers of medical image storage devices and related software
are required to submit to the FDA premarket notification applications and
otherwise comply with the requirements of the FDC Act applicable to medical
devices. Recently, FDA officials expressed an intention to initiate agency
rulemaking to exempt certain medical image management devices from premarket
notification procedures, but there can be no assurance that such an exemption
actually will be adopted and, if so, that the rulemaking will apply to the
Company's product.
It is unclear to what extent The Medical Manager, when marketed with a
graphical image capability, would be deemed under the draft policy statement to
be a medical device subject to FDA regulation. As a precaution, the Company has
decided to submit to the FDA an application under Section 510(k) of the FDC Act
to market The Medical Manager with a graphical image capability. Prior to this
decision, a small number of The Medical Manager systems possessing a graphical
image capability were sold. Although the Company believes that enforcement
action by the FDA relating to the prior sales is unlikely due to the nature of
the product and the small number of sales, there can be no assurance that the
FDA will not take such action. Enforcement action can consist of warning
letters, refusal to approve or clear products, revocation of approvals or
clearances previously granted, civil penalties, product seizures, injunctions,
recalls, operating restrictions and criminal prosecutions. Any enforcement
action by the FDA, any refusal by it to grant clearance of the Section 510(k)
application, or any substantial delay by the FDA in granting such clearance
could have a material adverse effect on the Company's results of operations,
financial condition or business. See "Business -- Government Regulation."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Mergers and this Offering, the Company's
directors, executive officers and holders of more than 5% of the Common Stock,
will beneficially own approximately 66.4% of the outstanding shares of Common
Stock (63.8% if the Underwriters' over-allotment option is exercised in full).
Although these persons do not presently have any agreements or understandings to
act in concert, any such agreement or understanding would allow them to continue
to exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $60.3 million, representing approximately 89.3%, of the net
proceeds of this Offering (or approximately 77.3% of the net proceeds of this
Offering, if the Underwriters' over-allotment option is exercised in full) will
be paid as the cash portion of the purchase price for the Founding Companies.
Approximately $60.3 million of the purchase price will be paid directly or
indirectly to stockholders of the Founding Companies who will become directors,
officers or holders of more than 5% of the Common Stock. Proceeds available for
working capital and other uses by the Company will be approximately $7.2
million, representing 10.7% of the net proceeds of this Offering (or $17.7
million, representing 22.7% of the net proceeds of this Offering, if the
Underwriters' over-allotment option is exercised in full). See "Use of Proceeds"
and "Certain Transactions."
13
<PAGE> 15
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following this Offering. The 5,000,000 shares being sold in this
Offering will be freely tradable unless acquired by affiliates of the Company.
Simultaneously with the closing of this Offering, the stockholders of the
Founding Companies will receive, in the aggregate, 13,000,000 shares of Common
Stock as a portion of the consideration for the sale of their businesses to the
Company. These shares have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, the
stockholders who will receive these shares have agreed with MMC not to sell,
transfer or otherwise dispose of any of these shares for two years following
consummation of this Offering, subject to reduction in the event the two-year
"holding" period for restricted securities under Rule 144 is reduced by the
Securities and Exchange Commission (the "Commission"). However, the stockholders
who will receive these shares also have certain demand and piggyback
registration rights with respect to these shares. The Company plans to register
an additional 5,000,000 shares of its Common Stock under the Securities Act
within 90 days after completion of this Offering for use by the Company as
consideration for future acquisitions. Upon such registration, these shares will
generally be freely tradable after issuance, unless the resale thereof is
contractually restricted. The registration rights described above will not apply
to the registration statement to be filed with respect to these 5,000,000
additional shares. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
and continue subsequent to this Offering or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price for the Common Stock will be determined by negotiation
among the Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after this
Offering. See "Underwriting" for the factors to be considered in determining the
initial public offering price. Application has been made to include the Common
Stock in the Nasdaq National Market. After this Offering, the market price of
the Common Stock may be subject to significant fluctuations in response to
numerous factors, including variations in the annual or quarterly financial
results of the Company or its competitors, changes by financial research
analysts in their estimates of the earnings of the Company, conditions in the
economy in general or in the health care or technology sectors in particular,
announcements of technological innovations or new products or services by the
Company or its competitors, proprietary rights development, unfavorable
publicity or changes in applicable laws and regulations (or judicial or
administrative interpretations thereof) affecting the Company or the health care
or technology sectors. Moreover, from time to time, the stock market experiences
significant price and volume volatility that may affect the market price of the
Common Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $12.81 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock in this Offering may experience further
dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without stockholder action. The existence of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, the Company's Certificate of
Incorporation (the "Certificate of Incorporation") provides for a classified
Board of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. The Company's By-laws contain other
provisions that may have an anti-takeover effect. See "Management -- Directors
and Executive Officers," "Principal Stockholders" and "Description of Capital
Stock."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $67.5 million
($77.6 million if the Underwriters' over-allotment option is exercised in full).
Of the net proceeds, $60.3 million will be used to pay the cash portion of
the purchase price for the Founding Companies, which will be paid directly or
indirectly to former stockholders of the Founding Companies who will become
officers, directors, key employees or holders of more than 5% of the Common
Stock of the Company.
The approximately $7.2 million of remaining net proceeds will be used for
working capital and for general corporate purposes, which are expected to
include future acquisitions. The Company currently has no binding agreements to
effect any acquisitions. Pending such uses, the net proceeds will be invested in
short-term, interest-bearing, investment grade securities.
The Company intends to obtain a line of credit of approximately $30 million
to be used for working capital and other general corporate purposes, including
future acquisitions. There can be no assurance that any line of credit will be
obtained or that, if obtained, it will be on terms that are favorable to the
Company. See "Risk Factors -- Risks Related to Acquisition Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the long-term obligations and capitalization
at June 30, 1996 of (i) the Company on a pro forma basis to give effect to the
Mergers; and (ii) the Company on a pro forma as adjusted basis to give effect to
the Mergers, this Offering and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Selected Financial Data." This table
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------------
PRO FORMA AS ADJUSTED(2)
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, including current maturities...... $ -- $ --
======== ===========
Stockholders' equity:
Preferred Stock: $0.01 par value, 500,000 shares
authorized; none issued or outstanding.............. -- --
Common Stock: $0.01 par value, 50,000,000 shares
authorized; 13,000,000 shares issued and
outstanding, pro forma; and 18,000,000 shares issued
and outstanding, pro forma as adjusted(1)........... $ 130 $ 180
Additional paid-in capital............................. 37,835 45,035
Accumulated deficit.................................... 0 0
--------- --------------
Total stockholders' equity.......................... 37,965 45,215
--------- --------------
Total capitalization........................... $37,965 $ 45,215
======== ===========
</TABLE>
- ---------------
(1) Excludes 1,081,666 shares of Common Stock subject to options to be granted
in connection with this Offering at an exercise price equal to the initial
public offering price. See "Management -- 1996 Long-Term Incentive Plan"
and "-- 1996 Non-Employee Directors' Stock Plan."
(2) Gives effect to the receipt and application of an estimated $67.5 million of
the net proceeds of this Offering. See "Use of Proceeds."
16
<PAGE> 18
DILUTION
The pro forma deficit in net tangible book value of the Company as of June
30, 1996 was approximately $(28.1) million, or approximately $(2.17) per share
of Common Stock, after giving effect to the Mergers. The deficit in pro forma
net tangible book value per share represents the amount by which the Company's
pro forma total liabilities, as adjusted for the payment of $60.3 million in
cash to the stockholders of the Founding Companies, exceeds the Company's pro
forma net tangible assets, divided by the number of shares of Common Stock to be
outstanding after giving effect to the Mergers. After giving effect to the sale
of the 5,000,000 shares of Common Stock offered hereby, and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the Company's pro forma net tangible book value at June 30, 1996
would have been approximately $39.4 million, or approximately $2.19 per share,
based on an assumed initial public offering price of $15.00 per share. This
represents an immediate increase in pro forma net tangible book value of
approximately $4.36 per share to existing stockholders and an immediate dilution
of approximately $12.81 per share to new investors purchasing the shares in this
Offering. The following table illustrates this pro forma dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)...................... $ 15.00
Pro forma (deficit) in net tangible book value before this
Offering................................................. $ (2.17)
Increase attributable to new investors...................... 4.36
----------
Pro forma net tangible book value after this Offering......... 2.19
----------
Dilution in net tangible book value to new investors.......... $ 12.81
==========
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of June 30, 1996, the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by existing stockholders and the new investors purchasing shares of Common Stock
from the Company in this Offering (before deducting underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)......... 13,000,000 72.2% $(28,146,000) (60.1)% $ (2.17)
New investors.................... 5,000,000 27.8 75,000,000 160.1 15.00
---------- ------- ------------ -------
Total.................. 18,000,000 100.0% $ 46,854,000 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Before deducting underwriting discounts and commissions and offering
expenses to be paid by the Company.
(2) Total consideration for existing stockholders represents the combined pro
forma stockholders' equity, including the stockholders of the Founding
Companies, before this Offering, adjusted to reflect the payment of $60.3
million in cash to the stockholders of the Founding Companies as part of
the consideration for the Mergers. See "Use of Proceeds," "Capitalization"
and "Certain Transactions."
17
<PAGE> 19
SELECTED FINANCIAL DATA
MMC will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, PPI has been identified as the accounting acquiror. The
following selected historical financial data of PPI at December 31, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995 have been derived
from the audited financial statements of PPI included elsewhere in this
Prospectus. The following selected historical financial data for PPI at December
31, 1991, 1992 and 1993 and for the years ended December 31, 1991 and 1992 have
been derived from unaudited financial statements of PPI, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of PPI, reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The following
summary unaudited pro forma financial data present certain data for the Company,
as adjusted for (i) the effects of the Mergers on an historical basis; (ii) the
effects of certain pro forma adjustments to the historical financial statements;
and (iii) the consummation of this Offering. See the Unaudited Pro Forma
Financial Combined Statements and the notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PPI STATEMENT OF OPERATIONS DATA:
Revenue......................... $ 7,042 $ 8,377 $6,890 $9,617 $11,020 $5,159 $5,773
Cost of revenue................. 1,009 1,187 810 1,367 1,582 795 931
---------- ---------- ------ ------ ------- ------ ------
Gross profit.................... 6,033 7,190 6,080 8,250 9,438 4,364 4,842
Selling, general and
administrative expenses...... 657 745 982 1,184 1,350 603 647
Research and development
expenses..................... 716 878 1,040 1,502 2,024 956 1,224
Depreciation and amortization... 29 21 105 197 226 88 132
---------- ---------- ------ ------ ------- ------ ------
Income from operations.......... 4,631 5,546 3,953 5,367 5,838 2,717 2,839
Other income.................... 160 110 173 55 108 101 54
Income before income taxes...... 4,791 5,656 4,126 5,422 5,946 2,818 2,893
Income taxes.................... 0 0 0 0 0 0 0
---------- ---------- ------ ------ ------- ------ ------
Net income...................... $ 4,791 $ 5,656 $4,126 $5,422 $ 5,946 $2,818 $2,893
========== ========== ====== ====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
------------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 1996
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PPI BALANCE SHEET DATA:
Working capital....................... $ 1,455 $ 1,527 $ 778 $2,009 $1,921 $2,999
Total assets.......................... 1,865 3,097 3,253 4,716 5,819 4,963
Total debt............................ -- -- -- -- -- --
Stockholder's equity.................. 1,509 2,479 2,582 3,827 4,763 3,369
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------------------
1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
MMC STATEMENT OF OPERATIONS DATA(1):
Revenue............................................. $ 36,308 $ 16,514 $ 19,916
Cost of revenue..................................... 14,928 7,216 8,481
------------ ---------- ----------
Gross profit........................................ 21,380 9,298 11,435
Selling, general and administrative expenses(2)..... 9,001 3,956 4,652
Research and development expenses................... 2,123 1,006 1,537
Depreciation and amortization....................... 812 397 513
------------ ---------- ----------
Income from operations.............................. 9,444 3,939 4,733
Other income (expense).............................. (24) 49 21
Interest expense.................................... -- -- --
Income before income taxes.......................... 9,420 3,988 4,754
Income taxes........................................ 3,627 1,535 1,830
------------ ---------- ----------
Net income.......................................... $ 5,793 $ 2,453 $ 2,924
========== ========= =========
Net income per share................................ $ 0.32 $ 0.14 $ 0.16
========== ========= =========
Pro forma weighted average shares outstanding....... 18,000 18,000 18,000
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
---------------------------------
PRO FORMA(1) AS ADJUSTED(3)
<S> <C> <C>
MMC BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 30,637 $ 37,887
Working capital.............................................. 29,957 37,207
Total assets................................................. 44,048 51,298
Total debt................................................... -- --
Stockholders' equity......................................... 37,965 45,215
</TABLE>
- ---------------
(1) The pro forma combined statements of operations and the pro forma balance
sheet assume that the Mergers were closed on January 1 of each period
presented and as of June 30, 1996, respectively. These results are not
necessarily indicative of the results the Company would have obtained or of
the Company's future results. The pro forma combined financial information
contained in these statements (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate; and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined statements of operations include the effect of
certain reductions in salary and benefits to the owners and employees of
two of the Founding Companies to which they have agreed prospectively, as
follows: for fiscal 1995, $682,000; and for the six months ended June 30,
1995, $189,000 and June 30, 1996, $518,000. Additionally, the pro forma
combined statements include the effect of certain assets distributed to and
certain expenses assumed by the owners of certain of the Founding
Companies.
(3) Gives effect to the receipt and application of an estimated $67.5 million of
the net proceeds of this Offering. See "Use of Proceeds."
19
<PAGE> 21
SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents selected financial data for each of the
individual Founding Companies for the three most recent years as well as the
most recent interim period and comparative period of the prior year, as
applicable. See the financial statements of each of the Founding Companies, the
related notes thereto and the other information relating to the Founding
Companies contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ---------------
1993 1994 1995 1996
1995
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PPI:
Revenue........................................... $ 6,890 $ 9,617 $11,020 $5,160 $5,774
Gross profit...................................... 6,080 8,250 9,438 4,364 4,842
Selling, general and administrative expenses...... 982 1,184 1,350 603 647
Research and development expenses................. 1,040 1,502 2,024 956 1,224
SPI:
Revenue........................................... $10,836 $13,501 $15,179 $6,793 $8,237
Gross profit...................................... 3,723 5,182 6,078 2,555 3,238
Selling, general and administrative expenses...... 2,472 3,023 3,345 1,533 1,973
RTI:
Revenue........................................... $ 3,047 $ 4,327 $ 4,954 $2,217 $3,033
Gross profit...................................... 505 1,751 2,253 705 1,268
Selling, general and administrative expenses...... 925 1,711 2,269 717 1,165
NMS(1):
Revenue........................................... -- $ 241 $ 2,131 $ 755 $2,449
Gross profit (loss)............................... -- (62) 406 128 594
Selling, general and administrative expenses...... -- 201 396 145 614
Research and development expenses................. -- -- -- -- 263
SMI:
Revenue........................................... $ 1,744 $ 2,129 $ 2,717 $1,151 $1,915
Gross profit...................................... 414 473 486 237 444
Selling, general and administrative expenses...... 314 371 426 200 237
</TABLE>
- ---------------
(1) Information relating to 1994 is for the four months ended December 31, 1994.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of each of the Founding Companies and the related notes thereto and
"Selected Financial Data" appearing elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of comprehensive physician management
systems to independent physicians, physician groups, MSOs, IPAs, managed care
organizations and other providers of health care services in the United States.
The Company's revenue is derived primarily from the licensing of various
software products, including its core product, The Medical Manager, the
provision of services and the sale of hardware. The Company's primary focus is
on the sale of value-added products and services, while hardware is sold
primarily in response to customer demand. Since the development of The Medical
Manager in 1982, the Company's installed base has grown to over 22,500 client
sites with over 100,000 physicians, representing more than 80 practice
specialities, making it the most widely installed physician practice management
software in the United States.
The Company derives revenue from systems sales, software licensing and
maintenance and other services. Systems sales include sales of physician
practice management systems to new customers and sales of system upgrades and
add-ons to existing customers. Systems sales to new customers include software
licensing, hardware, installation, training, 90 days of software maintenance and
varying periods of hardware maintenance, depending on the warranty of the
manufacturer. System upgrades include software licensing, hardware, installation
and training. System add-ons include additional software licensing, peripheral
hardware and installation. Cost of system sales reflects primarily the cost of
The Medical Manager software, associated hardware, operating systems and
salaries, related benefits, travel and allocations of other overhead costs.
Software license revenue principally represents the licensing of software
to independent dealers for resale. Cost of software license revenue principally
includes the costs of media, duplication, technical documentation and delivery
and allocations of other overhead costs.
Maintenance and other services revenue includes software and hardware
maintenance contracts, training, programming and sales of additional peripheral
hardware. Software maintenance represents revenue derived from maintenance
agreements, providing customers with updates and enhancements developed by the
Company and access to the Company's toll-free telephone support centers.
Hardware maintenance represents revenue derived from maintenance agreements for
repairs and preventative maintenance to the hardware. Both hardware and software
maintenance are optional to the customer for smaller installations and required
for MSO and larger installations. Cost of maintenance contracts revenue reflects
primarily salaries and related benefits, travel and allocations of other
overhead costs.
The Company recognizes systems revenue in accordance with the provisions of
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
performed ratably over the contract period, which typically does not exceed one
year. Revenue from other services is recognized as the services are provided.
Certain expenses are allocated between the cost of sales for systems, software
license and maintenance and other based upon management's estimates.
Selling, general and administrative consist primarily of marketing and
advertising, salaries and related benefits, professional fees, administrative
costs and allocations of other overhead costs.
Research and development expenses represent salaries and related benefits
expenses and allocations of other overhead costs associated with research and
development activities. Software development costs are included in research and
development and are expensed as incurred. Statement of Financial Accounting
Standards No. 86 requires the capitalization of certain software development
costs once technological feasibility is established. The capitalized cost is
then amortized over the estimated product life. The period
21
<PAGE> 23
between achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant.
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies: PPI, SPI, NMS, RTI
and SMI. The Founding Companies have been managed throughout the periods
presented as independent private companies, and, as such, their results of
operations reflect different tax structures (S corporations and C corporations),
which have influenced, among other things, their historical levels of owners'
compensation. Certain owners and certain key employees have agreed to reductions
in their compensation and benefits pursuant to employment agreements entered
into in connection with the Mergers.
MMC, which has conducted no operations to date, intends to integrate these
businesses, their operations and administrative functions over a period of time.
This integration process may present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale, but may
necessitate additional costs and expenditures for corporate management and
administration, corporate expenses related to being a public company, systems
integration and facilities expansion. These various costs and potential cost
savings may make historical operating results not comparable to, or indicative
of, future performance. Accordingly, neither the anticipated savings nor the
anticipated costs have been included in the unaudited pro forma financial data
presented herein.
Accounting for the acquisition will be subject to the procedures specified
in Staff Accounting Bulletin No. 97. As such, PPI has been identified as the
acquiring entity for financial statement presentation purposes. See "-- Combined
Founding Companies -- Results of Operations -- Combined."
RESULTS OF OPERATIONS -- PERSONALIZED PROGRAMMING, INC.
Founded in 1981, PPI is the developer of The Medical Manager practice
management system. Its progressive and innovative approach to
computer-programming has made it a leader in the health care information
industry. The following table sets forth certain selected financial information
for the period presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Systems.................................. $ 694 10.0% $1,014 10.5% $ 1,018 9.2% $ 425 8.2% $ 407 7.0%
Software license......................... 4,840 70.3 6,328 65.8 7,529 68.3 3,493 67.7 4,058 70.3
Maintenance and other.................... 1,356 19.7 2,275 23.7 2,473 22.5 1,241 24.1 1,308 22.7
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total revenue.......................... 6,890 100.0 9,617 100.0 11,020 100.0 5,159 100.0 5,773 100.0
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Cost of revenue:
Systems.................................. 572 8.3 752 7.8 704 6.4 317 6.2 385 6.7
Software license......................... 63 0.9 381 4.0 651 5.9 357 6.9 286 4.9
Maintenance and other.................... 175 2.6 235 2.4 227 2.1 121 2.3 260 4.5
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total cost of revenue.................. 810 11.8 1,368 14.2 1,582 14.4 795 15.4 931 16.1
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Gross margin....................... 6,080 88.2 8,249 85.8 9,438 85.6 4,364 84.6 4,842 83.9
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Operating expenses:
Selling, general and administrative...... 982 14.2 1,184 12.3 1,351 12.3 603 11.7 647 11.2
Research and development................. 1,040 15.1 1,502 15.6 2,024 18.4 956 18.5 1,224 21.2
Depreciation and amortization............ 105 1.5 196 2.0 226 2.0 88 1.7 132 2.3
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total operating expenses............... 2,127 30.8 2,882 29.9 3,601 32.7 1,647 31.9 2,003 34.7
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Income from operations............. 3,953 57.4 5,367 55.9 5,837 52.9 2,717 52.7 2,839 49.2
Other income (expense):
Interest income.......................... 92 1.3 70 0.6 136 1.2 53 1.0 33 0.6
Other.................................... 81 1.2 (15) (0.1) (27) (0.2) 48 1.0 21 0.4
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Net income......................... $4,126 59.9% $5,422 56.4% $ 5,946 53.9% $2,818 54.7% $2,893 50.2%
====== ===== ====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
22
<PAGE> 24
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenue. PPI's total revenue for the six months ended June 30, 1996
increased to $5.8 million from $5.2 million for the corresponding period in
1995, an increase of $0.6 million or 11.9%. Revenue from software license for
the six months ended June 30, 1996 increased to $4.1 million (70.3% of total
revenue) from $3.5 million (67.7% of total revenue) for the corresponding period
in 1995, an increase of $0.6 million or 16.2%. The increase was primarily due to
increased sales to MSOs, which typically generate greater revenue per system
sold than do systems sold to individual practices. Revenue from systems sales
for the six months ended June 30, 1996 was essentially unchanged at $0.4 million
(7.0% of total revenue in 1996 compared to 8.2% in 1995) from the prior year's
period. Revenue from maintenance and other sources for the six months ended June
30, 1996 increased to $1.3 million (22.7% of total revenue) from $1.2 million
(24.1% of total revenue) for the corresponding period in 1995, an increase of
$0.1 million or 5.4%.
Cost of revenue. The total cost of revenue for the six months ended June
30, 1996 increased to $0.9 million from $0.8 million for the corresponding
period in 1995, an increase of $0.1 million or 17.1%. The slight growth in cost
of revenue resulted in a modest decline in gross margin to 83.9% for the six
months ended June 30, 1996 from 84.6% for the corresponding period in 1995. The
decline in gross margin is primarily attributable to an increase in equipment
costs for systems sales and a significant increase in the cost associated with
an annual training and informational seminar held by PPI for its dealers, due to
the movement to a costlier location of the seminar.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 1996 were essentially
unchanged at $0.6 million (11.2% of total revenue in 1996 compared to 11.7% of
total revenue in 1995) from the prior year's period.
Research and development expenses. Research and development expenses
("R&D") for the six months ended June 30, 1996 increased to $1.2 million (21.2%
of total revenue) from $1.0 million (18.5% of total revenue) for the
corresponding period in 1995, an increase of $0.2 million or 27.9%. The increase
was due to an approximate 40% increase in R&D personnel hired to support
development activity relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii)
graphical user interface and relational database technologies for use in future
versions of The Medical Manager; (iii) an electronic medical records module; and
(iv) a module for use in the management of multiple physician practices. Certain
of these initiatives were begun in previous periods, but required additional
resources as they reached more advanced stages of development. Although the
Company believes that the increase in staffing levels and the development of
these initiatives are essential to the continued success of The Medical Manager,
they are not expected to yield any immediate revenue to PPI.
Other income. Other income for the six months ended June 30, 1996
decreased to $54,127 from $101,718 for the corresponding period in 1995. This
decrease was primarily the result of a decrease in investment income.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. PPI's total revenue for 1995 increased to $11.0 million from $9.6
million for 1994, an increase of $1.4 million or 14.6%. Revenue from software
license for 1995 increased to $7.5 million (68.3% of total revenue) from $6.3
million (65.8% of total revenue) for 1994, an increase of $1.2 million or 19.0%.
The increase was primarily due to increased sales to MSOs, which typically
generate greater revenue per system sold than do systems sold to individual
practices, as well as a release of a new version of The Medical Manager and the
availability of a new module for use in managed care. Revenue from system sales
for 1995 was essentially unchanged at $1.0 million (9.2% of total revenue for
1995 compared to 10.5% in 1994) from 1994. Revenue from maintenance and other
sources for 1995 increased to $2.5 million (22.4% of total revenue) from $2.3
million (23.7% of total revenue) for 1994, an increase of $0.2 million or 8.7%.
Cost of revenue. The total cost of revenue increased in 1995 to $1.6
million from $1.4 million in 1994, an increase of 15.6%, but remained
essentially unchanged as a percentage of total revenue (approximately 14%). Cost
of revenue from software licenses increased due to a change in the sales mix
towards sales
23
<PAGE> 25
requiring royalty payments to SPI. The requirement to make such payments will be
eliminated with the Mergers. This increase was partially offset by decreases in
the cost of revenue from system sales and maintenance and other sources.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.4 million in 1995 from $1.2 million in
1994, an increase of $0.2 million or 14.0%, but were essentially unchanged as a
percentage of total revenue (12.3%).
Research and development expenses. Research and development expenses for
1995 increased to $2.0 million (18.4% of total revenue) from $1.5 million (15.6%
of total revenue) for 1994, an increase of $0.5 million or 34.8%. The increase
was due to an approximate 35% increase in R&D personnel hired to support
development activity relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) a
module for use in the management of multiple physician practices; and (iii) an
electronic medical records module. Although the Company believes that the
increase in staffing levels and the development of these initiatives are
essential to the continued success of The Medical Manager, they are not expected
to yield any immediate revenue to PPI.
Other income. Other income for 1995 increased to $108,470 from $54,853 for
1994. This increase was primarily the result of an increase in interest income
in 1995.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenue. PPI's total revenue for 1994 increased to $9.6 million from $6.9
million for 1993, an increase of $2.7 million or 39.6%. Revenue from software
license for 1994 increased to $6.3 million (65.8% of total revenue) from $4.8
million in 1993 (70.3% of total revenue), an increase of $1.5 million or 30.7%.
Revenue from system sales for 1994 increased to $1.0 million (10.5% of total
revenue) from $0.7 million (10.1% of total revenue), an increase of $0.3 million
or 46.1%. Revenue from maintenance and other sources for 1994 increased to $2.3
million (23.7% of total revenue) from $1.4 million (19.7% of total revenue) for
1993, an increase of $0.9 million or 67.8%. These increases were primarily due
to sales postponed by customers to 1994 due to concerns regarding the impact of
proposed health care legislation.
Cost of revenue. The total cost of revenue for 1995 increased to $1.4
million from $0.8 million in 1994, an increase of 68.9%. The growth in cost of
revenue resulted in a moderate decline in gross margin to 85.8% in 1994 from
88.2% in 1993. The decline was due to a change in the sales mix which increased
cost of revenue from software licenses requiring royalty payments to SPI that
will be not be necessary following the Mergers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.2 million in 1994 from $1.0 million in
1993, an increase of $0.2 million or 20.5%, but decreased moderately as a
percentage of total revenue.
Research and development expenses. Research and development expenses for
1994 increased to $1.5 million (15.6% of total revenue) from $1.0 million (15.1%
of total revenue) for 1994, an increase of $0.5 million or 44.4%. The increase
was due to an approximate 63% increase in R&D personnel hired to support the
development of a new version of The Medical Manager incorporating additional
core and office management applications, which was released in June 1995.
Other income. Other income for 1994 decreased to $54,853 from $172,994 in
1993. The decrease was primarily the result of a decrease in interest income and
other commissions income.
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from PPI's statements
of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------
1993 1994 1995 1995 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operations.................. $ 5.1 $ 5.3 $ 6.2 $ 3.6 $ 3.3
Net cash used in investing activities............ (1.0) (0.2) (1.2) (0.6) 0.0
Net cash used in financing activities............ (4.0) (4.1) (5.1) (2.0) (1.9)
----- ----- ----- ---- -----
Net increase (decrease) in cash and cash
equivalents.................................... $ 0.1 $ 1.0 $(0.1) $ 1.0 $ 1.4
===== ===== ===== ==== =====
</TABLE>
PPI has historically funded its operations with cash flows from operations.
From 1993 through the six months ended June 30, 1996, PPI generated $20.0
million in cash from operations. Substantially all of the cash generated from
operations was generated by net income plus depreciation and amortization, with
little change in non-cash working capital. During this same period, cash used in
investing activities totaled $2.5 million and was primarily used for the
acquisition of additional office facilities and computer and other equipment.
Cash used in financing activities during this period consisted of S corporation
distributions to PPI's stockholder. In addition, prior to the consummation of
the Mergers, PPI will make distributions to its stockholder in respect of its
estimated S corporation Accumulated Adjustment Account (the "AAA Account")
(currently estimated to be approximately $3.9 million) as of the date of the
closing.
As of June 30, 1996, PPI had a working capital surplus of $2.9 million and
no long-term debt outstanding. While there can be no assurance, management of
PPI believes that PPI has adequate cash flow from operations to fund its
operations through the third quarter of 1997.
RESULTS OF OPERATIONS -- THE COMBINED FOUNDING COMPANIES
The Combined Founding Companies' Statement of Operations data for the years
ended December 31, 1993, 1994 and 1995 and for the six months ended June 30,
1995 and 1996 do not purport to present the results of operations of the
combined Founding Companies in accordance with generally accepted accounting
principles. Instead, they represent merely a summation of revenue, cost of
revenue, gross profit, SG&A and R&D of the individual Founding Companies, on a
historical basis, after the elimination of intercompany revenue and expense, and
exclude the effects of pro forma adjustments, such as the adjustment to
compensation-related expenses reflecting the implementation of the employment
agreements to be entered into by certain members of management. This data will
not be comparable to and may not be indicative of the Company's post-combination
results of operations.
The following table sets forth certain selected unaudited combined
financial information on a historical basis, excluding the effects of pro forma
adjustments, for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEARS ENDED DECEMBER 31, -----------------------------------
------------------------------------------------------
1993 1994 1995 1995 1996
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Systems......................... $ 3,108 17.0% $ 4,333 17.9% $ 7,106 24.3% $ 2,305 17.8% $ 4,811 27.0%
Software license................ 9,552 52.2 12,215 50.5 13,319 45.5 6,327 48.7 7,027 39.5
Maintenance and other........... 5,624 30.8 7,636 31.6 8,862 30.2 4,351 33.5 5,952 33.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenue................. 18,284 100.0 24,184 100.0 29,287 100.0 12,983 100.0 17,790 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Cost of revenue:
Systems......................... 2,113 11.6 1,990 8.2 2,914 10.0 1,130 8.7 2,545 14.3
Software license................ 1,818 9.9 2,532 10.5 2,278 7.8 1,325 10.2 1,169 6.6
Maintenance and other........... 3,632 19.9 4,067 16.8 5,434 18.5 2,538 19.6 3,689 20.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total cost of revenue......... 7,563 41.4 8,589 35.5 10,626 36.3 4,993 38.5 7,403 41.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross margin.............. 10,721 58.6 15,595 64.5 18,661 63.7 7,990 61.5 10,387 58.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating expenses:
Selling, general and
administrative................ 4,692 25.7 6,490 26.8 7,785 26.6 3,199 24.6 4,635 26.1
Research and development........ 1,040 5.7 1,502 6.2 2,024 6.9 956 7.4 1,487 8.4
</TABLE>
25
<PAGE> 27
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenue. The Company's total revenue for the six months ended June 30,
1996 increased to $17.8 million from $13.0 million for the corresponding period
in 1995, an increase of $4.8 million or 37.0%. The increase was primarily due to
increased sales to MSOs, which typically generate greater revenue per system
sold than do systems sold to individual practices and from additional system
sales resulting from the acquisition in January 1996 of GBP with Excellence,
Inc. ("GBP"), a dealer for The Medical Manager serving the state of Florida. To
a lesser extent, revenue increased as a result of sales of additional
maintenance contracts due to continued growth in the Company's installed base.
Revenue from software license for the six months ended June 30, 1996 increased
to $7.0 million (39.5% of total revenue) from $6.3 million (48.7% of total
revenue) for the corresponding period in 1995, an increase of $0.7 million or
11.1%. Revenue from system sales for the six months ended June 30, 1996
increased to $4.8 million (27.0% of total revenue) from $2.3 million (17.8% of
total revenue) for the corresponding period in 1995, an increase of $2.5 million
or 8.7%. Revenue from maintenance and other sources for the six months ended
June 30, 1996 increased to $6.0 million (33.5% of total revenue) from $4.4
million (33.5% of total revenue) for the corresponding period in 1995, an
increase of $1.6 million or 36.8%.
Cost of revenue. The total cost of revenue for the six months ended June
30, 1996 increased to $7.4 million from $5.0 million for the corresponding
period in 1995, an increase of $2.4 million or 48.3%. The growth in cost of
revenue resulted in a decline in gross margin to 58.4% for the six months ended
June 30, 1996 from 61.5% for the corresponding period in 1995. The decline in
gross margin was primarily attributable to an increase in cost of revenue from
system sales, which was due principally to cost inefficiencies associated with
the integration of GBP into the Company's distribution network. The Company does
not believe that these inefficiencies will continue in the future. This was
partially offset by a substantial increase in sales to MSOs, which carry lower
unit costs than sales to individual practices.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $4.6 million for the six months ended June
30, 1995 (26.1% of total revenue) from $3.2 million (24.6% of total revenue) for
the corresponding period in 1995, an increase of $1.4 million or 44.9%. The
increase was due primarily to an increase of $0.3 million of additional owners'
compensation at RTI, $0.2 million of indirect transaction costs at NMS,
increased selling commissions and other costs from increased revenue and the
hiring of additional administrative and operational personnel in anticipation of
the Mergers.
Research and development. R&D for the six months ended June 30, 1996
increased to $1.5 million (8.4% of total revenue) from $1.0 million (7.4% of
total revenue) for the corresponding period in 1995, an increase of $0.5 million
or 50.0%. The increase was due to an approximate 50% increase in R&D personnel
hired to support development activity relating to: (i) a new release of The
Medical Manager incorporating an advanced appointment scheduler and other
enhancements; (ii) graphical user interface and relational database technologies
for use in future versions of The Medical Manager; (iii) an electronic medical
records module; (iv) a module for use in the management of multiple physician
practices; and (v) a module for use in claims adjudication. Certain of these
initiatives were begun in previous periods, but required additional resources as
they reached more advanced stages of development. Although the Company believes
that the increase in staffing levels and the development of these initiatives
are essential to the continued success of The Medical Manager, they are not
expected to yield any immediate revenue to the Company.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. The Company's total revenue for 1995 increased to $29.3 million
from $24.2 million for 1994, an increase of $5.1 million or 21.1%. The increase
was primarily due to increased sales to MSOs, which ordinarily generate greater
revenue per system sold than do systems sold to individual practices. A
significant portion of the increase also was attributable to additional system
sales and maintenance contracts resulting from the inclusion of operations of
NMS for a full year. Revenue from software license for 1995 increased to $13.3
million (45.5% of total revenue) from $12.2 million (50.5% of total revenue) for
1994, an increase of $1.1 million or 9.0%. Revenue from system sales for 1995
increased to $7.1 million (24.3% of total revenue) from $4.3 million (17.9% of
total revenue) for 1994, an increase of $2.8 million or 64.0%. Revenue from
26
<PAGE> 28
maintenance and other sources for 1995 increased to $8.9 million (30.2% of total
revenue) from $7.6 million (31.6% of total revenue) for 1994, an increase of
$1.2 million or 16.1%.
Cost of revenue. The total cost of revenue for 1995 increased to $10.6
million from $8.6 million in 1994, an increase of $2.0 million or 23.7%. The
growth in the cost of revenue resulted in a modest decline in gross margin to
63.7% for 1995 from 64.5% in 1994. The decline in gross margin was principally
due to the Company's decision to hire additional employees to implement new
initiatives in professional and technical services, including centralized
support desk and project managers for large system installations. The Company
does not, however, expect to recognize additional revenue from certain of these
services until future periods. This was partially offset by a substantial
increase in sales to MSOs, which carry lower unit costs than sales to individual
practices.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $7.8 million for 1995 from $6.5 million for
1994, an increase of $1.3 million or 20.0%, but were essentially unchanged as a
percentage of total revenue (27.0%).
Research and development expenses. Research and development expenses for
1995 increased to $2.0 million (6.9% of total revenue) from $1.5 million (6.2%
of total revenue) for 1994, an increase of $0.5 million or 34.8%. The increase
was due to an approximate 35% increase in R&D personnel hired to support
development activity relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) a
module for use in the management of multiple physician practices; and (iii) an
electronic medical records module. Although the Company believes that the
increase in staffing levels and the development of these initiatives are
essential to the continued success of The Medical Manager, they are not expected
to yield any immediate revenue to the Company.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenue. The Company's total revenue for 1994 increased to $24.2 million
from $18.3 million for 1993, an increase of $5.9 million or 32.3%. The increase
was primarily due to sales postponed by customers to 1994 due to concerns in
1993 regarding the impact of proposed health care legislation. Revenue from
software license for 1994 increased to $12.2 million (50.5% of total revenue)
from $9.6 million (52.2% of total revenue) for 1993, an increase of $2.7 million
or 27.9%. Revenue from system sales for 1994 increased to $4.3 million (17.9% of
total revenue) from $3.1 million (17.0% of total revenue) for 1993, an increase
of $1.3 million or 39.4%. Revenue from maintenance and other sources for 1994
increased to $7.6 million (31.6% of total revenue) from $5.6 million (30.8% of
total revenue) for 1993, an increase of $2.0 million or 35.8%.
Cost of revenue. The total cost of revenue for 1994 increased to $8.6
million from $7.6 million in 1993, an increase of $1.0 million or 32.2%. The
reduced growth in the cost of revenue resulted in an increase in gross margin to
64.5% for 1994 from 58.6% in 1993. The increase in gross margin was due to
non-recurring costs in 1993 associated with an inventory write-down in the
amount $0.3 million and a legal settlement requiring the buyout of a
non-competition agreement by the founders of RTI in the amount of $0.4 million.
These costs did not recur in 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $6.5 million for 1994 (26.8% of total
revenue) from $4.7 million (25.7% of total revenue) for 1993, an increase of
$1.8 million or 38.3%. The increase was due primarily to an increase in RTI
owner compensation of $0.5 million.
Research and development expenses. Research and development expenses for
1994 increased to $1.5 million (6.2% of total revenue) from $1.0 million (5.7%
of total revenue) for 1993, an increase of $0.5 million or 44.4%. The increase
was due to an approximate 60% increase in R&D personnel hired to support the
development of a new version of The Medical Manager incorporating additional
core and office management applications, which was released in June 1995.
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<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain selected unaudited combined
statements of cash flow information on an historical basis, excluding the
effects of pro forma adjustments, for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operations............ $ 5.0 $ 7.0 $ 9.2 $ 5.4 $ 4.2
Net cash used in investing activities...... (0.7) (0.2) (2.3) (1.3) (0.5)
Net cash used in financing activities...... (4.3) (5.5) (6.8) (2.9) (2.5)
----- ----- ----- ----- -----
Net increase in cash and cash
equivalents......................... $ 0.0 $ 1.3 $ 0.1 $ 1.2 $ 1.2
===== ===== ===== ===== =====
</TABLE>
On a combined basis, for the period from 1993 through the six months ended
June 30, 1996, the Founding Companies generated $25.9 million in net cash from
operating activities. Substantially all of the net cash generated by operating
activities resulted from net income plus depreciation and amortization, with
little change in non-cash working capital. During this same period, cash used in
investing activities totaled $6.2 million and was primarily used for the
acquisition of dealer operations and net purchases of investments. Cash used in
financing activities during this period consisted primarily of S corporation
distributions to PPI's stockholder and SPI's stockholder.
On the closing of this Offering, the Company intends to repay an aggregate
of $1.5 million in outstanding indebtedness and other obligations of the
Founding Companies. In addition, prior to the consummation of the Mergers, PPI
and SPI will make distributions to their stockholders in respect of their
estimated S corporation AAA Account as of the date of closing. These
distributions relating to the AAA Account (approximately $5.8 million as of June
30, 1996) are expected to be funded primarily through cash and investments
provided by operating activities. See "Certain Transactions."
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs and planned capital
expenditures for property and equipment. On a combined basis, the Founding
Companies made capital expenditures of $1.2 million and $0.9 million during 1995
and the six months ended June 30, 1996, respectively.
The Company intends to focus on the continued consolidation and
rationalization of The Medical Manager dealer network. As such, the Company's
dealer acquisition strategy will target dealerships with strong presences in key
markets and demonstrated expertise with The Medical Manager product line. The
timing, size or success of any acquisition effort and the associated potential
capital commitments are unpredictable. The Company expects to fund future
acquisitions through a combination of working capital, cash flow from operations
and issuances of additional equity.
The Company intends to obtain a line of credit of approximately $30 million
to be used for working capital and other general corporate purposes, including
future acquisitions, prior to the consummation of this Offering. There can be no
assurance that any line of credit will be obtained or that, if obtained, it will
be on terms that are favorable to the Company. See "Risk Factors -- Risks
Related to Acquisition Financing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
IMPACT OF INFLATION
Due to the relatively low levels of inflation experienced in recent years,
inflation did not have a significant effect on the results of operations of the
combined Founding Companies for the periods presented.
28
<PAGE> 30
BUSINESS
The Company is a leading provider of comprehensive physician practice
management systems to independent physicians, physician groups, MSOs, IPAs,
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager
practice management system, which addresses the financial and administrative,
clinical and practice management needs of physicians. The Company's system has
been implemented in a wide variety of practice settings, from small physician
groups to multi-provider IPAs and MSOs, and enables physicians and their
administrative staffs to efficiently manage their practices while delivering
quality patient care in a constantly changing health care environment. Since the
development of The Medical Manager in 1982, the Company's installed base has
grown to over 22,500 client sites and over 100,000 physicians, representing more
than 80 practice specialities, making it the most widely installed physician
practice management system in the United States.
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies. These five entities
include: (i) PPI, the developer of The Medical Manager practice management
system; (ii) SPI, the "master" distributor for The Medical Manager, which
coordinates the sales, support and training activities of approximately 180
independent dealers and implements national marketing strategies; (iii) NMS, a
national dealer for The Medical Manager; (iv) RTI, a regional dealer serving the
Northeastern region of the United States; and (v) SMI, a regional dealer serving
the Midwestern region of the United States. The vertical integration of these
five entities will bring together the research and development, sales and
support efforts for The Medical Manager in one entity covering the entire United
States. Although the five Founding Companies have not previously operated as a
single entity, they have successfully worked together for many years. PPI has
been expanding and improving The Medical Manager system since developing it in
1982, SPI has been the master distributor of The Medical Manager since 1982 and
NMS, RTI and SMI have been selling and supporting The Medical Manager as
independent dealers since 1994, 1988 and 1987, respectively.
INDUSTRY OVERVIEW
Over the past decade, health care costs in the United States have risen
faster than the overall rate of inflation. According to the U.S. Health Care
Financing Administration, health care expenditures have increased from less than
$250 billion, or approximately 9% of U.S. gross domestic product, in 1980 to
almost $1 trillion, or approximately 14% of U.S. gross domestic product, in
1994. This increase has resulted in broad pressures to reduce costs without
sacrificing the quality of care and has caused significant changes in the health
care industry. While reimbursement for health care has historically been based
on a fee-for-service model of payment, managed care organizations and other
payors are increasingly utilizing alternative reimbursement models that shift
the financial risk of delivering health care from payors to health care
providers, including discounted fee schedules, single payment based on
diagnosis, capitation and other risk sharing arrangements.
The ongoing pressure to contain health care costs and the growing
administrative burdens placed on medical practices have caused physicians to
join together in group practices to share administrative costs and achieve
economies of scale. In addition, other providers and payors are buying and/or
managing physician practices and transforming them into integrated delivery
systems. The Company believes the movement toward group practices has
accelerated the trend toward automation as group practices require the greater
efficiency and productivity of more powerful practice management systems. This
general increase in the size and complexity of medical practices has created a
greater need for analysis of data and production of timely management
information reports that allow physicians, other providers of medical care and
payors to reach informed conclusions regarding the quality and appropriateness
of various procedures and practices.
The expansion in the number of managed care and third-party payor
organizations, as well as additional governmental regulation and the change in
reimbursement models, have greatly increased the complexity of pricing
practices, billing procedures and reimbursement policies impacting medical
practices. Practice management systems help providers reduce the costs and
improve the quality of delivering health care services
29
<PAGE> 31
by automating patient care information systems and administrative processes,
ensuring timely access to relevant information, streamlining the storage and
retrieval of information, and efficiently matching patient needs with available
resources. While early systems concentrated principally on patient billing and
collection activities, systems are now available that record and store clinical
information, automate the processing of insurance and third-party payor claims
and integrate the operations of physician practices with larger health care
organizations such as hospitals, HMOs and management service organizations.
BUSINESS STRATEGY
The Company's strategy is to integrate its research and development,
marketing, sales and support resources and to build upon its leadership position
as the most widely utilized physician practice management system. Key elements
of this strategy include:
Capitalizing on New Corporate Structure. As a result of the Mergers,
the Company expects to achieve significant benefits through a national
market presence, centralized client support and the implementation of a
national retail pricing structure. While the Founding Companies have worked
together successfully for many years, the consummation of this Offering and
the completion of the Mergers will create a vertically integrated entity
that will have greater financial strength and stability than the individual
Founding Companies and that will compete more effectively on national,
regional and local levels. In addition, the Company expects to achieve
significant cost savings as a result of the consolidation of many of the
administrative functions currently handled separately by each of the
Founding Companies. The Mergers will also allow the Company to further
develop its Enterprise Business Group, a national accounts group that
assists regional dealers in marketing to, and addressing the support needs
of, larger provider organizations such as MSOs, IPAs, and managed care
organizations. The Company plans to establish local and regional resource
centers, supported by centralized corporate and regional operations,
including help desks, EDI departments and advanced technical and
programming personnel. The Company expects this structure to result in
greater overall consistency and a higher level of client support.
Consolidating and Rationalizing the Distribution Network. The Company
intends to consolidate and rationalize The Medical Manager distribution
network. Prior to the 1990s, when independent physician practices were most
prevalent, the local focus of The Medical Manager independent dealer
network effectively addressed the practice management needs of the market.
However, due to the numerous trends in the health care industry toward
improved efficiency and cost containment, physicians have been forced to
consolidate into larger practice organizations. To meet the needs of these
larger groups, this Company believes it is necessary to adopt and implement
a product distribution strategy that includes the acquisition of dealers in
major medical communities and large metropolitan markets. These dealers
should enable the Company to market more effectively to larger customers
while assisting the remaining independent dealers in conducting their
marketing activities. The Company also intends to further standardize the
sales and support practices of the independent dealers in order to ensure
that The Medical Manager is sold and supported on a consistent and
effective basis. See "-- Distribution Network."
Increasing Penetration of Management Service Organizations and Other
Large Physician Groups. The Company seeks to increase its sales of
enterprise-wide systems, products and services to MSOs and large physician
groups. As trends in the health care marketplace continue to drive
physician affiliations, the Company believes there is significant
opportunity to increase its share of this rapidly growing segment of the
practice management market. In order to capitalize on these opportunities,
the Company has established the Enterprise Business Group to coordinate
large group sales and support in conjunction with local and regional
dealers. In addition, the Company has enhanced the functionality of The
Medical Manager to deliver increasingly comprehensive physician practice
management services in enterprise-wide settings. The Company believes that
through these efforts it can significantly increase its share of this
market segment.
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<PAGE> 32
Cross-Selling Products and Services to Existing Client Base. The
Company intends to aggressively cross-sell additional products and services
to its existing client base. A majority of the Company's existing clients
do not currently use The Medical Manager's entire suite of products and
services. Because of its substantial installed base of over 22,500 sites,
as well as the modular, integrated product design of The Medical Manager,
the Company intends to target many of its customers as candidates for
cross-selling opportunities, including system upgrades, additional software
application modules, services such as hardware and software maintenance,
system and process planning, project management, custom programming and EDI
capabilities.
Continuing Development of New Products, Product Enhancements and
Services. The Company intends to continue its leadership role in the
development and introduction of new products, product enhancements and
services for the physician practice marketplace. To do so, the Company
intends to continue to commit significant financial and human resources to
its research and development efforts. A key focus of the Company's research
and development efforts is the further enhancement of The Medical Manager's
ability to operate within a variety of integrated delivery environments.
The Company's strategic development initiatives include advanced systems,
such as a version of The Medical Manager incorporating relational
databases, a graphical user interface and enhanced client-server
applications. The Company develops new products, product enhancements and
services with input from its physician-clients. For 1995 and the first six
months of 1996, the Company's pro forma expenses for research and
development were $2.1 million and $1.5 million, respectively, representing
5.8% and 7.6% of the Company's pro forma revenue for those periods.
PRODUCTS
The Medical Manager is an integrated practice management system
encompassing patient care, clinical, financial and management applications. Due
to its scalable design, The Medical Manager is a cost-effective solution in a
stand-alone or enterprise-wide environment. The Medical Manager is designed to
operate on a wide range of hardware platforms, from Intel-based computer systems
for small and medium sized practices, to RISC-based systems, such as the IBM
RS/6000 and Hewlett-Packard 9000, for larger practices. Its modular, fully
integrated product portfolio allows clients to add incremental capabilities to
existing information systems while preserving and minimizing the need for
capital investments. The latest version of The Medical Manager software is year
2000 enabled.
The pricing of The Medical Manager system is a function of the number of
modules purchased, the number of users per site, the number of practices, the
operating system and the complexity of the installation. Hardware support and
services are priced separately from software products and are typically
coordinated by the dealer.
The Medical Manager system provides to physician practices a broad range of
patient care and practice management features, including:
CORE APPLICATION
The Medical Manager Core Application includes base financial, clinical and
practice management functions.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
The Medical Manager Provides accounts receivable, insurance billing, basic
appointment scheduling and recalls, clinical history, financial
history, referral of physician information, encounter form
tracking, e-mail, office notes, hospital rounds and over 150
standard reports.
</TABLE>
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<PAGE> 33
OFFICE MANAGEMENT
The Medical Manager Office Management application automates the essential
administrative tasks of a physician practice.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Automated Collections Maintains notes, promise to pay dates, budget payments, next
action to be taken indicators and prints collection letters;
automates "tickler" system to alert the user when an account
needs attention.
Chart and X-Ray Locator Tracks the location of a patient's medical and X-ray charts.
Advanced Billing Handles sophisticated billing needs, including the necessary
collapsing and sorting of charge items into revenue codes for
UB92 billing purposes; also used for the specialized reporting
needs for Workers' Compensation First Report of Injury.
Custom Report Writer Provides access to all data elements of The Medical Manager;
allows for the creation of user defined custom reports.
Multiple Resource Includes multi-resource display, search and posting of scheduled
Scheduling appointments; coordinates the utilization of exam rooms and
equipment and schedules of teams of physicians, nurses,
therapists and others whose services are needed within a
specific time sequence of one another.
Patient Flow Tracking Allows patient encounters to be tracked from the time the
patient makes the appointment, through encounters in the waiting
room, examination rooms, labs and other areas; reports on time
and resource utilization.
</TABLE>
DEVELOPMENT TOOLS
Development Tools allow data to be accessed and manipulated, adding
flexibility to the system and allowing for customization to meet specialized
needs.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Data Merge A proprietary 4GL type language that allows the Company, dealers
and other qualified programmers to customize functions and
features of The Medical Manager without changing source code;
also supports the exchange of data between The Medical Manager
and hospital, lab, pharmacy and other medical management
systems.
</TABLE>
ELECTRONIC CONNECTIVITY
Electronic Connectivity supports the electronic submission of claims to
payors, and allows for the open exchange of information between various medical
institutions as well as the transfer of administrative transactions to support
managed care.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Hospital Information Link A Data Merge tool that allows hospital interfaces to be written
to local hospital requirements.
HL7 Connectivity Engine Allows users to provide real time demographic and encounter
information to hospitals and other organizations (referred to as
"Remotes") and queries the Remote's master patient index in
order to retrieve data on existing patients; also allows the
Remote to automatically advise the user site of patient
admissions and discharges, changes to inpatient/outpatient
status and changes to patient demographic information.
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Electronic Data Interchange An interface that provides state of the art connectivity for
immediate access to various insurance providers, third-party
connectivity networks and other outside facilities; features
include pre-authorization status, benefit eligibility, referral
verification and rosters, as well as credit card and check
approval.
Electronic Claims Supports direct electronic submission of claims to Medicare,
Medicaid, commercial carriers and clearinghouses; expedites
insurance payment turnaround time; verifies claims for accuracy
and reports on submitted claims that have been accepted or
rejected; provides a complete audit trail and reports to ensure
that claims have been processed properly; supports NSF and ANSI
national standards.
Electronic Remittance Used in combination with the Electronic Claims Module to
electronically download Explanation of Benefits ("EOBs") from
Medicare or other claim centers and to post directly into
patients' accounts, thereby saving a substantial amount of data
entry time and preventing keying errors.
</TABLE>
MANAGED CARE APPLICATIONS
Managed Care applications allow physicians to contain costs and deliver a
higher quality of care in the capitated environments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Managed Care In addition to the managed care features offered in the base
system, supports the full functions required to track incoming
as well as outgoing referrals to facilities and specialists;
maintains membership eligibility lists, capitation payment
posting, contract management (including number of visits,
allowable time period, procedures and diagnosis treatment plan)
and reporting.
Claims Adjudication Fully integrated with the Managed Care module, provides full
risk management capabilities, including the processing of
received claims, comparing the claim against authorized services
to determine amounts due, generating checks for payments and
producing an EOB; also provides advanced features in the form of
claims repricing, bundling of services, and provider
credentialing.
</TABLE>
CLINICAL APPLICATIONS
The Medical Manager Clinical application developments provide
fully-integrated components of a patient's medical record that contain the
functionality and knowledge bases required in today's practices.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Quality Care Guidelines Automates the process of tracking both the curative and
preventative services the practice has specified that it wishes
to perform; provides reports on physician compliance with
recommended care guidelines that are based on the patient's age,
sex, diagnoses and other key health factors and are
automatically printed with the patient's encounter form. The
guidelines are derived from U.S. Preventative Healthcare
Guidelines or other clinical knowledge bases and reflect the
practice's own suggested intervals of exams, tests, injections
and other procedures specific to the individual patient.
Laboratory Interface Electronically downloads test requests and patient demographics
to a laboratory, and electronically transfers results directly
into the patient's file in The Medical Manager.
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Prescription Writer Provides a full set of tools for managing both the clinical and
administrative aspects of the prescription process; provides for
extensive interaction checking, patient information printouts
and prescription history on the drugs being prescribed;
administratively reduces physician and staff time spent
preparing and issuing prescriptions.
Pharmacy Interface Offers a direct electronic link to transfer prescriptions and
handle authorization requests between the Prescription Writer
module and the pharmacy.
Image Management Computerizes the storage and retrieval of patient photos, X-rays
and documents.
Voice Dictation Through The Medical Manager's link with Kurzweil Applied
Intelligence software, enables the physician to dictate, edit
and print patient charts and reports; pulls and stores patient
and physician information from the patient file into the chart
via a single, spoken command.
View Patient Chart Brings a snapshot of the patient's medical records to a single
screen and then gives the user instant access to almost any
desired level of underlying detail; allows the screen to be used
for valuable side-by-side analysis of chart data.
Medical Records Designed to provide maximum flexibility and speed in creating,
storing and retrieving whatever medical information the practice
wishes to maintain on each patient, fully integrated with the
product's clinical history, this application addresses the four
fundamental issues concerning medical records: creation and
maintenance of medical records, simultaneous access to patient
records, remote access and data for analysis. Includes patient
encounter knowledge base and generates automated progress notes.
</TABLE>
MSO ENTERPRISE SYSTEM
The MSO Enterprise system addresses the needs of the MSO market by
providing enterprise-wide solutions for the management of integrated provider
networks.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
MSO Enterprise Manager Provides the MSO or multi-practice environment with central
administration of multiple practices, enterprise-wide roll-up
reports, a master patient index for automatic synchronization of
demographic data-updates and remote access across multiple
systems.
</TABLE>
DIALYSIS VERTICAL MARKET OPTION
The Medical Manager Dialysis Vertical Market Option expedites the
repetitive process of posting dialysis patients' weekly treatments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Dialysis Calendar Posting Using a calendar posting screen, automates and reduces the
repetitive, recurring posting dictated by dialysis treatment.
</TABLE>
CLIENT SERVICES
The Company's Client Services Division provides a wide range of services to
the entire client base to ensure customer satisfaction and maximize the utility
of The Medical Manager system. These services include both fundamental and
value-added services as described below:
Implementation Services. These services include planning, design and
installation of software, hardware and network solutions for stand-alone
practices to enterprise-wide environments. To ensure
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<PAGE> 36
customer satisfaction, the Company utilizes a team approach involving
technical and professional staff members who have a broad array of
technical and business expertise. This team approach includes project
engineering, business redesign and practice staff re-education. A client
relationship manager, part of the team from the outset, works with the
client throughout the life of the contract.
Support Services. A critical element in assuring proper use of and
satisfaction with the Company's products involves ongoing support services
provided to the end-users. The Company provides to its clients continuing
software and hardware support under agreements that typically have a one
year term. These agreements provide for general support via help desks,
error corrections to software, remote diagnostics and on-site hardware and
software technicians. Support services are provided during normal business
hours and can be expanded to include seven days a week, 24 hour coverage.
As of September 24, 1996, the Company had 150 full-time employees devoted
to providing support services to its customer base.
Value-Added Services. The Company advises its enterprise-wide clients
on how best to bring together disparate physician practices into an
integrated health care delivery network. The Company works in partnership
with its client's clinical and administrative management in the areas of
patient and workflow redesign, job function review and re-education,
standardization consultation, project engineering, timeline and resource
management and ongoing relationship management. The Company and many of its
independent dealers maintain substantial resources capable of providing
custom programming solutions for a broad range of client requests. Many of
these solutions may be generated at the regional and local levels using the
Company's Data Merge language, which allows modification to be made without
changing source code.
Training and Continuing Education. The Company believes initial and
continuing education are key components in ensuring customer satisfaction
and retention and, accordingly, has devoted significant resources to its
Educational Services Division. Because the Medical Manager has been in use
for 14 years, a substantial amount of experience and expertise has been
gained by the Company's training staff in optimizing methodology and
curriculum to achieve the best results. As of September 24, 1996, the
Company had 13 full-time employees in its Education Services Division.
Training methods include classroom and computer-based training, on-site
visits for system setup and review and video training tapes available on
selected modules. The Company also assists its clients in developing their
own training staff, materials and guidelines. Continuing education
programs, a quarterly newsletter and user group conferences are sponsored
by the Company, providing the user with valuable information as well as an
opportunity for the Company to demonstrate new enhancements and features of
the product. The Company makes available to clients extensive user
documentation and reference manuals including, among others, installation
guides, advanced system manuals, a custom report writer manual and an MSO
implementation workbook.
SALES AND MARKETING
The Company sells its products and services nationally through a direct
sales organization consisting of 58 sales personnel, as well as through its
independent dealer network of approximately 180 dealers. This distribution
effort is responsible for sales to new clients, ranging in size from solo
practitioners to enterprise-wide clients, and follow-on sales of upgrades and
enhancements to existing clients. To enhance the effectiveness of its selling
effort, the Company provides its sales force and independent dealer network with
(i) comprehensive training in the Company's products and services; (ii)
marketing materials; and (iii) on-going support.
Small and medium-sized sales, routinely handled by the direct sales force
and independent dealers, generally involve a sales cycle of 30 to 60 days.
Larger sales, managed by the Enterprise Business Group, typically involve a
Request For Proposal process which lengthens the sales cycle to 60 to 90 days or
longer. The Company does not provide its customers with contractual rights to
return its products. Hardware and software maintenance agreements are generally
renewed on an annual basis. Standard payment terms are 50% due upon system order
with the balance due upon completion of system installation.
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<PAGE> 37
To address the more complex needs of larger potential clients, the Company
has formed the Enterprise Business Group consisting of nine members. The Group
coordinates the Company's sales effort for large clients (such as MSOs, IPAs and
managed care organizations) and assists in the implementation of systems and the
maintenance of ongoing client relationships. Many of the independent dealers are
experienced in selling to and supporting enterprise wide clients. The Company
intends to continue to utilize the Enterprise Business Group to assist local and
regional dealers in these efforts. At the enterprise-wide client level,
relationship managers work with the client throughout the contract term to keep
informed of customer expectations and help ensure customer satisfaction.
The Company generates sales leads through referrals from customers and
management consultants, responses to requests for proposals, strategic alliances
with complementary companies, the Company's Internet web sites and associated
links, industry seminars, trade shows, direct telephone and mail campaigns and
advertisements in trade journals.
In order to capitalize on opportunities to cross-sell its products and
services to existing clients, the Company maintains contacts with its clients at
the local, regional and national levels through electronic mail links on its
Internet web sites, monthly and quarterly newsletters, technical updates,
product release bulletins, user meetings, training seminars, industry
conferences and market-specific seminars, such as its MSO User Conference. The
Company also works with certain of its client base on the selection,
implementation, use and benefits derived from the product and publishes these as
Client Profiles, providing both the client and the Company with market exposure
and the opportunity to share successes.
An educational license of The Medical Manager physician practice management
system has been utilized to teach office automation within the medical field for
more than eight years. The system has been installed in vocational schools,
junior colleges and universities nationwide. Delmar Publishers Inc., one of the
leading educational textbook publishers in the country, markets a student
textbook and instructor's manual for courses that teach computer skills in the
medical field, using The Medical Manager. Since 1988, more than 400 site
licenses of the educational version have been sold.
DISTRIBUTION NETWORK
Prior to the 1990s, when independent physician practices were most
prevalent, the local focus of independent dealers effectively addressed the
practice management needs of the market. However, due to the numerous trends in
the health care industry focusing attention on the delivery of high quality and
cost effective care (as well as the need to demonstrate such quality and
effectiveness), individual physicians and small group practices have been forced
to pool their resources in order to compete effectively. As a result, large
physician organizations have become much more prevalent in the medical
marketplace. To keep pace with the increasingly sophisticated practice
management needs of these larger groups, the independent dealers for The Medical
Manager have been consolidating in order to build the necessary technical,
service and support resources.
The Company believes that a fundamental and unique strength of The Medical
Manager is its nationwide dealer network, which currently includes approximately
180 dealer organizations. As a result of the many years of selling and
supporting The Medical Manager product line, the personnel in the Company's
dealer network represent a valuable resource. The Company believes that the
continued consolidation and rationalization of the dealers for The Medical
Manager is a necessary response to changes in the physician marketplace. The
Company's strategy for its dealer network includes the acquisition of dealers in
strategic markets as well as the rationalization of the remaining independent
dealers in order to ensure that The Medical Manager is sold and supported on a
consistent and effective basis throughout the dealer network.
Dealer Acquisitions. The Company believes that it must have representation
in all major medical communities and metropolitan markets throughout the
country. As a result, the Company's dealer acquisition strategy will focus on
acquiring dealerships that have both a strong presence in key markets and
demonstrated expertise with The Medical Manager product line.
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Rationalization of Independent Dealers. The Company intends to continue to
use its existing network of independent dealers as an integral part of its
distribution network for The Medical Manager. The Company will work with its
independent dealers to institute a program to standardize hardware
configurations, client training programs and service levels developed by the
Company. The Company will also provide services to the independent dealers, many
of which are unable to provide such resources as independent entities. Such
services include: (i) dealer training; (ii) help desks; (iii) advanced technical
services, such as custom programming services; and (iv) sales support for large
systems sales from the Enterprise Business Group.
RESEARCH AND DEVELOPMENT
The Company seeks to meet the needs of its clients by continuing to develop
new products and enhancements of existing products. Accordingly, the Company
believes that continued leadership in the practice management systems industry
will require significant additional commitments of resources to research and
development. The Company maintains its research and development campus in
Alachua, Florida, where development of The Medical Manager began over 14 years
ago. As of June 30, 1996, the Company had 47 employees engaged primarily in its
research and development efforts. Pro forma research and development expenses
for 1995 and the first six months of 1996 were $2.1 million and $1.5 million,
respectively, and represented 5.8% and 7.6% of pro forma revenue.
The Company's research and development activities involve Company personnel
as well as physicians, physician groups practice staff and leading health care
institutions. A key goal of current research and development efforts involves
adapting The Medical Manager system to operate more effectively within
integrated delivery environments. To achieve this goal, the Company is pursuing
a strategic development initiative directed toward the development of advanced
health care information systems that include a relational database, graphical
user interfaces and enhanced client-server applications. The Company's current
research and development efforts continue the tradition of The Medical Manager
of being a consistent leader in product innovation, as indicated by the
following:
- In 1982, The Medical Manager was first installed.
- In 1985, The Medical Manager released its electronic claims form module.
- In 1987, The Medical Manager became the first practice management system
to perform Electronic Claims Submission in all 50 states.
- In 1988, The Medical Manager released its Report Writer Module.
- In 1990, The Medical Manager released its Data Merge 4GL language module
allowing unlimited customization within The Medical Manager without
changing the source code.
- In January 1991, The Medical Manager released its Electronic Remittance
module.
- In June 1991, The Medical Manager became the first practice management
system to incorporate EDI with electronic interchange partners.
- In 1992, The Medical Manager became the first practice management system
to introduce electronic interfaces to laboratory systems.
- In 1994, The Medical Manager announced its Managed Care Module.
- In January 1995, The Medical Manager released its Quality Care Guidelines
module.
- In October 1995, The Medical Manager released an integrated Claims
Adjudication System.
- In November 1995, The Medical Manager announced its MSO Enterprise
Manager.
- In April 1996, The Medical Manager announced its prototype HL7
Connectivity Engine.
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Current focus areas for new product development and enhancement include the
following:
ENTERPRISE SYSTEM
The Company intends to develop an increasing number of automation tools to
support the growing number of integrated health care delivery systems across the
nation. Developments within The Medical Manager's MSO Enterprise System are
expected to include enterprise appointment and resource scheduling and
enterprise communications. In addition, further developments in The Medical
Manager's connectivity engines should continue to promote the open exchange of
information between medical institutions.
MANAGED CARE
Physicians realize that sophisticated health care automation systems are
required to support managed care, compete for capitated contracts and contain
healthcare costs while providing effective, high quality care. Development
efforts within the Managed Care module are expected to result in a product that
provides referral outcome reporting that can perform outcome analysis across
multiple practices within the provider network. As managed care matures, new
markets will be created that require the support of automation. Development
efforts within the Managed Care module will be designed to support the evolving
subcapitation market by allowing primary care groups to receive the total
capitation from a payor and allocate the capitation payment among contracted
specialists for services they have provided.
CLINICAL APPLICATIONS
The Company recognizes that improvements in the technology that supports
the gathering, storing, retrieving and reporting of clinical data and the
creation of a sophisticated computerized patient record system are critical to
the enhancement and improvement of health care delivery across the nation. As a
result, the Company is engaged in efforts to rapidly develop fully-integrated
components of a computerized patient record containing functionality and
knowledge bases that support the way physicians provide health care services.
Research and analysis of various input technologies and devices continue with
the goal of providing physicians with usable tools that will allow them to
effectively gather and use clinical data at the point-of-care.
GRAPHICAL USER INTERFACE
The Company's graphical user interface is currently under development. The
Company's development efforts are intended to produce a product that will
support users opting to install technology to support a Windows environment, as
well as the Company's current installed base, which has a sizeable investment in
hardware that supports character based applications.
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of trade secret, copyright and
trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to establish and protect its proprietary
rights in its products. The Company distributes its products under software
license agreements that grant clients a nonexclusive, nontransferable license to
the Company's products and contain terms and conditions prohibiting the
unauthorized reproduction or transfer of the Company's products. In addition,
the Company attempts to protect its trade secrets and other proprietary
information through agreements with employees and consultants. Substantially all
current employees involved in product development have signed an assignment of
inventions agreement. There can be no assurance that the legal protections
afforded to the Company or the precautions taken by the Company will be adequate
to prevent misappropriation of the Company's technology. In addition, these
protections do not prevent independent third-party development of functionally
equivalent or superior technologies, products or services. Any infringement or
misappropriation of the Company's proprietary software could disadvantage the
Company in its efforts to attract and retain new clients in a highly competitive
market and could cause the Company to lose revenues or incur substantial
litigation expense. The Company believes that, due to the rapid pace of
innovation within the software industry, factors such as the technological and
creative skills of its personnel and ongoing reliable product maintenance and
support are more important in establishing and maintaining a leadership position
within the industry than are the various legal protections afforded to its
technology.
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GOVERNMENT REGULATION
The FDA has jurisdiction under the FDC Act to regulate computer products
and software as medical devices if they are intended for use in the diagnosis,
cure, mitigation, treatment or prevention of disease in humans. The FDA has
issued a draft policy statement relating to picture archiving and communications
systems that requires manufacturers of medical image storage devices and related
software to submit to the FDA premarket notification applications and otherwise
comply with the requirements of the FDC Act applicable to medical devices. The
FDA generally completes its review of applications submitted under Section
510(k) of the FDC Act within four to 12 months, although additional time may be
necessary to resolve significant safety and efficacy issues. Such devices are
subject to the FDC Act's general and special controls, including those relating
to good manufacturing practices and adverse experience reporting.
In order to obtain FDA clearance of a Section 510(k) premarket notification
application, a manufacturer of a device must show that the device is
substantially equivalent to a device for which the FDA has not required the
submission of a premarket approval ("PMA") application. If the FDA determines
that a device for which clearance is being sought is not "substantially
equivalent" to a legally marketed device, a PMA application is required in order
to ship or sell the device commercially in the United States. Such an
application requires extensive testing and other data to demonstrate the safety
and effectiveness of the device, and generally is subject to a lengthy review by
the FDA that often takes two years or more to complete.
It is unclear to what extent The Medical Manager, when marketed with a
graphical image capability, would be subject to FDA regulation as a medical
device. Recently, FDA officials expressed an intention to initiate agency
rulemaking to exempt certain medical image management devices from premarket
notification procedures. Because of the uncertain regulatory status of the
Company's product and the absence of any assurance that the FDA actually will
adopt an exemption that applies to the Company's product. The Company decided to
take the cautious approach of submitting to the FDA a Section 510(k) premarket
notification application to market The Medical Manager with a graphical image
capability.
Prior to the decision to submit a Section 510(k) application, a small
number of The Medical Manager systems possessing a graphical image capability
were sold. While there can be no assurance that the FDA will not take
enforcement action with respect to these prior sales, the Company believes that
such action is unlikely due to the nature of the product and the small number of
units sold with a graphical image capability. Enforcement action can consist of
warning letters, refusal to approve or clear products, revocation of approvals
or clearances previously granted, civil penalties, product seizures,
injunctions, recalls, operating restrictions and criminal prosecutions. Any
enforcement action by the FDA, any refusal by the FDA to grant clearance of the
Section 510(k) application, or any substantial delay by the FDA in granting such
clearance, could have a material adverse effect on the Company's results of
operations, financial condition or business.
COMPETITION
The market for physician practice management systems and services is highly
competitive. The Company believes that the principal competitive factors in this
market include the functionality and price of the practice management system,
the support provided to system users, ongoing research and development efforts
and the national presence and financial stability of the seller. The industry is
fragmented and includes numerous competitors. The Company believes its principal
competitive advantages are the product's substantial installed client base, open
system design and advanced features and capabilities, as well as the Company's
focus on customer support and training programs and its network of dealers. The
Company's principal competitors include other physician practice management
system companies, local software companies and other companies that provide
information systems to health care providers. Certain of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, as the market for the Company's
products develops, additional competitors may enter the market and competition
may intensify.
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EMPLOYEES
At September 24, 1996, the Company employed 348 full-time and five
part-time employees. No employees are covered by any collective bargaining
agreements. The Company considers its relationships with its employees to be
good.
FACILITIES
The Company's principal corporate offices are located at 3001 North Rocky
Point Drive East, Tampa, Florida. The Company's research and support facilities
are located in Alachua, Florida. The Company also maintains national sales and
support offices in Mountain View, California, and has 17 additional offices in
various regions of the country.
The Company leases all of its properties (an aggregate of 107,243 square
feet) with remaining terms between one and five years. The Company believes that
its facilities are adequate for its current needs and that suitable additional
space will be available as required. See "Certain Transactions" and Note 4 of
Notes to the Company's Unaudited Pro Forma Combined Financial Statements for
information regarding the Company's obligations under its lease agreements.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business. The Company is not aware of any pending claims or
threatened claims which, if adversely determined, might materially affect the
Company's results of operations, financial condition or business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's current directors, executive officers and those persons who will
become directors and executive officers in connection with this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael A. Singer.................. 49 Chairman of the Board; Chief Executive Officer(1)
John H. Kang....................... 33 President; Director
Richard W. Mehrlich................ 48 Executive Vice President -- Sales and Marketing;
Director(1)
Wayne Burks........................ 49 Vice President, Treasurer and Chief Financial
Officer; Director(2)
Ricardo A. Salas................... 32 Director(2)
Frederick B. Karl, Jr.............. 42 Vice President, General Counsel and Secretary(1)
Thomas P. Liddell.................. 33 Vice President -- Midwest Region(1)
Henry W. Holbrook.................. 42 Vice President, Sales -- Northeast Region(1)
</TABLE>
- ---------------
(1) Appointment will become effective upon the consummation of this Offering.
(2) Messrs. Burks and Salas will resign as directors and Mr. Salas will resign
as Vice President and Secretary of the Company, effective upon the
consummation of this Offering.
Michael A. Singer will serve as Chairman of the Board and Chief Executive
Officer of the Company, effective upon the consummation of this Offering. Mr.
Singer is the founder of PPI and the principal inventor of The Medical Manager
software program. From PPI's inception in 1981, he has been the sole
shareholder, a director and the President and Chief Executive Officer. Mr.
Singer received a B.A. in Business Administration from the University of Florida
in 1969, and a Masters degree in Economics from the University of Florida in
1971.
John H. Kang has been the President and a director of the Company since
July 1996. He is the founder of NMS and has served as its President since its
inception in 1994. In 1987, Mr. Kang founded J. Holdsworth Capital Ltd., a
private investment firm, and is currently its President. He has been a director
of Amorphous Technologies International, a company engaged in the research and
development and manufacture of metal alloy, since May 1995. Mr. Kang also has
been a director of Nutcracker Snacks, Inc., a manufacturer of snack foods, since
December 1988. From June 1988 to September 1996, Mr. Kang was the Chairman and a
director of Clayton Group, Inc., a distributor of waterworks materials. Mr. Kang
received an A.B. in Economics from Harvard College in 1985.
Richard W. Mehrlich will serve as Executive Vice President -- Sales and
Marketing and will be a director of the Company, effective upon the consummation
of this Offering. Mr. Mehrlich is the founder and a director of SPI, and has
been President and Chief Executive Officer of SPI since its inception in 1980.
Mr. Mehrlich's previous sales and marketing experience includes serving as
Director of Marketing for Dynabyte Corporation, a microcomputer hardware
manufacturer, and as a regional sales representative for Texas Instruments,
Component Sales Division. Mr. Mehrlich received a degree in Electrical
Engineering from the Milwaukee School of Engineering in 1970.
Wayne Burks has been the Vice President, Treasurer and Chief Financial
Officer and a director of the Company since July 1996. He has served as Vice
President and Chief Financial Officer of NMS since 1995. Previously, Mr. Burks
was a partner with Coopers & Lybrand L.L.P. from 1981. He will serve as Chief
Financial Officer of the Company following the consummation of this Offering.
Mr. Burks received a B.S. in Accounting and Business Administration from Troy
State University, Alabama in 1969. He is a member of the American and Florida
Institute of Certified Public Accountants.
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<PAGE> 43
Ricardo A. Salas has been Vice President, Secretary and a director of the
Company since July 1996. He has served as a Vice President of NMS since its
inception in 1994. Since 1987, Mr. Salas has been a Vice President of J.
Holdsworth Capital Ltd., a private investment firm. He also has been a director
of Amorphous Technologies International, a company engaged in the research and
development and manufacture of metal alloy, since May 1995. Mr. Salas has been a
director of Nutcracker Snacks, Inc., a manufacturer of snack foods, since
December 1988. From June 1988 to September 1996, Mr. Salas was a director of
Clayton Group, Inc., a distributor of waterworks materials. Mr. Salas received
an A.B. in Economics from Harvard College in 1986.
Frederick B. Karl, Jr. will serve as Vice President, General Counsel and
Secretary of the Company, effective upon the consummation of this Offering. Mr.
Karl has been the General Counsel of PPI since 1988, and also has served as a
Vice President of PPI since 1990. He provided legal services to PPI from 1984
through 1988 while he was in private practice. Mr. Karl received a B.A. from
Florida State University in 1977 and a J.D. from the University of Florida
College of Law in 1981.
Thomas P. Liddell will serve as Vice President -- Midwest Region, effective
upon the consummation of this Offering. Mr. Liddell founded SMI in 1987 and is
presently responsible for its Marketing, Finance and Administration. Prior to
1987, he was employed by Holy Cross Health System, where he developed software
systems to support national group purchasing and coordinated Hospital ADT and
Clinical Systems selection. Mr. Liddell received a B.S. from Indiana University
in 1985 and an M.B.A. from the University of Notre Dame.
Henry W. Holbrook will serve as Vice President, Sales -- Northeast Region
of the Company, effective upon the consummation of this Offering. Mr. Holbrook
is a co-founder, President and Director of Sales and Marketing of RTI, and has
been with RTI since its inception in 1988. Prior to founding RTI, he was Sales
Manager and then Branch Manager of the Hartford, Connecticut office of Contel
Business Systems, Inc. from 1978 to 1988. Mr. Holbrook received a B.S. from
Thomas College in 1978.
BOARD OF DIRECTORS
Board Classification. Effective upon the consummation of this Offering,
the Board of Directors will be divided into three classes, with directors
serving staggered three-year terms, expiring at the annual meeting of
stockholders in 1997, 1998 and 1999, respectively. At each annual meeting of
stockholders, one class of directors will be elected for a full term of three
years to succeed that class of directors whose terms are expiring.
Board Committees. The Board of Directors has established an Audit
Committee and a Compensation Committee, effective upon the consummation of this
Offering. The Audit Committee and the Compensation Committee are expected to
consist solely of outside directors.
Director Compensation. Directors who are also employees of the Company or
one of its subsidiaries will not receive additional compensation for serving as
directors. Under the compensation policy to become effective upon the
consummation of this Offering, non-employee directors will receive an annual
retainer of $2,000 and fees for attending each meeting of the Board and any
Board committee of $1,000. Such cash fees may, at the election of the director,
be paid instead in the form of shares of Common Stock or be deferred in the form
of "deferred shares" under the Company's 1996 Non-Employee Directors' Stock
Plan. In addition, under such plan, each non-employee director will
automatically receive an option to acquire a specified number of shares of
Common Stock (currently 10,000 shares) upon such person's initial election as a
director, and, subject to a limited exception, an annual option to acquire a
specified number of shares (currently 5,000 shares) at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director. See "-- 1996 Non-Employee Directors' Stock Plan." Directors
also will be reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof, in their capacity as
directors. The Board will periodically review and may revise the compensation
policies for non-employee directors.
Officers. All officers serve at the discretion of the Board of Directors.
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The Company expects to add three additional directors to its Board within
30 days after the date of this Prospectus, none of whom will be either a current
or former employee of the Company.
EXECUTIVE COMPENSATION
The Company was incorporated in July 1996, has conducted no operations and
generated no revenue to date and has not paid any of its executive officers
compensation since its formation.
Each of Messrs. Singer, Kang, Mehrlich, Burks, Holbrook and Liddell will
enter into an employment agreement with the Company providing for an annual base
salary of $150,000 and a bonus to be determined annually pursuant to an
incentive bonus plan to be established by the Company. Each employment agreement
will be for a term of five years. Effective as of the expiration of such initial
five-year term and as of each anniversary date thereof, the term shall be
extended automatically for an additional 12-month period on the same terms and
conditions existing at the time of renewal unless, not later than two months
prior to each such respective date, the Company shall have given notice to the
employee that the term shall not be so extended. Each of these agreements will
provide that, in the event of a termination of employment by the Company without
cause (other than upon the death or disability of the employee) or by the
employee for good reason (including a notice of termination by such employee
following a change of control of the Company, as defined in the agreement), the
employee shall be entitled to severance payments equal to the employee's base
salary as in effect immediately prior to such termination over the longer of the
then-remaining term or 24 months (the "Severance Period"). The employee will
also be entitled to coverage under the group medical care, disability and life
insurance benefit plans or arrangements in which the employee is participating
at the time of termination, for the continuation of the Severance Period,
provided the employee does not have comparable substitute coverage from another
employer. Each employment agreement will contain a covenant not to compete with
the Company during the period of employment, as well as during the Severance
Period, without the prior approval of the Board.
1996 LONG-TERM INCENTIVE PLAN
In September 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Long-Term Incentive Plan (the "Plan"). The maximum
number of shares of Common Stock that may be subject to outstanding awards may
not exceed the greater of two million shares or 10% of the aggregate number of
shares of Common Stock outstanding. Awards may be settled in cash, shares, other
awards or other property, as determined by the Committee. The number of shares
reserved or deliverable under the Plan and the annual per-participant limit is
subject to adjustment in the event of stock splits, stock dividends and other
extraordinary corporate events.
The purpose of the Plan is to provide executive officers (including
directors who also serve as executive officers), key employees, consultants and
other service providers with additional incentives by increasing their ownership
interests in the Company. Individual awards under the Plan may take the form of
one or more of: (i) either incentive stock options ("ISOs") or non-qualified
stock options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii)
restricted or deferred stock; (iv) dividend equivalents; (v) bonus shares and
awards in lieu of Company obligations to pay cash compensation; and (vi) other
awards the value of which is based in whole or in part upon the value of the
Common Stock. Upon a change of control of the Company (as defined in the Plan),
certain conditions and restrictions relating to an award with respect to the
exercisability or settlement of such award will be accelerated.
The Compensation Committee will administer the Plan and generally select
the individuals who will receive awards and the terms and conditions of those
awards (including exercise prices, vesting and forfeiture conditions,
performance conditions and periods during which awards will remain outstanding).
The number of shares deliverable upon exercise of ISOs is limited to 500,000,
and the number of shares deliverable as non-performance based restricted stock
and deferred stock, is limited to 500,000. Shares of Common Stock that are
attributable to awards that have expired, terminated or been canceled or
forfeited or otherwise terminate without delivery of shares are available for
issuance or use in connection with future awards. The Plan also provides that no
participant may be granted in any calendar year awards settleable by delivery of
more than
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250,000 shares, and limits payments under cash-settled awards in any calendar
year to an amount equal to the fair market value of that number of shares.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the Plan,
except (i) no deduction is permitted in connection with ISOs if the participant
holds the shares acquired upon exercise for the required holding periods; and
(ii) deductions for some awards could be limited under the $1 million
deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under a plan during a
grace period of up to three years following this Offering, and should not apply
to certain options, SARs and performance-based awards granted thereafter if the
Company complies with certain requirements under Section 162(m).
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with this Offering, NQSOs to purchase a total of 1,081,666
shares of Common Stock of the Company have been granted as follows: 140,000
shares to Mr. Karl, and 33,333 shares to Mr. Holbrook. In addition, options to
purchase approximately 908,333 shares will be granted to the employees of the
Founding Companies. Each of the foregoing options will have an exercise price
equal to the initial public offering price per share in this Offering. These
options will vest as to 25% each on the date that is six months, 18 months, 30
months and 42 months after the consummation of this Offering, and will expire on
the earlier of 10 years after the date of grant or three months after
termination of employment.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in September 1996, provides for (i) the automatic grant
to each non-employee director serving at the commencement of this Offering of an
initial option to purchase 10,000 shares; and thereafter (ii) the automatic
grant to each non-employee director of an initial option to purchase 10,000
shares upon such person's initial election as a director. In addition, the
Directors' Plan provides for an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders following this Offering; provided, however, that a director will
not be granted an annual option if he or she was granted an initial option
during the preceding three months. The number of shares to be subject to initial
or annual options granted after the first annual meeting of stockholders
following this Offering may be altered by the Board of Directors. A total of
250,000 shares are reserved for issuance under the Directors' Plan. The number
of shares reserved, as well as the number to be subject to automatically granted
options, will be adjusted in the event of stock splits, stocks dividends and
other extraordinary corporate events.
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. The
options to be granted to the non-employee directors of the Company in connection
with this Offering will have an exercise price equal to the initial public
offering price per share in this Offering. Options will expire at the earlier of
10 years after the date of grant or one year after termination of service as a
director. Options will become exercisable one year after the date of grant,
subject to acceleration by the Board of Directors, and will be forfeited upon
termination of service as a director for reasons other than death or disability
unless the director served for at least 11 months after the date of grant or the
option was otherwise exercisable at the date of termination. In addition, the
Directors' Plan permits non-employee directors to elect to receive, in lieu of
cash directors' fees, shares or credits representing "deferred shares" to be
settled at future dates, as elected by the director. The number of shares or
deferred shares received will be equal to the number of shares which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees. Each "deferred share" will be settled by
delivery of a share of Common Stock at such time as may have been elected by the
director prior to the deferral.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Simultaneously with the closing of this Offering, MMC will acquire by
merger all of the issued and outstanding stock of the five Founding Companies,
at which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by MMC in the Mergers is
approximately $255.3 million, consisting of approximately $60.3 million in cash
and 13,000,000 shares of Common Stock. The factors considered by the Company in
determining the consideration to be paid included, among others, the historical
operating results, the net worth, the amount and type of indebtedness and the
future prospects of the Founding Companies. Immediately prior to the Mergers,
certain of the Founding Companies will make distributions of approximately $5.8
million, representing S corporation earnings previously taxed to their
respective stockholders. Also, prior to the Mergers, certain of the Founding
Companies will distribute to their respective stockholders approximately
$284,000 in net book value of assets and approximately $193,000 of related
liabilities.
The closing of each Merger is subject to a minimum price requirement for
the Common Stock sold in this Offering and to certain other conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Companies, their principal
stockholders and by the Company; the performance of each of their respective
covenants included in the merger agreements; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
the Company. In addition, the stockholders of NMS are obligated on or prior to
the consummation of this Offering, (i) to cause a capital contribution estimated
at $32.2 million to be made to NMS; (ii) to pay down all indebtedness
(approximately $2.5 million as of June 30, 1996) of NMS (other than trade
payables); and (iii) to pay to NMS $3.2 million, representing the anticipated
purchase price of an independent dealer to be acquired by NMS, for an estimated
total capital contribution of $37.9 million. See "The Company -- Summary of the
Terms of the Mergers."
There can be no assurance that the conditions of the Mergers will be
satisfied or waived or that the merger agreements will not be terminated prior
to consummation. If any of the Mergers is terminated for any reason, the Company
likely will not consummate this Offering on the terms described herein.
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
The aggregate consideration paid by MMC for each of the Founding Companies
is as follows: PPI: $140.5 million, consisting of $45.0 million to be paid in
cash and 6,370,000 shares of Common Stock; SPI: $45.1 million, consisting of
$12.0 million to be paid in cash and 2,210,000 shares of Common Stock; NMS:
$58.4 million, consisting of 3,890,125 shares of Common Stock; RTI: $7.5
million, consisting of $2.2 million to be paid in cash and 350,000 shares of
Common Stock; and SMI: $3.7 million, consisting of $1.0 million to be paid in
cash and 179,825 shares of Common Stock.
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain executive officers, directors and holders of
more than 5% of the outstanding shares of Common Stock of the Company will
receive, directly or indirectly, cash and shares of Common Stock of the Company
as follows: Mr. Singer -- $45.0 million and 6,370,000 shares of Common Stock;
Mr. Kang -- 1,456,178 shares of Common Stock; Mr. Mehrlich -- $12.0 million and
2,210,000 shares of Common Stock; Mr. Burks -- 203,490 shares of Common Stock;
Mr. Salas -- 1,456,178 shares of Common Stock; Mr. Thomas Liddell -- $0.5
million and 89,913 shares of Common Stock; and Mr. Holbrook -- $1.1 million and
175,000 shares of Common Stock.
CERTAIN INDEBTEDNESS
Certain of the Founding Companies have incurred indebtedness that has been
personally guaranteed by their respective stockholders. At June 30, 1996, the
aggregate amount of indebtedness of these Founding
45
<PAGE> 47
Companies that was subject to personal guarantees was approximately $2.0
million. The Company intends to repay substantially all of such indebtedness in
connection with the consummation of the Mergers and to use its best efforts to
have the personal guarantees of the balance of this indebtedness released within
120 days after the closing of this Offering and, in the event that any guarantee
cannot be released, to repay the balance of such indebtedness. The Company will
also repay all of the indebtedness owed to Messrs. Kang, Salas and Burks, which
aggregated $50,000 as of June 30, 1996 and is estimated to be approximately
$650,000 as of the consummation of the Mergers.
REAL ESTATE AND OTHER TRANSACTIONS
PPI leases property in Alachua, Florida that is owned by a company
controlled by Mr. Singer and a member of his family. PPI is responsible for all
real estate taxes, insurance and maintenance relating to the property. The term
of the lease is through March 31, 1999 and provides for two one year extensions
in favor of PPI. The lease commenced on April 1, 1996 and provides for annual
rentals of approximately $320,000. The Company believes that the rent for such
property does not exceed the fair market rental thereof.
Certain property owned by SMI with a net book value of $284,000 and a
related mortgage of $193,000 as of June 30, 1996 has been distributed to an
entity controlled by the stockholders of SMI and will be leased to the Company.
The lease will be for a term of five years with three renewal options for five
years each and will provide for annual rent of approximately $69,300. SMI will
be responsible for all real estate taxes, insurance and maintenance. The Company
believes that the rent for such property does not exceed the fair market rental
thereof.
Mr. Mehrlich owns a 90% interest in Professional Management Systems, Inc.
("PMSI"), an independent dealer for The Medical Manager system.
COMPANY POLICY
In the future, the Company intends that any transactions with executive
officers, directors and holders of more than 5% of the Common Stock (including
any transactions with respect to PMSI) will be approved by a majority of the
Board of Directors, including a majority of the disinterested members of the
Board of Directors.
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the Mergers
and this Offering, by (i) each person known to beneficially own more than 5% of
the outstanding shares of Common Stock; (ii) each of the Company's directors and
persons who have consented to be named as directors ("named directors"); (iii)
each named executive officer; and (iv) all executive officers, directors and
named directors as a group. All persons listed have an address in care of the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENT OF
OWNERSHIP
----------
NUMBER OF SHARES AFTER
NAME BENEFICIALLY OWNED OFFERING
<S> <C> <C>
Michael A. Singer................................................ 6,370,000 35.4%
John H. Kang(1).................................................. 1,456,178 8.1
Richard W. Mehrlich.............................................. 2,210,000 12.3
Ricardo A. Salas(1).............................................. 1,456,178 8.1
Wayne Burks...................................................... 203,490 1.1
Henry W. Holbrook................................................ 175,000 1.0
Thomas P. Liddell................................................ 89,913 *
Frederick B. Karl, Jr............................................ -- *
All executive officers, directors and persons to be named as
directors as a group (8 persons)............................... 11,960,759 66.4%
</TABLE>
- ---------------
* less than 1.0%
(1) See "The Company -- Summary of the Terms of the Mergers."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, and 500,000 shares of undesignated
preferred stock, par value $0.01 per share (the "Preferred Stock"). After giving
effect to the Mergers and the completion of this Offering, the Company will have
outstanding 18,000,000 shares of Common Stock (18,750,000 shares if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock designated or issued.
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the
Registration Statement. The following is qualified in its entirety by reference
thereto.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters voted upon by stockholders, including the
election of directors. The Certificate of Incorporation does not provide for
cumulative voting, and, accordingly, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to the rights of any then outstanding
shares of Preferred Stock, the holders of the Common Stock are entitled to such
dividends as may be declared in the discretion of the Board of Directors out of
funds legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of shares of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are,
and the shares of
47
<PAGE> 49
Common Stock to be issued pursuant to this Offering will be upon payment
therefor, fully paid and nonassessable.
Application has been made to include the Common Stock in the Nasdaq
National Market under the symbol "MMGR."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
Upon consummation of this Offering, the Company will be subject to the
provisions of Section 203 ("Section 203") of the Delaware General Corporation
Law ("DGCL"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66% of
the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of the Company, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.
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<PAGE> 50
LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Limitation on Liability. Pursuant to the Company's Certificate of
Incorporation and as permitted by Section 102(b)(7) of the DGCL, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases that are illegal under Delaware law or for any
transaction in which a director has derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Certificate of Incorporation and By-laws of the Company contain
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors.
These provisions also are intended to help ensure that the Board of Directors,
if confronted by an unsolicited proposal from a third party which has acquired a
block of stock of the Company, will have sufficient time to review the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interest of the stockholders.
The following is a summary of such provisions included in the Certificate
of Incorporation and By-laws of the Company. The Board of Directors has no
current plans to formulate or effect additional measures that could have an
antitakeover effect.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. At least two annual meetings
of stockholders, instead of one, generally will be required to effect a change
in a majority of the Board of Directors. Such a delay may help ensure that the
Board of Directors and the stockholders, if confronted with an unsolicited
proposal by a stockholder attempting to force a stock repurchase at a premium
above market, a proxy contest or an extraordinary corporate transaction, will
have sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interest of the
stockholders. Directors, if any, elected by holders of preferred stock voting as
a class, will not be classified as aforesaid. Moreover, under Delaware law, in
the case of a corporation having a classified board, stockholders may remove a
director only for cause. This provision will preclude a stockholder from
removing incumbent directors without cause.
Advance Notice Requirements for Director Nominees. The By-laws establish
an advance notice procedure with regard to the nomination of candidates for
election as directors at any meeting of stockholders called for the election of
directors. The procedure provides that a notice relating to the nomination of
directors must be timely given in writing to the Secretary of the Company prior
to the meeting. To be timely, notice relating to the nomination of directors
must be delivered not less than 90 days prior to any annual meeting or 10 days
following notice to the stockholder of any special meeting called for the
election of directors.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must be accompanied by each proposed
nominee's written consent and contain the name, address and principal occupation
of each proposed nominee and other information that may be required under the
proxy rules of the Commission. Such notice must also contain the total number of
shares of capital stock of the Company that will be voted for each of the
proposed nominees, the name and address of the notifying stockholder and the
number of shares of capital stock of the Company owned by the notifying
stockholder.
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<PAGE> 51
The presiding officer of a meeting of stockholders may determine that a
person is not nominated in accordance with the nomination procedure, in which
case such person's nomination will be disregarded. Nothing in the nomination
procedure will preclude discussion by any stockholder of any nomination properly
made or brought before any meeting called for the election of directors in
accordance with the above-mentioned procedures.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 18,000,000 shares of Common Stock. The 5,000,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
13,000,000 outstanding shares of Common Stock have been registered under the
Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares of
Common Stock from either the Company or any affiliate of the Company, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of the Common
Stock, or the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of the proposed sale is sent to the Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from the Company or any affiliate of the Company, a person who
is not deemed to have been an affiliate of the Company at any time for 90 days
preceding a sale would be entitled to sell such shares under Rule 144 without
regard to the volume limitations, manner of sale provisions or notice
requirements.
The Company and its executive officers, directors and certain stockholders
who will beneficially own 11,960,759 shares in the aggregate upon the
consummation of this Offering have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, except that the Company may issue Common Stock in
connection with acquisitions or in connection with the Plan and the Directors'
Plan (collectively, the "Plans"). See "Underwriting." In addition, the
stockholders of the Founding Companies and the Company's executive officers,
certain directors and certain stockholders have agreed with the Company that
they will not sell any of their shares for a period of two years after the
closing of this Offering. If the two-year "holding" period for restricted
securities under Rule 144 described above is reduced by the Commission, this
two-year restriction on sales of Common Stock will be correspondingly reduced.
In connection with the Mergers, the Company has agreed to provide certain
registration rights with respect to the Common Stock issued to the stockholders
of the Founding Companies. The registration rights provide for a single demand
registration right, exercisable by the holders of a majority of the shares of
Common Stock subject to the registration rights, pursuant to which the Company
will file a registration statement under the Securities Act to register the sale
of shares by those requesting stockholders and any other holders of Common Stock
subject to the registration rights who desire to sell pursuant to such
registration statement. The demand request may not be made until the expiration
of two years after the closing of this Offering. Subject to certain conditions
and limitations, the registration rights also provide the holders of Common
Stock subject to the registration rights with the right to participate in
registrations by the Company of its equity securities in underwritten offerings,
subject to certain exceptions. In addition, Mr. Singer has been
50
<PAGE> 52
granted an additional separate demand registration right with respect to the
shares of Common Stock received by him in connection with the Mergers,
exercisable commencing two years after the closing of this Offering.
In the case of each of the registration rights described above, the Company
is generally required to pay the costs associated with such an offering other
than underwriting discounts and commissions attributable to the shares sold on
behalf of the selling stockholders.
Within 90 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradable after their issuance. In some
instances, however, the Company may contractually restrict the sale of shares
issued in connection with future acquisitions. The registration rights described
above do not apply to the registration statement relating to these 5,000,000
shares.
In addition to the shares described above, 2,000,000 shares of Common Stock
have been reserved for issuance upon exercise of options that may be granted
under the Plans. The Company intends to file one or more registration statements
on Form S-8 under the Securities Act with respect to such shares of Common
Stock. Shares of Common Stock covered by such registration statements will be
freely tradable by holders who are not affiliates of the Company and, subject to
the volume and other limitations of Rule 144, by holders who are affiliates of
the Company.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the ability of the
Company to raise equity capital in the future.
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<PAGE> 53
UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation and Dean Witter Reynolds
Inc. are acting as representatives (collectively, the "Representatives"), have
severally agreed to purchase from the Company an aggregate of 5,000,000 shares
of Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dean Witter Reynolds Inc..............................................
-----------
Total....................................................... 5,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than the shares of the
Common Stock covered by the over-allotment option described below) if any are
taken.
Prior to this Offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiations between the Company and the
Representatives. The factors to be considered in determining the initial price
to the public are expected to include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies, and the general condition of the securities
markets at the time of this Offering.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share to any other Underwriter and certain other
dealers. After this Offering, the prices and concessions and reallowances to
dealers may be changed by the Underwriters. The Common Stock is offered subject
to receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 750,000
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions, solely to cover over-allotments. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares offered.
Subject to certain exceptions, the Company and certain of its directors,
executive officers, and holders of more than 5% of the Company's Common Stock
who are expected to be the holders of 11,960,759 shares of Common Stock upon the
consummation of this Offering have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
or exchangeable into any shares of Common Stock prior to the expiration of 180
days from the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Shares Eligible for
Future Sale."
The Underwriters do not intend to confirm sales of shares of Common Stock
to accounts over which they exercise discretionary authority.
52
<PAGE> 54
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
New York, New York. Certain legal matters related to this Offering will be
passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The audited financial statements as indicated in the index on pages F-1 and
F-2 of this Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a Registration
Statement on Form S-1 with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the shares of Common Stock offered
hereby, reference is made to such Registration Statement, including the
exhibits, financial statements and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained from the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically.
The address of such Internet web site is http://www.sec.gov.
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<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation............................................................... F-3
Pro Forma Combined Balance Sheet as of June 30, 1996 (unaudited).................... F-4
Pro Forma Combined Statements of Operations for the Year Ended December 31, 1995
(unaudited)...................................................................... F-5
Pro Forma Combined Statements of Operations for the Six Months Ended June 30, 1995
(unaudited)...................................................................... F-6
Pro Forma Combined Statements of Operations for the Six Months Ended June 30, 1996
(unaudited)...................................................................... F-7
Notes to Unaudited Pro Forma Combined Financial Statements.......................... F-8
Historical Financial Statements
Medical Manager Corporation
Report of Independent Accountants................................................ F-11
Balance Sheet.................................................................... F-12
Notes to Balance Sheet........................................................... F-13
Personalized Programming, Inc.
Report of Independent Accountants................................................ F-15
Balance Sheets................................................................... F-16
Statements of Operations......................................................... F-17
Statements of Changes in Stockholder's Equity.................................... F-18
Statements of Cash Flows......................................................... F-19
Notes to Financial Statements.................................................... F-20
Systems Plus, Inc.
Report of Independent Accountants................................................ F-23
Combined Balance Sheets.......................................................... F-24
Combined Statements of Operations................................................ F-25
Combined Statements of Changes in Stockholder's Equity........................... F-26
Combined Statements of Cash Flows................................................ F-27
Notes to Combined Financial Statements........................................... F-28
RTI Business Systems, Inc.
Report of Independent Accountants................................................ F-33
Balance Sheets................................................................... F-34
Statements of Operations and Accumulated Deficit................................. F-35
Statements of Cash Flows......................................................... F-36
Notes to Financial Statements.................................................... F-37
National Medical Systems, Inc.
Report of Independent Accountants................................................ F-42
Consolidated Balance Sheets...................................................... F-43
Consolidated Statements of Operations............................................ F-44
Consolidated Statements of Changes in Stockholder's Deficit...................... F-45
Consolidated Statements of Cash Flows............................................ F-46
Notes to Consolidated Financial Statements....................................... F-47
</TABLE>
F-1
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Systems Management, Inc.
Report of Independent Accountants................................................ F-53
Balance Sheets................................................................... F-54
Statements of Operations......................................................... F-55
Statements of Changes in Stockholders' Equity.................................... F-56
Statements of Cash Flows......................................................... F-57
Notes to Financial Statements.................................................... F-58
GBP With Excellence, Inc.
Report of Independent Accountants................................................ F-62
Balance Sheet.................................................................... F-63
Statements of Operations and Accumulated Deficit................................. F-64
Statements of Cash Flows......................................................... F-65
Notes to Financial Statements.................................................... F-66
Medical Manager Division
Report of Independent Accountants................................................ F-68
Financial Position............................................................... F-69
Statements of Operations......................................................... F-70
Statements of Cash Flows......................................................... F-71
Notes to Financial Statements.................................................... F-72
</TABLE>
F-2
<PAGE> 57
MEDICAL MANAGER CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisition by Medical Manager Corporation ("MMC") of substantially all
of the net assets of (a) Personalized Programming, Inc. ("PPI"), Systems Plus,
Inc. ("SPI"), RTI Business Systems, Inc. ("RTI"), National Medical Systems, Inc.
("NMS"), and Systems Management, Inc. ("SMI"), (together, the "Founding
Companies"). MMC and the Founding Companies are hereinafter referred to as the
"Company". These acquisitions (the "Mergers") will occur simultaneously with the
closing of MMC's initial public offering (this "Offering") and will be accounted
for as a combination of the Founding Companies at historical cost for accounting
purposes. PPI, one of the Founding Companies, has been identified as the
acquiror for financial statement presentation purposes. In addition, NMS will
acquire the Medical Manager Division of Medix, Inc. The stockholders of NMS are
obligated to contribute $37.9 million of additional capital on or prior to the
consummation of the offering. The unaudited pro forma combined financial
statements also give effect to the issuance of Common Stock by MMC to the
stockholders of the Founding Companies upon the consummation of the Mergers.
These statements are based on historical financial statements of the Founding
Companies included elsewhere in this Prospectus and the estimates and
assumptions set forth below and in the notes to the Unaudited Pro Forma Combined
Financial Statements of the Company.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and this Offering as if they had occurred on June 30, 1996. The unaudited pro
forma combined statements of operations give effect to these transactions as if
they had occurred at the beginning of each period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Founding
Companies. The unaudited pro forma combined financial statements should be read
in conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE> 58
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET(1)
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PPI SPI RTI NMS SMI ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ $2,610 $ 286 $ 5 $ 79 $ 297 $ 3,277
Investments.............................................. 507 50 0 0 0 557
Accounts receivable, net................................. 1,396 1,463 284 983 289 $ 708 3,707
Inventory................................................ 0 114 32 50 150 346
Prepaid expenses and other current assets................ 79 145 10 0 0 234
Deferred income taxes.................................... 0 0 262 0 0 262
------ ------ ------ ------- ------ ----- -------
Total current assets............................... 4,592 2,058 593 1,112 736 708 8,383
PROPERTY AND EQUIPMENT, net................................ 370 624 494 369 435 2,292
GOODWILL AND OTHER INTANGIBLES, net........................ 0 0 0 2,753 100 2,853
OTHER ASSETS............................................... 0 797 0 11 0 808
------ ------ ------ ------- ------ ----- -------
Total assets....................................... $4,962 $3,479 $ 1,087 $ 4,245 $1,271 $ 708 $14,336
====== ====== ====== ======= ====== ===== =======
CURRENT LIABILITIES
Current maturities of long-term obligations.............. $ 0 $ 0 $ 467 $ 974 $ 106 $ 1,547
Accounts payable and accrued liabilities................. 487 1,029 399 729 184 $ (708) 2,120
Customer deposits and deferred maintenance revenue....... 1,107 172 379 876 435 2,969
Income taxes payable..................................... 0 3 201 0 0 204
------ ------ ------ ------- ------ ----- -------
Total current liabilities.......................... 1,594 1,204 1,446 2,579 725 (708) 6,840
LONG-TERM OBLIGATIONS, net of current maturities........... 0 0 131 1,101 234 1,466
SUBORDINATED NOTES PAYABLE................................. 0 0 0 293 0 293
DEFERRED INCOME TAXES...................................... 0 0 0 0 0 0
------ ------ ------ ------- ------ ----- -------
Total liabilities.................................. 1,594 1,204 1,577 3,973 959 (708) 8,599
------ ------ ------ ------- ------ ----- -------
REDEEMABLE PREFERRED STOCK................................. 0 0 0 500 0 500
STOCKHOLDERS' EQUITY
Common stock............................................. 0 28 102 69 15 214
Additional paid-in capital............................... 8 0 0 790 0 798
Marketable security valuation............................ 2 0 0 0 0 2
Retained earnings (deficit).............................. 3,358 2,247 (592) (1,087) 297 4,223
------ ------ ------ ------- ------ ----- -------
Total stockholders' equity......................... 3,368 2,275 (490) (228) 312 5,237
------ ------ ------ ------- ------ ----- -------
Total liabilities and stockholders' equity......... $4,962 $3,479 $ 1,087 $ 4,245 $1,271 $ (708) $14,336
====== ====== ====== ======= ====== ===== =======
<CAPTION>
PRO FORMA POST-MERGER AS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ $ 27,360 $30,637 $ 7,250 $37,887
Investments.............................................. (557) 0 0
Accounts receivable, net................................. 312 4,019 4,019
Inventory................................................ 224 570 570
Prepaid expenses and other current assets................ 318 552 552
Deferred income taxes.................................... 0 262 262
------- ------- ------- -------
Total current assets............................... 27,657 36,040 7,250 43,290
PROPERTY AND EQUIPMENT, net................................ (155) 2,137 2,137
GOODWILL AND OTHER INTANGIBLES, net........................ 3,007 5,860 5,860
OTHER ASSETS............................................... (797) 11 11
------- ------- ------- -------
Total assets....................................... $ 29,712 $44,048 $ 7,250 $51,298
======= ======= ======= =======
CURRENT LIABILITIES
Current maturities of long-term obligations.............. $ (1,547) 0 $ $ 0
Accounts payable and accrued liabilities................. 0 2,120 2,120
Customer deposits and deferred maintenance revenue....... 790 3,759 3,759
Income taxes payable..................................... 0 204 204
------- ------- ------- -------
Total current liabilities.......................... (757) 6,083 6,083
LONG-TERM OBLIGATIONS, net of current maturities........... (1,466) 0 0
SUBORDINATED NOTES PAYABLE................................. (293) 0 0
DEFERRED INCOME TAXES...................................... 0 0
------- ------- ------- -------
Total liabilities.................................. (2,516) 6,083 6,083
------- ------- ------- -------
REDEEMABLE PREFERRED STOCK................................. (500) 0 0
STOCKHOLDERS' EQUITY
Common stock............................................. (84) 130 50 180
Additional paid-in capital............................... 37,037 37,835 7,200 45,035
Marketable security valuation............................ (2) 0 0
Retained earnings (deficit).............................. (4,223) 0 0
------- ------- ------- -------
Total stockholders' equity......................... 32,728 37,965 7,250 45,215
------- ------- ------- -------
Total liabilities and stockholders' equity......... $ 29,712 $44,048 $ 7,250 $51,298
======= ======= ======= =======
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 59
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
FORMA
ADJUSTMENTS
-------
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL (J)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems......................................... $ 1,018 $ 766 $2,712 $3,588 $1,094 $ 0 $ 9,178
Software license................................ 7,529 12,503 0 0 0 (6,713) 13,319
Maintenance and other........................... 2,473 1,910 2,241 5,564 1,623 0 13,811
------- ------- ------ ------ ------ ------- ------- ----
Total revenue............................. 11,020 15,179 4,953 9,152 2,717 (6,713) 36,308
------- ------- ------ ------ ------ ------- ------- ----
Cost of revenue
Systems......................................... 704 441 1,486 2,764 517 (1,363) 4,549 $ (47)
Software license................................ 651 6,978 0 0 0 (5,350) 2,279 (27)
Maintenance and other........................... 227 1,682 1,215 3,300 1,714 0 8,138 (51)
------- ------- ------ ------ ------ ------- ------- ----
Total costs of revenue.................... 1,582 9,101 2,701 6,064 2,231 (6,713) 14,966 (125)
------- ------- ------ ------ ------ ------- ------- ----
Gross margin.............................. 9,438 6,078 2,252 3,088 486 $ 0 21,342 125
------- ------- ------ ------ ------ ------- ------- ----
Operating expenses
Selling, general and administrative............. 1,351 3,345 2,269 2,128 426 9,519 (557)
Research and development........................ 2,024 0 0 0 0 2,024
Depreciation and amortization................... 226 102 58 493 32 911
------- ------- ------ ------ ------ ------- ------- ----
Total operating
expenses................................ 3,601 3,447 2,327 2,621 458 12,454 (557)
------- ------- ------ ------ ------ ------- ------- ----
Income (loss) from operations............. 5,837 2,631 (75) 467 28 8,888 682
Other income (expense)
Interest expense................................ 0 (37) (33) (109 ) (23) (202)
Interest income................................. 136 88 0 0 0 224
Other........................................... (27) 169 3 0 0 145
------- ------- ------ ------ ------ ------- ------- ----
Income (loss) before income
taxes........................................... 5,946 2,851 (105) 358 5 9,055 682
Income taxes...................................... 0 53 0 0 0 53
------- ------- ------ ------ ------ ------- ------- ----
Net income (loss)......................... $ 5,946 $ 2,798 $ (105) $ 358 $ 5 $ 9,002 $ 682
======= ======= ====== ====== ====== ======= ======= ====
Pro Forma income per share........................
Shares used in computing pro forma income per
share...........................................
<CAPTION>
(K) (L) (M) (N) PRO FORMA
<S> <C> <C> <C> <C> <C>
Revenue
Systems......................................... $ 9,178
Software license................................ 13,319
Maintenance and other........................... 13,811
------
-
----
Total revenue............................. 36,308
------
-
----
Cost of revenue
Systems......................................... $ 35 4,537
Software license................................ 11 2,263
Maintenance and other........................... 41 8,128
------
-
----
Total costs of revenue.................... 87 14,928
------
-
----
Gross margin.............................. (87) 21,380
------
-
----
Operating expenses
Selling, general and administrative............. 39 9,001
Research and development........................ 99 2,123
Depreciation and amortization................... (99) 812
------
-
----
Total operating
expenses................................ 39 11,936
------
-
----
Income (loss) from operations............. (126) 9,444
Other income (expense)
Interest expense................................ 19 $ 183 0
Interest income................................. $(224) 0
Other........................................... (169) (24)
------
-
----
Income (loss) before income
taxes........................................... (107) 183 (393) 9,420
Income taxes...................................... $ 3,574 3,627
------
-
----
Net income (loss)......................... $(107) $ 183 $(393) $(3,574) $ 5,793
==== =======
Pro Forma income per share........................ $ 0.32
Shares used in computing pro forma income per
share........................................... 18,000(o)
</TABLE>
- ------------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include acquisitions of GBP and
Medix as if each had occurred on January 1, 1995.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 60
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL (J) (K) (L)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems............................ $ 425 $ 17 $1,130 $1,623 $ 286 $ 0 $ 3,481
Software license................... 3,493 5,927 0 0 0 (3,092) 6,328
Maintenance and other.............. 1,241 849 1,087 2,663 865 0 6,705
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Total revenue............... 5,159 6,793 2,217 4,286 1,151 (3,092) 16,514
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Cost of revenue
Systems............................ 317 61 771 1,260 272 (644) 2,037 $ (2) $ 13
Software license................... 357 3,416 0 0 0 (2,448) 1,325 (13) 6
Maintenance and other.............. 121 761 742 1,572 642 0 3,838 (10) 22
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Total costs of revenue...... 795 4,238 1,513 2,832 914 (3,092) 7,200 (25) 41
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Gross margin................ 4,364 2,555 704 1,454 237 0 9,314 25 (41)
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Operating expenses
Selling, general and
administrative................... 603 1,533 717 1,046 201 4,100 (164) 20
Research and development........... 956 0 0 0 0 956 50
Depreciation and amortization...... 89 51 29 240 20 429 (32)
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Total operating expenses.... 1,648 1,584 746 1,286 221 5,485 (164) 38
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Income (loss) from
operations................ 2,716 971 (42) 168 16 3,829 189 (79)
Other income (expense)
Interest expense................... 0 (22) (15) (48 ) (6) (91) 4 $87
Interest income.................... 53 43 0 0 0 96
Other.............................. 49 87 0 0 0 136
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Income (loss) before income taxes.... 2,818 1,079 (57) 120 10 3,970 189 (75) 87
Income taxes......................... 0 27 0 0 0 27
--
------ ------ ------ ------ ------ ------- ------- ---- ---
Net income (loss)........... $2,818 $1,052 $ (57) $ 120 $ 10 $ 3,943 $ 189 $(75) $87
====== ====== ====== ====== ====== ======= ======= ==== === ==
Pro forma income per share...........
Shares used in computing pro forma
income per share...................
<CAPTION>
(M) (N) PRO FORMA
<S> <C> <C> <C>
Revenue
Systems............................ $ 3,481
Software license................... 6,328
Maintenance and other.............. 6,705
----- ------ -------
Total revenue............... 16,514
----- ------ -------
Cost of revenue
Systems............................ 2,048
Software license................... 1,318
Maintenance and other.............. 3,850
----- ------ -------
Total costs of revenue...... 7,216
----- ------ -------
Gross margin................ 9,298
----- ------ -------
Operating expenses
Selling, general and
administrative................... 3,956
Research and development........... 1,006
Depreciation and amortization...... 397
----- ------ -------
Total operating expenses.... 5,359
----- ------ -------
Income (loss) from
operations................ 3,939
Other income (expense)
Interest expense................... 0
Interest income.................... $ (96) 0
Other.............................. (87) 49
----- ------ -------
Income (loss) before income taxes.... (183) 3,988
Income taxes......................... $ 1,508 1,535
----- ------ -------
Net income (loss)........... $(183) $(1,508) $ 2,453
===== ====== =======
Pro forma income per share........... $ 0.14
=======
Shares used in computing pro forma
income per share................... 18,000(o)
=======
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include the acquisitions of GBP and
Medix as if each had occurred on January 1, 1995.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 61
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL (J) (K) (L)
------ ------ ------ ------ ------ ------------ ------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems............................. $ 407 $ 668 $1,301 $1,712 $ 946 $ 0 $ 5,034
Software license.................... 4,058 6,587 0 0 0 (3,618) 7,027
Maintenance and other............... 1,308 982 1,732 2,864 969 0 7,855
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Total revenue................ 5,773 8,237 3,033 4,576 1,915 (3,618) 19,916
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Cost of revenue
Systems............................. 385 452 604 1,321 697 (782) 2,677 $ (34) $ 21
Software license.................... 286 3,720 0 0 0 (2,836) 1,170 (22) 6
Maintenance and other............... 260 827 1,162 1,671 774 0 4,694 (50) 19
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Total costs of revenue....... 931 4,999 1,766 2,992 1,471 (3,618) 8,541 (106) 46
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Gross margin............... 4,842 3,238 1,267 1,584 444 0 11,375 106 (46)
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Operating expenses
Selling, general and
administrative.................... 646 1,972 1,164 1,027 236 5,045 (412) 19
Research and development............ 1,224 0 0 263 0 1,487 50
Depreciation and amortization....... 133 76 46 270 35 560 (47)
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Total operating expenses..... 2,003 2,048 1,210 1,560 271 7,092 (412) 22
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Income (loss) from
operations............... 2,839 1,190 57 24 173 4,283 518 (68)
Other income (expense)
Interest expense.................... 0 (11) (20) (94 ) (10) (135) 8 $127
Interest income..................... 33 47 0 0 0 80
Other............................... 21 240 0 0 0 261
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Income (loss) before income taxes..... 2,893 1,466 37 (70 ) 163 4,489 518 (60) 127
Income taxes.......................... 0 18 0 0 0 18
------
-
------ ------ ------ ------ ------ ------ ------- ----- ----
Net income(loss)............. $2,893 $1,448 $ 37 $ (70 ) $ 163 $ $ 4,471 $ 518 $(60) $127
====== ====== ====== ====== ====== ====== ======= ======= ===== ====
<CAPTION>
(M) (N) PRO FORMA
----- ------- ---------
<S> <C> <C> <C>
Revenue
Systems............................. $ 5,034
Software license.................... 7,027
Maintenance and other............... 7,855
--
----
Total revenue................ 19,916
--
----
Cost of revenue
Systems............................. 2,664
Software license.................... 1,154
Maintenance and other............... 4,663
--
----
Total costs of revenue....... 8,481
--
----
Gross margin............... 11,435
--
----
Operating expenses
Selling, general and
administrative.................... 4,652
Research and development............ 1,537
Depreciation and amortization....... 513
--
----
Total operating expenses..... 6,702
--
----
Income (loss) from
operations............... 4,733
Other income (expense)
Interest expense.................... 0
Interest income..................... $ (80) 0
Other............................... (240) 21
--
----
Income (loss) before income taxes..... (320) 4,754
Income taxes.......................... 1,812 1,830
--
----
Net income(loss)............. $(320) $ 1,812 $ 2,924
== ====
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include the acquisition of Medix as
if it had occurred on January 1, 1996.
See accompanying notes to unaudited pro forma combined financial statements.
<TABLE>
<S> <C>
Pro forma income per share.............................................................................................. $ 0.16
======
Shares used in computing pro forma income per share..................................................................... 18,000(o)
======
</TABLE>
F-7
<PAGE> 62
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. MEDICAL MANAGER CORPORATION BACKGROUND:
Medical Manager Corporation ("MMC") was formed to bring together the
research, development, service and support and sales and marketing efforts for
The Medical Manager, a comprehensive physician practice management system, in
one entity serving the United States. MMC has conducted no operations to date
and will acquire the Founding Companies simultaneously with the consummation of
this Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of all the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31 year-end or they have been converted to a December 31 year-end. The
audited historical financial statements included elsewhere in this Prospectus
have been included in accordance with Securities and Exchange Commission (SEC)
Staff Accounting Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES;
Concurrent with the closing of this Offering, MMC will acquire
substantially all of the net assets of the Founding Companies. The Mergers will
be accounted for as a combination of the Founding Companies at historical cost
for accounting purposes, with PPI being treated as the acquiror.
The following table sets forth for each Founding Company the consideration
(in thousands) to be paid to its common stockholders (i) in cash; and (ii) in
shares of common stock of MMC:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
FAIR VALUE
CASH SHARES OF SHARES
------- ------ ----------
<S> <C> <C> <C>
PPI....................................................... $45,000 6,370 $ 95,550
SPI....................................................... 12,000 2,210 33,150
RTI....................................................... 2,250 350 5,250
NMS....................................................... -- 3,890 58,353
SMI....................................................... 1,000 180 2,697
------ ------ --------
Total........................................... $60,250 13,000 $ 195,000
====== ====== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records additional capital contribution by NMS.
(b) Records the distribution of PPI's Accumulated Adjustment Account.
(c) Records the distribution of SPI's Accumulated Adjustment Account.
(d) Records the distribution of building to stockholders of SMI.
(e) Records the purchase of Medix by NMS.
(f) Records the conversion of NMS preferred stock and notes payable to
common stock and exercise of warrants for NMS.
(g) Records the repayment of debt obligations and other pro forma
adjustments.
(h) Records the proceeds from the issuance of 5,000,000 shares of MMC
Common Stock, net of estimated offering costs of $7,500,000 (based on an assumed
initial public offering price of $15 per share, the midpoint of the estimated
price range). Offering costs primarily consist of underwriting discounts and
commissions, legal fees, accounting fees and printing expenses.
The holders of 13.0 million shares of Common Stock issued in partial
payment of the Mergers have agreed not to offer, sell or otherwise dispose of
any of those shares for a period of two years after the Offering (or for such
shorter period as the SEC may prescribe as the holding period for registered
securities under Rule 144D).
F-8
<PAGE> 63
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS: -- (CONTINUED)
(i) Records the cash portion to be paid to the stockholders of the Founding
Companies in connection with the Mergers.
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(j) Adjusts compensation expense to the level the stockholders of certain
of the Founding Companies have agreed to receive subsequent to the Mergers.
(k) Adjusts for the effects of assets distributed to and the costs of
certain building leases executed by MMC with the stockholders of PPI and SMI.
(l) Records change in interest expense for pro forma adjustments to debt.
(m) Records pro forma change in interest and dividend income and realized
gains (losses) on investments for pro forma adjustments to cash and investments.
(n) Records the incremental provision for federal and state income taxes
relating to the compensation differential, S corporation income and other pro
forma adjustments.
(o) The number of shares estimated to be outstanding on completion of this
Offering includes the following:
<TABLE>
<S> <C>
Outstanding...................................................... 3
Issued at Initial Public Offering................................ 5,000,000
Issued to acquire Founding Companies............................. 12,999,997
Shares assumed issued from Long-Term Incentive Plan.............. 1,081,666
Shares assumed repurchased from proceeds from shares assumed
issued from Long-Term Incentive Plan........................... (1,081,666)
----------
Shares estimated to be outstanding............................... 18,000,000
=========
</TABLE>
F-9
<PAGE> 64
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
ADJUSTMENTS (A) (B) (C) (D) (E) (F) (G) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 37,853 $ (2,610) $(286) $ $ 91 $(7,688) $ 27,360
Investments........................... (507) (50) (557)
Accounts receivable, net.............. 312 312
Inventory............................. 224 224
Prepaid expenses and other current
assets.............................. 318 318
Property and equipment, net........... (284) 129 (155)
Goodwill and other intangibles........ 3,007 3,007
Other assets.......................... (797) (797)
Current maturities of long term
obligations......................... (803) (772) 7 (3,200) 6,315 1,547
Customer deposits and deferred
maintenance......................... (790) (790)
Long-term obligations................. 186 200 1,080 1,466
Subordinated notes payable............ 293 293
Redeemable preferred stock............ 500 500
Common stock.......................... (13) 97 84
Additional paid-in capital............ (37,853) 560 (778) 1,034 (37,037)
Marketable securities valuation....... 2 2
Retained earnings..................... 3,358 1,905 91 (1,131) 4,223
-------- -------- ----- ----- ------- ----- ------- --------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ===== ===== ======= ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
POST MERGER BALANCE SHEET
ADJUSTMENTS (H) (I) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............... $ 67,500 $(60,250) $ 7,250
Investments............................. 0
Accounts receivable, net................ 0
Inventory............................... 0
Prepaid expenses and other current
assets................................ 0
Property and equipment, net............. 0
Goodwill and other intangibles.......... 0
Other assets............................ 0
Current maturities of long term debt.... 0
Customer deposits and deferred
maintenance........................... 0
Long-term debt, net of current
maturities............................ 0
Subordinated notes payable.............. 0
Redeemable preferred stock.............. 0
Common stock............................ (50) (50)
Additional paid-in capital.............. (67,450) 60,250 (7,200)
Marketable securities valuation......... 0
Retained earnings....................... 0
-------- -------- ----- ----- ------- ----- ------- -------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ===== ===== ======= ===== ======= =======
</TABLE>
F-10
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medical Manager Corporation
We have audited the accompanying balance sheet of Medical Manager
Corporation as of July 31, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Medical Manager Corporation as of
July 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 4 to the balance sheet, the Company was formed
in July 1996 and has entered into definitive agreements for the acquisition of
substantially all the net assets of Personalized Programming, Inc., Systems
Plus, Inc. and Systems Plus Distribution, Inc., RTI Business Systems, Inc.,
National Medical Systems, Inc. and Systems Management, Inc. in connection with
an initial public offering of its common stock.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 27, 1996
F-11
<PAGE> 66
MEDICAL MANAGER CORPORATION
BALANCE SHEET
JULY 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash.......................................................................... $100
====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and Contingencies (Note 4)........................................
STOCKHOLDERS' EQUITY
Preferred Stock, 500,000 shares authorized, none issued and outstanding.......
Common Stock, $0.01 par value, 50,000,000 shares authorized, 3 issued and
outstanding.................................................................
Additional paid in capital.................................................... 100
----
$100
====
</TABLE>
See accompanying notes to balance sheet.
F-12
<PAGE> 67
MEDICAL MANAGER CORPORATION
NOTES TO BALANCE SHEET
1. ORGANIZATION AND OPERATIONS:
Medical Manager Corporation (MMC) was formed in July 1996 to bring together
the research and development, sales, marketing and support resources for The
Medical Manager, a leading physician practice management system for independent
physicians, physician groups, MSO's, IPA's, management care organizations and
other providers of health care services in the United States. MMC intends to
acquire five companies (the Founding Companies) including the developer of The
Medical Manager, the master distributor of The Medical Manager and three of the
national dealers for The Medical Manager (the Mergers); complete an initial
public offering (the Offering) of its common stock and, subsequent to the
offering, continue to acquire, through mergers or purchase, other dealers to
expand its national and regional operations. MMC plans to file a registration
statement on Form S-1 in September, 1996 for the sale of its common stock.
MMC's primary asset at July 31, 1996 was cash. MMC has not conducted any
operations, and all activities to date relating to the Mergers and the offering
have been conducted by National Medical Systems, Inc. (NMS), one of the
companies to be acquired in the Mergers. Cash of $100 results from the initial
capitalization of MMC. There is no assurance that the Acquisitions discussed
below will be completed and that MMC will be able to generate future operating
revenue. MMC is dependent upon the offering to fund the Mergers and future
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax returns. Deferred tax assets or liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are recovered or
settled. MMC provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported periods. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of", is effective for years beginning after December 15, 1995. This
statement requires that long-lived assets and certain intangibles to be held and
used by MMC be reviewed for impairments. This pronouncement is not expected to
have a material impact on the financial position of MMC.
SFAS No. 123, "Accounting for Stock-Based Compensation," will be effective
for MMC. SFAS No. 123 permits, but does not require, a fair-value based method
of accounting for employee stock option plans which results in compensation
expense recognition when stock options are granted. As permitted by SFAS No.
123, MMC will provide pro forma disclosure of net income and earnings per share,
as applicable, in the notes to future consolidated financial statements.
Fiscal Year End. MMC intends to elect a fiscal year end of June 30.
3. STOCK OPTIONS:
MMC has approved the 1996 Incentive Plan (the Plan) which provides for the
granting or awarding of stock options and stock appreciation rights to
non-employee directors, officers and other key employees
F-13
<PAGE> 68
(including officers of the Founding Companies). The numbers of shares authorized
and reserved for issuance under the Plan is limited to the greater of 2,000,000
shares or ten percent of the number of shares of Common Stock outstanding at the
time of the grant. The options will have an exercise price equal to the offering
price and will vest as to 25% each on the date that is six months, 18 months, 30
months and 42 months after the consummation of the offering, and will expire on
the earlier of 10 years after the date of the grant or three months after
termination of employment. As of September 27, 1996, the Company has granted
options covering an aggregate of 1,081,666 shares of common stock.
4. COMMITMENTS AND CONTINGENCIES:
As discussed in Note 1, MMC has entered into definitive agreements with the
Founding Companies providing for the acquisition by MMC of substantially all of
the net assets of Personalized Programming, Inc. (PPI), Systems Plus, Inc. and
Systems Plus Distribution, Inc. (SPI), RTI Business Systems, Inc. (RTI),
National Medical Systems, Inc. (NMS) and Systems Management, Inc. (SMI). The
Mergers will be accounted for as a net book value purchase of the Founding
Companies at historical cost for accounting purposes, with PPI being treated as
the acquiror.
The following table sets forth for each Founding Company the consideration
to be paid to its common stockholders (i) in cash and (ii) in shares of common
stock of MMC (in thousands):
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
FAIR VALUE
CASH SHARES OF SHARES
------- ------- ----------
<S> <C> <C> <C>
PPI.................................................. $45,000 6,370 $ 95,550
SPI.................................................. 12,000 2,210 33,150
RTI.................................................. 2,250 350 5,250
NMS.................................................. -- 3,890 58,353
SMI.................................................. 1,000 180 2,697
------- ------- --------
$60,250 13,000 $ 195,000
======= ======= ========
</TABLE>
F-14
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Personalized Programming, Inc.
We have audited the accompanying balance sheets of Personalized
Programming, Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the
related statements of operations, changes in stockholder's equity and cash flows
for each of the three years in the period ended December 31, 1995 and for the
six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Personalized Programming,
Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, in July 1996 the
Company and its stockholder entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 23, 1996
F-15
<PAGE> 70
PERSONALIZED PROGRAMMING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $1,308,844 $1,166,679 $2,609,824
Investments............................................. 255,962 355,414 507,421
Accounts receivable, net................................ 1,272,374 1,383,849 1,395,878
Prepaid expenses and other current assets............... 61,194 71,039 79,506
---------- ---------- ----------
Total current assets............................ 2,898,374 2,976,981 4,592,629
PROPERTY AND EQUIPMENT, net............................... 1,817,798 2,842,315 370,252
---------- ---------- ----------
Total assets.................................... $4,716,172 $5,819,296 $4,962,881
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities................ $ 337,106 $ 474,783 $ 486,944
Customer deposits and deferred maintenance revenue...... 551,793 581,357 1,107,110
---------- ---------- ----------
Total current liabilities....................... 888,899 1,056,140 1,594,054
---------- ---------- ----------
Commitments and contingencies (Notes 5 and 8)
STOCKHOLDER'S EQUITY
Common stock $0.10 par value, 1,000 shares authorized,
issued and outstanding............................... 100 100 100
Additional paid-in capital.............................. 8,035 8,035 8,035
Unrealized gain (loss) on investments................... (95,014) 2,085 2,085
Retained earnings....................................... 3,914,152 4,752,936 3,358,607
---------- ---------- ----------
Total stockholder's equity...................... 3,827,273 4,763,156 3,368,827
---------- ---------- ----------
Total liabilities and stockholder's equity...... $4,716,172 $5,819,296 $4,962,881
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 71
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems........................... $ 693,964 $1,013,675 $ 1,017,993 $ 425,625 $ 406,971
Software license.................. 4,840,055 6,327,994 7,528,997 3,492,863 4,058,340
Maintenance and other............. 1,355,726 2,275,515 2,472,704 1,241,196 1,308,373
------------ ------------ ------------ ---------- ----------
Total revenue.................. 6,889,745 9,617,184 11,019,694 5,159,684 5,773,684
------------ ------------ ------------ ---------- ----------
Cost of revenue
Systems........................... 571,735 751,643 703,755 317,414 385,229
Software license.................. 63,675 380,877 650,460 357,289 286,062
Maintenance and other............. 174,820 235,012 227,435 120,582 260,164
------------ ------------ ------------ ---------- ----------
Total costs of revenue......... 810,230 1,367,532 1,581,650 795,285 931,455
------------ ------------ ------------ ---------- ----------
Gross margin.............. 6,079,515 8,249,652 9,438,044 4,364,399 4,842,229
------------ ------------ ------------ ---------- ----------
Operating expenses
Selling, general and
administrative................. 982,373 1,184,097 1,350,427 602,991 646,855
Research and development.......... 1,039,971 1,501,605 2,024,252 956,422 1,223,679
Depreciation and amortization..... 104,475 196,547 226,167 88,468 132,888
------------ ------------ ------------ ---------- ----------
Total operating expenses....... 2,126,819 2,882,249 3,600,846 1,647,881 2,003,422
------------ ------------ ------------ ---------- ----------
Income from operations.... 3,952,696 5,367,403 5,837,198 2,716,518 2,838,807
Other income (expense)
Interest and dividend income...... 91,612 69,950 136,020 52,941 33,161
Other............................. 81,382 (15,097) (27,550) 48,777 20,966
------------ ------------ ------------ ---------- ----------
Net income................ $4,125,690 $5,422,256 $ 5,945,668 $ 2,818,236 $2,892,934
============ ============ ============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 72
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
--------------- PAID IN GAIN (LOSS) RETAINED
SHARES AMOUNT CAPITAL ON INVESTMENT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993.......... 1,000 $100 $8,035 $ (49,775) $ 2,520,860 $ 2,479,220
Net income..................... 4,125,690 4,125,690
Dividends...................... (3,985,000) (3,985,000)
Change in unrealized (loss) on
investments................. (37,850) (37,850)
------
---
---- ----- -------- ---------- ----------
Balance December 31, 1993........ 1,000 100 8,035 (87,625) 2,661,550 2,582,060
Net income..................... 5,422,256 5,422,256
Dividends...................... (4,169,654) (4,169,654)
Change in unrealized (loss) on
investments................. (7,389) (7,389)
------
---
---- ----- -------- ---------- ----------
Balance December 31, 1994........ 1,000 100 8,035 (95,014) 3,914,152 3,827,273
Net income..................... 5,945,668 5,945,668
Dividends...................... (5,106,884) (5,106,884)
Change in unrealized (loss) on
investments................. 97,099 97,099
------
---
---- ----- -------- ---------- ----------
Balance December 31, 1995........ 1,000 100 8,035 2,085 4,752,936 4,763,156
Net income..................... 2,892,934 2,892,934
Dividends...................... (4,287,263) (4,287,263)
------
---
---- ----- -------- ---------- ----------
Balance June 30, 1996............ 1,000 $100 $8,035 $ 2,085 $ 3,358,607 $ 3,368,827
========= ==== ===== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 73
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 4,125,690 $ 5,422,256 $ 5,945,668 $2,818,236 $2,892,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 104,475 196,547 226,167 88,468 132,888
Gain on sale of property and equipment.......... 0 0 0 0 (3,309)
Realized (gains) losses on marketable
securities.................................... 0 39,183 3,082 (56,188 ) 26
Changes in assets and liabilities
Accounts receivable, net........................ 873,687 (635,245 ) (111,475 ) 110,947 (12,030)
Prepaid expenses and other current assets....... (36,757 ) 62,710 (9,845 ) 6,532 (8,466)
Accounts payable and accrued liabilities........ (59,347 ) 101,965 137,677 366,530 12,161
Customer deposits and deferred maintenance
revenue....................................... 112,218 115,813 29,564 312,905 323,265
Income taxes payable............................ (10,729 ) 0 0 0 0
----- ---- ------ -------- -----------
Net cash provided by operating activities... 5,109,237 5,303,229 6,220,838 3,647,430 3,337,469
----- ---- ------ -------- -----------
Cash flow from investing activities:
Purchases of investments.......................... (6,232,076 ) (150,433 ) (247,595 ) (77,555 ) (49,812)
Proceeds from the sale of investments............. 6,204,571 190,489 242,160 112,376 100,264
Purchases of property and equipment............... (969,767 ) (210,644 ) (1,250,684 ) (613,006 ) (124,851)
Proceeds on sale of property and equipment........ 8,900 0 0 0 25,690
----- ---- ------ -------- -----------
Net cash used in investing activities....... (988,372 ) (170,588 ) (1,256,119 ) (578,185 ) (48,709)
----- ---- ------ -------- -----------
Cash flow from financing activities:
Dividends......................................... (3,985,000 ) (4,169,654 ) (5,106,884 ) (1,982,887 ) (1,845,615)
----- ---- ------ -------- -----------
Net cash used in financing activities....... (3,985,000 ) (4,169,654 ) (5,106,884 ) (1,982,887 ) (1,845,615)
----- ---- ------ -------- -----------
Net change in cash and cash equivalents..... 135,865 962,987 (142,165 ) 1,086,358 1,443,145
Cash and cash equivalents:
Beginning of period............................... 209,992 345,857 1,308,844 1,308,844 1,166,679
----- ---- ------ -------- -----------
End of period..................................... $ 345,857 $ 1,308,844 $ 1,166,679 $2,395,202 $2,609,824
===== ==== ====== ======== ===========
Non-cash dividends.................................. $ 0 $ 0 $ 0 $ 0 $2,441,648
===== ==== ====== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 74
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Personalized Programming, Inc. is the developer of The Medical Manager
physician practice management system that is sold through a master distributor
and by direct sales to certain other dealers to clients throughout the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of June 30, 1995 and for the six months then ended are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from software license is recognized upon sale
and shipment. Revenue from the sale of systems is recognized when the system has
been installed and the related client training has been completed. Amounts
billed in advance of installation and pending completion of remaining
significant obligations are deferred. Revenue from support and maintenance
contracts is recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenue from other services
are recognized as they are provided. Certain expenses are allocated between the
cost of sales for systems, software license and maintenance and other based upon
management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. With the exception of approximately $749,000, $708,000 and
$728,000 in receivables from a significant customer at December 31, 1994 and
1995 and June 30, 1996, respectively (See Note 8), the Company's credit
concentrations are limited due to the wide variety of customers in the health
care industry and the geographic areas into which the Company's systems and
services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Investments. The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires fair value accounting for debt and equity
securities. The Company classifies its investments as available for sale, which
requires that they be recorded at fair market value with gross unrealized
holding gains and losses treated as a separate component of stockholder's
equity.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided principally on accelerated methods
over the estimated useful lives of the assets. Amortization of leasehold
improvements is provided for over the shorter of the estimated service life of
the leased asset or the lease term using the straight-line method.
Research and Development. Software development costs are included in
research and development and are expensed as incurred. SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then amortized
over the estimated product life. To date, the period between achieving
technological feasibility and the general availability of such software has been
short and software development costs qualifying for capitalization have been
insignificant.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code, whereby the Company is not subject to taxation for
federal purposes. Instead, the taxable income of the S corporation is included
in the individual income tax return of the Company's single stockholder for
federal
F-20
<PAGE> 75
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
income tax purposes. Accordingly, a provision for income taxes has not been
reflected in the financial statements. The Company's S corporation status will
terminate with the effective date of the Merger discussed in Note 8.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. INVESTMENTS:
Investments held consisted of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
------------------ FAIR MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
JUNE 30, 1996
Marketable equity securities.................. $505,339 $18,105 $ 16,020 $ 507,421
======== ======== ======== ========
DECEMBER 31, 1995
--------
Marketable equity securities.................. $253,120 $17,824 $ 15,530 $ 255,414
Fixed income securities....................... 100,209 209 100,000
-------- -------- -------- --------
$353,329 $17,824 $ 15,739 $ 355,414
======== ======== ======== ========
DECEMBER 31, 1994
--------
Marketable equity securities.................. $350,976 $10,687 $105,701 $ 255,962
======== ======== ======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Land and improvements.............................. $ 760,467 $ 856,748
Building........................................... 857,896 1,784,932
Furniture and equipment............................ 326,959 446,234 $ 466,386
Computers.......................................... 270,809 374,800 440,287
Leasehold improvements............................. 42,359 46,460 19,810
---------- ---------- ---------
2,258,490 3,509,174 926,483
Less accumulated depreciation and amortization..... (440,692) (666,859) (556,231)
---------- ---------- ---------
$1,817,798 $2,842,315 $ 370,252
========== ========== =========
</TABLE>
F-21
<PAGE> 76
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease from an
entity owned by the Company's stockholder. Such facilities were distributed to
the stockholder in March 1996 at their fair value. The lease provides for two
one year renewals. Future minimum rental commitments under the noncancelable
operating lease are approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING JUNE 30:
<S> <C>
1997....................................................... $320,000
1998....................................................... 320,000
1999....................................................... 240,000
--------
Total............................................ $880,000
========
</TABLE>
Rent expense for the six months ended June 30, 1996 was approximately
$85,000.
6. RETIREMENT PLANS:
The Company has a non-contributory profit sharing plan covering
substantially all full-time employees. Contributions are made at the discretion
of the Board of Directors. Total expense amounted to approximately $186,400,
$246,300 and $265,700 for 1993, 1994 and 1995 and $132,900 (unaudited) for the
six months ended June 30, 1995, respectively. There was no contribution for the
six months ended June 30, 1996.
7. SIGNIFICANT CUSTOMER:
Revenue from one customer comprised 52%, 48%, 47%, 47% (unaudited) and 47%
of the Company's revenue for 1993, 1994 and 1995 and for the six months ended
June 30, 1995 and 1996, respectively.
8. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholder entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
In connection with the Merger, the Company will elect to terminate its S
corporation status and will be required to effect the asset and liability method
of accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are established based on the differences between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Had the
Company elected to terminate its S Corporation status immediately prior to June
30, 1996, the Company would have been required to establish a deferred tax asset
of approximately $325,000 related primarily to the use of different methods of
accounting for deferred revenue for tax and financial reporting purposes. Also,
the Company will dividend certain assets to the stockholder, consisting
primarily of cash and investments, in an amount equal to the balance in the
Company's S corporation Accumulated Adjustment Account. Had the estimated
balance of the Accumulated Adjustment Account of $3,920,000 at June 30, 1996
been distributed and recorded as of that date, the effect on the accompanying
balance sheet would be a decrease of $3,117,000 in assets, an increase of
$803,000 in notes payable and a decrease of $3,920,000 in stockholder's equity.
Revenue from other companies which have also entered into definitive
agreements with MMC totaled approximately $3,617,000, $4,741,000, $5,568,000,
$2,519,000 and $3,044,000 for 1993, 1994 and 1995 and for the six months ended
June 30, 1995 (unaudited) and 1996, respectively. Such amounts include the
significant customer discussed in Note 2.
F-22
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Systems Plus, Inc. and Systems Plus Distribution, Inc.
We have audited the accompanying combined balance sheets of Systems Plus,
Inc. and Systems Plus Distribution, Inc. as of December 31, 1994 and 1995 and
June 30, 1996 and the related combined statements of operations, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Systems
Plus, Inc. and Systems Plus Distribution, Inc. as of December 31, 1994 and 1995
and June 30, 1996 and the combined results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 and for
the six months ended June 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the combined financial statements, in July 1996
the Companies and their stockholder entered into a definitive agreement with
Medical Manager Corporation (MMC) providing for the merger of the Companies with
subsidiaries of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 28, 1996
F-23
<PAGE> 78
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 286,389 $ 597,606 $ 285,603
Investments............................................. 1,184,628 1,793,420 50,000
Accounts receivable, net................................ 1,394,759 1,479,740 1,462,861
Inventory............................................... 125,000 199,439 114,000
Prepaid expenses and other current assets............... 235,450 198,930 145,027
------------ ------------ ----------
Total current assets............................ 3,226,226 4,269,135 2,057,491
PROPERTY AND EQUIPMENT, net............................... 237,375 421,238 623,829
OTHER ASSETS.............................................. 498,679 422,312 797,333
------------ ------------ ----------
Total assets.................................... $3,962,280 $5,112,685 $3,478,653
========== ========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable........................................... $ 536,354 $ 504,159 $ 0
Accounts payable and accrued liabilities................ 860,256 947,063 1,029,014
Customer deposits and deferred maintenance revenue...... 42,811 117,677 172,357
Income taxes payable.................................... 31,624 5,450 3,014
------------ ------------ ----------
Total current liabilities....................... 1,471,045 1,574,349 1,204,385
------------ ------------ ----------
Total liabilities............................... 1,471,045 1,574,349 1,204,385
------------ ------------ ----------
Commitments and contingencies (Notes 7 and 9)
STOCKHOLDER'S EQUITY
Common stock............................................ 28,000 28,000 28,000
Unrealized loss on investments.......................... (220,585) (8,341) 0
Retained earnings....................................... 2,683,820 3,518,677 2,246,268
------------ ------------ ----------
Total stockholder's equity...................... 2,491,235 3,538,336 2,274,268
------------ ------------ ----------
Total liabilities and stockholder's equity...... $3,962,280 $5,112,685 $3,478,653
========== ========== =========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE> 79
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------------ -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems......................... $ 159,143 $ 300,253 $ 766,037 $ 17,530 $ 668,425
Software license................ 8,944,307 11,518,566 12,502,491 5,926,651 6,586,715
Maintenance and other........... 1,732,276 1,681,941 1,910,430 848,980 982,041
----------- ----------- ----------- ---------- ----------
Total revenue........... 10,835,726 13,500,760 15,178,958 6,793,161 8,237,181
----------- ----------- ----------- ---------- ----------
Cost of revenue
Systems......................... 290,239 209,521 440,588 60,580 451,684
Software license................ 5,371,347 6,832,020 6,977,948 3,416,263 3,719,590
Maintenance and other........... 1,450,877 1,277,082 1,682,022 760,873 827,503
----------- ----------- ----------- ---------- ----------
Total costs of
revenue............... 7,112,463 8,318,623 9,100,558 4,237,716 4,998,777
----------- ----------- ----------- ---------- ----------
Gross margin.......... 3,723,263 5,182,137 6,078,400 2,555,445 3,238,404
----------- ----------- ----------- ---------- ----------
Operating expenses
Selling, general and
administrative............... 2,471,567 3,022,941 3,345,004 1,533,287 1,972,701
Depreciation and amortization... 89,486 76,015 102,309 51,155 75,782
----------- ----------- ----------- ---------- ----------
Total operating
expenses.............. 2,561,053 3,098,956 3,447,313 1,584,442 2,048,483
----------- ----------- ----------- ---------- ----------
Income from
operations......... 1,162,210 2,083,181 2,631,087 971,003 1,189,921
Other income (expense)
Interest expense................ (25,572) (44,969) (37,385) (22,410) (10,765)
Interest and dividend income.... 17,780 54,031 88,457 43,731 46,646
Gain (loss) on investments and
other........................ 187,536 (16,731) 169,498 86,878 239,925
----------- ----------- ----------- ---------- ----------
Income before income taxes........ 1,341,954 2,075,512 2,851,657 1,079,202 1,465,727
Income taxes...................... 34,955 50,125 53,300 27,491 17,405
----------- ----------- ----------- ---------- ----------
Net income............ $ 1,306,999 $ 2,025,387 $2,798,357 $1,051,711 $1,448,322
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE> 80
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK UNREALIZED
------- GAIN (LOSS) RETAINED
AMOUNT ON INVESTMENTS EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance January 1, 1993........................ $28,000 $ (59,474) $ 962,434 $ 930,960
Net income................................... 1,306,999 1,306,999
Dividends.................................... (640,000) (640,000)
Change in unrealized loss on investments..... 20,232 20,232
------- --------- ----------- -----------
Balance December 31, 1993...................... 28,000 (39,242) 1,629,433 1,618,191
Net income................................... 2,025,387 2,025,387
Dividends.................................... (971,000) (971,000)
Change in unrealized loss on investments..... (181,343) (181,343)
------- --------- ----------- -----------
Balance December 31, 1994...................... 28,000 (220,585) 2,683,820 2,491,235
Net income................................... 2,798,357 2,798,357
Dividends.................................... (1,963,500) (1,963,500)
Change in unrealized loss on investments..... 212,244 212,244
------- --------- ----------- -----------
Balance December 31, 1995...................... 28,000 (8,341) 3,518,677 3,538,336
Net income................................... 1,448,322 1,448,322
Dividends.................................... (2,720,731) (2,720,731)
Change in unrealized loss on investments..... 8,341 8,341
------- --------- ----------- -----------
Balance June 30, 1996.......................... $28,000 $ 0 $ 2,246,268 $ 2,274,268
======= ========= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE> 81
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ----------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,306,999 $ 2,025,387 $ 2,798,357 $ 1,051,711 $ 1,448,322
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 89,486 76,015 102,309 51,155 75,782
(Gain) loss on sale of property and
equipment......................... 2,200 994 (1,374) (1,374 ) 0
Realized gains on investments....... (326,745) (208,406) (541,416) (150,078 ) (448,158)
Realized losses on investments...... 137,009 224,143 373,292 64,574 208,233
----------- ----------- ----------- ----------- -----------
Changes in assets and liabilities:
Accounts receivable, net............ (122,215) (529,520) 19,033 325,314 97,561
Inventory........................... (48,879) 99,109 (74,439) (122,000 ) 85,439
Prepaid expenses and other current
assets............................ 165,496 (183,069) 8,873 103,736 (400,764)
Accounts payable and accrued
liabilities....................... (1,790,912) 110,661 86,807 265,996 81,951
Customer deposits and deferred
maintenance revenue............... 29,266 (2,677) 74,866 133,352 54,680
Income taxes payable................ (11,603) 23,023 (26,174) (11,708 ) (2,436)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities......... (569,898) 1,635,660 2,820,134 1,710,678 1,200,610
----------- ----------- ----------- ----------- -----------
Cash flow from investing activities:
Purchases of investments.............. (5,837,730) (6,800,249) (11,268,708) (3,748,485 ) (8,694,966)
Proceeds from the sale of
investments......................... 6,485,016 6,836,814 11,027,950 3,654,910 9,945,924
Purchases of property and equipment... (45,795) (100,817) (306,894) (168,774 ) (278,373)
Proceeds on sale of property and
equipment........................... 0 0 22,096 22,096 0
Net change in investment margin
accounts............................ (272,273) 274,562 (19,861) (127,641 ) (505,195)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities......... 329,218 210,310 (545,417) (367,894 ) 467,390
----------- ----------- ----------- ----------- -----------
Cash flow from financing activities:
Proceeds from short-term
obligations......................... 1,393,000 1,962,000 0 0 740,000
Payment on short-term obligations..... (1,368,000) (1,987,000) 0 0 (740,000)
Cash overdraft........................ 563,581 (563,581) 0 0 0
Dividends............................. (640,000) (971,000) (1,963,500) (1,313,500 ) (1,980,003)
----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities................... (51,419) (1,559,581) (1,963,500) (1,313,500 ) (1,980,003)
----------- ----------- ----------- ----------- -----------
Net change in cash and cash
equivalents.................. (292,099) 286,389 311,217 29,284 (312,003)
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents:
Beginning of period................... 292,099 0 286,389 286,389 597,606
End of period......................... $ 0 $ 286,389 $ 597,606 $ 315,673 $ 285,603
=========== =========== =========== =========== ===========
Non-cash dividends...................... $ 0 $ 0 $ 0 $ 0 $ 740,728
=========== =========== =========== =========== ===========
Cash paid during the period for
Interest.............................. $ 25,072 $ 44,315 $ 37,465
=========== =========== ===========
Income taxes.......................... $ 63,097 10,563 85,574
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE> 82
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Systems Plus, Inc. and its combined affiliate (the "Company") is the master
distributor for The Medical Manager physician practice management system that is
sold to an independent dealers' network throughout the United States. The
Company purchases substantially all of its software from Personalized
Programming, Inc. ("PPI"), the developer of The Medical Manager, under a license
and master distributor agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of June 30, 1995 and for the six months then ended are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Principles of Combination. The financial statements include the accounts
of Systems Plus, Inc. ("SPI") and its sister company, Systems Plus Distribution,
Inc. ("SPDI"), which is affiliated through common ownership and management. All
material intercompany accounts and transactions have been eliminated.
Revenue Recognition. Revenue from software license is recognized upon sale
and shipment. Revenue from the sale of systems is recognized when the system has
been installed and the related client training has been completed. Amounts
billed in advance of installation and pending completion of remaining
significant obligations are deferred. Revenue from support and maintenance
contracts is recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenue from other services
are recognized as they are provided. Certain expenses are allocated between the
cost of sales for systems, software license and maintenance and other based upon
management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and geographic areas into
which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows the
Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Investments. The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires fair value accounting for debt and equity
securities. The Company classifies its investments as available for sale, which
requires that they be recorded at fair market value with gross unrealized
holding gains and losses treated as a separate component of stockholder's
equity.
Inventory. Inventory primarily consists of purchased software packages,
peripheral computer equipment and replacement parts. Inventory cost is accounted
for on the first-in, first-out basis and reported at the lower of cost or
market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on the straight line and
accelerated methods over the estimated useful lives of the assets. Amortization
of leasehold improvements is provided for over the shorter of the estimated
service life of the leased asset or the lease term using the straight-line
method.
Income Taxes. SPI has elected to be taxed as an S corporation and SPDI is
taxed as a C corporation under the provisions of the Internal Revenue Code of
1986. SPI is not subject to taxation at the federal level.
F-28
<PAGE> 83
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Instead, the taxable income of SPI is included in the individual income tax
return of that company's single stockholder for federal income tax purposes. The
provision for income taxes in the combined statements of operations represents
SPDI's provision for federal income taxes and the provision for state income
taxes for both SPI and SPDI. The Company utilizes the asset and liability method
of accounting for deferred federal and state income taxes for SPDI taxed as a
regular corporation and to account for state income taxes for SPI taxed as an S
corporation for Federal tax purposes, but taxed as a regular corporation for
certain state income tax purposes. Under this method, deferred tax assets and
liabilities are established based on the differences between financial statement
and income tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
SPI's S corporation election will terminate with the effective date of the
Merger discussed in Note 9.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. INVESTMENTS:
Investments held consisted of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
------------------ FAIR MARKET
COST GAINS LOSSES VALUE
JUNE 30, 1996
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $ 50,000 $ -- $ -- $ 50,000
========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $1,801,761 $19,629 $ 27,970 $ 1,793,420
========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $1,405,213 $ 3,038 $223,623 $ 1,184,628
========= ======= ======== =========
</TABLE>
During June 1996, investments were distributed to the stockholder at their
fair value.
F-29
<PAGE> 84
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Furniture and equipment............................. $ 314,168 $ 497,877 $ 613,411
Computers........................................... 335,632 435,700 527,694
Leasehold improvements.............................. 0 0 70,845
--------- --------- ----------
649,800 933,577 1,211,950
Less accumulated depreciation and amortization...... (412,425) (512,339) (588,121)
--------- --------- ----------
$ 237,375 $ 421,238 $ 623,829
========= ========= =========
</TABLE>
5. NOTES PAYABLE:
Notes payable consisted of the margin account borrowings collateralized by
investments, with interest generally at prime rate.
The Company has a $750,000 revolving line of credit that was available at
June 30, 1996. The line of credit agreement provides for interest at prime plus
1/2% and is collateralized by receivables, inventory, fixed assets, general
intangibles and personally guaranteed by the stockholder. There were no amounts
outstanding under the line at June 30, 1996.
The carrying value approximates fair market value due to the short-term
nature of the debt.
6. INCOME TAXES:
Income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal.............. $ 6,000
State................ $34,955 $50,125 47,300 $27,491 $17,405
------- ------- ------- ------- -------
$34,955 $50,125 $53,300 $27,491 $17,405
======= ======= ======= ======= =======
</TABLE>
The following table summarizes the principal differences between income
taxes at the federal statutory rate and the effective income tax amounts
reflected in the financial statements:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Statutory tax.......... $ 456,000 $ 706,000 $ 970,000 $ 367,000 $ 498,000
State income tax, net
of federal benefit... 34,955 50,125 47,300 27,491 17,405
Effect of graduated
rate brackets........ (6,000)
Effect of S corporation
income not subject to
federal income tax... (456,000) (706,000) (958,000) (367,000) (498,000)
--------- --------- --------- --------- ---------
$34,955... $ 50,125 $ 53,300 $ 27,491 $ 17,405
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE> 85
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
The Company was examined by the California Franchise Tax Board for tax
years ended in 1992 through 1995. The Company has reviewed various matters that
are under consideration and believes that it has adequately provided for any
liability that may result from this examination. In the opinion of management,
any liability that may arise from prior periods as a result of the examination
will not have a material effect on the Company's financial position or results
of operations.
7. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases having
remaining terms ranging from one to five years. Future minimum rental
commitments under noncancelable operating leases are approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING JUNE 30:
<S> <C>
1997............................................................. $201,000
1998............................................................. 152,000
1999............................................................. 117,000
2000............................................................. 117,000
2001............................................................. 68,000
--------
Total.................................................. $655,000
========
</TABLE>
Rent expense was approximately $141,000, $133,000, $112,000, $56,000 and
$101,000 for 1993, 1994 and 1995 and for the six months ended June 30, 1995
(unaudited) and 1996, respectively.
8. STOCKHOLDER'S EQUITY:
The common stock ownership of the companies are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
AND
1995 AND JUNE 30, 1996
--------------------------
SHARES SHARES
AUTHORIZED OUTSTANDING
<S> <C> <C>
Systems Plus, Inc. .................................. 1,000,000 500,000
Systems Plus Distribution, Inc. ..................... 1,000,000 50,000
</TABLE>
F-31
<PAGE> 86
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholder entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with subsidiaries of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
In connection with the Merger, SPI will elect to terminate its S
corporation status and will be required to effect the asset and liability method
of accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are established based on the differences between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Had SPI
elected to terminate its S corporation status immediately prior to June 30,
1996, the Company would have been required to establish a deferred tax liability
of approximately $240,000 related primarily to the use of the cash method of
accounting for income tax purposes. Also, the Company will dividend certain
assets to the stockholder, consisting primarily of cash, investments and other
assets, in an amount equal to the balance in the Company's S corporation
Accumulated Adjustment Account. Had the estimated balance of the Accumulated
Adjustment Account at June 30, 1996 of $1,905,000 been distributed and recorded
as of that date, the effect on the accompanying balance sheet would be a
decrease of $1,133,000 in assets, an increase of $772,000 in notes payable and a
decrease of $1,905,000 in stockholder's equity.
Revenue from four other companies which have also entered into definitive
merger agreements with MMC totaled approximately $616,000, $891,000, $1,145,000,
$573,000 and $574,000 for 1993, 1994 and 1995 and for the six months ended June
30, 1995 (unaudited) and 1996, respectively.
Purchase of software from Personalized Programming, Inc., which has also
entered into a definitive merger agreement with MMC, totaled approximately
$3,617,000, $4,681,000, $5,350,000, $2,448,000 and $2,837,000 for 1993, 1994 and
1995 and for the six months ended June 30, 1995 (unaudited) and 1996,
respectively.
F-32
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
RTI Business Systems, Inc.
We have audited the accompanying balance sheets of RTI Business Systems,
Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the related
statements of operations and accumulated deficit and cash flows for each of the
three years in the period ended December 31, 1995 and for the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RTI Business Systems, Inc.
as of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 28, 1996
F-33
<PAGE> 88
RTI BUSINESS SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 25,349 $ 28,851 $ 5,473
Accounts receivable, net................................ 236,802 347,725 283,744
Inventory............................................... 0 29,274 32,384
Prepaid expenses and other current assets............... 26,453 20,437 9,177
Deferred income taxes................................... 108,982 212,456 262,456
-------- ---------- ----------
Total current assets............................ 397,586 638,743 593,234
PROPERTY AND EQUIPMENT, net............................... 143,895 335,951 494,207
-------- ---------- ----------
Total assets.................................... $ 541,481 $ 974,694 $1,087,441
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations............. $ 156,934 $ 282,460 $ 467,146
Accounts payable and accrued liabilities................ 391,619 355,947 399,032
Customer deposits and deferred maintenance revenue...... 307,464 530,066 379,541
Income taxes payable.................................... 103,608 233,097 200,626
-------- ---------- ----------
Total current liabilities....................... 959,625 1,401,570 1,446,345
LONG-TERM OBLIGATIONS, net of current maturities.......... 3,895 99,950 130,664
-------- ---------- ----------
Total liabilities............................... 963,520 1,501,520 1,577,009
-------- ---------- ----------
Commitments and Contingencies (Notes 6 and 8)
STOCKHOLDERS' DEFICIT
Common stock, no par value, 200 shares authorized,
issued and outstanding............................... 102,000 102,000 102,000
Accumulated deficit..................................... (524,039) (628,826) (591,568)
-------- ---------- ----------
Total stockholders' deficit..................... (422,039) (526,826) (489,568)
-------- ---------- ----------
Total liabilities and stockholders' deficit..... $ 541,481 $ 974,694 $1,087,441
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 89
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems............................ $1,645,102 $2,242,200 $2,712,211 $1,130,389 $1,301,127
Maintenance and other.............. 1,401,533 2,085,244 2,241,440 1,087,004 1,731,902
---------- ---------- ---------- ---------- ----------
Total revenue.............. 3,046,635 4,327,444 4,953,651 2,217,393 3,033,029
---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems............................ 1,372,675 1,334,929 1,486,156 771,188 603,239
Maintenance and other.............. 1,169,441 1,241,483 1,214,985 741,590 1,162,229
---------- ---------- ---------- ---------- ----------
Total costs of revenue..... 2,542,116 2,576,412 2,701,142 1,512,778 1,765,468
---------- ---------- ---------- ---------- ----------
Gross margin.......... 504,519 1,751,032 2,252,509 704,615 1,267,562
---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and
administrative.................. 925,189 1,710,987 2,268,533 717,258 1,164,657
Depreciation and amortization...... 55,434 46,777 58,057 29,057 45,724
---------- ---------- ---------- ---------- ----------
Total operating expenses........ 980,623 1,757,764 2,326,590 746,315 1,210,381
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............... (476,104) (6,732) (74,081) (41,700) 57,181
Other income (expense)
Interest expense................... (32,928) (19,988) (33,326) (15,052) (19,923)
Other.............................. 0 (27,746) 2,620 0 0
---------- ---------- ---------- ---------- ----------
Net income (loss).......... (509,032) (54,466) (104,787) (56,752) 37,258
---------- ---------- ---------- ---------- ----------
Retained earnings (accumulated
deficit):
Beginning of period................ 39,459 (469,573) (524,039) (524,039) (628,826)
---------- ---------- ---------- ---------- ----------
End of period...................... $ (469,573) $ (524,039) $ (628,826) $ (580,791) $ (591,568)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 90
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ -------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (509,032) $ (54,466) $ (104,787) $ (56,752) $ 37,258
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 55,434 46,777 58,057 29,057 45,724
Deferred income taxes................ (51,642) (57,340) (103,474) (97,067) (50,000)
Loss on sale of property and
equipment.......................... 0 27,746 13,110 0 0
Changes in assets and liabilities:
Accounts receivable, net............. 66,795 (160,167) (110,923) (294,791) 63,981
Inventory............................ 121,998 0 (29,274) (7,137) (3,110)
Prepaid expenses and other current
assets............................. 12,170 (16,009) 6,016 (23,365) 11,260
Accounts payable and accrued
liabilities........................ 16,864 245,366 (35,672) 82,055 43,085
Customer deposits and deferred
maintenance revenue................ 517,699 (97,275) 222,602 229,535 (150,525)
Income taxes payable................. 50,000 53,152 129,489 89,581 (32,471)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... 280,286 (12,216) 45,144 (48,884) (34,798)
Cash flow from investing activities:
Purchases of property and equipment.... (51,055) (73,540) (226,023) (151,275) (203,980)
Proceeds on sale of property and
equipment............................ 0 50,963 0 0 0
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (51,055) (22,577) (226,023) (151,275) (203,980)
--------- --------- --------- --------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations.......................... 100,000 200,000 365,000 215,000 238,845
Payment on short-term and long-term
obligations.......................... (421,333) (189,169) (180,619) (25,829) (23,445)
Capital contributions.................. 100,000 0 0 0 0
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... (221,333) 10,831 184,381 189,171 215,400
--------- --------- --------- --------- ---------
Net change in cash and cash
equivalents............................ 7,898 (23,962) 3,502 (10,988) (23,378)
Cash and cash equivalents:
Beginning of period.................... 41,413 49,311 25,349 25,349 28,851
--------- --------- --------- --------- ---------
End of period.......................... $ 49,311 $ 25,349 $ 28,851 $ 14,361 $ 5,473
========= ========= ========= ========= =========
Cash paid during the period for
Interest............................... $ 32,928 $ 19,988 $ 33,326
========= ========= =========
Income taxes........................... $ 456 $ 731 $ 10,846
========= ========= =========
Details of acquisitions:
Fair value of assets................... 0 0 $ 263,223 0 0
--------- --------- --------- --------- ---------
Less debt issued....................... 0 0 37,200 0 0
--------- --------- --------- --------- ---------
Net cash paid for acquisitions......... 0 0 $ 226,023 0 0
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 91
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
RTI Business Systems, Inc. (the "Company") is an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in the upstate New York and New England areas of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of June 30, 1995 and for the six months then ended are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services are recognized as they are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax returns. The deferred tax assets and liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are recovered or
settled.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of, is effective for years beginning after
December 15, 1995. This Statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
F-37
<PAGE> 92
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Furniture and equipment........................................ $113,028 $252,978 $254,906
Computers...................................................... 0 0 155,586
Vehicles....................................................... 203,960 290,903 337,369
-------- -------- --------
316,988 543,881 747,861
Less accumulated depreciation.................................. (173,093) (207,930) (253,654)
-------- -------- --------
$143,895 $335,951 $494,207
======== ======== ========
</TABLE>
4. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Term note payable, bearing interest at prime plus 1%
(9 1/4% at June 30, 1996), with monthly payments
of $2,085 plus interest through October 1999,
collateralized by accounts receivable, inventory
and equipment and guaranteed by stockholders. The
note contains certain financial restrictions and
covenants as defined.............................. $ 95,830 $ 80,905
Term note payable, bearing interest at prime plus
1%, with monthly payments of $620 plus interest
through November 2000, collateralized by accounts
receivable, inventory and equipment and guaranteed
by stockholders................................... 36,580 32,860
Term note payable, bearing interest at prime plus
1%, with monthly payments of $309 plus interest
through January 2001, collateralized by certain
assets of the Company and guaranteed by
stockholders...................................... 0 17,000
Term note payable, bearing interest at prime plus
1%, with monthly payments of $1,085 plus interest
through March 2001, collateralized by certain
computer equipment and guaranteed by
stockholders...................................... 0 61,745
Term note payable, bearing interest at prime plus
1%, with monthly payments of $580 plus interest
through June 2001, collateralized by certain
computer equipment and guaranteed by
stockholders...................................... 0 34,780
Term note payable, bearing interest at prime plus
1%, with monthly payments of $428 plus interest
through June 2000, collateralized by certain
Company vehicles and guaranteed by
stockholders...................................... 0 20,520
</TABLE>
F-38
<PAGE> 93
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
</TABLE>
4. LONG TERM OBLIGATIONS: -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
stockholders...$135,000$250,000$350,000Various notes
payable, bearing interest at rates ranging from 4%
to 11%, monthly payments ranging from $600 to
$1,000 plus interest, with maturity dates in 1994
and 1995; collateralized by certain Company
vehicles.......................................... 25,829 0 0
------------ ------------ --------
Total..................................... 160,829 382,410 597,810
Less portion due within one year.......... 156,934 282,460 467,146
------------ ------------ --------
Long term obligations, net of current
maturities.............................. $ 3,895 $ 99,950 $130,664
========== ========== ========
</TABLE>
Annual maturities of long-term debt for the four years subsequent to June
30, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $36,241
1999............................................................... 36,241
2000............................................................... 38,632
2001............................................................... 19,550
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
5. INCOME TAXES:
Income taxes consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal........................ $ 46,623 $ 51,115 $ 92,261 $ 85,461 $ 45,000
State.......................... 5,019 6,225 11,213 11,606 5,000
------- ------- -------- ------- -------
51,642 57,340 103,474 97,067 50,000
------- ------- -------- ------- -------
Deferred
Federal........................ (46,623) (51,115) (92,261) (85,461) (45,000)
State.......................... (5,019) (6,225) (11,213) (11,606) (5,000)
------- ------- -------- ------- -------
(51,642) (57,340) (103,474) (97,067) (50,000)
------- ------- -------- ------- -------
$ 0 $ 0 $ 0 $ 0 $ 0
======= ======= ======== ======= =======
</TABLE>
F-39
<PAGE> 94
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES: -- (CONTINUED)
The significant components of the net deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Bad debts........................................... $ 17,000 $ 21,000 $ 14,000
Deferred revenue.................................... 125,000 230,000 226,000
Inventory valuations................................ 64,000 34,000
Loss carryforwards.................................. 71,000
Other............................................... 20,982 41,456 456
--------- --------- --------
226,982 326,456 311,456
Valuation allowance................................. (118,000) (114,000) (49,000)
--------- --------- --------
Net deferred tax asset.............................. $ 108,982 $ 212,456 $ 262,456
========= ========= ========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. At June 30, 1996, the
Company established a valuation allowance of $49,000. This results in a decrease
in the valuation allowance from December 31, 1995 of $65,000.
The following table summarizes the principal differences between income
taxes at the federal statutory rate and the effective income tax amounts
reflected in the financial statements:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Statutory tax (benefit)......... $(173,000) $ (19,000) $ (36,000) $(19,000) $ 13,000
State taxes, net of federal
benefit....................... (20,000) (2,000) (4,000) (2,000) 1,000
Effect of graduated tax
brackets...................... (1,000) (6,000) (11,000) -- --
--------- -------- -------- -------- --------
Tax contingency................. 50,000 50,000 50,000 50,000 50,000
Change in valuation allowance... 142,000 (24,000) (4,000) (53,000) (65,000)
Other........................... 2,000 1,000 5,000 24,000 1,000
--------- -------- -------- -------- --------
$ 0 $ 0 $ 0 $ 0 $ 0
========= ======== ======== ======== ========
</TABLE>
At June 30, 1996, the Company had an estimated net operating loss
carryforward of approximately $187,000, the use of which is limited to the
Company's future taxable income. The estimated net operating loss will expire in
the year 2012.
The Company is currently under examination by the Internal Revenue Service
for tax years ended in 1993 and 1994. The Company has reviewed various matters
that are under consideration and believes that is has adequately provided for
any liability that may result from this examination. In the opinion of
management, any liability that may arise from prior periods as a result of the
examination will not have a material effect on the Company's financial position
or results of operations.
F-40
<PAGE> 95
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases. Future
minimum rental commitments under the noncancelable operating leases are
approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING JUNE 30:
<S> <C>
1997........................................................... $ 337,000
1998........................................................... 211,000
1999........................................................... 216,000
2000........................................................... 246,000
2001........................................................... 192,000
--------
Total................................................ $1,202,000
========
</TABLE>
Rent expense was approximately $139,000, $240,000, $187,000, $65,000 and
$107,000 for 1993, 1994 and 1995 and for the six months ended June 30, 1995
(unaudited) and 1996, respectively.
7. RETIREMENT PLANS:
The Company has a non-contributory profit sharing plan covering
substantially all full-time employees effective January 1995. The Company
contributes a matching 25% of the first six percent of employee contributions.
Contributions are made at the discretion of the Board of Directors. Total
expense amounted to approximately $19,000 for 1995 and $8,000 and $10,000 for
the six months ended June 30, 1995 (unaudited) and 1996, respectively.
8. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholders entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
Purchases of software from one of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$265,000, $275,000, $371,000, $168,000 and $190,000 for 1993, 1994 and 1995 and
for the six months ended June 30, 1995 (unaudited) and 1996, respectively.
F-41
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
National Medical Systems, Inc.
We have audited the accompanying consolidated balance sheets of National
Medical Systems, Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for the four months ended December 31, 1994, the year ended
December 31, 1995 and the six months ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
National Medical Systems, Inc. as of December 31, 1994 and 1995 and June 30,
1996 and the consolidated results of its operations and its cash flows for the
four months ended December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 10, 1996
F-42
<PAGE> 97
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 0 $ 0 $ 78,948
Accounts receivable, net................................ 66,271 223,446 983,069
Inventory............................................... 51,280 73,925 49,568
Prepaid expenses and other current assets............... 182 12,000 0
--------- -------- --------
Total current assets............................ 117,733 309,371 1,111,585
PROPERTY AND EQUIPMENT, net............................... 85,615 199,797 368,653
GOODWILL AND OTHER INTANGIBLES, net....................... 211,609 80,201 2,753,593
OTHER ASSETS.............................................. 3,586 5,184 11,084
--------- -------- --------
Total........................................... $ 418,543 $ 594,553 $4,244,915
========= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations............. $ 74,930 $ 261,580 $1,274,701
Accounts payable and accrued liabilities................ 113,174 184,214 729,221
Customer deposits and deferred maintenance revenue...... 220,627 338,075 875,857
--------- -------- --------
Total current liabilities....................... 408,731 783,869 2,879,779
LONG-TERM OBLIGATIONS, net of current maturities.......... 76,860 40,768 800,660
SUBORDINATED NOTES PAYABLE................................ 0 0 292,500
--------- -------- --------
Total liabilities............................... 485,591 824,637 3,972,939
--------- -------- --------
Redeemable preferred stock................................ 0 0 500,000
--------- -------- --------
Commitments and contingencies (Notes 10 and 11)...........
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 25,000,000 shares
authorized........................................... 56,570 62,566 68,566
Additional paid-in capital.............................. 203,430 248,503 790,003
Accumulated deficit..................................... (327,048) (541,153) (1,086,592)
--------- -------- --------
Total stockholders' deficit..................... (67,048) (230,084) (228,024)
--------- -------- --------
Total........................................... $ 418,543 $ 594,553 $4,244,915
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 98
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS ENDED JUNE
ENDED YEAR ENDED 30,
DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Systems..................................... $ 155,771 $1,516,022 $ 445,386 $1,489,054
Maintenance and other....................... 85,337 614,487 309,268 959,823
--------- ---------- --------- ----------
Total revenue....................... 241,108 2,130,509 754,654 2,448,877
--------- ---------- --------- ----------
Cost of revenue
Systems..................................... 147,490 1,129,059 353,276 1,189,960
Maintenance and other....................... 155,655 595,692 273,083 664,426
--------- ---------- --------- ----------
Total costs of revenue.............. 303,145 1,724,751 626,359 1,854,386
--------- ---------- --------- ----------
Gross margin (loss)................. (62,037) 405,758 128,295 594,491
--------- ---------- --------- ----------
Operating expenses
Selling, general and administrative......... 201,254 395,523 145,300 613,874
Research and development.................... 0 0 0 262,855
Depreciation and amortization............... 60,113 196,838 88,188 189,854
--------- ---------- --------- ----------
Total operating expenses............ 261,367 592,361 233,488 1,066,583
--------- ---------- --------- ----------
Loss from operations................ (323,404) (186,603) (105,193) (472,092)
Other expense
Interest expense............................ (3,644) (27,502) (9,827) (73,346)
--------- ---------- --------- ----------
Net loss............................ $ (327,048) $ (214,105) $ (115,020) $ (545,438)
========= ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 99
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Formation of company..................... 5,657,000 $56,570 $ 203,430 $ 260,000
Net loss................................. $ (327,048) (327,048)
--------- ------- -------- --------- -----------
Balance December 31, 1994................ 5,657,000 56,570 203,430 (327,048) (67,048)
Capital contributions.................... 45,000 45,000
Stock issued for compensation............ 599,642 5,997 73 6,069
Net loss................................. (214,105) (214,105)
--------- ------- -------- --------- -----------
Balance December 31, 1995................ 6,256,642 62,566 248,503 (541,153) (230,084)
Stock issued for acquisition............. 600,000 6,000 54,000 60,000
Warrants issued.......................... 20,000 20,000
Capital contributions.................... 467,500 467,500
Net loss................................. (545,438) (545,438)
--------- ------- -------- --------- -----------
Balance June 30, 1996.................... 6,856,642 $68,566 $ 790,003 $(1,086,592) $(228,024)
========= ======= ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE> 100
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS ENDED JUNE
ENDED YEAR ENDED 30,
DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (327,048) $ (214,105) $(115,020) $ (545,438)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 60,113 196,838 88,188 189,854
Stock issued for compensation............. 0 6,069 0 0
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net.................. (66,271) (157,175) (51,162) (446,895)
Inventory................................. (51,280) (22,645) (17,869) 43,723
Prepaid expenses and other assets......... (3,768) (13,416) (1,443) 16,804
Accounts payable and accrued
liabilities............................. 113,174 71,040 136,436 22,254
Customer deposits and deferred maintenance
revenue................................. 220,627 117,448 (9,037) 283,582
--------- --------- --------- -----------
Net cash provided by (used in)
operating activities............... (54,453) (15,946) 30,093 (436,116)
--------- --------- --------- -----------
Cash flow from investing activities:
Purchases of property and equipment.......... (32,670) (152,183) (88,290) (78,552)
Payments for acquisitions made, net of assets
acquired.................................. (150,000) 0 0 (569,434)
--------- --------- --------- -----------
Net cash used in investing
activities......................... (182,670) (152,183) (88,290) (647,986)
--------- --------- --------- -----------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations............................... 0 200,000 196,471 392,299
Proceeds from issuance of subordinated
long-term obligations..................... 0 0 0 292,500
Payment on short-term and long-term
obligations............................... (22,877) (76,871) (33,657) (509,249)
Proceeds from issuance of redeemable
preferred stock........................... 0 0 0 500,000
Capital contributions........................ 260,000 45,000 45,000 487,500
--------- --------- --------- -----------
Net cash provided by financing
activities......................... 237,123 168,129 207,814 1,163,050
--------- --------- --------- -----------
Net change in cash and cash
equivalents........................ 0 0 149,617 78,948
Cash and cash equivalents:
Beginning of period.......................... 0 0 0 0
--------- --------- --------- -----------
End of period................................ $ 0 $ 0 $ 149,617 $ 78,948
========= ========= ========= ===========
Cash paid for interest:........................ $ 3,645 $ 27,502
========= =========
Details of acquisitions:
Fair value of assets......................... $ 150,000 0 0 $ 3,190,537
Liabilities assumed.......................... 0 0 0 1,457,354
Less common stock and debt issued............ 0 0 0 1,129,139
--------- --------- --------- -----------
Cash paid.................................... 150,000 0 0 604,044
Less cash acquired........................... 0 0 0 34,610
--------- --------- --------- -----------
Net cash paid for acquisitions............... $ 150,000 0 0 $ 569,434
========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE> 101
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
National Medical Systems, Inc. ("NMS") and Preferred System Solutions, Inc.
(collectively, the "Company") are independent dealers for The Medical Manager
physician practice management system that is sold to clients in the Southeast,
Midwest and Southwest parts of the United States. NMS commenced operations in
September 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of June 30, 1995 and for the six months then ended are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Principles of Consolidation. The financial statements include the accounts
of NMS and its wholly owned subsidiary, Preferred System Solutions, Inc., since
its acquisition in March 1996. All material intercompany accounts and
transactions have been eliminated.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided principally on accelerated methods
over the estimated useful lives of the assets.
Goodwill and Other Intangibles. Goodwill and other intangibles consist of
covenants not to compete and goodwill arising from business acquisitions. These
intangible assets are being amortized over periods ranging from two to 20 years.
Research and Development. Software development costs are included in
research and development and are expensed as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," requires the capitalization
of certain software development costs once technological feasibility is
established. The capitalized cost is then amortized over the estimated product
life. To date, the period between achieving technological feasibility and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant.
F-47
<PAGE> 102
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax return. The deferred tax assets and liabilities
represent the future tax consequences of those differences, which will be either
taxable or deductible when the underlying assets or liabilities are recovered or
settled. Deferred tax assets are reduced by a valuation allowance for the
estimated amounts of tax benefits not likely to be realized.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. ACQUISITIONS:
During the six months ended June 30, 1996, the Company made two
acquisitions set forth below, each of which has been accounted for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition.
The Company acquired substantially all of the business assets of GBP With
Excellence, Inc., a Medical Manager independent dealer in central Florida. Total
consideration was $2,321,000, of which approximately $1,825,000 has been
assigned to excess of purchase price over net assets of the business acquired as
goodwill, which is being amortized on a straight-line basis over 20 years.
On the basis of the pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of 1995 rather than in
January 1996, consolidated net sales would have been $4,691,000 for 1995 and the
consolidated pro forma net loss would have been approximately $1,230,000. Such
pro forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1995.
The Company also acquired Preferred System Solutions, Inc., a Medical
Manager independent dealer in Oklahoma and Kansas. Total consideration was
$50,000 and 600,000 shares of the Company's common stock valued at $60,000 by
independent appraisal for purposes of accounting for the transaction. The excess
of the purchase price over the net liabilities assumed was approximately
$718,000 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 20 years. Pro forma results of operations have not been
presented because the effects of this acquisition were not significant.
F-48
<PAGE> 103
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Furniture and equipment............................ $ 35,074 $ 88,282 $128,477
Computers.......................................... 66,937 191,813 372,019
-------- -------- --------
102,011 280,095 500,496
Less accumulated depreciation...................... (16,397) (80,298) (131,843)
-------- -------- --------
$ 85,615 $199,797 $368,653
======== ======== ========
</TABLE>
Depreciation expense was approximately $16,400, $65,700, $22,700 and
$48,700 for 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996, respectively.
5. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Revolving line of credit, $500,000 available principal,
monthly interest at prime plus 1%, (9 1/4% at June 30, 1996)
principal due on demand, collateralized by accounts
receivable and other assets, guaranteed by two of the
Company's stockholders...................................... $ 308,014
Revolving line of credit, monthly interest at prime plus 2%
(10 1/4% at June 30, 1996), principal due on demand,
collateralized by accounts receivable and other assets,
guaranteed by two of the Company's stockholders............. 196,597
Note payable, interest at prime plus 1% (9 1/4% at June 30,
1996), collateralized by certain assets, guaranteed by two
of the Company's stockholders, $1,800 monthly interest and
principal payments through 2000............................. 66,676
Notes payable due on demand, interest at 12% annually
unsecured, $200,000 convertible into 320,000 shares of
common stock of the Company, interest payable monthly....... $200,000 300,000
Note payable, monthly payments of $4,057 with interest at 9%,
balloon payment of $202,070 due 1998, unsecured, guaranteed
by two of the Company's stockholders........................ 0 247,814
Note payable, monthly interest at 8%, principal due in two
equal annual installments, guaranteed by two of the
Company's stockholders, $5,100 monthly interest and
principal payment........................................... 0 613,046
Note payable, annual interest at 8%, due $40,000 in 1997 and
$40,000 in 1998, unsecured.................................. 0 80,000
</TABLE>
F-49
<PAGE> 104
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
</TABLE>
5. LONG TERM OBLIGATIONS: -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
unsecured.........050,000Non-compete agreements due in various
monthly amounts through 1998................................ $ 92,290 36,916 109,229
Various installments notes, payable monthly, interest at
8%-10%, collateralized by certain assets.................... 59,500 65,432 103,985
-------- -------- ----------
Total............................................... 151,790 302,348 2,075,361
Less portion due within one year.................... 74,930 261,580 1,274,701
-------- -------- ----------
Long term obligations, net of current maturities.... $ 76,860 $ 40,768 $ 800,660
======== ======== =========
</TABLE>
Annual maturities of long-term obligations for the four years subsequent to
June 30, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................................... $751,762
1999......................................................... 25,482
2000......................................................... 22,064
2001......................................................... 1,352
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
6. SUBORDINATED NOTES PAYABLE:
Subordinated notes payable as of June 30, 1996 totaling $292,500, with
interest at 8%, are due in February 1998. Approximately $195,000 of the
subordinated notes payable are guaranteed by two of the Company's principal
stockholders. Effective August 1996, the $292,500 in subordinated notes payable
were repaid from proceeds from issuance of subordinated notes payable to two of
the Company's principal stockholders.
In conjunction with the issuance of the subordinated notes payable, the
Company also issued warrants to acquire 560,000 shares of the Company's common
stock for $.10 per share and up to an additional 560,000 shares during the
period ending February 28, 1997 if the subordinated notes were not repaid by
such date.
Included above are primary and additional warrants to purchase 700,000
shares of NMS common stock issued in January, 1996 to two of the Company's
principal stockholders in conjunction with the issuance of subordinated
promissory notes totaling $467,500. These promissory notes were subsequently
contributed as additional paid in capital by the stockholders with the warrants
remaining in effect.
7. REDEEMABLE PREFERRED STOCK:
During the six months ended June 30, 1996 the Company issued 100,000 shares
of convertible redeemable preferred stock with a par value of $1.00 for
$500,000. The preferred stock carries a dividend rate of 8% from and after
January 1, 1997. The holders may request the Company to redeem the stock at the
stated value on or after January 1, 1997. The preferred stock is convertible
into common stock of the Company on a one for one share basis. In the event of a
change in control of the Company prior to January 1, 1997, the holders of the
preferred stock have the right to request the preferred be redeemed or be
converted into 100,000 shares of common stock of any entity which controls the
Company.
F-50
<PAGE> 105
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY:
In January 1996, the Company's Articles of Incorporation were amended to
increase the authorized common stock of the Company from 10,000 shares to
25,000,000 shares. In addition, a 5,657 for 1 split of the Company's common
stock was effected, increasing the number of issued and outstanding shares of
common stock to 6,256,642. All share information has been restated to give
retroactive effect to the stock split for all periods presented.
9. INCOME TAXES:
The tax effected amounts of temporary differences consisted of the
following:
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS ENDED JUNE 30,
ENDED YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, 1995
1994 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C>
Current
Deferred tax assets
Deferred revenue................. $ 57,350 $ 48,840 $ 50,690 $ 126,540
Inventory........................ 21,460 21,460
Bad debts........................ 1,577 22,200 11,937 21,090
Valuation allowance.............. (58,927) (92,500) (62,627) (169,090)
------------ ------------ ----------- ---------
Total current deferred tax
asset..................... $ 0 $ 0 $ 0 $ 0
========== ========== ========= =========
Non-current
Deferred tax asset
Net operating loss............... $ 40,700 $ 55,870 $ 59,755 $ 155,770
Other assets..................... 16,923 47,360 36,718 65,490
Valuation allowance.............. (57,623) (103,230) (96,473) (221,260)
------------ ------------ ----------- ---------
Total non-current deferred
tax asset................. $ 0 $ 0 $ 0 $ 0
========== ========== ========= =========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. At June 30, 1996, the
Company established a valuation allowance of $390,350. The result is an increase
in the valuation allowance from December 31, 1995 of $194,620.
The following table summarizes the principal differences between income tax
benefits at the Federal statutory rate and the effective income tax amounts
reflected in the financial statements.
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS ENDED JUNE 30,
ENDED YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, 1995
1994 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C>
Statutory tax benefit................. $ (111,196) $ (72,796) $ (39,100) $(185,300)
State taxes........................... (9,811) (6,423) (3,450) (16,350)
Permanent differences................. 925 1,203
Other................................. 3,533 (1,164) 0 7,030
Changes in valuation allowance........ 116,550 79,180 42,550 194,620
------------ ------------ ----------- ---------
$ 0 $ 0 $ 0 $ 0
========== ========== ========= =========
</TABLE>
F-51
<PAGE> 106
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES: -- (CONTINUED)
As of June 30, 1996 and December 31, 1995, the Company had net operating
losses of approximately $420,000 and $151,000, respectively. These amounts
expire between the years 2009 and 2011.
10. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and certain furniture and
equipment under operating leases having terms ranging from one to five years.
The leases contain up to two five year renewals.
Future minimum rental commitments under noncancelable operating leases are
approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING JUNE 30:
<S> <C>
1997............................................................ $159,000
1998............................................................ 163,000
1999............................................................ 120,000
2000............................................................ 39,000
2001............................................................ 13,000
--------
Total...................................................... $494,000
========
</TABLE>
Rent expense was approximately $22,000, $82,000, $33,000 and $82,000 for
1994 and 1995 and for the six months ended June 30, 1995 (unaudited) and 1996,
respectively.
11. SUBSEQUENT EVENTS:
In July 1996, the Company and certain of its stockholders entered into a
definitive agreement with Medical Manager Corporation ("MMC") providing for the
Merger of the Company with a subsidiary of MMC. All outstanding shares of the
Company's common stock will be exchanged for shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
Purchases of software from two of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$60,000, $400,000, $152,000 and $399,000 for 1994 and 1995 and for the six
months ended June 30, 1995 (unaudited) and 1996, respectively.
The Company has entered into a Management Services Agreement and Option
Agreement (the "Agreements") effective as of September 1, 1996, for the Medical
Manager Division (the "Division") of Medix, Inc., a wholly, owned subsidiary of
Blue Cross and Blue Shield of New Jersey, Inc. The Agreements provide for the
Company to manage the Division, which is an independent dealer of a private
label physician practice management system licensed from the developer of The
Medical Manager, until December 31, 1996 or the date of its purchase by NMS, if
earlier. The Agreements provide for NMS to acquire the Division by December 31,
1996 for $3,200,000. In connection with the Agreements, the Company made a
nonrefundable payment of $500,000 that will be applied against the purchase
price. If the sale to NMS is not completed by such date, the Agreements provide
for NMS to pay Medix an additional $460,000 in liquidation damages.
F-52
<PAGE> 107
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Systems Management, Inc.
We have audited the accompanying balance sheets of Systems Management, Inc.
as of December 31, 1994 and 1995 and June 30, 1996 and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995 and for the six months ended June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Systems Management, Inc. as
of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 30, 1996
F-53
<PAGE> 108
SYSTEMS MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $178,911 $ 187,609 $ 297,251
Accounts receivable, net................................ 167,214 276,366 288,978
Inventory............................................... 109,018 183,835 149,864
Prepaid expenses and other current assets............... 4,361 29,122 0
-------- ---------- ----------
Total current assets............................ 459,504 676,932 736,093
PROPERTY AND EQUIPMENT, net............................... 272,139 419,101 434,946
GOODWILL.................................................. 0 0 100,000
-------- ---------- ----------
Total assets.................................... $731,643 $1,096,033 $1,271,039
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations............. $ 22,885 $ 50,118 $ 106,201
Accounts payable and accrued liabilities................ 177,645 223,349 183,911
Customer deposits and deferred maintenance revenue...... 157,213 424,656 434,957
-------- ---------- ----------
Total current liabilities....................... 357,743 698,123 725,069
LONG-TERM OBLIGATIONS, net of current maturities.......... 154,310 212,767 233,922
-------- ---------- ----------
Total liabilities............................... 512,053 910,890 958,991
-------- ---------- ----------
Commitments and contingencies (Notes 6 and 7)
STOCKHOLDERS' EQUITY
Common stock, no par value, 100 shares authorized....... 15,485 15,485 15,485
Retained earnings....................................... 204,105 169,658 296,563
-------- ---------- ----------
Total stockholders' equity...................... 219,590 185,143 312,048
-------- ---------- ----------
Total liabilities and stockholders' equity...... $731,643 $1,096,033 $1,271,039
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 109
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems............................ $ 610,179 $ 621,258 $1,094,127 $ 286,233 $ 945,910
Maintenance and other.............. 1,134,307 1,507,640 1,622,742 864,674 969,414
---------- ---------- ---------- ---------- ----------
Total revenue.............. 1,744,486 2,128,898 2,716,869 1,150,907 1,915,324
Cost of revenue
Systems............................ 493,611 497,560 516,997 271,893 696,767
Maintenance and other.............. 836,634 1,158,147 1,714,203 642,186 774,225
---------- ---------- ---------- ---------- ----------
Total costs of revenue..... 1,330,245 1,655,707 2,231,200 914,079 1,470,992
---------- ---------- ---------- ---------- ----------
Gross margin............. 414,241 473,191 485,669 236,828 444,332
Operating expenses
Selling, general and
administrative.................. 313,510 371,037 425,509 200,393 236,548
Depreciation....................... 25,229 26,217 31,828 20,209 34,640
---------- ---------- ---------- ---------- ----------
Total operating expenses... 338,739 397,254 457,337 220,602 271,188
---------- ---------- ---------- ---------- ----------
Income from operations... 75,502 75,937 28,332 16,226 173,144
Interest expense..................... (4,134) (6,426) (23,279) (6,360) (10,039)
---------- ---------- ---------- ---------- ----------
Net income................. $ 71,368 $ 69,511 $ 5,053 $ 9,866 $ 163,105
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 110
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK
------- RETAINED
AMOUNT EARNINGS TOTAL
<S> <C> <C> <C>
Balance January 1, 1993......................................... $15,485 $ 98,719 $114,204
Net income.................................................... 71,368 71,368
Dividends..................................................... (13,523) (13,523)
------- -------- --------
Balance December 31, 1993....................................... 15,485 156,564 172,049
Net income.................................................... 69,511 69,511
Dividends..................................................... (21,970) (21,970)
------- -------- --------
Balance December 31, 1994....................................... 15,485 204,105 219,590
Net income.................................................... 5,053 5,053
Dividends..................................................... (39,500) (39,500)
------- -------- --------
Balance December 31, 1995....................................... 15,485 169,658 185,143
Net income.................................................... 163,105 163,105
Dividends..................................................... (36,200) (36,200)
------- -------- --------
Balance June 30, 1996........................................... $15,485 $ 296,563 $312,048
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE> 111
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
-------------------------------- ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $71,368.. $ 69,511 $ 5,053 $ 9,866 $163,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 25,229 26,217 31,828 20,209 34,640
Changes in assets and liabilities, net of
effects from acquisition:
Accounts receivable, net..................... 20,333 (52,123) (109,152) 57,421 (12,612)
Inventory.................................... 88,461 (54,341) (74,817) (50,103) 33,971
Prepaid expenses and other current assets.... 4,407 1,187 (24,761) (5,330) 29,122
Accounts payable and accrued liabilities..... 19,069 70,527 45,704 (96,888) (39,438)
Customer deposits and deferred maintenance
revenue.................................... (81,333) 29,403... 267,443 248,095 10,301
-------- --------- --------- --------- --------
Net cash provided by operating
activities............................ 147,534 90,381 141,298 183,270 219,089
-------- --------- --------- --------- --------
Cash flow from investing activities:
Purchases of property and equipment............ (34,035) (33,486) (80,995) (79,765) (50,485)
Payments for acquisitions made, net of assets
acquired..................................... 0 0 0 0 (30,000)
-------- --------- --------- --------- --------
Net cash used in investing activities... (34,035) (33,486) (80,995) (79,765) (80,485)
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations.................................. 24,532 26,000 85,000 91,500 57,735
Payment on short-term and long-term
obligations.................................. (52,914) (61,106) (97,105) (78,080) (50,497)
Dividends...................................... (13,523) (21,970) (39,500) (22,000) (36,200)
-------- --------- --------- --------- --------
Net cash (used in) financing
activities............................ (41,905) (57,076) (51,605) (8,580) (28,962)
Net change in cash and cash equivalents.......... 71,594 (181) 8,698 94,925 109,642
Cash and cash equivalents:
Beginning of period............................ 107,498 179,092 178,911 178,911 187,609
-------- --------- --------- --------- --------
End of period.................................. $179,092 $ 178,911 $ 187,609 $ 273,836 $297,251
======== ========= ========= ========= ========
Cash paid for interest:.......................... $ 4,134 $ 6,425 $ 23,280
======== ========= =========
Details of acquisitions:
Fair value of assets........................... $ 11,500 $ 165,500 $ 97,795 $ 97,775 $100,000
Less debt issued............................... (11,500) (165,500) (97,795) (97,775) (70,000)
-------- --------- --------- --------- --------
Net cash paid for acquisitions................. $ 0 $ 0 $ 0 $ 0 $ 30,000
======== ========= ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 112
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Systems Management, Inc. (the "Company") is an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in northern Indiana, Ohio and adjacent areas of the Midwestern United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of June 30, 1995 and for the six months then ended are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on the straight-line method over
the estimated useful lives of the assets.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code, whereby the Company is not subject to taxation for
federal purposes. Instead, the taxable income of the S corporation is included
in the individual income tax return of the Company's single stockholder for
federal income tax purposes. Accordingly, a provision for income taxes has not
been reflected in the financial statements. The Company's S corporation status
will terminate with the effective date of the Merger discussed in Note 7.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of, is effective for years beginning after
December 15, 1995. This Statement requires that long-lived assets and certain
F-58
<PAGE> 113
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. ACQUISITION:
On June 28, 1996, the Company acquired certain assets from an independent
dealer for The Medical Manager physician practice management system. Pro forma
results of operations have not been presented because the effects of this
acquisition were not significant. The acquisition has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired, approximately $100,000, accounted for as goodwill. The goodwill will
be amortized on the straight-line basis over 20 years.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Land and improvements................................. $ 41,265 $ 41,265 $ 41,265
Building.............................................. 151,152 249,844 250,944
Furniture and equipment............................... 75,741 119,660 169,045
Vehicles.............................................. 65,568 101,338 101,338
-------- -------- ---------
333,726 512,107 562,592
Less accumulated depreciation......................... (61,587) (93,006) (127,646)
-------- -------- ---------
$272,139 $419,101 $ 434,946
======== ======== =========
</TABLE>
F-59
<PAGE> 114
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Revolving lines of credit, interest monthly at prime plus 1/2%
(8 3/4% at June 30, 1996), due on demand, scheduled maturity
of June 1997, collateralized by substantially all of the
Company's assets, $102,400 available at June 30, 1996. ...... $ 13,039 $ 29,194 $ 47,600
Mortgage note payable, bearing interest at the bank's base rate
plus 1% (9 1/4% at June 30, 1996), with monthly principal and
interest payments of $2,057 (adjusted periodically) through
December 1999, with a balloon payment, including all unpaid
principal and interest, due December 1999. Collateralized by
all of the Company's assets. ................................ 143,500 195,386 192,793
Various notes payable, bearing interest at rates ranging from
6.42% to 11.50%, with various monthly payments of $391, with
maturity dates through 2000; collateralized by certain
Company vehicles. ........................................... 20,656 38,305 29,730
Promissory note payable, unsecured, bearing interest at 9% due
monthly. Principal reductions of $10,000, $30,000 and $30,000
are due in September 1996, January 1997 and January 1998,
respectively;................................................ 0 0 70,000
-------- -------- --------
Total................................................ 177,195 262,885 340,123
Less portion due within one year..................... 22,885 50,118 106,201
-------- -------- --------
Long term obligations, net of current maturities..... $154,310 $212,767 $233,922
======== ======== ========
</TABLE>
Annual maturities of long-term obligations for the three years subsequent
to June 30, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 45,695
1999............................................................ 15,542
2000............................................................ 172,685
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
In conjunction with the Merger discussed in Note 8, the Company will
distribute land and a building with a net book value of approximately $284,000
as of June 30, 1996 to the stockholders and enter into an operating lease for
use of the facilities. The lease contains three options for renewal for a period
of five years each beginning in November 1996 for an annual rate of $69,300.
Rent expense was approximately $40,000, $44,000, $9,000, $5,000 and $4,000
for 1993, 1994, 1995 and for the six months ended June 30, 1995 (unaudited) and
1996, respectively.
7. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholders entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC. In addition, in connection with the merger, the Company will elect
to terminate its S corporation status and will be required to effect the asset
and liability method of accounting for deferred income taxes. Under this method,
deferred tax assets and liabilities are established based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
F-60
<PAGE> 115
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS: -- (CONTINUED)
differences are expected to reverse. Had the Company elected to terminate its S
corporation status immediately prior to June 30, 1996, the Company would have
been required to establish a deferred tax asset of approximately $65,000 related
primarily to the use of different methods of accounting for deferred revenue for
tax and financial reporting purposes.
Purchases of software from one of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$87,000, $169,000, $230,000, $121,000 and $164,000 for 1993, 1994 and 1995 and
for the six months ended June 30, 1995 (unaudited) and 1996, respectively.
F-61
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GBP With Excellence, Inc.
and
National Medical Systems, Inc.
We have audited the accompanying balance sheet of GBP With Excellence, Inc.
as of December 31, 1995 and the related statements of operations and accumulated
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GBP With Excellence, Inc. as
of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, on January 29, 1996,
substantially all of the assets of GBP With Excellence, Inc. were sold to
National Medical Systems, Inc., pursuant to an asset purchase agreement dated
January 12, 1996.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 10, 1996
F-62
<PAGE> 117
GBP WITH EXCELLENCE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 24,381
Accounts receivable, net................................................... 60,328
Inventory.................................................................. 6,096
Prepaid expenses and other current assets.................................. 2,298
-----------
Total current assets............................................... 93,103
PROPERTY AND EQUIPMENT, net.................................................. 19,417
OTHER ASSETS................................................................. 6,160
-----------
Total assets....................................................... $ 118,680
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations................................ $ 353,403
Accounts payable and accrued liabilities................................... 214,763
Customer deposits and deferred maintenance revenue......................... 305,286
-----------
Total current liabilities.......................................... 873,452
LONG-TERM OBLIGATIONS, net of current maturities............................. 29,147
-----------
Total liabilities.................................................. 902,599
-----------
Commitments and contingencies (Note 5)
STOCKHOLDERS' DEFICIT
Common stock, $1.00 par value, 1,000 shares authorized, issued and
outstanding............................................................. 1,000
Additional paid-in capital................................................. 233,433
Accumulated deficit........................................................ (1,018,352)
-----------
Total stockholders' deficit........................................ (783,919)
-----------
Total liabilities and stockholders' deficit........................ $ 118,680
===========
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE> 118
GBP WITH EXCELLENCE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, 1995
DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C>
Revenue
Systems...................................................... $ 1,551,807 $ 837,222
Maintenance and other........................................ 1,009,026 399,801
----------- -----------
Total revenues............................................ 2,560,833 1,237,023
----------- -----------
Cost of revenue
Systems...................................................... 1,274,165 665,937
Maintenance and other........................................ 560,852 258,499
----------- -----------
Total costs of revenue.................................... 1,835,017 924,436
----------- -----------
Gross margin......................................... 725,816 312,587
----------- -----------
Operating expenses
Selling, general and administrative.......................... 752,114 461,830
Depreciation expense......................................... 21,957 8,475
----------- -----------
Total operating expenses.................................. 774,071 470,305
----------- -----------
Loss from operations................................. (48,255) (157,718)
Interest expense............................................... (31,259) (13,111)
----------- -----------
Net loss....................................................... (79,514) (170,829)
Accumulated deficit
Beginning of period.......................................... (938,838) (938,838)
----------- -----------
End of period................................................ $(1,018,352) $ (1,109,667)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-64
<PAGE> 119
GBP WITH EXCELLENCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, 1995
DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (79,514) $ (170,829)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.............................................. 21,957 8,475
Changes in assets and liabilities
Accounts receivable, net.................................. 121,567 114,312
Inventory................................................. 75,295 72,055
Prepaid expenses and other current assets................. (2,091) 2,129
Accounts payable and accrued liabilities.................. (14,014) 24,891
Customer deposits and deferred maintenance revenue........ (253,303) (178,780)
--------- ---------
Net cash used in operating activities........................ (130,103) (127,747)
Cash flow from investing activities:
Purchases of property and equipment.......................... (6,178) (3,537)
Proceeds on sale of property and equipment................... 0 0
--------- ---------
Net cash used in investing activities........................ (6,178) (3,537)
Cash flow from financing activities:
Proceeds from issuance of long-term obligations.............. 87,715 27,930
Payment on short-term and long-term obligations.............. (60,813) (30,406)
--------- ---------
Net cash provided by (used in) financing activities.......... 26,902 (2,476)
--------- ---------
Net change in cash and cash equivalents........................ (109,379) (133,760)
Cash and cash equivalents:
Beginning of period.......................................... 133,760 133,760
--------- ---------
End of period................................................ $ 24,381 $ 0
========= =========
Cash paid for interest....................................... $ 31,259 $ 15,319
========= =========
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
GBP With Excellence, Inc. (the "Company") was an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in Central Florida. In January 1996, substantially all of the
Company's operating assets were sold to National Medical Systems, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of July 1995, and for the six months then ended, are unaudited. All adjustments
and accruals (consisting only of normal recurring adjustments) have been
recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim period are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers and the geographic areas into which the Company's
systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code of 1986, whereby the Company is not subject to
taxation for federal purposes. Instead, the taxable income or loss of the S
corporation is included in the individual income tax returns of the Company's
stockholders for federal income tax purposes.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
F-66
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Furniture and equipment.......................................... $ 92,302
Computers........................................................ 57,040
-------
149,342
Less accumulated depreciation.......................... (129,925)
-------
$ 19,417
=======
</TABLE>
4. NOTES PAYABLE:
Notes payable consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Revolving line of credit, $100,000 available principal, monthly
interest at prime plus 1% (9 1/4% at December 31, 1995),
principal due on demand, collateralized by accounts receivable
and other assets, guaranteed by the Company's stockholders.... $ 65,716
Note payable, monthly payments of $4,057 with interest at 9%,
balloon payment of $202,070 due 1998, unsecured............... 260,666
Note payable, monthly payments of $507 with interest at 9%,
balloon payment of $25,259 due 1998, unsecured................ 32,584
Note payable, monthly payments of $997 with interest at 10%, due
1996, unsecured............................................... 5,814
Note payable, monthly payments of $1,015 with interest at 10%,
due 1997, unsecured........................................... 17,770
-------
Total................................................. 382,550
Less portion due within one year...................... 353,403
-------
Long term obligations, net of current maturities...... $ 29,147
=======
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases. Future
minimum rental commitments under noncancelable operating leases were
approximately as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996......................................................... $ 43,000
1997......................................................... 44,000
1998......................................................... 15,000
--------
Total................................................... $102,000
========
</TABLE>
Rent expense was approximately $51,000 and $25,000 for 1995 and for the six
months ended June 30, 1995 (unaudited).
F-67
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medix, Inc.
and
National Medical Systems, Inc.
We have audited the accompanying statements of financial position of
Medical Manager Division of Medix, Inc. as of December 31, 1994 and 1995 and the
related statements of operations and cash flows for each of the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Manager Division of
Medix, Inc. as of December 31, 1994 and 1995 and the results of its operations
and its cash flows for each of the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, effective September 1,
1996, Medical Manager Division's management was taken over by National Medical
Systems, Inc., pursuant to a management services agreement and option to
purchase agreement, both dated September 1, 1996.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 1, 1996
F-68
<PAGE> 123
MEDICAL MANAGER DIVISION
FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Accounts receivable, net.................... $ 781,707 $ 417,584 $ 311,672
Inventory................................... 251,102 210,929 224,235
Prepaid expenses and other current assets... 0 341,670 317,675
---------- ---------- --------
Total current assets................ 1,032,809 970,183 853,582
PROPERTY AND EQUIPMENT, net................... 183,178 152,804 128,672
---------- ---------- --------
Total assets........................ $ 1,215,987 $ 1,122,987 $ 982,254
========== ========== ========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Customer deposits and deferred maintenance
revenue.................................. $ 488,618 $ 657,984 $ 790,833
---------- ---------- --------
Total liabilities................... 488,618 657,984 790,833
---------- ---------- --------
Commitments and contingencies (Note 5)
DIVISIONAL EQUITY
Divisional equity........................... 727,369 465,003 191,421
---------- ---------- --------
Total divisional equity............. 727,369 465,003 191,421
---------- ---------- --------
Total liabilities and divisional
equity............................ $ 1,215,987 $ 1,122,987 $ 982,254
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 124
MEDICAL MANAGER DIVISION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1994 1995 1996
1995 (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Systems................................. $2,405,039 $ 519,959 $ 341,447 $ 223,126
Maintenance and other................... 3,463,369 3,943,654 1,958,099 1,903,495
---------- ---------- ---------- ----------
Total revenues....................... 5,868,408 4,463,613 2,299,546 2,126,621
---------- ---------- ---------- ----------
Cost of revenue
Systems................................. 1,602,664 360,676 240,908 161,868
Maintenance and other................... 2,728,861 2,828,966 1,497,395 1,403,415
---------- ---------- ---------- ----------
Total costs of revenue............... 4,331,525 3,189,642 1,738,303 1,565,283
---------- ---------- ---------- ----------
Gross margin....................... 1,536,883 1,273,971 561,243 561,338
---------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative..... 1,235,313 1,188,753 619,561 673,956
Depreciation and amortization........... 99,394 90,192 44,935 44,701
---------- ---------- ---------- ----------
Total operating expenses............. 1,334,707 1,278,945 664,496 718,657
---------- ---------- ---------- ----------
Income (loss) from operations...... 202,176 (4,974) (103,253) (157,319)
Other income (expense)
Interest expense........................ (58,818) (59,720) (49,054) (29,273)
Interest income......................... 26,167 15,154 11,289 10,546
---------- ---------- ---------- ----------
Income (loss) before income taxes......... 169,525 (49,540) (141,018) (176,046)
Income taxes (benefit).................... 59,334 (9,908) (28,204) (35,209)
---------- ---------- ---------- ----------
Net income (loss).................. $ 110,191 $ (39,632) $ (112,814) $ (140,837)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 125
MEDICAL MANAGER DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
----------------------- ---------------------------
1994 1995 1996
1995 (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ 110,191 $ (39,632) $(112,814) $(140,837)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 99,394 90,192 44,935 44,701
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net.............. (31,483) 364,123 412,621 105,912
Inventory............................. (36,371) 40,173 (10,001) (13,306)
Prepaid expenses and other current
assets.............................. 87,575 (341,670) (362,350) 23,995
Customer deposits and deferred
maintenance revenue................. 101,406 169,366 446,552 132,849
--------- --------- --------- ---------
Net cash provided by operating
activities.......................... 330,712 282,552 418,943 153,314
Cash flow from investing activities:
Purchases of property and equipment... (128,325) (59,818) (51,382) (20,569)
--------- --------- --------- ---------
Net cash used in investing
activities.......................... (128,325) (59,818) (51,382) (20,569)
Cash flow from financing activities:
Net remittances to Medix, Inc......... (202,387) (222,734) (367,560) (132,745)
--------- --------- --------- ---------
Net cash used in financing
activities.......................... (202,387) (222,734) (367,560) (132,745)
--------- --------- --------- ---------
Net change in cash and cash equivalents.... $ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Medical Manager Division (the "Division"), a wholly-owned division of
Medix, Inc. ("Medix"), whose parent is Blue Cross and Blue Shield of New Jersey,
Inc. (BCBSNJ), markets and supports "The System by Medix," a private label
physician practice management system, to clients primarily in New Jersey and New
York. The system is licensed from Personalized Programming, Inc., the developer
of the system.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Effective September 1, 1996, Medix
entered into a management services agreement and an option agreement with
National Medical Systems, Inc. ("NMS") that provides for NMS to manage the
Division pending its sale to NMS.
BCBSNJ provides certain services to, and incurs certain costs on behalf of,
its subsidiaries and divisions. These costs, which include office space,
employee benefit and executive compensation programs, retirement savings and
health plans, treasury, accounting, data processing, legal, administrative and
business insurance, are allocated to BCBSNJ's subsidiaries, including Medix and
ultimately to the Division, on a pro-rata basis. Liabilities related to the
benefit plans described above are not fully reflected in the statement of
financial position. Interest income and expense are also allocated. As such,
these financial statements are not necessarily indicative of the financial
position or the results of operations had the Division been operated as an
unaffiliated company. However, management believes that with respect to
expenses, the amounts reflected in the statements of operation are not less than
the amounts the Division would have incurred had the Division been an
unaffiliated company in those periods.
These financial statements present the results of operations for the years
ended December 31, 1994 and 1995 and for the unaudited six months ended June 30,
1995 and 1996 and the financial position at December 31, 1994 and 1995 and June
30, 1996 (unaudited). The effects of the pending purchase by NMS, including
purchase accounting by the acquiror, have not been reflected in these financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Division as
of June 30, 1995 and 1996, and for the six months then ended, are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded, which, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services are recognized as they are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon management's estimates.
Concentration of Credit Risk. Financial instruments that potentially
subject the Division to concentrations of credit risk consist principally of
accounts receivable. The Division's credit concentrations are limited due to the
wide variety of customers and the geographic areas into which the Division's
systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Division considers all highly liquid investments with maturity dates of
three months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
F-72
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. The Division participates in the consolidated federal income
tax return of BCBSNJ. Under terms of an agreement between Medix and BCBSNJ,
income tax provisions are allocated at 35% of income before income taxes and
income tax benefits at 20% of loss before income taxes for financial reporting
purposes. The Division's current income taxes payable or receivable are included
in divisional equity in the accompanying statements of financial position.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statements of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed Of, is effective for years beginning
after December 15, 1995. This Statement requires that long-lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment. This pronouncement is not expected to have a material impact on the
financial statements of the Company.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment consisted of the following:
Furniture and equipment..................................... $1,105,744 $ 679,500 $ 683,999
Less accumulated depreciation.......................... (922,566) (526,696) (555,327)
--------- -------- --------
$ 183,178 $ 152,804 $ 128,672
========= ======== ========
</TABLE>
4. DIVISIONAL EQUITY:
Divisional equity reflects the historical activity between the Division and
Medix. An analysis of the changes in divisional equity is as follows:
<TABLE>
<S> <C>
Balance January 1, 1994.................................................. $ 819,565
Net income............................................................... 110,191
Net remittances to Medix................................................. (202,387)
---------
Balance December 31, 1994................................................ 727,369
Net loss................................................................. (39,632)
Net remittances to Medix................................................. (222,734)
---------
Balance December 31, 1995................................................ 465,003
Net loss................................................................. (140,837)
Net remittances to Medix................................................. (132,745)
---------
Balance June 30, 1996.................................................... $ 191,421
=========
</TABLE>
F-73
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES:
Medix leases its office facilities, including those utilized by the
Division, from BCBSNJ under the terms of an operating lease that expires in
December 1998. In conjunction with the purchase by NMS, operations of the
Division will be moved to another location. The Division will not be responsible
for obligations under the existing lease after the relocation.
Rent expense allocated to the Division totaled $145,000, $155,000, $78,000
and $66,000 for 1994 and 1995 and the unaudited six months ended June 30, 1995
and 1996, respectively.
F-74
<PAGE> 129
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 10
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 29
Management............................ 41
Certain Transactions.................. 45
Principal Stockholders................ 47
Description of Capital Stock.......... 47
Shares Eligible For Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 53
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1996 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
5,000,000 SHARES
MEDICAL MANAGER CORPORATION
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this Offering. All of
such amounts (except the SEC Registration Fee and the NASD Filing Fee) are
estimated.
<TABLE>
<S> <C>
SEC Registration Fee......................................................... $31,724.14
Nasdaq National Market Listing Fees..........................................
NASD Filing Fee.............................................................. 9,700
Blue Sky Fees and Expenses...................................................
Printing and Engraving Costs.................................................
Legal Fees and Expenses......................................................
Accounting Fees and Expenses.................................................
Transfer Agent and Registrar Fees and Expenses...............................
Miscellaneous................................................................
-------
Total..............................................................
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
Article Seven of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions, or (d) for transactions from which
directors derive improper personal benefit.
Section 7 of the Underwriting Agreement filed as Exhibit 1.1 provides that
the Underwriters named therein will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). Section 7 of such Underwriting Agreement also
provides that such Underwriters will contribute to certain liabilities of such
persons under the Securities Act.
II-1
<PAGE> 131
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold by the Company within the past three years which were not registered under
the Securities Act:
In July 1996, the Company sold one share of Common Stock to each of
John H. Kang, Ricardo A. Salas and Wayne Burks at a price of $1.00 per
share.
Simultaneously with the completion of this Offering, the Company will issue
13,000,000 shares of its Common Stock in connection with the Mergers of the five
Founding Companies.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of, and/or Regulation D under, the Securities Act for
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Personalized Programming, Inc., PPI Acquisition I Corp. and the Stockholder named
therein
2.2 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Systems Plus, Inc., Systems Plus Distribution, Inc., SPI Acquisition I Corp.,
SPDI Acquisition I Corp. and the Stockholder named therein
2.3 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, National Medical Systems, Inc., NMS Acquisition I Corp. and the Stockholders
named therein
2.4 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, RTI Business Systems, Inc., RTI Acquisition I Corp. and the Stockholders named
therein
2.5 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Systems Management, Inc., SMI Acquisition I Corp. and the Stockholders named
therein
3.1 -- Certificate of Incorporation of the Company
3.2 -- By-laws of the Company*
4 -- Form of certificate evidencing ownership of Common Stock of the Company*
5 -- Opinion of Morgan, Lewis & Bockius LLP*
10.1 -- 1996 Long-Term Incentive Plan of the Company
10.2 -- 1996 Non-Employee Directors' Stock Plan of the Company
10.3 -- Form of Employment Agreement between the Company and Michael A. Singer
10.4 -- Form of Employment Agreement between the Company and Richard W. Mehrlich
10.5 -- Form of Employment Agreement between the Company and John H. Kang
10.6 -- Form of Employment Agreement between the Company and Frederick B. Karl, Jr.
10.7 -- Form of Employment Agreement between the Company and Wayne Burks
10.8 -- Form of Employment Agreement between the Company and Henry W. Holbrook
10.9 -- Form of Employment Agreement between the Company and Thomas P. Liddell
10.10 -- Lease between PPI Holding Company, Inc. and Personalized Programming, Inc. dated March 12,
1996*
10.11 -- Form of Lease between Liddell, L.L.C. and Systems Management, Inc.*
10.12 -- Master License Agreement between Personalized Programming, Inc. and Systems Plus, Inc.
dated November 15, 1982, together with eight addenda thereto
</TABLE>
II-2
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <C> <S>
10.13 -- Management Services Agreement and Option Agreement, dated as of September 1, 1996, between
Medix, Inc. and National Medical Systems, Inc.*
21 -- List of subsidiaries of the Company
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)*
23.3 -- Consent of Michael A. Singer to be named as a director
23.4 -- Consent of Richard W. Mehrlich to be named as a director
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this Offering of such securities at that time shall be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, Florida, on the
30th day of September, 1996.
MEDICAL MANAGER CORPORATION
By: /s/ JOHN H. KANG
---------------------------------------
John H. Kang
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John H. Kang, Wayne Burks and Ricardo A. Salas,
and each of them, with full power to act without the other, such person's true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments thereto
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------- -------------------
<C> <S> <C>
/s/ JOHN H. KANG President and Director (Principal September 30, 1996
- --------------------------------------------- Executive Officer)
John H. Kang
/s/ WAYNE BURKS Vice President, Chief Financial September 30, 1996
- --------------------------------------------- Officer and Director (Principal
Wayne Burks Financial and Accounting
Officer)
/s/ RICARDO A. SALAS Vice President, Secretary and September 30, 1996
- --------------------------------------------- Director
Ricardo A. Salas
</TABLE>
II-4
<PAGE> 134
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ---------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement*.............................................
2.1 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Personalized Programming, Inc., PPI Acquisition I Corp.
and the Stockholder named therein...........................................
2.2 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Systems Plus, Inc., Systems Plus Distribution, Inc., SPI
Acquisition I Corp., SPDI Acquisition I Corp. and the Stockholder named
therein.....................................................................
2.3 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, National Medical Systems, Inc., NMS Acquisition I Corp.
and the Stockholders named therein..........................................
2.4 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, RTI Business Systems, Inc., RTI Acquisition I Corp. and
the Stockholders named therein..............................................
2.5 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Systems Management, Inc., SMI Acquisition I Corp. and the
Stockholders named therein..................................................
3.1 -- Certificate of Incorporation of the Company.................................
3.2 -- By-laws of the Company*.....................................................
4 -- Form of certificate evidencing ownership of Common Stock of the Company*....
5 -- Opinion of Morgan, Lewis & Bockius LLP*.....................................
10.1 -- 1996 Long-Term Incentive Plan of the Company................................
10.2 -- 1996 Non-Employee Directors' Stock Plan of the Company......................
10.3 -- Form of Employment Agreement between the Company and Michael A. Singer......
10.4 -- Form of Employment Agreement between the Company and Richard W. Mehrlich....
10.5 -- Form of Employment Agreement between the Company and John H. Kang...........
10.6 -- Form of Employment Agreement between the Company and Frederick B. Karl,
Jr..........................................................................
10.7 -- Form of Employment Agreement between the Company and Wayne Burks............
10.8 -- Form of Employment Agreement between the Company and Henry W. Holbrook......
10.9 -- Form of Employment Agreement between the Company and Thomas P. Liddell......
10.10 -- Lease between PPI Holding Company, Inc. and Personalized Programming, Inc.
dated March 12, 1996*.......................................................
10.11 -- Form of Lease between Liddell, L.L.C. and Systems Management, Inc.*.........
10.12 -- Master License Agreement between Personalized Programming, Inc. and Systems
Plus, Inc. dated November 15, 1982, together with eight addenda thereto.....
10.13 -- Management Services Agreement and Option Agreement, dated as of September 1,
1996, between Medix, Inc. and National Medical Systems, Inc.*...............
21 -- List of subsidiaries of the Company.........................................
23.1 -- Consent of Coopers & Lybrand L.L.P..........................................
23.2 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)*..........
23.3 -- Consent of Michael A. Singer to be named as a director......................
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ---------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
23.4 -- Consent of Richard W. Mehrlich to be named as a director....................
24 -- Powers of Attorney (included on signature page).............................
27 -- Financial Data Schedule.....................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
_______________________________________________________________________________
DRAFT DATED 9/24/96
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
MEDICAL MANAGER CORPORATION
PPI ACQUISITION I CORP. (a subsidiary of
MEDICAL MANAGER CORPORATION)
PERSONALIZED PROGRAMMING, INC.
and
the STOCKHOLDER named herein
_______________________________________________________________________________
<PAGE> 2
Table of Contents
<TABLE>
<S> <C> <C>
Page
----
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Delivery and Filing of Articles of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, PC and NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Manner of Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. DELIVERY OF MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE
STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 Transactions in Capital Stock, Reorganization
Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 Spin-off by the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Intellectual Property; Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 Significant Customers; Material Contracts and
Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.18 Compensation; Employment Agreements; Organized
Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.23 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.27 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.28 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.29 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.30 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.31 No Intention to Dispose of COMPANY Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6. REPRESENTATIONS AND WARRANTIES OF PC and NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.10 PC Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.11 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.12 Business; Real Property; Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.5 Notice to Bargaining Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.6 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.7 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.9 Cooperation in Preparation of Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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7.10 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.11 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY . . . . . . . . . . . . . . . . . . . 49
8.1 Representations and Warranties; Performance of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.9 PC Stock to be Sold in the IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.10 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.11 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.13 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.1 Representations and Warranties; Performance of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.5 STOCKHOLDER's Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.13 Closing of the IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10. COVENANTS OF PC AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.1 Release From Guarantees; Repayment of Certain
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.4 Real Property Gains and Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.5 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.6 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.8 Indemnification of Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.1 General Indemnification by the STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.2 Indemnification by PC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14.1 STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14.2 PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
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17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
17.2(A) Demand Registration Rights of the STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . 73
17.2(B) Demand Registration Rights of the STOCKHOLDER and the Stockholders of the Other Founding
Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
17.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
17.5 Availability of Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 79
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18.15 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
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Annexes
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Annex I - Form of Articles of Merger
Annex II - Form of Certificate of Incorporation and By-
laws of PC and NEWCO
Annex III - Consideration to be paid to the STOCKHOLDER
Annex IV - STOCKHOLDER and Stock Ownership of the
COMPANY
Annex V - STOCKHOLDER and Stock Ownership of PC
Annex VI - Form of Opinion of Morgan, Lewis & Bockius
LLP
Annex VII - Form of Opinion of Counsel to the COMPANY and
the STOCKHOLDER
Annex VIII - Form of Employment Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made as of the 30th day of September, 1996, by and among MEDICAL MANAGER
CORPORATION, a Delaware corporation ("PC"), PPI ACQUISITION I CORP., a Delaware
corporation ("NEWCO"), PERSONALIZED PROGRAMMING, INC., a Florida corporation
(the "COMPANY"), and MICHAEL A. SINGER (the "STOCKHOLDER"). The STOCKHOLDER is
the sole stockholder of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on July
16, 1996, solely for the purpose of completing the transactions set
forth herein, and is a wholly-owned subsidiary of PC, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States
of Delaware and Florida;
WHEREAS, PC is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan of Reorganization," with each
of Systems Plus, Inc., a California corporation, and Systems Plus
Distribution, Inc., a California corporation, and RTI Business Systems,
Inc., a New York corporation, and Systems Management, Inc., an Indiana
corporation, and National Medical Systems, Inc., a Florida corporation,
and their respective stockholders in order to acquire additional
medical software development and distribution companies (the COMPANY,
together with each of the entities with which PC has entered into the
Other Agreements, are collectively referred to herein as the "Founding
Companies");
<PAGE> 9
WHEREAS, this Agreement, the Other Agreements and the IPO of PC
Stock (as each is hereinafter defined) constitute the "PC Plan of
Organization";
WHEREAS, the Boards of Directors of PC and each of the Founding
Companies have approved and adopted the PC Plan of Organization as an
integrated plan to transfer the capital stock of the Founding
Companies to PC and the cash raised in the IPO of PC Stock to PC as a
transfer of property under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of
the COMPANY has approved this Agreement as part of the PC Plan of
Organization in order to transfer the capital stock of the COMPANY to
PC;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes
of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" shall mean NEWCO and each of the other
Delaware companies wholly-owned by PC prior to the Funding and Consummation
Date.
"Articles of Merger" shall mean those Articles or Certificates of
Merger with respect to the Merger, substantially in the form of Annex I
attached hereto, or with such other changes therein as may be required by
applicable state laws.
"Balance Sheet Date" shall mean June 30, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
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"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Effective Time of the Merger" shall mean the time as of which the
Merger becomes effective, which the parties hereto contemplate to occur on the
Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Funding and Consummation Date" has the meaning set forth in Section
4.
"Intellectual Property" shall mean all trademarks, service marks,
trade dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design or
product packaging.
"IPO" means the initial public offering of PC Stock pursuant to the
Registration Statement.
"IPO Price" means the price at which the PC Stock is sold to the
public in the IPO.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant
to this Agreement and the applicable provisions of the laws of the State of
Delaware and other applicable state laws.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
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"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANY.
"PC" has the meaning set forth in the first paragraph of this
Agreement.
"PC Charter Documents" has the meaning set forth in Section 6.1.
"PC Stock" means the common stock, par value $.01 per share, of PC.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by PC and the Underwriters
of the public offering price of the shares of PC Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement of
PC on Form S-1 covering the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
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"SEC" means the United States Securities and Exchange Commission.
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party
in the Merger.
"Tax" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger to be signed, verified and delivered
to the Secretary of State of the State of Delaware and, as required, a similar
filing to be made with the relevant authorities in the jurisdiction in which
the COMPANY is organized, on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the
Merger, NEWCO shall be merged with and into the COMPANY in accordance with the
Articles of Merger, the separate existence of NEWCO shall cease, and the
COMPANY shall be the surviving party in the Merger. The COMPANY is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger will be
effected in a single transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the
COMPANY then in effect shall be the Certificate or Articles of
Incorporation of the Surviving Corporation until changed as provided
by law;
(ii) the By-laws of the COMPANY then in effect shall become the
By-laws of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation
initially shall consist of the following persons:
John H. Kang
Michael A. Singer
Frederick B. Karl, Jr.
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Florida and of
the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and
effective upon the Effective Time of the Merger, Frederick B. Karl,
Jr. shall be appointed as a vice president and as Secretary of the
Surviving Corporation, to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-laws of the Surviving
Corporation, until his successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PC AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
COMPANY, PC and NEWCO as of the date of this Agreement are as follows:
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(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the COMPANY is as set forth on Schedule
1.4 hereto;
(ii) immediately prior to the Funding and Consummation Date,
the authorized capital stock of PC will consist of 50,000,000 shares
of PC Stock, of which the number of issued and outstanding shares will
be set forth in the Registration Statement, and 500,000 shares of
preferred stock, $.01 par value, of which no shares will be issued and
outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten
(10) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL") and the
law of the State of Florida. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving
Corporation, shall be fully vested therewith. At the Effective Time of the
Merger, the separate existence of NEWCO shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all Taxes,
including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
COMPANY and NEWCO shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the COMPANY and NEWCO; and the title to any real estate, or
interest therein, whether by deed or otherwise, vested in the COMPANY and NEWCO
under the laws of each state of incorporation,
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shall not revert or be in any way impaired by reason of the Merger. Except as
otherwise provided herein, the Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of the COMPANY
and NEWCO and any claim existing, or action or proceeding pending, by or
against the COMPANY or NEWCO may be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted in its place. Neither
the rights of creditors nor any liens upon the property of the COMPANY or NEWCO
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and NEWCO shall attach to the Surviving Corporation, and may be
enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) PC Stock and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares
of PC Stock set forth on Annex III hereto and (2) the right to receive
the amount of cash set forth on Annex III hereto. Such amounts of
cash and shares as set forth on Annex III hereto as of the date hereof
are final and shall not change hereafter regardless of the number of
shares sold in the IPO or the offering price of such shares;
(ii) all shares of COMPANY Stock that are held by the COMPANY
as treasury stock shall be canceled and retired and no shares of PC
Stock or other consideration shall be delivered or paid in exchange
therefor; and
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(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by
virtue of the Merger and without any action on the part of PC,
automatically be converted into one fully paid and non-assessable
share of common stock of the Surviving Corporation, which shall
constitute all of the issued and outstanding shares of common stock of
the Surviving Corporation immediately after the Effective Time of the
Merger.
All PC Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding PC
Stock by reason of the provisions of the Certificate of Incorporation of PC or
as otherwise provided by the Delaware GCL. All voting rights of such PC Stock
received by the STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and
the STOCKHOLDER shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Merger, PC shall have no class of capital
stock issued and outstanding other than the PC Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDER shall, upon surrender of certificates
representing all outstanding shares of COMPANY Stock, receive (i) the
respective number of shares of PC Stock set forth on Annex III and (ii) the
amount of cash set forth on Annex III hereto, said cash to be payable by wire
transfer.
3.2 The STOCKHOLDER shall deliver to PC at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDER, or accompanied by duly executed stock powers, with, if required by
PC, signatures guaranteed by a national or state chartered bank or other
financial institution, and with all necessary Transfer Tax and other revenue
stamps, acquired at the STOCKHOLDER's expense, affixed and canceled. The
STOCKHOLDER agrees promptly to use reasonable best efforts to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such COMPANY Stock or with respect to
the stock powers accompanying any COMPANY Stock.
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4. CLOSING
At or prior to the Pricing, the parties shall use all reasonable best
efforts to take all actions necessary to prepare to (i) effect the Merger
(including, if permitted by applicable state law, the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective only at the Effective Time of the Merger) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger for
purposes of this Agreement or the conversion and delivery of the shares and
payment therefor referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In
the event that there is no Funding and Consummation Date and this Agreement
terminates, PC hereby covenants and agrees to do all things required by
Delaware law and all things which counsel for the COMPANY advises PC are
required by applicable laws of the State of Florida in order to rescind any
merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Closing") shall take place on the closing date
(the "Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Funding and Consummation Date (x) the
Articles of Merger shall be or shall have been filed with the appropriate state
authorities so that they shall be or, as of 8:00 a.m. New York City time on the
Funding and Consummation Date, shall become effective and the Merger shall
thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of wire transfers
in amounts equal to the cash portions of the consideration which the
STOCKHOLDER shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." This Agreement shall in any event terminate if the
Funding and Consummation Date has not occurred within 15 business days of the
Closing Date, provided that, PC, NEWCO, the COMPANY and the STOCKHOLDERS shall
act in good faith to
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consummate the IPO. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE STOCKHOLDER
(A) Representations and Warranties of COMPANY and the STOCKHOLDER.
Each of the COMPANY and the STOCKHOLDER jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of the Closing and the Funding
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of twelve (12) months
(the last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax
periods (and any portions thereof) ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22, and (ii) solely for purposes of Section 11.1(iii) hereof, and solely to
the extent that, in connection with the IPO, PC actually incurs liability under
the 1933 Act, the 1934 Act, or any other Federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable statute of limitations period, which shall be
deemed to be the Expiration Date for such purposes. For purposes of this
Section 5, the term the "COMPANY" shall mean and refer to the COMPANY and each
of its subsidiaries, if any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or financial condition (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material
Adverse Effect") of the COMPANY. Schedule 5.1 contains a list of all
jurisdictions in
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which the COMPANY is authorized or qualified to do business. True, complete
and correct copies of the Certificate or Articles of Incorporation and By-laws,
each as amended to date, of the COMPANY (the "Charter Documents") are all
attached hereto as Schedule 5.1. The minute books and stock records of the
COMPANY, as heretofore made available to PC, are correct and complete in all
material respects. The most recent minutes of the COMPANY, which are dated no
earlier than ten (10) business days prior to the date hereof, affirm and ratify
all prior acts of the COMPANY and of its officers and directors on behalf of
the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full corporate right,
power and authority to enter into this Agreement and the Merger, subject to any
required approval of the shareholders and the Board of Directors of the COMPANY
described on Schedule 5.2, certified copies of which are attached thereto.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the COMPANY is as set forth in Section 1.4(i). All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the STOCKHOLDER
in the amounts set forth in Annex IV and further, except as set forth on
Schedule 5.3, are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. All of the issued and outstanding shares of capital stock of the COMPANY
have been duly authorized and validly issued, are fully paid and nonassessable,
are owned of record and beneficially by the STOCKHOLDER and were offered,
issued, sold and delivered by the COMPANY in compliance in all material
respects with all applicable state and Federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock
since January 1, 1994. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which
obligates the COMPANY to issue any of its authorized but unissued capital
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stock or its treasury stock; (ii) the COMPANY has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the Merger.
Schedule 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of the COMPANY's stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. The COMPANY has no subsidiaries. Except as set
forth on Schedule 5.6, the COMPANY does not own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise)
or from whom the COMPANY previously acquired material assets. Except as
disclosed on Schedule 5.7, the COMPANY has not been a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the COMPANY or any other person or entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are
copies of the following financial statements (the "COMPANY Financial
Statements") of the COMPANY: the COMPANY's audited
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Balance Sheet as of June 30, 1996 and December 31, 1995 and 1994 and Statements
of Income, Cash Flows and Retained Earnings for the six months ended June 30,
1996 and for each of the years in the three-year period ended December 31, 1995
(June 30, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 5.9). Except as set
forth on Schedule 5.9, such Balance Sheets as of June 30, 1996 and December 31,
1995 and 1994 present fairly in all material respects the financial position of
the COMPANY as of the dates indicated thereon, and such Statements of Income,
Cash Flows and Retained Earnings present fairly in all material respects the
results of operations and cash flows for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PC an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY which are not reflected on the
balance sheet of the COMPANY at the Balance Sheet Date and (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements to which the COMPANY is a party.
Except as set forth on Schedule 5.10, since the Balance Sheet Date, the COMPANY
has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed or otherwise accrued or reserved, a good faith
and reasonable estimate of the maximum amount which may be payable. For each
such contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to PC the following information:
(i) a summary description of the liability together with the
following:
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(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding.
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate of the maximum amount, if any,
which is likely to become payable with respect to each such liability.
If no estimate is provided, the best estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PC
an accurate list (which is set forth on Schedule 5.11) of the accounts and
notes receivable of the COMPANY, as of the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
STOCKHOLDER. Within ten (10) days prior to Closing, the COMPANY shall provide
PC with an accurate list of all receivables obtained subsequent to the Balance
Sheet Date that are outstanding as of the date of the delivery of such list.
For each of the aforementioned accounts and notes receivable reports, the
COMPANY shall provide PC with an aging of all accounts and notes receivable
showing amounts due in 30 day aging categories. Except to the extent reflected
on Schedule 5.11, such accounts and notes are collectible in the amounts shown
on Schedule 5.11, and the COMPANY has not received any written notice of any
contest, claim or right of set-off with respect to the amount or validity of
any such account receivable and has no other reason to believe that such
amounts are not fully collectible.
5.12 INTELLECTUAL PROPERTY; PERMITS AND INTANGIBLES.
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(a) The COMPANY owns or licenses all Intellectual Property the
absence of any of which is reasonably likely to have a Material Adverse Effect
on its business (excluding any such property which is licensed,"the COMPANY
Property"), and the COMPANY has delivered to PC an accurate list (which is set
forth on Schedule 5.12) of all Intellectual Property (other than unregistered
copyrights or immaterial unregistered trademarks not presently used by the
COMPANY) owned or used by the COMPANY. Except as set forth on Schedule 5.12,
each item of COMPANY Property owned or used by the COMPANY is valid and in full
force and effect and each other item of Intellectual Property owned or used by
the COMPANY is, to the knowledge of the COMPANY, valid and in full force and
effect. Except as set forth on Schedule 5.12, each item of COMPANY Property is
not subject to any license, royalty arrangement or pending or threatened claim
or dispute and each other item of Intellectual Property owned or used by the
COMPANY, to the knowledge of the COMPANY, is not subject to any license,
royalty arrangement or pending or threatened claim or dispute. To the
knowledge of the COMPANY: (a) none of the Intellectual Property owned or
licensed by the COMPANY nor any product sold by the COMPANY infringes any
Intellectual Property right of any other entity and (b) no Intellectual
Property owned by the COMPANY is infringed upon by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and
other governmental authorizations the absence of any of which could have a
Material Adverse Effect on its business, and the COMPANY has delivered to PC an
accurate list (which is set forth on Schedule 5.12) of all such licenses,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel
permits, licenses, franchises and certificates. To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental
authorizations listed on Schedule 5.12 are valid, and the COMPANY has not
received any notice that any governmental authority intends to cancel,
terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and
conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the
foregoing, in each case, except where
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such non-compliance or violation would not have a Material Adverse Effect on
the COMPANY.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied in all material respects with and is in compliance in
all material respects with all Federal, state, local and foreign statutes
(civil and criminal), laws, ordinances, regulations, rules, notices, permits,
judgments, orders and decrees applicable to it or any of its properties,
assets, operations and businesses relating to environmental protection
(collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law); (ii) there have been no Hazardous Substances treated, stored, disposed of
or otherwise handled at, and there have been no releases or threats of releases
(as defined in Environmental Laws) at, from, in or on, any property ever owned
or operated by the COMPANY during the pendency of the COMPANY's ownership or
operation of such property except as permitted by Environmental Laws; (iii) the
COMPANY knows of no treatment, storage, disposal, or other handling of
Hazardous Substances at, or release or threat of release at, from, in, or on,
any property owned or operated by the COMPANY during the period prior to or
after the COMPANY's ownership or operation of such property, except as
permitted by Environmental Laws; (iv) the COMPANY knows of no on-site or
off-site location to which the COMPANY has transported or disposed of Hazardous
Wastes and Hazardous Substances or arranged for the transportation of Hazardous
Wastes and Hazardous Substances, which site is the subject of any Federal,
state, local or foreign enforcement action or investigation which is reasonably
likely to lead to any claim against the COMPANY, PC or NEWCO for any clean-up
cost, remedial work, damage to natural resources or personal injury, including,
but not limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) the COMPANY has no
material contingent liability in connection with any release of any Hazardous
Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property
included (or that will be included) in
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"depreciable plant, property and equipment" (or similarly named line item)on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), (1) true, complete and
correct copies of all such leases, (2) a listing of the capital costs of all
such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by the STOCKHOLDER or affiliates of the COMPANY or the STOCKHOLDER.
Except as set forth on Schedule 5.14, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted, and (iii)
all leases and agreements included on Schedule 5.14 are in full force and
effect and constitute valid and binding agreements of the COMPANY, and to the
COMPANY'S knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PC an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, or persons or entities that are sources
of significant customers (e.g., certain physician practices, HMO's, etc.), it
being understood and agreed that a "significant customer," for purposes of this
Section 5.15, means a customer (or persons or entity) representing 5% or more
of the COMPANY's annual revenues as of the end of its last fiscal year. Except
to the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers (or persons or entities that are sources of significant customers)
have canceled or substantially reduced or, to the knowledge of the COMPANY, are
currently attempting or threatening to cancel a contract or substantially
reduce utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are
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bound (including, but not limited to, contracts with significant customers,
joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances, loan agreements, indemnity or guaranty
agreements, bonds, mortgages, options to purchase land, liens, pledges or other
security agreements), other than agreements listed on Schedule 5.10, 5.14,
5.16, 5.18 or 5.19, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to PC. The COMPANY has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or
the acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $100,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the COMPANY (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including that reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default by
the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do not
materially adversely affect the current use of the property.
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Schedule 5.16 contains true, complete and correct copies of all title reports
and title insurance policies received or owned by the COMPANY with respect to
real property owned by the COMPANY.
Schedule 5.16 also contains an accurate list of, and true, complete
and correct copies of, all leases and agreements in respect of real property
leased by the COMPANY, which leases and agreements are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or, to the COMPANY's knowledge, were formerly owned, by the STOCKHOLDER
or affiliates of the COMPANY or the STOCKHOLDER. Except as set forth on
Schedule 5.16, all of such leases included on Schedule 5.16 are in full force
and effect and constitute valid and binding agreements of the COMPANY, and to
the COMPANY's knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to PC, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies currently carried by the COMPANY, (ii) an accurate list
of all insurance loss runs or workers' compensation claims received for the
past three (3) policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all
of the insurance that the COMPANY is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. Such
insurance policies are currently in full force and effect and will not expire
and will not be canceled by the COMPANY prior to the Funding and Consummation
Date. No insurance carried by the COMPANY has ever been canceled by the
insurer and the COMPANY has never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
COMPANY has provided to PC true, complete and correct copies of any employment
agreements for persons listed on
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Schedule 5.18. Since the Balance Sheet Date, there have been no increases in
the compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented on a
basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) no employees
of the COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to
establish such representation is in progress and (iv) there is no pending or,
to the COMPANY's knowledge, threatened labor dispute involving the COMPANY and
any group of its employees nor has the COMPANY experienced any labor
interruptions over the past three years. The COMPANY believes its
relationships with its employees to be good.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 are complete
and accurate copies, as of the Balance Sheet Date, of all employee benefit
plans, all employee welfare benefit plans, all employee pension benefit plans,
all multi-employer plans and all multi-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which
are currently maintained and/or sponsored by the COMPANY, or any benefit plans
or arrangements, formal or informal, that are not subject to ERISA, including,
without limitation, employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements, or to which
the COMPANY currently contributes, or has an obligation to contribute in the
future (including, without limitation, benefit plans or arrangements that are
not subject to ERISA, such as employment agreements and any other agreements
containing "golden parachute" provisions and deferred compensation agreements),
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans").
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does
not maintain or sponsor, and is not a contributing employer to, a pension,
profit-sharing, deferred compensation,
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stock option, employee stock purchase or other employee benefit plan, employee
welfare benefit plan, or any other compensation or benefit arrangement, formal
or informal, with their respective employees, whether or not subject to ERISA.
Except as set forth on Schedule 5.20, (i) all Plans are in substantial
compliance with all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable laws, and have been
administered, operated and managed in all material respects in accordance with
the governing documents; (ii) all Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code are so qualified and have
been determined by the Internal Revenue Service to be so qualified, and copies
of the current plan determination letters, most recent actuarial valuation
reports, if any, most recent Form 5500, or, as applicable, Form 5500-C/R filed
with respect to each such Qualified Plan or employee welfare benefit plan and
most recent trustee or custodian report, are included as part of Schedule 5.20;
(iii) to the extent that any Qualified Plans have not been amended to comply
with applicable law, the remedial amendment period permitting retroactive
amendment of such Qualified Plans has not expired and will not expire within
120 days after the Funding and Consummation Date; (iv) all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 Reports, audits or
tax returns) have been timely filed or distributed, or failure to timely file
or deliver will not result in a Material Adverse Effect to the COMPANY; (v)
none of the STOCKHOLDER, any Plan, or the COMPANY has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA that could result in a material tax or penalty to the
COMPANY; (vi) no Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; (vii) no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation (the "PBGC") under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty that could result in any material
liability to the COMPANY with respect to any plan now or hereafter maintained
or contributed to by the COMPANY or any member of a "controlled group" (as
defined in Section 4001(a)(14) of ERISA) that includes
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the COMPANY; (viii) neither the COMPANY nor any member of a "controlled group"
(as defined above) that includes the COMPANY currently has (or at the Funding
and Consummation Date will have) any obligation whatsoever to contribute to any
"single employer pension plan" (as defined in ERISA Section 4001(a)(15) or any
"multi-employer pension plan" (as defined in ERISA Section 4001(a)(3)), nor has
any withdrawal liability whatsoever (whether or not yet assessed) arising under
or capable of assertion under Title IV of ERISA (including, but not limited to,
Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan;
(ix) there have been no terminations or partial terminations of, or
discontinuance of contributions to, any Qualified Plan without notice to and
approval by the Internal Revenue Service; (x) no Plan that is subject to the
provisions of Title IV of ERISA has been terminated within the three year
period immediately preceding the date of this Agreement; (xi) there have been
no "reportable events" (as that phrase is defined in Section 4043 of ERISA)
with respect to any Plan which were not properly reported within the three year
period immediately preceding the date of this Agreement; (xii) with respect to
Plans which qualify as "group health plans" under Section 4980B of the Internal
Revenue Code and Section 607(1) of ERISA and related regulations (relating to
the benefit continuation rights imposed by "COBRA"), the COMPANY and the
STOCKHOLDER have complied (and on the Funding and Consummation Date will have
complied) in all material respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder as and
when applicable to such plans, and the COMPANY has not incurred (and will not
incur) any material direct or indirect liability and is not (and will not be)
subject to any material loss, assessment, excise tax penalty, loss of Federal
income tax deduction or other sanction, arising on account of or in respect of
any direct or indirect failure by the COMPANY or the STOCKHOLDER, at any time
prior to the Funding and Consummation Date, to comply with any such Federal or
state benefit continuation requirement, which is capable of being assessed or
asserted before or after the Funding and Consummation Date directly or
indirectly against the COMPANY or the STOCKHOLDER with respect to such group
health plans; and (xiii) other than claims in the ordinary course of business
there is no pending litigation, arbitration, or disputed claim, or proceeding,
and to the best of the COMPANY's and the STOCKHOLDER's knowledge, there is no
threatened litigation, arbitration or disputed claim,
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settlement or adjudication proceeding or any governmental or other proceeding
or investigation with respect to any Plan, or with respect to any fiduciary,
administrator or sponsor thereof (in their capacities as such), or any party in
interest thereof.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 5.21, the COMPANY is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY or the
STOCKHOLDER, threatened against or affecting the COMPANY, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it that would have a Material Adverse Effect, and no written notice of any such
claim, action, suit or proceeding, whether pending or threatened, has been
received. The COMPANY has conducted and is conducting its business in
substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing, which violation
would be reasonably likely to have a Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or
similar group of which the COMPANY is or was a member (a "Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all
other information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the COMPANY, any subsidiary and
any member of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid.
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(ii) To the knowledge of the COMPANY and the STOCKHOLDER, the
provisions for Taxes due by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the COMPANY
Financial Statements are sufficient for all unpaid Taxes, being
current taxes not yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made
by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or
other third party.
(v) No Acquired Party expects any Taxing Authority to assess
any additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any
Acquired Party which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22 attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or
after January 1, 1990, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to PC complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party
since January 1, 1990.
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(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(ix) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within
the meaning of Section 168 of the Code. No Acquired Party is a party
to any "safe harbor lease" that is subject to the provisions of
Section 168(f)(8) of the Internal Revenue Code as in effect prior to
the Tax Reform Act of 1986, or to any "long-term contract" within the
meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(xi) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Funding and Consummation Date.
(xiii) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
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(xiv) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No Acquired Party has any liability for Taxes of any
person other than such Acquired Party (i) under Section 1.1502-6 of
the Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
(xvi) The COMPANY is not an investment company as defined in
Section 351(e)(1) of the Code.
(xvii) The fair market value of the assets of the COMPANY exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(xviii) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
(xix) The COMPANY made a valid election to be an S Corporation,
as defined in Section 1361 of the Code, for Federal, state and local
tax purposes for its taxable year, beginning on January 1, 1989, and
has been taxed as an S Corporation for Federal, state and local tax
purposes for such taxable year and all subsequent years.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative
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or add-on minimum, environmental or other taxes, assessments, duties, fees,
levies or other governmental charges of any nature whatsoever, whether disputed
or not, together with any interest, penalties, additions to tax or additional
amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY and the
STOCKHOLDER, any other party thereto, is in default under any lease,
instrument, agreement, license or permit set forth on Schedule 5.12, 5.14,
5.15, 5.16, 5.18 or 5.19 or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents") except for any
violation or default that would not result in a Material Adverse Effect; and,
except as set forth on Schedule 5.23, the execution of this Agreement and the
performance by the COMPANY and the STOCKHOLDER of their obligations hereunder
and the consummation by the COMPANY and the STOCKHOLDER of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents. Except as set forth on Schedule 5.23, none
of the Material Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
expressly prohibits or materially restricts the COMPANY from freely providing
services to any other customer or potential customer or the COMPANY, PC, NEWCO
or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.15, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
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5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
COMPANY;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the COMPANY to any
of its officers, directors, employees, consultants, agents or the
STOCKHOLDER, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person,
including, without limitation, the STOCKHOLDER and his affiliates;
(viii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to the COMPANY,
including, without limitation, any material indebtedness or obligation
of the STOCKHOLDER or any affiliate thereof;
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(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
material assets, property or rights of the COMPANY or requiring
consent of any party to the transfer and assignment of any such
material assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(xii) any breach or any amendment, other than an amendment in
the ordinary course of business, or termination of any material
contract, agreement, license, or permit to which the COMPANY is a
party;
(xiii) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date;
(xiv) any other distribution of property or assets by the COMPANY
outside the ordinary course of business;
(xv) any other transaction by the COMPANY outside the ordinary
course of its business; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered
to PC an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
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(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY
and a description of the terms of such power of attorney.
5.27 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 DISCLOSURE. (a) This Agreement, the schedules hereto, and the
certificates and other documents furnished by the COMPANY to PC pursuant hereto
and for inclusion in the Registration Statement (which, for purposes of this
Agreement, shall include the completed Directors and Officers Questionnaires
and Registration Statement Questionnaires), taken as a whole, do not, and as to
any representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDER, such representation and warranty, to the COMPANY's knowledge, does
not, as of their respective dates contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDER acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or
occur at all; and (ii) that neither PC or any of its officers, directors,
agents or representatives shall have any liability to the COMPANY, the
STOCKHOLDER or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a
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particular price or within a particular range of prices or to occur at all
provided that PC acts in good faith, and uses its best efforts to cause its
directors and officers to act in good faith, to consummate the transactions
contemplated herein.
(B) Representations and Warranties of the STOCKHOLDER
The STOCKHOLDER represents and warrants that the representations and
warranties set forth below are true as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of the Closing and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.29 and 5.30 shall survive until the tenth anniversary
of the Funding and Consummation Date, which shall be deemed to the Expiration
Date for purposes of Sections 5.29 and 5.30.
5.29 AUTHORITY; OWNERSHIP. The STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. The STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex IV as being owned by the STOCKHOLDER, and, except as set forth on the
Schedule 5.29, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind.
5.30 PREEMPTIVE RIGHTS. As of the date hereof, the STOCKHOLDER does
not have any preemptive or other right to acquire shares of PC Stock (other
than rights of the STOCKHOLDER to acquire PC Stock pursuant to (i) this
Agreement or (ii) any option granted by PC) and the STOCKHOLDER does not have,
or hereby waives, any such preemptive or other right to acquire shares of
COMPANY Stock that the STOCKHOLDER has or may have had.
5.31 NO INTENTION TO DISPOSE OF COMPANY STOCK. There is no current
plan or intention by the STOCKHOLDER to sell, exchange or otherwise dispose of
shares of PC Stock received in the Merger.
6. REPRESENTATIONS AND WARRANTIES OF PC AND NEWCO
PC and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to
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Section 7.8 hereof, shall be true at the time of the Closing and the Funding
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of twelve (12) months
(the last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.13 hereof shall survive
until such time as the limitations period has run for all tax periods (and any
portions thereof) ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 6.13 and (ii) solely for
purposes of Section 11.2(iv) hereof, and solely to the extent that in connection
with the IPO PC actually incurs liability under the 1933 Act, the 1934 Act or
any other Federal or state securities laws, the representations and warranties
set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
6.1 DUE ORGANIZATION. PC and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as amended to date, of PC and
NEWCO (the "PC Charter Documents") are all attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The respective representatives of PC and
NEWCO executing this Agreement have the authority to enter into and bind PC and
NEWCO to the terms of this Agreement and (ii) PC and NEWCO have the full
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of PC
and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of NEWCO are owned by PC
and all of the issued and outstanding shares of the capital stock of PC are
owned by the persons set forth on Annex V hereof, in each case, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All
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of the issued and outstanding shares of the capital stock of PC and NEWCO have
been duly authorized and validly issued, are fully paid and nonassessable, are
owned of record and beneficially by PC and the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by PC and NEWCO in
compliance in all material respects with all applicable state and Federal laws
concerning the issuance of securities. None of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PC or
NEWCO. No preemptive or other right to acquire shares of PC or NEWCO stock has
been granted to any person other than the rights granted pursuant to this
Agreement and the transactions contemplated herein, the Other Agreements and
the transactions contemplated herein or as set forth in the Registration
Statement.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements
and as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates PC or NEWCO to issue any
of its authorized but unissued capital stock or treasury stock; and (ii)
neither PC nor NEWCO has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 6.4 also includes complete and accurate copies of all stock option or
stock purchase plans of PC and NEWCO, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of their respective capital stock.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. PC has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither PC
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity nor is PC or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule
6.6, PC and NEWCO have no liabilities, contingent or otherwise, except as set
forth in or contemplated by this
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Agreement and the Other Agreements and except for fees and expenses incurred in
connection with the transactions contemplated hereby and thereby.
6.7 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 6.7, neither PC nor NEWCO is in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them, which violation would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.7, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PC or NEWCO, threatened, against or affecting PC or NEWCO, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. PC and NEWCO have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing, which violation might have a Material Adverse Effect.
6.8 NO VIOLATIONS. Neither PC nor NEWCO is in violation of any PC
Charter Document. None of PC, NEWCO or, to the knowledge of PC and NEWCO, any
other party thereto is in default under any lease, instrument, agreement,
license or permit to which PC or NEWCO is a party, or by which PC or NEWCO, or
any of their respective properties, are bound (collectively, the "PC
Documents"); and (a) the rights and benefits of PC and NEWCO under the PC
Documents will not be adversely affected by the transactions contemplated
hereby; and (b) the execution of this Agreement and the performance of PC's and
NEWCO's obligations hereunder and the consummation by them of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the PC Documents
or the PC Charter Documents. Except as set forth on Schedule 6.8, none of the
PC Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of
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the transactions contemplated hereby in order to remain in full force and
effect, and the consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit of PC or NEWCO.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PC and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of PC and NEWCO, and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of PC and NEWCO.
6.10 PC STOCK. At the time of issuance thereof, the PC Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement will constitute valid
and legally issued shares of PC, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all respects to the PC Stock issued and outstanding as of
the date hereof by reason of the provisions of the Delaware GCL. The shares of
PC Stock to be issued to the STOCKHOLDER pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Section 17 hereof.
6.11 NO SIDE AGREEMENTS. Neither PC nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or PC other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PC was formed in
July 1996, and has conducted limited operations since that time. Neither PC
nor NEWCO has conducted any business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Neither PC
nor NEWCO owns or has at any time owned any real property or any material
personal property or is a party to any other agreement, except as listed on
Schedule 6.12 and except that PC is a party to the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
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6.13 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.13:
(i) All Returns required to have been filed by or with respect
to PC and any affiliated, combined, consolidated, unitary or similar
group of which PC is or was a member (a " PC Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the PC Relevant Group have been paid.
(ii) The provisions for Taxes due by PC and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the PC Financial
Statements are sufficient for all unpaid Taxes, being current taxes
not yet due and payable, of the PC Relevant Group.
(iii) No corporation in the PC Relevant Group is a party to any
agreement extending the time within which to file any Return. No
claim has ever been made by any Taxing Authority in a jurisdiction in
which a corporation in the PC Relevant Group does not file Returns
that it is or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the PC Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(v) No corporation in the PC Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it
for any past period. There is no dispute or claim concerning any Tax
liability of any corporation in the PC Relevant Group either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to
any corporation in the PC Relevant Group. No issues have been raised
in any examination by any Taxing Authority with respect to any
corporation in the PC Relevant Group which,
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by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined.
Schedule 6.13(v) attached hereto lists all federal, state, local and
foreign income Tax Returns filed by or with respect to any corporation
in the PC Relevant Group for all taxable periods, indicates those
Returns, if any, that have been audited, and indicates those Returns
that currently are the subject of audit. Each corporation in the PC
Relevant Group will make available to the STOCKHOLDER, at his request,
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, PC.
(vi) No corporation in the PC Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
(vii) No corporation in the PC Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make
any payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the PC Relevant Group is a party to any
Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the PC Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No
corporation in the PC Relevant Group is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460
of the Code.
(x) No corporation in the PC Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of
any corporation in the PC Relevant Group is subject to an election
under Section
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341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the PC Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the PC
Relevant Group that could give rise to an adjustment under Section 481
of the Code for periods after the Funding and Consummation Date.
(xiii) No corporation in the PC Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into
any written and legally binding agreement with a Taxing Authority
relating to Taxes.
(xiv) Each corporation in the PC Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662(d) of the Code.
(xv) No corporation in the PC Relevant Group has any liability
for Taxes of any person other than such corporation in the PC Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, Tax credits
or other similar items of any corporation in the PC Relevant Group
(collectively, the "Tax Losses") under (i) Section 382 of the Code,
(ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A
of the Treasury regulations, (vi) Section 1.1502-21 and Section
1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in
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each case as in effect both prior to and following the Tax Reform Act
of 1986.
(xvii) Neither PC nor NEWCO is an investment company as defined
in Section 351(e)(1) of the Code.
(xviii)Neither PC nor NEWCO is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2)
of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of
this Agreement and the Funding and Consummation Date, the COMPANY will afford
to the officers and authorized representatives of PC and the Other Founding
Companies reasonable access upon reasonable notice during normal business hours
to all of the COMPANY's sites, properties, books and records and will furnish
PC with such additional financial and operating data and other information as
to the business and properties of the COMPANY as PC or the Other Founding
Companies may from time to time reasonably request. The COMPANY will cooperate
with PC and the Other Founding Companies, its representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement.
PC, NEWCO, the STOCKHOLDER and the COMPANY will treat all information obtained
in connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, PC will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and
Consummation Date, PC will afford to the officers and authorized
representatives of the COMPANY reasonable access upon reasonable notice during
normal business hours to all of PC's and NEWCO's sites, properties, books and
records and will furnish the COMPANY with such additional financial and
operating data and other
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information as to the business and properties of PC and NEWCO as the
COMPANY may from time to time reasonably request. PC and NEWCO will
cooperate with the COMPANY, its representatives, auditors and counsel
in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this
Agreement. The COMPANY, PC and NEWCO will cause all information
obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as
set forth on Schedule 7.2:
(i) carry on its business in the ordinary course as conducted
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its current obligations as required under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
material business relations with the COMPANY;
(vi) maintain compliance, in all material respects, with all
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) use reasonable best efforts to maintain present debt and
lease instruments in accordance with their
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respective terms and not enter into new or amended debt or lease
instruments (except for leases not to exceed $7,500 for items of
personal property), without the knowledge and consent of PC (which
consent shall not be unreasonably withheld); and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents, except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Funding and Consummation Date, the COMPANY will
not, without the prior written consent of PC:
(i) make any change in its Articles or Certificate of
Incorporation or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its
securities of any kind other than in connection with the exercise of
options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock except for distributions to the STOCKHOLDER of his
Accumulated Adjustment Account;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is
in the ordinary course of business (consistent with past practice) and
involves an amount not in excess of $100,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties, whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
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aggregate cost not in excess of $50,000 necessary or desirable for the
conduct of the business of the COMPANY, (2) (A) liens for taxes either
not yet due or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and
are being maintained) or (B) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred
to herein as "Statutory Liens"), or (3) liens set forth on Schedule
5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business;
(vii) negotiate for the acquisition of any business or start-up
any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material right or claim of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(x) breach or amend, other than an amendment in the ordinary
course of business, or terminate any material contract, agreement,
license, or permit to which the COMPANY is a party; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDER, the COMPANY or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of
this Agreement in accordance with its terms, directly or indirectly:
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(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussion pertaining to, or
(iii) furnish any information to any person other than PC or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the
COMPANY or a merger, consolidation or business combination of the
COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide PC on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDER and the COMPANY shall terminate (i)
any stockholder agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the COMPANY and any employee listed on
Schedule 9.12 hereto and (ii) any existing agreement between the COMPANY and
the STOCKHOLDER, at or prior to the Funding and Consummation Date. Copies of
such termination agreements are attached to Schedule 7.6 or will be furnished
to PC at or prior to such date.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDER and the COMPANY
shall give prompt notice to PC of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDER contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by such person hereunder. PC and NEWCO shall give prompt notice to
the COMPANY of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of PC or NEWCO contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing (ii) the occurrence or
non-occurrence of any event of which they have knowledge that would be likely
to cause any representation
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or warranty of any of the Other Founding Companies in any of the Other
Agreements to be untrue or inaccurate in any material respect at or prior to the
Closing and (iii) any material failure of PC or NEWCO to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Funding
and Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth
or described on the Schedules, provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to reflect
an event occurring other than in the ordinary course of business.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDER that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect may be made unless PC and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement; and
provided further, that no amendment or supplement to a Schedule prepared by PC
or NEWCO that constitutes or reflects an event or occurrence that would be
reasonably likely to have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement.
For all purposes of this Agreement, including without limitation for purposes
of determining whether the conditions set forth in Sections 8.1 and 9.1 have
been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. In the event that one of
the Other Founding Companies or its stockholders seek to amend or supplement a
Schedule pursuant to Section 7.8 of one of the Other Agreements,
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and such amendment or supplement constitutes or reflects an event or occurrence
that would be reasonably likely to have a Material Adverse Effect on such Other
Founding Company or the sale of its stock by its stockholders to PC, PC shall
give the COMPANY notice promptly after it has knowledge thereof. If (A) PC and
a majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given if no response is received within 48
hours after notice of such amendment or supplement (or sooner if required by
the circumstances under which such consent is requested), but the COMPANY does
not, or (B) if a majority of the Founding Companies consent to an amendment or
supplement to a Schedule prepared by PC or NEWCO, as provided above, but the
COMPANY does not, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the COMPANY seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and PC and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that PC or NEWCO seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party
to this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8, except that,
notwithstanding anything to the contrary contained in this Agreement, if the
COMPANY or the STOCKHOLDER on the one hand, or PC or NEWCO on the other hand,
amends or supplements a Schedule which results in a termination of this
Agreement and such amendment or supplement arises out of or reflects facts or
circumstances which such party knew or should have known about at the time of
execution of this Agreement or if such amendment or supplement otherwise is
proposed in bad faith, such party shall pay or reimburse PC or the COMPANY and
the STOCKHOLDER, as the case may be, for all of the legal, accounting and other
out of pocket costs reasonably incurred in connection with this Agreement and
the IPO as it relates to the COMPANY and the STOCKHOLDER.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT.
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The COMPANY and the STOCKHOLDER shall furnish or cause to be furnished
to PC and the Underwriters all of the information concerning the COMPANY and
the STOCKHOLDER reasonably requested by PC or the Underwriters for inclusion
in, and will cooperate with PC and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, and in form otherwise reasonably requested by
PC or the Underwriters as suitable for inclusion in the Registration
Statement). PC and NEWCO agree to use their best efforts to provide to the
STOCKHOLDER and the COMPANY copies of all drafts of the Registration Statement
circulated to the working group as a whole, including the prospectus included
therein and all amendments and exhibits thereto and any other documents and
correspondence received by or filed with the SEC, and, to the extent
practicable in light of the timetable for the IPO and the potential need to
respond promptly to SEC, NASD or NASDAQ comments, to give the STOCKHOLDER and
the COMPANY sufficient time to review and comment upon such documents prior to
filing with the SEC. PC and NEWCO also agree to provide to counsel to the
STOCKHOLDER a copy of the Underwriting Agreement in respect of the IPO and to
give the STOCKHOLDER and the COMPANY sufficient time to review and comment upon
such agreement (including allowing the STOCKHOLDER to be present at the meeting
or meetings of PC's Pricing Committee with respect to the pricing of the IPO)
prior to its execution. The COMPANY and the STOCKHOLDER agree promptly to
advise PC if at any time during the 25 day period following the date of the
final prospectus with respect to the IPO (the "Final Prospectus") in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDER and which was provided in writing by or on behalf of the
STOCKHOLDER or the COMPANY or their respective agents or representatives for
inclusion in the Registration Statement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and to provide the
information needed to correct such misstatement or omission. Insofar as the
information requested relates solely to the COMPANY or the STOCKHOLDER and was
provided in writing by the COMPANY or the STOCKHOLDER or their respective
agents or representatives for inclusion in the Registration Statement, each
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of the COMPANY and the STOCKHOLDER represents and warrants that the
Registration Statement at its effective date, at the date of the Final
Prospectus and each amendment to the Registration Statement or supplement to
the Final Prospectus, and at each closing with respect to the IPO under the
Underwriting Agreement (including with respect to any over-allotment option)
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to
the Funding and Consummation Date, and PC shall have had a reasonably
sufficient time to review, the unaudited consolidated balance sheets of the
COMPANY as of the end of all fiscal quarters following the Balance Sheet Date,
and the unaudited consolidated statements of income, cash flows and retained
earnings of the COMPANY for all fiscal quarters ended after the Balance Sheet
Date, disclosing no Material Adverse Effect with respect to the COMPANY. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly in all
material respects the results of operations of the COMPANY for the periods
indicated thereon.
7.11 OTHER AGREEMENTS. PC has provided to the COMPANY and the
STOCKHOLDER true and complete copies of the Other Agreements substantially in
the form in which they will be executed, as well as all agreements contemplated
thereby or referred to therein that have been executed as of the date hereof.
PC agrees to provide to the COMPANY material drafts of all such agreements to
be entered into following the date hereof. Neither PC nor NEWCO will amend,
modify or waive any of the material provisions of any such executed Other
Agreements or any executed agreements contemplated thereby or referred to
therein, without the prior consent of the COMPANY and the STOCKHOLDER, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, the
procedure for amending the schedules to any Other Agreement will be governed by
Section 7.8.
7.12 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such
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further instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the STOCKHOLDER and the COMPANY with respect to
actions to be taken on each of the Closing Date and the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Closing Date and the Funding and Consummation Date of all of the following
conditions. As of the Closing Date or the Funding and Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDER unless such parties have notified PC
in writing to the contrary, except that no such waiver shall be deemed to
affect the survival of the representations and warranties of PC and NEWCO
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PC and NEWCO contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date as though such representations and warranties had
been made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by PC and NEWCO on or before the
Closing Date and the Funding and Consummation Date shall have been duly
complied with and performed in all material respects; and a certificate to the
foregoing effect dated the Closing Date and the Funding and Consummation Date
and signed by the President or any Vice President of PC shall have been
delivered to the STOCKHOLDER.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be satisfactory to the COMPANY and its
counsel. The STOCKHOLDER and the COMPANY shall be satisfied that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplement thereto, does not contain any untrue statement
of a material fact, or omit to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading that
cannot be corrected in the
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final prospectus relating thereto, provided that the condition contained in
this sentence shall be deemed satisfied if the COMPANY or the STOCKHOLDER shall
have failed to inform PC in writing prior to the Funding and Consummation Date
of the existence of such an untrue statement of a material fact or the omission
of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the Mergers
contemplated by the Other Agreements or the offering and sale by PC of PC Stock
pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion
from counsel for PC, dated the Closing Date, substantially in the form annexed
hereto as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, shares of PC Stock at a price to the
public of not less than $14.00 per share, provided that, such price assumes a
sale of 5,750,000 shares of PC Stock to the public (including the shares
issuable in connection with the Underwriter's overallotment option) after which
there will be an aggregate of 18,575,000 shares of PC Stock outstanding.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted to restrain or prohibit the
Merger or the Mergers contemplated by the Other Agreements.
8.7 GOOD STANDING CERTIFICATES. PC and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which PC or NEWCO is authorized to do business, showing
that each of PC and NEWCO is in good standing and authorized to do business and
that all state franchise and/or income tax returns and taxes for PC and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to PC or NEWCO or any of the Other Founding Companies
which would constitute a Material Adverse Effect on PC, NEWCO and the Founding
Companies considered as a whole.
8.9 PC STOCK TO BE SOLD IN THE IPO. The aggregate number of shares
of PC Stock to be sold to the public (including the amount sold in connection
with the Underwriters' over-allotment option) shall be no more 28.75% of the
outstanding PC Stock after giving effect to the IPO and the exercise of the
Underwriters' over-allotment option.
8.10 CLOSING OF IPO. The closing of the sale of the PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.11 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and the Funding and
Consummation Date and signed by the Secretary of PC and of NEWCO, certifying
the truth and correctness of attached copies of PC's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors and,
if required, the stockholders of PC and NEWCO approving PC's and NEWCO's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto.
8.13 TAX TREATMENT. The COMPANY and the STOCKHOLDER shall be
reasonably satisfied that (i) none of PC, NEWCO or any Other Founding Company
(or any of their respective stockholders) has breached any representation or
warranty set forth in this Agreement or in the Other Agreements, and (ii) no
event outside the control of the COMPANY and the STOCKHOLDER has occurred
between the date of this Agreement and the Funding and Consummation Date, in
each case so as to jeopardize the treatment of the transactions contemplated by
the PC Plan of Organization as a transfer of property described in Section 351
of the Code.
8.14 CLOSING OF THE OTHER AGREEMENTS. None of the Other Founding
Companies shall have failed to consummate the
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transactions contemplated by this Agreement and the Other Agreements.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
The obligations of PC and NEWCO with respect to actions to be
taken on each of the Closing Date and the Funding and Consummation Date are
subject to the satisfaction or waiver on or prior to the Closing Date and the
Funding and Consummation Date of all of the following conditions. As of the
Closing Date or the Funding and Consummation Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by PC and NEWCO
unless such parties have notified the COMPANY and the STOCKHOLDER in writing to
the contrary, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of the COMPANY and the STOCKHOLDER
contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of the STOCKHOLDER and the COMPANY contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDER and the COMPANY on or before the
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDER shall have delivered to PC a certificate dated the Closing Date and
the Funding and Consummation Date and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the merger of NEWCO with and into the COMPANY or the
offering and sale by PC of PC Stock pursuant to the Registration Statement.
9.3 SECRETARY'S CERTIFICATE. PC shall have received a certificate,
dated the Closing Date and the Funding and Consummation Date and signed by the
Secretary of the COMPANY,
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certifying the truth and correctness of attached copies of the COMPANY's
Certificate or Articles of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the board of
directors and the STOCKHOLDER approving the COMPANY's entering into this
Agreement and the consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect on PC, NEWCO and the Founding Companies considered as a whole.
9.5 STOCKHOLDER'S RELEASE. The STOCKHOLDER shall have delivered to
PC an instrument dated the Closing Date releasing the COMPANY from (i) any and
all claims of the STOCKHOLDER against the COMPANY and (ii) any and all
obligations of the COMPANY to the STOCKHOLDER, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDER, (y) continuing obligations to the STOCKHOLDER
relating to his employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental hereto and all other related legal matters shall be satisfactory
to PC and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 and consented to by PC, all existing agreements between the
COMPANY and the STOCKHOLDER shall have been canceled effective prior to or as
of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PC shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDER, dated the Closing Date, in the form
annexed hereto as Annex VII, which form shall be deemed to include any
additional opinions covering matters customary under the circumstances and
based upon reasonable requests by the Underwriters, which opinion may be relied
upon by counsel to PC in connection with any opinion requested of it by the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have
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been obtained and made; all consents and approvals of third parties listed on
Schedule 5.23 shall have been obtained; and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PC a certificate, dated as of a date no earlier than five days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by PC, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto. Any employment agreement in effect as of the date hereof
between the COMPANY and any person listed on Schedule 9.12 shall have been
terminated on or prior to the Funding and Consummation Date.
9.13 CLOSING OF THE IPO. The closing of the sale of PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. The STOCKHOLDER shall have delivered to PC a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PC AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. PC
shall use its best efforts to have the STOCKHOLDER released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the COMPANY, with all such guarantees on indebtedness being assumed by PC.
In the event that PC cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, PC shall pay off or otherwise refinance or retire such
indebtedness
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and, in the event that PC cannot obtain releases on or prior to the Funding and
Consummation Date, PC agrees to indemnify the STOCKHOLDER against any and all
claims made by lenders under such guarantees which arise as a result of PC's
failure to cause such guarantees to be released on or prior to the Funding and
Consummation Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, PC shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(a) the retirement or reacquisition, directly or indirectly,
of all or part of the PC Stock issued in connection with the
transactions contemplated hereby;
(b) the entering into of financial arrangements for the
benefit of the STOCKHOLDER; and
(c) the disposition of any material part of the assets of the
COMPANY within the two years following the Funding and Consummation
Date except in the ordinary course of business or to eliminate
duplicate services or excess capacity.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date. Each STOCKHOLDER shall pay or cause
to be paid all Tax liabilities shown by such Returns to be due. PC and NEWCO
shall not file any amended Tax Returns for any taxable year or portion thereof
of the Surviving Corporation ending on or before the Funding and Consummation
Date without the prior written consent of the STOCKHOLDER, which consent shall
not be unreasonably withheld.
(ii) PC shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries
and affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them
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reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such cooperation
and information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and relevant
work papers, relevant documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the ownership and Tax basis
of property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, PC and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a transfer
of property under Section 351(a) of the Code.
10.4 REAL PROPERTY GAINS AND TRANSFER TAXES. The STOCKHOLDER shall
pay any state or local real property transfer or real property gains taxes (and
any penalties and interest with respect to such taxes), arising out of or in
connection with the transactions effected pursuant to this Agreement.
10.5 DIRECTORS. The persons named in the Registration Statement,
including the STOCKHOLDER (whose initial term shall end at PC's annual meeting
in 1999) and one designee of the STOCKHOLDER, shall be appointed as directors of
PC not later than ten (10) days following the closing of the IPO. For so long
as the STOCKHOLDER beneficially owns an aggregate of at least 10% of the
outstanding PC Stock, the STOCKHOLDER shall have the right to designate (i) one
individual to serve as a director on the PC Board of Directors if the PC Board
of Directors consists of five or fewer members and (ii) two individuals to serve
as directors on the PC Board of Directors if the PC Board of Directors consists
of six or more members. PC shall use all reasonable best efforts to cause such
designees to be appointed directors.
10.6 EMPLOYEE BENEFITS. Following the Closing, PC shall not terminate
any health insurance, life insurance or 401(k) plan in effect at the COMPANY
until such time as PC is able to replace
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such plan with a plan that is applicable to the COMPANY, provided that the
employees of the COMPANY shall be entitled, in lieu of the COMPANY's existing
plans, to (i) benefits under a plan designed to be qualified under Section
401(k) of the Code (which is anticipated to be established by PC within one
year of the Funding and Consummation Date) and which may, at the discretion of
PC's Board of Directors, provide for matching contributions, and (ii)other
benefits which are substantially similar in the aggregate to benefits to which
such employees were entitled prior to the Funding and Consummation Date, and
(iii) additional benefits generally provided to employees of PC and its
subsidiaries following consummation of the transactions contemplated herein.
Notwithstanding the foregoing, commencing one year from the Funding and
Consummation Date the PC Board of Directors shall have the ability to amend or
terminate any PC plan.
10.7 EQUITY PLAN. Prior to the Funding and Consummation Date, PC shall
adopt an equity incentive plan which shall authorize PC to grant stock options,
restricted stock, stock appreciation rights and other equity based awards. The
terms of such plan shall limit the number of shares of stock subject to all
outstanding awards granted thereunder to 10% of the total number of shares of PC
Stock outstanding, subject to subsequent amendment thereof. No awards shall be
granted effective prior to the Closing Date. Upon the Funding and Consummation
Date, the following options to purchase an aggregate of 1,081,666 shares of PC
Stock shall be granted as follows: (1) 300,000 to the COMPANY for distribution
to the employees of the COMPANY; (2) 250,000 to Systems Plus, Inc. for
distribution to the employees thereof; 140,000 to Frederick B. Karl, Jr.; (4)
33,333 to Mark Sobolewski; (5) 33,333 to Henry Holbrook; (6) an aggregate of
75,000 shares to National Medical Systems, Inc., Systems Management, Inc. and
RTI Business Systems, Inc. for distribution to the employees of such companies;
and (7) 50,000 to Sam Omron; and (8) an aggregate of 200,000 shares to the
COMPANY for distribution to the senior level programming staff of the COMPANY.
10.8 INDEMNIFICATION OF DIRECTORS AND OFFICERS. From and after the
Effective Time, PC will cause the Surviving Corporation
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to indemnify and hold all past and present officers and directors of the
COMPANY harmless against any and all claims, liabilities, losses or damages,
together with reasonable costs and expenses, including reasonable legal fees
("Losses"), arising out of or resulting from any action, suit or proceeding or
omissions or actions occurring on or prior to the Funding and Consummation Date
to the full extent permitted under the Articles of Incorporation and By-Laws of
the COMPANY in effect as of the date hereof; provided that the STOCKHOLDER
shall not be entitled to indemnification for Losses arising out of or resulting
from (i) any breach of the representations and warranties of the STOCKHOLDER
contained in this Agreement (ii) any breach by the STOCKHOLDER of any covenant
or agreement of the STOCKHOLDER contained in or arising out of this Agreement
or (iii) any other matter with respect to which the STOCKHOLDER is indemnifying
PC hereunder. PC will cause the Surviving Corporation to maintain for three
(3) years from the Closing the directors and officers insurance covering the
past and present officers and directors of the COMPANY at current levels and
limits. PC shall cause the Surviving Corporation to pay all expenses,
including reasonable attorneys' fees that may be incurred by such officers and
directors in enforcing the indemnity and other obligations provided for in this
Section 10.8.
11. INDEMNIFICATION
The STOCKHOLDER, PC and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. The STOCKHOLDER
covenants and agrees that he will indemnify, defend, protect and hold harmless
PC, NEWCO and the Surviving Corporation at all times, from and after the date
of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by PC, NEWCO, the
COMPANY or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the STOCKHOLDER or the COMPANY
set forth herein or on the Schedules or certificates delivered in connection
herewith, (ii) any nonfulfillment of any agreement on the part of the
STOCKHOLDER or the COMPANY under this Agreement,
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(iii) any liability under the 1933 Act, the 1934 Act or other Federal or state
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to the
COMPANY or the STOCKHOLDER, and provided in writing to PC or its counsel by the
COMPANY or the STOCKHOLDER for inclusion in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the COMPANY or the STOCKHOLDER
required to be stated therein or necessary to make the statements therein not
misleading, (iv) any Tax imposed upon or relating to any third party for a
pre-Funding and Consummation Date period, including, in each case, any such Tax
for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract or otherwise, or (v) the matters
described on Schedule 11.1(v), provided that any proposed amendment to schedule
11.1(v) made after the signing of this Agreement may only be made with consent
of the COMPANY and the STOCKHOLDER, provided, further, that such indemnity
shall not inure to the benefit of PC, NEWCO or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDER provided, in writing, corrected information to PC's counsel and to
PC for inclusion in the final prospectus, and such information was not so
included or properly delivered.
11.2 INDEMNIFICATION BY PC. PC covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the STOCKHOLDER as a result of or arising from (i) any breach by PC or NEWCO
of its representations and warranties set forth herein or on the Schedules or
certificates delivered in connection herewith, (ii) any nonfulfillment of any
agreement on the part of PC or NEWCO under this Agreement, (iii) any liability
which the STOCKHOLDER may incur due to PC's or NEWCO's failure to be
responsible for the liabilities and obligations of the COMPANY
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as provided in Section 1 hereof (except to the extent that PC or NEWCO has
claims against the STOCKHOLDER by reason of such liabilities); (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading (other than any such untrue statement or alleged untrue statement or
omission or alleged omission relating to the COMPANY or the STOCKHOLDER and
provided in writing to PC or its counsel by the COMPANY or the STOCKHOLDER (or
the respective agents thereof) for inclusion in the Registration Statement or
any Prospectus forming a part thereof or any amendment thereof or supplement
thereto), or (v) the matters described on Schedule 11.2(v).
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof, to the extent known.
The Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long as the Indemnifying
Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the written
consent of the Indemnified Party, such consent not to be unreasonably withheld
or delayed. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
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include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the expenses of its counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to
defend or settle any such asserted liability, and for so long as the
Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which
event the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person and the Indemnified Party shall reimburse the
Indemnifying Party for any additional costs of defense which it subsequently
incurs with respect to such claim and all additional costs of settlement or
judgment. If the Indemnifying Party does not undertake to defend such matter
to which the Indemnified Party is entitled to indemnification hereunder, or
fails diligently to pursue such defense, the Indemnified Party may undertake
such defense through counsel of its choice, at the cost and expense of the
Indemnifying Party, and the Indemnified Party may settle such matter, and the
Indemnifying Party shall reimburse the Indemnified Party for the amount paid in
such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party,
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which consent shall not be unreasonably withheld or delayed. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless the
Indemnified Party otherwise agrees in writing, which agreement shall not be
unreasonably withheld or delayed. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. PC, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim other than a Third Person claim for
indemnification hereunder against the STOCKHOLDER until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDER shall exceed 1.0% of the sum of the cash paid to
STOCKHOLDER plus the value of the PC Stock delivered to STOCKHOLDER (for
purposes of calculating the value of the PC Stock, such PC Stock is to be
valued at its initial public offering price as set forth in the Registration
Statement) (the "Indemnification Threshold"), provided, however, that PC,
NEWCO, the Surviving Corporation and the other persons or entities indemnified
pursuant to Section 11.1 or 11.2 may assert and shall be indemnified for any
claim under Sections 11.1(iv) and (v) at any time, regardless of whether the
aggregate of all claims which such persons may have against the STOCKHOLDER
exceeds the Indemnification Threshold, it being understood that the amount of
any such claim under Sections 11.1(iv) and (v) shall not be counted towards the
Indemnification Threshold. The STOCKHOLDER shall not assert any claim (other
than a Third Person claim) for indemnification hereunder against PC or NEWCO
until such time as, and solely to the extent that, the aggregate of all claims
which the STOCKHOLDER may have against PC or NEWCO shall exceed $100,000,
provided, however, that the STOCKHOLDER and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 may assert and shall be
indemnified for any claim under Section 11.2(v) at any time, regardless of
whether the aggregate
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of all claims which such persons may have against PC or NEWCO exceeds $100,000,
it being understood that the amount of any such claim under Section 11.2(v)
shall not be counted towards such $100,000 amount.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a material breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
Notwithstanding any other term of this Agreement (except the proviso
to this sentence), the STOCKHOLDER shall not be liable under this Section 11
for an amount which exceeds $48,000,000, provided that the STOCKHOLDER's
indemnification obligations pursuant to Sections 11.1(iv) and (v) shall not be
limited.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PC and the
COMPANY;
(ii) by the STOCKHOLDER or the COMPANY (acting through its
board of directors), on the one hand, or by PC (acting through its
board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by December 31, 1996, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDER or the COMPANY, on the one hand, or by
PC, on the other hand, if a material breach or default shall be made
by the other party in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date;
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(iv) by the STOCKHOLDER or the COMPANY in the event that PC is
no longer pursuing the transactions contemplated by this Agreement;
(v) by the STOCKHOLDER or the COMPANY in the event that the
transactions contemplated by this Agreement are no longer economically
viable for any reason, including without limitation if any of the
following occurs:
(a) PC receives notice from the SEC that the
transactions contemplated herein will not
qualify for (1) tax-free treatment under
Section 351 of the Code or (2) reorganization
accounting treatment in the Registration
Statement;
(b) any material portion of the financing for the
transactions contemplated herein becomes
unavailable; or
(c) the transactions contemplated herein become
non-viable in the view of the principal
nationally recognized investment banking firm
advising the COMPANY or PC with respect to
such transactions.
(vi) pursuant to Section 7.8 hereof; or
(vii) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses; provided, however, that
the aggregate liability of any party arising out of this Section 12 shall not
be in excess of $500,000.
13. NONCOMPETITION
The STOCKHOLDER agrees not to compete with PC to the extent provided
in the Employment Agreement to be entered into between the STOCKHOLDER and PC
effective as of the Funding and Consummation Date.
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14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that he
has had in the past, currently has and in the future may have access to certain
confidential information relating to the COMPANY, the Other Founding Companies
and/or PC, such as operational policies, and pricing and cost policies, that
are valuable, special and unique assets of the COMPANY, the Other Founding
Companies and/or PC's business. The STOCKHOLDER agrees that he will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, NEWCO, the Other Founding Companies
and PC who need to know such information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, and (b) following the Closing, such information may be
disclosed by the STOCKHOLDER as is required in the course of performing his
duties for PC or the Surviving Corporation unless (i) such information becomes
known to the public generally through no breach by the STOCKHOLDER of this
covenant, (ii) disclosure is required by law or the order of any governmental
authority under color of law or is necessary in order to secure a consent or
approval to consummate the transactions contemplated hereby, provided, that
prior to disclosing any information pursuant to this clause (ii), the
STOCKHOLDER shall give prior written notice thereof to PC and provide PC with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party and the same prior disclosure
set forth immediately above is given. In the event of a breach or threatened
breach by the STOCKHOLDER or PC of the provisions of this Section, PC shall be
entitled to an injunction restraining the STOCKHOLDER from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed
as prohibiting PC from pursuing any other available remedy for
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such breach or threatened breach, including the recovery of damages.
14.2 PC AND NEWCO. PC and NEWCO recognize and acknowledge that they
had in the past and currently have access to certain confidential information
relating to the COMPANY, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY. PC and
NEWCO agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not use or disclose such
confidential information to their own benefit except in furtherance of the
Transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the STOCKHOLDER and to
authorized representatives of the COMPANY who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no breach by PC or
NEWCO of this covenant, (ii) disclosure is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause
(ii), PC and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDER and provide the COMPANY and the STOCKHOLDER with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party and the same prior disclosure
set forth immediately above is given. In the event of a breach or threatened
breach by PC or NEWCO of the provisions of this Section, the COMPANY and the
STOCKHOLDER shall be entitled to an injunction restraining PC and NEWCO from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the COMPANY and the STOCKHOLDER from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein
are not consummated, PC and NEWCO shall
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return to the COMPANY within a reasonable time all documents (in both paper and
electronic form) containing confidential information about the COMPANY, and
shall use reasonable efforts to compel the Other Founding Companies to do the
same. In such instance, PC will also furnish to the COMPANY a written
statement certifying that all documents which contained confidential
information about the COMPANY and which had been in PC's possession had been
returned by PC to the COMPANY.
14.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Sections 14.1 and 14.2,
and because of the immediate and irreparable damage that would be caused for
which they would have no other adequate remedy, the parties hereto agree that,
in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated hereby on the Funding and
Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members (which shall be deemed to include step-siblings, step-children and
step-parents) who agree to be bound by the restrictions set forth in this
Section 15.1 (or trusts for the benefit of the STOCKHOLDER or such family
members, the trustees of which so agree) or transfers to a limited partnership
owned or controlled by the STOCKHOLDER (which entity agrees to be bound by the
restrictions set forth in this Section 15.1) or transfers to not more than five
(5) key employees of the COMPANY (it being understood that such employees also
will agree to be bound by the restrictions set forth in this Section 15.1 and
that the STOCKHOLDER will consult with PC prior to any such transfer to such
family members, trusts, limited partnership or employees and that such
transfers will only be permitted if they are, in the view of PC's counsel,
exempt from registration under the 1933 Act and will not jeopardize the tax
treatment of the transactions contemplated herein or the reorganization
accounting treatment in the Registration Statement), for a period of two years
from the Funding and Consummation Date, except pursuant to Section 17 hereof,
the STOCKHOLDER shall not (i) sell, assign, exchange,
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transfer, encumber, pledge, distribute, appoint or otherwise dispose of (a) any
shares of PC Stock received by the STOCKHOLDER in the Merger, or (b) any
interest (including, without limitation, an option to buy or sell) in any such
shares of PC Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose; or (ii) engage in any transaction, whether
or not with respect to any shares of PC Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of PC Stock
acquired pursuant to Section 2 hereof (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, (i) if the "holding period" for
restricted securities set forth in Rule 144(d) under the 1933 Act (or any
similar or successor provision) is reduced below two years, the two-year
restrictive period set forth in this Section 15.1 will be deemed to be
correspondingly reduced; and (ii) the STOCKHOLDER may encumber or pledge any of
such shares of PC Stock provided the pledgee or other beneficiary of such
encumbrance or pledge agrees to be bound by the provisions of this Section as if
the STOCKHOLDER and party hereto. The certificates evidencing the PC Stock
delivered to the STOCKHOLDER pursuant to Section 3 of this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as PC may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [SECOND
ANNIVERSARY OF THE FUNDING AND CONSUMMATION DATE]. (PROVIDED,
HOWEVER, THAT (I) IF THE "HOLDING PERIOD" FOR RESTRICTED
SECURITIES SET FORTH IN RULE 144(D) UNDER THE SECURITIES ACT OF
1933, AS AMENDED (OR ANY SIMILAR OR SUCCESSOR PROVISION), IS
REDUCED BELOW TWO YEARS, THE RESTRICTIVE PERIOD SET FORTH HEREIN
SHALL BE CORRESPONDINGLY REDUCED, AS CALCULATED FROM THE DATE TWO
YEARS PRIOR TO THE DATE SET FORTH HEREIN AND (II) SUCH SHARES MAY
BE ENCUMBERED
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OR PLEDGED PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH
ENCUMBRANCE OR PLEDGE AGREES TO BE BOUND BY THE PROVISIONS OF
THESE RESTRICTIONS TO THE SAME EXTENT AS THE HOLDER HEREOF).
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE (AS IT MAY BE REDUCED AS PROVIDED HEREIN).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDER acknowledges that the shares of PC Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold unless
registered under the 1933 Act or resold pursuant to an exemption from the
registration requirements of the 1933 Act. The PC Stock to be acquired by the
STOCKHOLDER pursuant to this Agreement is being acquired solely for his own
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution; provided, however, that this covenant shall not prohibit any
disposition in accordance with the securities laws and this Agreement.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDER covenants, warrants and
represents that none of the shares of PC Stock issued to the STOCKHOLDER will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC and this Agreement.
All the PC Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY PC, AN OPINION OF COUNSEL TO PC
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
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16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDER represents and
warrants that he is able to bear the economic risk of an investment in the PC
Stock acquired pursuant to this Agreement, can afford to sustain a total loss
of such investment and has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
proposed investment in the PC Stock. The STOCKHOLDER represents and warrants
that he has had an adequate opportunity to ask questions and receive answers
from the officers of PC concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PC, the plans
for the operations of the business of PC, the business, operations and
financial condition of the Other Founding Companies, and any plans for
additional acquisitions and the like. The STOCKHOLDER has asked any and all
questions of the nature described in the preceding sentence, and all questions
have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever PC proposes to register any PC Stock for its
own or others' account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions
of additional businesses by PC, (ii) registrations relating to employee benefit
plans and (iii) registrations relating to rights offerings made to the
stockholders of PC, PC shall give the STOCKHOLDER prompt written notice of its
intent to do so. Upon the written request of the STOCKHOLDER given within 30
days after receipt of such notice, PC shall cause to be included in such
registration all of the PC Stock which the STOCKHOLDER requests, provided that
PC shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares would, in the opinion
of tax counsel to PC or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a
tax-free reorganization. In addition, if PC is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by persons other than PC is greater than
the number of such shares which can be offered without
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adversely affecting the offering, PC may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by
such managing underwriter, provided, that, for each such offering made by PC
after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than PC, the STOCKHOLDER and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDER and
the stockholders of the other Founding Companies being referred to herein as
the "Founding Stockholders"), and thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Founding
Stockholders.
17.2(A) DEMAND REGISTRATION RIGHTS OF THE STOCKHOLDER. At any time
after the date two years after the Funding and Consummation Date, the
STOCKHOLDER may, with respect to the shares of PC Stock that were issued to the
STOCKHOLDER pursuant to this Agreement that have not been previously registered
or sold and that are not entitled to be sold under Rule 144(k) (or any
successor provision) promulgated under the 1933 Act, request in writing that PC
file a registration statement under the 1933 Act covering the registration of
shares of PC Stock (including any stock issued as (or issuable upon the
conversion or exchange of any convertible security, warrant, right or other
security that is issued by PC as) a dividend or other distribution with respect
to, or in exchange for, or in replacement of such PC Stock) then held by the
STOCKHOLDER (a "STOCKHOLDER Demand Registration"). Within 45 days after notice
from the STOCKHOLDER, PC shall file and use its best efforts to cause to become
effective a registration statement covering all such shares. PC shall be
obligated to effect only one STOCKHOLDER Demand Registration for the sole
benefit of the STOCKHOLDER pursuant to this Section 17.2(A) and will keep such
STOCKHOLDER Demand Registration current and effective for not less than 120
days (or such shorter period as is required to sell all of the shares
registered thereon).
Notwithstanding the foregoing paragraph, following such a demand, a
majority of PC's disinterested directors (i.e., directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
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If at the time of the STOCKHOLDER's request for a STOCKHOLDER Demand
Registration, PC has plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the PC Stock held by the
STOCKHOLDER shall be initiated under this Section 17.2(A) until 90 days after
the effective date of such registration unless PC is no longer proceeding
diligently to effect such registration; provided that PC shall provide the
STOCKHOLDER the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
17.2(B) DEMAND REGISTRATION RIGHTS OF THE STOCKHOLDER AND THE
STOCKHOLDERS OF THE OTHER FOUNDING COMPANIES. At any time after the date two
years after the Funding and Consummation Date, the holders of a majority of the
shares of PC Stock issued to the stockholders of the Founding Companies
pursuant to this Agreement and the Other Agreements that have not been
previously registered or sold and that are not entitled to be sold under Rule
144(k) (or any successor provision) promulgated under the 1933 Act may request
in writing that PC file a registration statement under the 1933 Act covering
the registration of shares of PC Stock issued to such stockholders (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security that is issued by PC as)
a dividend or other distribution with respect to, or in exchange for, or in
replacement of such PC Stock) then held by such stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, PC shall
give written notice of such request to all other of such stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from any such stockholder, file and thereafter use its best efforts to cause to
become effective a registration statement covering all such shares. PC shall
be obligated to effect only one Demand Registration for all stockholders of the
Founding Companies and will keep such Demand Registration current and effective
for not less than 120 days (or such shorter period as is required to sell all
of the shares registered thereon).
Notwithstanding the foregoing paragraph, following such a demand a
majority of PC's disinterested directors (i.e., directors who have not demanded
or elected to sell shares in any
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such public offering) may defer the filing of the registration statement for a
30 day period.
If at the time of any request by the stockholders of the Founding
Companies for a Demand Registration PC has plans to file within 60 days after
such request a registration statement covering the sale of any of its
securities in a public offering under the 1933 Act, no registration of the PC
Stock held by the stockholders of the Founding Companies shall be initiated
under this Section 17.2(B) until 90 days after the effective date of such
registration unless PC is no longer proceeding diligently to effect such
registration; provided that PC shall provide the stockholders of the Founding
Companies the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In addition, if the stockholders offering shares are advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.2(B) that the number of shares to be sold by such stockholders
is greater than the number of such shares which can be offered without
adversely affecting the offering, the stockholders offering shares may reduce
pro rata the number of shares offered for the account of each stockholder
(based upon the number of shares proposed to be sold by each such stockholder)
to a number deemed satisfactory by such managing underwriter.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by PC. In connection
with registrations under Sections 17.1 and 17.2, PC shall (i) use its best
efforts to prepare and file with the SEC, as soon as reasonably practicable, a
registration statement with respect to the PC Stock and use its best efforts to
cause such registration to promptly become and remain effective for a period of
at least 120 days (or such shorter period during which holders shall have sold
all PC Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the PC Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution of the PC Stock; and (iii) take such other actions as are
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reasonable and necessary to comply with the requirements of the 1933 Act and
the regulations thereunder.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, PC and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of PC's size and investment
stature, including indemnification.
17.5 AVAILABILITY OF RULE 144. PC shall not be obligated to register
shares of PC Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
18. GENERAL
18.1 COOPERATION. The COMPANY, the STOCKHOLDER, PC and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation Date, and at such other times and places as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of carrying out this Agreement. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PC on and after the Funding and Consummation Date in
furnishing information, evidence, testimony and other assistance in connection
with any Tax Return filing obligations, actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PC, and the heirs and legal representatives of the STOCKHOLDER.
18.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire
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agreement and understanding among the STOCKHOLDER, the COMPANY, NEWCO and PC
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement of the parties hereto enforceable in accordance with its
terms and may be modified or amended only by a written instrument executed by
the STOCKHOLDER, the COMPANY, NEWCO and PC, acting through their respective
officers or trustees, duly authorized by their respective boards of directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, PC will pay the fees, expenses and disbursements of PC
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PC under this Agreement, including (subject to
the next sentence) the fees and expenses of Coopers & Lybrand LLP, Morgan,
Lewis & Bockius LLP and the costs of preparing the Registration Statement. The
COMPANY shall pay prior to the Funding and Consummation Date and be fully
responsible for the fees and expenses of Coopers & Lybrand LLP in connection
with its audit and preparation of the historical financial statements of the
COMPANY to be included in the Registration Statement, which fees and expenses
shall constitute a vendor debt of the COMPANY. The COMPANY also shall pay
prior to the Funding and Consummation Date and be fully responsible for all
professional fees and expenses, including but not limited to legal fees and
expenses, incurred by the COMPANY and the STOCKHOLDER in connection with the
transactions contemplated herein, whether or not such transactions are actually
consummated. The STOCKHOLDER further shall pay all sales, use,
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transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
The STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, the STOCKHOLDER acknowledges that he, and
not the COMPANY or PC, will pay all Taxes due upon receipt of the consideration
payable pursuant to Section 2 hereof, and will assume all Tax risks and
liabilities of the STOCKHOLDER in connection with the transactions contemplated
hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to PC, or NEWCO, addressed to them at:
Medical Manager Corporation
3001 North Rocky Point Drive, Suite 100
Tampa, Florida 33607
Attn: John Kang, Chief Executive Officer
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDER, addressed to him at his addresses
set forth on Annex IV, with copies to such counsel as is
set forth with respect to the STOCKHOLDER on such Annex
IV;
(c) If to the COMPANY, addressed to it at:
Personalized Programming, Inc.
15151 N.W. 99th Street
Alachua, Florida 32815
78
<PAGE> 84
Attn: Michael A. Singer
and marked "Personal and Confidential"
with copies to:
Personalized Programming, Inc.
15151 N.W. 99th Street
Alachua, Florida 32815
Attn: Frederick B. Karl, Jr.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York, except that matters herein within the
purview of the matters covered by the General Corporation Law of the State of
Delaware shall be governed by such General Corporation Law, in each case
without reference to conflicts of laws principles.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Closing or in writing delivered
pursuant to the provisions of this Agreement shall survive the consummation of
the transactions contemplated hereby and any examination on behalf of the
parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay of or omission in the exercise of any right, power or
remedy accruing to any party as a result of any breach or default by any other
party under this Agreement shall impair any such right, power or remedy, nor
shall it be construed as a waiver of or acquiescence in any such breach or
default, or of any similar breach or default occurring later; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach
or default occurring before or after that waiver.
79
<PAGE> 85
18.11 TIME. Time is of the essence with respect to this
Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of PC, NEWCO, the COMPANY and the STOCKHOLDER. Any
amendment or waiver effected in accordance with this Section 18.15 shall be
binding upon each of the parties hereto, any other person receiving PC Stock in
connection with the Merger and each future holder of such PC Stock.
80
<PAGE> 86
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By /s/ John H. Kang
---------------------------
Name: John H. Kang
Title: Chief Executive Officer
PPI ACQUISITION I CORP.
By /s/ Wayne Burks
---------------------------
Name: Wayne Burks
Title: President
PERSONALIZED PROGRAMING, INC.
By /s/ Michael A. Singer
---------------------------
Name: Michael A. Singer
Title: President
STOCKHOLDER:
By /s/ Michael A. Singer
---------------------------
81
<PAGE> 1
EXHIBIT 2.2
________________________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
MEDICAL MANAGER CORPORATION
SPI ACQUISITION I CORP. (a subsidiary of
MEDICAL MANAGER CORPORATION)
SPDI ACQUISITION I (a subsidiary of
MEDICAL MANAGER CORPORATION)
SYSTEMS PLUS, INC.
SYSTEMS PLUS DISTRIBUTION, INC.
and
the STOCKHOLDER named herein
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 EFFECTIVE TIME OF THE MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
THE SURVIVING CORPORATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF EACH
COMPANY, PC AND EACH NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 EFFECT OF MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 MANNER OF CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. DELIVERY OF MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. REPRESENTATIONS AND WARRANTIES OF EACH COMPANY AND THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . 11
5.1 DUE ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 CAPITAL STOCK OF EACH COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING. . . . . . . . . . . . . . . . . 13
5.5 NO BONUS SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 PREDECESSOR STATUS; ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 SPIN-OFF BY THE COMPANIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 ACCOUNTS AND NOTES RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 Intellectual Property; Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.13 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. . . . . . . . . . . . . . . . . 18
5.16 REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.17 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. . . . . . . . . . . . . . . 21
5.19 EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.20 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.21 CONFORMITY WITH LAW; LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.22 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.23 NO VIOLATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.24 GOVERNMENT CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.25 ABSENCE OF CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.27 RELATIONS WITH GOVERNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.28 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.29 AUTHORITY; OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.30 PREEMPTIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.31 NO INTENTION TO DISPOSE OF PC STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. REPRESENTATIONS AND WARRANTIES OF PC AND THE NEWCOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.1 DUE ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 CAPITAL STOCK OF THE PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 TRANSACTIONS IN CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.5 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.6 LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7 CONFORMITY WITH LAW; LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.8 NO VIOLATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.9 VALIDITY OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.10 PC STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.11 NO SIDE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 38
6.13 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
ii
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<TABLE>
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7.2 CONDUCT OF BUSINESS PENDING CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.3 PROHIBITED ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.4 NO SHOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.5 NOTICE TO BARGAINING AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.6 AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.7 NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.8 AMENDMENT OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . 48
7.10 FINAL FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.11 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANIES . . . . . . . . . . . . . . . . . . 50
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. . . . . . . . . . . . . . . . 50
8.2 SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3 NO LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.4 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.5 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.6 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.7 GOOD STANDING CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.8 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.9 CLOSING OF IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.10 SECRETARY'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.11 EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.12 TAX TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND THE NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. . . . . . . . . . . . . . . . . 53
9.2 NO LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.3 SECRETARY'S CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.4 NO MATERIAL ADVERSE EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.5 STOCKHOLDER'S RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.6 SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.8 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.9 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.10 GOOD STANDING CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.11 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.12 EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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9.13 CLOSING OF THE IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.14 FIRPTA CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10. COVENANTS OF PC AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. . . . . . . . . . . . . . . . . 55
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . 55
10.3 PREPARATION AND FILING OF TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.4 DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . 57
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . 57
11.2 INDEMNIFICATION BY PC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.3 THIRD PERSON CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.4 EXCLUSIVE REMEDY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.5 LIMITATIONS ON INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2 LIABILITIES IN EVENT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.1 PROHIBITED ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.2 DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.3 REASONABLE RESTRAINT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.4 SEVERABILITY; REFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.5 INDEPENDENT COVENANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.6 MATERIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
14.1 STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
14.2 PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.3 DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14.4 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.1 TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
16.1 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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<S> <C> <C>
16.2 ECONOMIC RISK; SOPHISTICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
17.1 PIGGYBACK REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
17.2 DEMAND REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
17.3 REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
17.4 UNDERWRITING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
17.5 AVAILABILITY OF RULE 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
18.1 COOPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
18.2 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
18.3 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
18.4 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
18.5 BROKERS AND AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
18.6 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
18.7 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
18.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . 76
18.10 EXERCISE OF RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.11 TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.12 REFORMATION AND SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
18.13 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.14 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18.15 AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
v
<PAGE> 7
Annexes
Annex I - Form of Articles of Merger
Annex II - Form of Certificate of Incorporation and By-laws of
PC and NEWCO
Annex III - Consideration to be paid to the STOCKHOLDER
Annex IV - Stockholder and Stock Ownership of the COMPANIES
Annex V - Stockholders and Stock Ownership of PC
Annex VI - Form of Opinion of Morgan, Lewis & Bockius LLP
Annex VII - Form of Opinion of Counsel to the COMPANIES and the
STOCKHOLDER
Annex VIII - Form of Employment Agreement
vi
<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of the 30th day of September, 1996, by and among MEDICAL MANAGER
CORPORATION, a Delaware corporation ("PC"), SPI ACQUISITION I CORP., a Delaware
corporation ("ACQUISITION"), SPDI ACQUISITION I CORP., a Delaware corporation
("ACQUISITION I") (collectively, ACQUISITION and ACQUISITION I are referred to
herein as "NEWCOS" and individually are each referred to as a "NEWCO"), SYSTEMS
PLUS, INC., a California corporation ("SPI"), and SYSTEMS PLUS DISTRIBUTION,
referred to herein as the "COMPANIES" and individually are each referred to as
a "COMPANY"), and RICHARD W. MEHRLICH (the "STOCKHOLDER"). The STOCKHOLDER is
the sole stockholder of each COMPANY.
WHEREAS, ACQUISITION and ACQUISITION I are corporations duly
organized and existing under the laws of the State of Delaware, having
been incorporated on July 16, 1996, and September 12, 1996,
respectively, solely for the purpose of completing the transactions
set forth herein, and each is a wholly-owned subsidiary of PC, a
corporation organized and existing under the laws of the State of
Delaware;
WHEREAS, the respective Boards of Directors of each NEWCO and
each COMPANY (which together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that the NEWCOS merge with and into the COMPANIES
pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and California;
WHEREAS, PC is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan of Reorganization," with each
of Personalized Programming, Inc., a Florida corporation, and Systems
Management, Inc., an Indiana corporation, and RTI Business Systems,
Inc., a New York corporation, and National Medical Systems, Inc., a
Florida corporation, and their respective stockholders in
<PAGE> 9
order to acquire additional medical software development and
distribution companies (the COMPANIES, together with each of the
entities with which PC has entered into the Other Agreements, are
collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of
PC Stock (as each is hereinafter defined) constitute the "PC Plan of
Organization";
WHEREAS, the Boards of Directors of PC and each of the
Founding Companies have approved and adopted the PC Plan of
Organization as an integrated plan to transfer the capital stock of
the Founding Companies to PC and the cash raised in the IPO of PC
Stock to PC as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of each COMPANY has approved this Agreement as part of the
PC Plan of Organization in order to transfer the capital stock of each
COMPANY to PC;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and
not otherwise defined shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" shall mean the NEWCOS and each of the other
Delaware companies wholly-owned by PC prior to the Funding and Consummation
Date.
"Articles of Merger" shall mean those Articles or Certificates of
Merger with respect to the Merger, substantially in the forms attached as Annex
I hereto, or with such other changes therein as may be required by applicable
state laws.
"Balance Sheet Date" shall mean June 30, 1996.
2
<PAGE> 10
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" and "COMPANIES" have the meanings set forth in the first
paragraph of this Agreement.
"COMPANY Stock" means, collectively, the SPI STOCK and the SPDI STOCK.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Effective Time of the Mergers" shall mean the time as of which the
Mergers become effective, which the parties hereto contemplate to occur on the
Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Intellectual Property" shall mean all trademarks, service marks,
trade dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design or
product packaging.
"IPO" means the initial public offering of PC Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
3
<PAGE> 11
"Mergers" means, collectively the mergers of the NEWCOS with and into
the COMPANIES pursuant to this Agreement and the applicable provisions of the
laws of the State of Delaware and other applicable state laws.
"NEWCO" and "NEWCOS" has the meaning set forth in the first paragraph
of this Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
each NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANIES.
"PC" has the meaning set forth in the first paragraph of this
Agreement.
"PC Charter Documents" has the meaning set forth in Section 6.1.
"PC Stock" means the common stock, par value $.01 per share, of PC.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by PC and the Underwriters
of the public offering price of the shares of PC Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement of
PC on Form S-1 covering the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
4
<PAGE> 12
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"SPDI STOCK" means the common stock of SPDI.
"SPI STOCK" means the common stock of SPI.
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean each COMPANY as the surviving party
in its respective Merger.
"Tax" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger to be signed, verified and delivered
to the Secretary of State of the State of Delaware and, as required, a similar
filing to be made with the relevant authorities in the jurisdiction in which the
5
<PAGE> 13
COMPANIES are organized, on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGERS. At the Effective Time of the
Mergers, the NEWCOS shall be merged with and into the COMPANIES in accordance
with the Articles of Merger, the separate existence of each NEWCO shall cease,
and each COMPANY shall be the surviving party in each respective Merger. In
this respect, each such COMPANY is sometimes hereinafter referred to as the
"Surviving Corporation" (and, in this respect, the COMPANIES, collectively, are
sometimes hereinafter referred to as the "Surviving Corporations"). The
Mergers will be effected simultaneously and the Merger of each NEWCO into each
COMPANY will occur in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF THE SURVIVING CORPORATIONS. At the Effective Time of the Mergers:
(i) the Certificate or Articles of Incorporation of each
COMPANY then in effect shall be the Certificate or Articles of
Incorporation of the resultant Surviving Corporation until changed as
provided by law;
(ii) the By-laws of each COMPANY then in effect shall become
the By-laws of the resultant Surviving Corporation until amended as
provided by law;
(iii) the Board of Directors of each Surviving Corporation
initially shall consist of the following persons:
John H. Kang
Richard W. Mehrlich
The Board of Directors of each Surviving Corporation shall hold office
subject to the provisions of the laws of the State of California and
of the Certificate or Articles of Incorporation and By-laws of each
Surviving Corporation; and
(iv) the officers of each COMPANY immediately prior to the
Effective Time of the Mergers shall continue as the officers of the
resultant Surviving Corporation in the same capacity or capacities,
and effective upon the Effective
6
<PAGE> 14
Time of the Mergers, John H. Kang shall be appointed as a vice
president of each Surviving Corporation and Ricardo A. Salas shall be
appointed as an Assistant Secretary of each Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-laws of each Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF EACH
COMPANY, PC AND EACH NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of each COMPANY, PC and each NEWCO as of the date of this Agreement are as
follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of each COMPANY is as set forth on Schedule
1.4 hereto;
(ii) immediately prior to the Funding and Consummation Date,
the authorized capital stock of PC will consist of 50,000,000 shares
of PC Stock, of which the number of issued and outstanding shares will
be set forth in the Registration Statement, and 500,000 shares of
preferred stock, $.01 par value, of which no shares will be issued and
outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of each NEWCO consists of 3,000 shares of NEWCO Stock, of which
ten (10) shares are issued and outstanding.
1.5 EFFECT OF MERGERS. At the Effective Time of the Mergers, the
effect of the Mergers shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL") and the
law of the State of California. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of each COMPANY shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each NEWCO shall
be merged with and into its respective COMPANY, and each COMPANY, as a
Surviving Corporation, shall be fully vested therewith. At the Effective Time
of the Mergers, the separate existence of each
7
<PAGE> 15
NEWCO shall cease and, in accordance with the terms of this Agreement, each
respective Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all Taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to each COMPANY and each NEWCO shall be
taken and deemed to be transferred to, and vested in, each respective Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of each respective Surviving Corporation
as they were of each COMPANY and each NEWCO; and the title to any real estate,
or interest therein, whether by deed or otherwise, vested in each COMPANY and
each NEWCO under the laws of each state of incorporation, shall not revert or
be in any way impaired by reason of the Mergers. Except as otherwise provided
herein, each Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the respective COMPANY and NEWCO
which are so merged, and any claim existing, or action or proceeding pending,
by or against such COMPANY or such NEWCO may be prosecuted as if the Mergers
had not taken place, or the respective Surviving Corporation may be substituted
in its place. Neither the rights of creditors nor any liens upon the property
of each COMPANY or each NEWCO shall be impaired by the Mergers, and all debts,
liabilities and duties of each COMPANY and each NEWCO shall attach to the
respective Surviving Corporation, and may be enforced against such Surviving
Corporation to the same extent as if said debts, liabilities and duties had
been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(i) the COMPANY Stock and (ii) the NEWCO Stock (of each NEWCO) issued and
outstanding immediately prior to the Effective Time of the Mergers,
respectively, into shares of (x) PC Stock and (y) common stock of the Surviving
Corporations, respectively, shall be as follows:
As of the Effective Time of the Merger:
8
<PAGE> 16
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares
of PC Stock set forth on Annex III hereto and (2) the right to receive
the amount of cash set forth on Annex III hereto. Such amounts of
cash and shares as set forth on Annex III hereto as of the date hereof
are final and shall not change hereafter regardless of the number of
shares sold in the IPO or the offering price of such shares;
(ii) all shares of COMPANY Stock that are held by SPI or
SPDI as treasury stock shall be canceled and retired and no shares of
PC Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) with respect to each NEWCO, each share of NEWCO Stock
issued and outstanding immediately prior to the Effective Time of the
Mergers shall, by virtue of the Mergers and without any action on the
part of PC, automatically be converted into one fully paid and
non-assessable share of common stock of the respective Surviving
Corporation into which such NEWCO was merged, which shall constitute
all of the issued and outstanding shares of common stock of such
Surviving Corporation immediately after the Effective Time of the
Mergers.
All PC Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding PC
Stock by reason of the provisions of the Certificate of Incorporation of PC or
as otherwise provided by the Delaware GCL. All voting rights of such PC Stock
received by the STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and
the STOCKHOLDER shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Mergers, PC shall have no class of
capital stock issued and outstanding other than the PC Stock.
9
<PAGE> 17
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Mergers and on the Funding and
Consummation Date the STOCKHOLDER shall, upon surrender of certificates
representing all outstanding shares of COMPANY Stock, receive (i) the
respective number of shares of PC Stock set forth on Annex III and (ii) the
amount of cash set forth on Annex III hereto, said cash to be payable by wire
transfer.
3.2 The STOCKHOLDER shall deliver to PC at the Closing the
certificates representing the COMPANY Stock, duly endorsed in blank by the
STOCKHOLDER, or accompanied by duly executed stock powers, with, if required by
PC, signatures guaranteed by a national or state chartered bank or other
financial institution, and with all necessary Transfer Tax and other revenue
stamps, acquired at the STOCKHOLDER'S expense, affixed and canceled. The
STOCKHOLDER agrees promptly to use reasonable best efforts to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such COMPANY Stock or with respect to
the stock powers accompanying any COMPANY Stock.
4. CLOSING
At or prior to the Pricing, the parties shall use all reasonable best
efforts to take all actions necessary to prepare to (i) effect the Mergers
(including, if permitted by applicable state law, the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective only at the Effective Time of the Mergers) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Mergers for
purposes of this Agreement or the conversion and delivery of the shares and
payment therefor referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In
the event that there is no Funding and Consummation Date and this Agreement
terminates, PC hereby covenants and agrees to do all things required by
Delaware law and all things which counsel for the COMPANIES advises PC are
required by applicable laws of the State of California in order to rescind any
merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section.
10
<PAGE> 18
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York
10178. On the Funding and Consummation Date (x) the Articles of Merger shall
be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Funding and Consummation
Date, shall become effective and the Mergers shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of wire transfers in amounts equal to the cash
portions of the consideration which the STOCKHOLDER shall be entitled to
receive pursuant to the Mergers referred to in Section 3 hereof and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (x), (y) and (z)
occurs shall be referred to as the "Funding and Consummation Date." This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date, provided that, PC,
the NEWCOS, the COMPANIES and the STOCKHOLDER shall act in good faith to
consummate the IPO. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF EACH COMPANY AND THE STOCKHOLDER
(A) Representations and Warranties of Each COMPANY and the
STOCKHOLDER.
Each COMPANY and the STOCKHOLDER jointly and severally represent and
warrant that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of the Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve (12) months (the last
day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax
periods (and any portion thereof) ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22, and (ii) solely for purposes of Section 11.1(iii) hereof, and solely to
the extent
11
<PAGE> 19
that, in connection with the IPO, PC actually incurs liability under the 1933
Act, the 1934 Act, or any other Federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable statute of limitations period, which shall be
deemed to be the Expiration Date for such purposes. For purposes of this
Section 5, the term "the COMPANY" or "each COMPANY" shall mean and refer to
each COMPANY and each of its subsidiaries, if any.
5.1 DUE ORGANIZATION. Each COMPANY is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and is duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on its business in the places and in the manner as now conducted
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or financial condition (as used herein
with respect to each COMPANY, or with respect to any other person, a "Material
Adverse Effect") on such COMPANY. Schedule 5.1 contains a list of all
jurisdictions in which each COMPANY is authorized or qualified to do business.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended to date, of each COMPANY (the
"Charter Documents") are all attached hereto as Schedule 5.1. The minute books
and stock records of each COMPANY, as heretofore made available to PC, are
correct and complete in all material respects. The most recent minutes of each
COMPANY, which are dated no earlier than ten (10) business days prior to the
date hereof, affirm and ratify all prior acts of such COMPANY and of its
officers and directors on behalf of such COMPANY.
5.2 AUTHORIZATION. (i) The representatives of each COMPANY
executing this Agreement have the authority to enter into and bind such COMPANY
to the terms of this Agreement and (ii) each COMPANY has the full corporate
right, power and authority to enter into this Agreement and the Merger to which
it will be a party, subject to any required approval of the shareholder and the
Board of Directors of such COMPANY described on Schedule 5.2, certified copies
of which are attached thereto.
5.3 CAPITAL STOCK OF EACH COMPANY. The authorized capital
12
<PAGE> 20
stock of each COMPANY is as set forth in Section 1.4(i). All of the issued and
outstanding shares of capital stock of each COMPANY are owned by the
STOCKHOLDER in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of capital
stock of each COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the STOCKHOLDER
and were offered, issued, sold and delivered by such COMPANY in compliance in
all material respects with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation
of the preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, neither of the COMPANIES has acquired any
COMPANY Stock since January 1, 1994. Except as set forth on Schedule 5.4, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates either COMPANY to issue any of its authorized but unissued
capital stock or its treasury stock; (ii) neither COMPANY has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of either COMPANY nor the relative ownership of shares among any of its
respective stockholders has been altered or changed in contemplation of the
Mergers. Schedule 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the stock of either COMPANY.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Neither of the COMPANIES has any subsidiaries.
Except as set forth on Schedule 5.6, neither COMPANY owns, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into
13
<PAGE> 21
capital stock or any other equity interest in any corporation, association or
business entity nor is either COMPANY, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list
of all names of all predecessor companies of each COMPANY, including the names
of any entities acquired by either COMPANY (by stock purchase, merger or
otherwise) or from whom either COMPANY previously acquired material assets.
Except as disclosed on Schedule 5.7, neither COMPANY has been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
5.8 SPIN-OFF BY THE COMPANIES. Except as set forth on Schedule
5.8, there has not been any sale, spin-off or split-up of material assets of
either COMPANY or any other person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the COMPANIES ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are
copies of the following financial statements (the "COMPANIES' Financial
Statements") of the COMPANIES: the COMPANIES' audited Combined Balance Sheets
as of June 30, 1996 and December 31, 1995 and 1994 and Combined Statements of
Income, Cash Flows and Retained Earnings for the six months ended June 30, 1996
and for each of the years in the three-year period ended December 31, 1995
(June 30, 1996 being hereinafter referred to as the "Balance Sheet Date").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 5.9). Except as set
forth on Schedule 5.9, such Combined Balance Sheets as of June 30, 1996 and
December 31, 1995 and 1994 present fairly in all material respects the
financial position of the COMPANIES as of the dates indicated thereon, and such
Combined Statements of Income, Cash Flows and Retained Earnings present fairly
in all material respects the results of operations and cash flows for the
periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. Each COMPANY has delivered to PC
an accurate list (which is set forth on Schedule
14
<PAGE> 22
5.10) as of the Balance Sheet Date of (i) all liabilities of such COMPANY
which are not reflected on the balance sheet of such COMPANY at the Balance
Sheet Date and (ii) any material liabilities of such COMPANY (including all
liabilities in excess of $10,000 which are not reflected on the balance sheet
as of the Balance Sheet Date) and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements to which such COMPANY is a party. Except as set forth on Schedule
5.10, since the Balance Sheet Date, neither COMPANY has incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. Each COMPANY has also set forth on
Schedule 5.10, in the case of those contingent liabilities related to pending
or threatened litigation, or other liabilities which are not fixed or otherwise
accrued or reserved, a good faith and reasonable estimate of the maximum amount
which may be payable. For each such contingent liability or liability for
which the amount is not fixed or is contested, each COMPANY has provided to PC
the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit or proceeding.
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the best estimate shall for
purposes of this Agreement be deemed to
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be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANIES have delivered
to PC an accurate list (which is set forth on Schedule 5.11) of the accounts
and notes receivable of the COMPANIES, as of the Balance Sheet Date, including
any such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
STOCKHOLDER. Within ten (10) days prior to Closing, the COMPANIES shall
provide PC with an accurate list of all receivables obtained subsequent to the
Balance Sheet Date that are outstanding as of the date of the delivery of such
list. For each of the aforementioned accounts and notes receivable reports,
the COMPANIES shall provide PC with an aging of all accounts and notes
receivable showing amounts due in 30 day aging categories. Except to the
extent reflected on Schedule 5.11, such accounts and notes are collectible in
the amounts shown on Schedule 5.11, and neither COMPANY has received any
written notice of any contest, claim or right of set-off with respect to the
amount or validity of any such account receivable and has no other reason to
believe that such amounts are not fully collectible.
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANIES owns all Intellectual Property the absence of any
of which is reasonably likely to have a Material Adverse Effect on their
business, and the COMPANIES have delivered to PC an accurate list (which is set
forth on Schedule 5.12) of all Intellectual Property owned or used by the
COMPANIES. Each item of Intellectual Property owned or used by the COMPANIES
is valid and in full force and effect. Except as set forth on Schedule 5.12,
all right, title and interest in and to each item of Intellectual Property is
owned by the COMPANIES and is not subject to any license, royalty arrangement
or pending or threatened claim or dispute. None of the Intellectual Property
owned or, to the COMPANIES' knowledge, none of the Intellectual Property used
by the COMPANIES nor any product sold by the COMPANIES, infringes any
Intellectual Property right of any other entity and no Intellectual Property
owned by the COMPANIES is infringed upon by any other entity.
(b) The COMPANIES hold all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect on their business, and the
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COMPANIES have delivered to PC an accurate list (which is set forth on Schedule
5.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles (including motor vehicle titles and
current registrations), fuel permits, licenses, franchises and certificates.
To the knowledge of the COMPANIES, the licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.12 are valid, and the
COMPANIES have not received any notice that any governmental authority intends
to cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANIES have conducted and are conducting
their business in compliance with the requirements, standards, criteria and
conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and are not in violation of any of the
foregoing, in each case, except where such non-compliance or violation would
not have a Material Adverse Effect on either COMPANY.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13,
(i) the COMPANIES have complied in all material respects with and are in
compliance in all material respects with all Federal, state, local and foreign
statutes (civil and criminal), laws, ordinances, regulations, rules, notices,
permits, judgments, orders and decrees applicable to them or any of their
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law); (ii) the COMPANIES have obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances and have reported, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by either COMPANY where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been
no releases or threats of releases (as defined in Environmental Laws) at, from,
in or on any property owned or operated by either COMPANY except as permitted
by Environmental Laws; (iv) neither COMPANY knows of any on-site or off-site
location to which either COMPANY has transported or disposed of Hazardous
Wastes and Hazardous
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Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against either COMPANY, PC or the NEWCOS for any clean-up cost, remedial work,
damage to natural resources or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) neither COMPANY has any contingent
liability in connection with any release of any Hazardous Waste or Hazardous
Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANIES have delivered to PC an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" (or similarly named line item)on the balance sheet of the
COMPANIES as of the Balance Sheet Date, (y) all other personal property owned
by the COMPANIES with a value individually in excess of $10,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
leases and agreements in respect of personal property, including, in the case
of each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases, (2) a listing of the capital costs of all such assets which are subject
to capital leases and (3) an indication as to which assets are currently owned,
or, to the COMPANIES' knowledge, were formerly owned, by the STOCKHOLDER or
affiliates of the COMPANIES or the STOCKHOLDER. Except as set forth on
Schedule 5.14, (i) all personal property with a value individually in excess of
$10,000 used by either COMPANY in its business is either owned by such COMPANY
or leased by such COMPANY pursuant to a lease included on Schedule 5.14, (ii)
all of the personal property listed on Schedule 5.14 is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the COMPANY party thereto, and to
such COMPANY's knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
The COMPANIES have delivered to PC an accurate list (which is set forth on
Schedule 5.15) of (i) all significant
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customers, or persons or entities that are sources of a significant number of
customers (e.g., certain physician practices, HMO's, etc.), it being understood
and agreed that a "significant customer," for purposes of this Section 5.15,
means a customer (or persons or entity) representing 5% or more of either
COMPANY's annual revenues as of the end of its last fiscal year. Except to the
extent set forth on Schedule 5.15, none of either COMPANY's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of such
COMPANY, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by such COMPANY.
The COMPANIES have listed on Schedule 5.15 all material
contracts, commitments and similar agreements to which either COMPANY is a
party or by which it or any of its properties are bound (including, but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances, loan
agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements), other than
agreements listed on Schedule 5.10, 5.14, 5.16, 5.18 or 5.19,(a) in existence
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and in each case has delivered true, complete and correct copies of such
agreements to PC. Each COMPANY has complied in all material respects with all
commitments and obligations pertaining to it, is not in default under any
contracts or agreements listed on Schedule 5.15, and no notice of default under
any such contract or agreement has been received. The COMPANIES have also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or
the acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $50,000 by either COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the COMPANIES (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if
any, used by either COMPANY in the conduct of its business. The COMPANIES have
good and insurable title to the real property owned by the COMPANIES,
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including that reflected on Schedule 5.14, subject to no mortgage, pledge,
lien, conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default by
either COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County
Clerks in which the properties, assets and leasehold estates are
located which do not materially adversely affect the current use of
the property.
Schedule 5.16 contains true, complete and correct copies of all title reports
and title insurance policies received or owned by either COMPANY with respect
to real property owned by such COMPANY.
Schedule 5.16 also contains an accurate list of, and true, complete
and correct copies of, all leases and agreements in respect of real property
leased by either COMPANY, which leases and agreements are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or, to the COMPANIES' knowledge, were formerly owned, by the STOCKHOLDER
or affiliates of the COMPANIES or the STOCKHOLDER. Except as set forth on
Schedule 5.16, all of such leases included on Schedule 5.16 are in full force
and effect and constitute valid and binding agreements of the COMPANY party
thereto, and to such COMPANY's knowledge, of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 INSURANCE. The COMPANIES have delivered to PC, as set forth
on and attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet
Date of all insurance policies currently carried by the COMPANIES, (ii) an
accurate list of all insurance loss runs or workers' compensation claims
received for the past
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three (3) policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all
of the insurance that the COMPANIES are required to carry pursuant to all of
their contracts and other agreements and pursuant to all applicable laws. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. No insurance
carried by either COMPANY has ever been canceled by the insurer and neither
COMPANY has ever been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The COMPANIES have delivered to PC an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of each
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
COMPANIES have provided to PC true, complete and correct copies of any
employment agreements for persons listed on Schedule 5.18. Since the Balance
Sheet Date, there have been no increases in the compensation payable or any
special bonuses to any officer, director, key employee or other employee,
except ordinary salary increases implemented on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) neither COMPANY is
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) no employees
of either COMPANY are represented by any labor union or covered by any
collective bargaining agreement, (iii) no campaign to establish such
representation is in progress and (iv) there is no pending or, to the
COMPANIES' knowledge, threatened labor dispute involving either COMPANY and any
group of its employees nor has either COMPANY experienced any labor
interruptions over the past three years. Each COMPANY believes its
relationships with its employees to be good.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 are complete
and accurate copies, as of the Balance Sheet Date, of all employee benefit
plans, all employee welfare benefit plans,
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all employee pension benefit plans, all multi-employer plans and all
multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
either COMPANY, or any benefit plans or arrangements, formal or informal, that
are not subject to ERISA, including, without limitation, employment agreements
and any other agreements containing "golden parachute" provisions and deferred
compensation agreements, or to which either COMPANY currently contributes, or
has an obligation to contribute in the future (including, without limitation,
benefit plans or arrangements that are not subject to ERISA, such as employment
agreements and any other agreements containing "golden parachute" provisions
and deferred compensation agreements), together with copies of any trusts
related thereto and a classification of employees covered thereby
(collectively, the "Plans").
5.20 COMPLIANCE WITH ERISA. Except for the Plans, neither COMPANY
maintains or sponsors, and neither COMPANY is a contributing employer to, a
pension, profit-sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plan, employee welfare benefit plan, or any
other compensation or benefit arrangement, formal or informal, with their
respective employees, whether or not subject to ERISA. Except as set forth on
Schedule 5.20, (i) all Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable laws, and have been administered, operated and managed in all
material respects in accordance with the governing documents; (ii) all Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of
the Code are so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of the current plan determination
letters, or, in the case of master or prototype plans, opinion letters, most
recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.20; (iii) to the extent that any Qualified Plans
have not been amended to comply with applicable law, the remedial amendment
period permitting retroactive amendment of such Qualified Plans has not expired
and
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will not expire within 120 days after the Funding and Consummation Date; (iv)
all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
Reports, audits or tax returns) have been timely filed or distributed, or
failure to timely file or deliver will not result in a Material Adverse Effect
to either COMPANY; (v) none of the STOCKHOLDER, any Plan, or either COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA that could result in a material tax or penalty
to either COMPANY; (vi) no Plan has incurred an accumulated funding deficiency,
as defined in Section 412(a) of the Code and Section 302(1) of ERISA; (vii) no
circumstances exist pursuant to which either COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation (the "PBGC") under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty that could result in any material
liability to either COMPANY with respect to any plan now or hereafter
maintained or contributed to by either COMPANY or any member of a "controlled
group" (as defined in Section 4001(a)(14) of ERISA) that includes either
COMPANY; (viii) neither COMPANY nor any member of a "controlled group" (as
defined above) that includes either COMPANY currently has (or at the Funding
and Consummation Date will have) any obligation whatsoever to contribute to any
"single employer pension plan" (as defined in ERISA Section 4001(a)(15)) or any
"multi-employer pension plan" (as defined in ERISA Section 4001(a)(3)), nor has
any withdrawal liability whatsoever (whether or not yet assessed) arising under
or capable of assertion under Title IV of ERISA (including, but not limited to,
Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan;
(ix) there have been no terminations or partial terminations of, or
discontinuance of contributions to, any Qualified Plan without notice to and
approval by the Internal Revenue Service; (x) no Plan that is subject to the
provisions of Title IV of ERISA has been terminated within the three year
period immediately preceding the date of this Agreement; (xi) there have been
no "reportable events" (as that phrase is defined in Section 4043 of ERISA)
with respect to any Plan which were not properly reported within the three year
period immediately preceding the date of this Agreement; (xii) with respect to
Plans which qualify as
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"group health plans" under Section 4980B of the Internal Revenue Code and
Section 607(1) of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA"), the COMPANIES and the STOCKHOLDER have
complied (and on the Funding and Consummation Date will have complied) in all
material respects with all reporting, disclosure, notice, election and other
benefit continuation requirements imposed thereunder as and when applicable to
such plans, and neither COMPANY has incurred (and will not incur) any material
direct or indirect liability and is not (and will not be) subject to any
material loss, assessment, excise tax penalty, loss of Federal income tax
deduction or other sanction, arising on account of or in respect of any direct
or indirect failure by either COMPANY or the STOCKHOLDER, at any time prior to
the Funding and Consummation Date, to comply with any such Federal or state
benefit continuation requirement, which is capable of being assessed or
asserted before or after the Funding and Consummation Date directly or
indirectly against either COMPANY or the STOCKHOLDER with respect to such group
health plans; and (xiii) other than claims in the ordinary course of business
there is no pending litigation, arbitration, or disputed claim, settlement or
adjudication proceeding, and to the best of the COMPANIES' and the
STOCKHOLDER'S knowledge, there is no threatened litigation, arbitration or
disputed claim, settlement or adjudication proceeding or any governmental or
other proceeding or investigation with respect to any Plan, or with respect to
any fiduciary, administrator or sponsor thereof (in their capacities as such),
or any party in interest thereof.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21, neither COMPANY is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANIES or the
STOCKHOLDER, threatened against or affecting either COMPANY, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it which would have a Material Adverse Effect, and no notice
of any such claim, action, suit or proceeding, whether pending or
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threatened, has been received. Each of the COMPANIES has conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing, which
violation would be reasonably likely to have a Material Adverse Effect on
either COMPANY.
5.22 TAXES. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect
to the COMPANIES and any affiliated, combined, consolidated, unitary
or similar group of which the COMPANY is or was a member (a "Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all
other information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the COMPANIES, any subsidiary and
any member of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANIES and the STOCKHOLDER,
the provisions for Taxes due by the COMPANIES and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the COMPANIES'
Financial Statements are sufficient for all unpaid Taxes, being
current taxes not yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made
by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or
other third party.
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(v) No Acquired Party expects any Taxing Authority to assess
any additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any
Acquired Party which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or
after January 1, 1990, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to PC complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party
since January 1, 1990.
(vi) No Acquired Party has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(ix) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within
the meaning of Section 168 of the Code. No Acquired Party is a party
to any "safe harbor lease" that is subject to the provisions of
Section 168(f)(8) of the Internal Revenue Code as in effect prior to
the Tax Reform Act of 1986, or to any "long-term contract" within the
meaning of Section 460 of the Code.
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(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(xi) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Funding and Consummation Date.
(xiii) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No Acquired Party has any liability for Taxes of any
person other than such Acquired Party (i) under Section 1.1502-6 of
the Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
(xvi) With respect to SPDI only, there currently are no
limitations on the utilization of the net operating losses, built-in
losses, capital losses, Tax credits or other similar items of any
Acquired Party (collectively, the "Tax Losses") under (i) Section 382
of the Code, (ii) Section 383 of the Code, (iii) Section 384 of the
Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and Section
1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section
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1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax Reform Act of 1986.
(xvii) With respect to SPDI only, at ______________, the
Acquired Parties had aggregate Tax Losses for federal income Tax
purposes as described on Schedule 5.22(xvii) attached hereto.
(xviii) Neither COMPANY is an investment company as defined in
Section 351(e)(1) of the Code.
(xix) The fair market value of the assets of each COMPANY
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(xx) Neither COMPANY is under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
(xxi) With respect to SPI only, the COMPANY made a valid
election to be an S Corporation, as defined in Section 1361 of the
Code, for Federal, state and local tax purposes for its taxable year,
beginning on January __, 19__, and has been taxed as an S Corporation
for Federal, state and local tax purposes for such taxable year and
all subsequent years.
For purposes of this Section 5.22, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax
with any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with
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any interest, penalties, additions to tax or additional amounts with respect
thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having jurisdiction with
respect to any Tax.
5.23 NO VIOLATIONS. Neither COMPANY is in violation of any
Charter Document. Neither COMPANY nor, to the knowledge of the COMPANIES and
the STOCKHOLDER, any other party thereto, is in default under any lease,
instrument, agreement, license or permit set forth on Schedule 5.12, 5.14,
5.15, 5.16, 5.18 or 5.19 or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents"); and, except as
set forth on Schedule 5.23, (a) the rights and benefits of the COMPANIES under
the Material Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
by the COMPANIES and the STOCKHOLDER of their obligations hereunder and the
consummation by the COMPANIES and the STOCKHOLDER of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents. Except as set forth on Schedule 5.23, none
of the Material Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
expressly prohibits or materially restricts either COMPANY from freely
providing services to any other customer or potential customer of the
COMPANIES, PC, the NEWCOS or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.15,
neither COMPANY is a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25, there has not been:
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(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
either COMPANY;
(ii) any damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or
business of either COMPANY;
(iii) any change in the authorized capital of either COMPANY
or its outstanding securities or any change in its ownership interests
or any grant or issuance of any options, warrants, calls, conversion
rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock
of either COMPANY;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangements payable or to become payable by either
COMPANY to any of its officers, directors, employees, consultants,
agents or the STOCKHOLDER, except for ordinary and customary bonuses
and salary increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business of either COMPANY;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of either COMPANY to
any person, including, without limitation, the STOCKHOLDER and his
affiliates;
(viii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to either COMPANY,
including, without limitation, any material indebtedness or obligation
of the STOCKHOLDER or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in
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any of the material assets, property or rights of either COMPANY or
requiring consent of any party to the transfer and assignment of any
such material assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of either COMPANY's business;
(xi) any waiver of any material rights or claims of either
COMPANY, provided that, the COMPANIES may negotiate and adjust bills
in the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included on Schedule 5.11 unless
specifically listed thereon;
(xii) any breach, or any amendment other than an amendment in
the ordinary course of business, or termination of any material
contract, agreement, license or permit to which either COMPANY is a
party;
(xiii) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date;
(xiv) any other distribution of property or assets by either
COMPANY outside the ordinary course of business;
(xv) any other transaction by either COMPANY outside the
ordinary course of its business; or
(xvi) any other activity prohibited by Section 7.3 that is
not specifically included in this Section 5.25.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANIES have
delivered to PC an accurate schedule (which is set forth on Schedule 5.26) as
of the date of this Agreement of:
(i) the name of each financial institution in which either
COMPANY has accounts or safe deposit boxes;
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(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from either COMPANY
and a description of the terms of such power of attorney.
5.27 RELATIONS WITH GOVERNMENTS. Neither COMPANY has made, offered
or agreed to offer anything of value to any governmental official, political
party or candidate for government office nor has it otherwise taken any action
which would cause the COMPANY to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any law of similar effect.
5.28 DISCLOSURE. (a) This Agreement, the schedules hereto, and the
certificates and other documents furnished by each COMPANY to PC pursuant
hereto and for inclusion in the Registration Statement(which, for purposes of
this Agreement, shall include the completed Directors and Officers
Questionnaires and Registration Statement Questionnaires), taken as a whole, do
not, and as to any representation or warranty made to the knowledge of the
COMPANIES or the STOCKHOLDER, such representation and warranty, to the
COMPANIES' knowledge, does not, as of their respective dates contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein and therein not misleading.
(b) The COMPANIES and the STOCKHOLDER acknowledge and
agree (i) that there exists no firm commitment, binding agreement, or promise
or other assurance of any kind, whether express or implied, oral or written,
that a Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; and (ii) that neither PC or any of its officers, directors,
agents or representatives shall have any liability to either COMPANY, the
STOCKHOLDER or any other person affiliated or associated with the COMPANIES for
any failure of
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the Registration Statement to become effective, the IPO to occur at a
particular price or within a particular range of prices or to occur at all
provided that PC acts in good faith, and uses its best efforts to cause its
directors and officers to act in good faith to consummate the transactions
contemplated herein.
(B) Representations and Warranties of the STOCKHOLDER.
The STOCKHOLDER represents and warrants that the representations and
warranties set forth below are true as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of the Closing and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.29 and 5.30 shall survive until the tenth anniversary
of the Funding and Consummation Date, which shall be deemed to the Expiration
Date for purposes of Sections 5.29 and 5.30.
5.29 AUTHORITY; OWNERSHIP. The STOCKHOLDER has the full legal
right, power and authority to enter into this Agreement. The STOCKHOLDER owns
beneficially and of record all of the shares of each COMPANY's stock identified
on Annex IV as being owned by the STOCKHOLDER, and, except as set forth on the
Schedule 5.29, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind.
5.30 PREEMPTIVE RIGHTS. As of the date hereof, the STOCKHOLDER
does not have any preemptive or other right to acquire shares of PC Stock
(other than rights of the STOCKHOLDER to acquire PC Stock pursuant to (i) this
Agreement or (ii) any option granted by PC) and, except for the rights set
forth on Schedule 5.4, the STOCKHOLDER does not have, and hereby waives, any
such preemptive or other right to acquire shares of stock in either COMPANY.
5.31 NO INTENTION TO DISPOSE OF PC STOCK. There is no current plan
or intention by the STOCKHOLDER to sell, exchange or otherwise dispose of
shares of PC Stock received in the Merger.
6. REPRESENTATIONS AND WARRANTIES OF PC AND THE NEWCOS
PC and the NEWCOS jointly and severally represent and
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warrant that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of the Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve (12) months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 6.13 hereof shall survive until such
time as the limitations period has run for all tax periods (and any portions
thereof) ended on or prior to the Funding and Consummation Date, which shall be
deemed to be the Expiration Date for Section 6.13 and (ii) solely for purposes
of Section 11.2(iv) hereof, and solely to the extent that in connection with
the IPO PC actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PC and each NEWCO are each corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and are duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as amended to date, of PC and
the NEWCOS (the "PC Charter Documents") are all attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The respective representatives of PC and
the NEWCOS executing this Agreement have the authority to enter into and bind
PC and each NEWCO to the terms of this Agreement and (ii) PC and each NEWCO
have the full corporate right, power and authority to enter into this Agreement
and the Mergers.
6.3 CAPITAL STOCK OF THE PC AND NEWCO. The authorized capital
stock of PC and each NEWCO are as set forth in Sections 1.4(ii) and (iii),
respectively. All of the issued and outstanding shares of the capital stock of
each NEWCO are owned
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by PC and all of the issued and outstanding shares of the capital stock of PC
are owned by the persons set forth on Annex V hereof, in each case, free and
clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of PC and each NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by PC and the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by PC and such NEWCO
in compliance in all material respects with all applicable state and Federal
laws concerning the issuance of securities. None of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PC or
either NEWCO. No preemptive or other right to acquire shares of PC or either
NEWCO has been granted to any person other than the rights granted pursuant to
this Agreement and the transactions contemplated herein, the Other Agreements
and the transactions contemplated therein or as set forth in the Registration
Statement.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements
and as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates PC or either NEWCO to
issue any of its authorized but unissued capital stock or treasury stock; and
(ii) neither PC nor either NEWCO has any obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Schedule 6.4 also includes complete and accurate copies of all stock
option or stock purchase plans of PC and each NEWCO, including a list, accurate
as of the date hereof, of all outstanding options, warrants or other rights to
acquire shares of their respective capital stock.
6.5 SUBSIDIARIES. Neither NEWCO has any subsidiaries. PC has no
subsidiaries except for the NEWCOS and each of the companies identified as
"NEWCO" in each of the Other Agreements. Except as set forth in the preceding
sentence, neither PC nor either NEWCO owns, of record or beneficially, or
controls, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or business entity nor is PC or either
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NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule
6.6, PC and the NEWCOS have no material liabilities, contingent or otherwise,
except as set forth in or contemplated by this Agreement and the Other
Agreements and except for fees and expenses incurred in connection with the
transactions contemplated hereby and thereby.
6.7 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 6.7, neither PC nor either NEWCO is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them, which violation would have a Material
Adverse Effect; and except to the extent set forth in Schedule 6.7, there are
no material claims, actions, suits or proceedings, pending or, to the knowledge
of PC or the NEWCOS, threatened, against or affecting PC or either NEWCO, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them, and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received. PC and
the NEWCOS have conducted and are conducting their respective businesses in
substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing, which violation
might have a Material Adverse Effect.
6.8 NO VIOLATIONS. Neither PC nor either NEWCO is in violation
of any PC Charter Document. None of PC, the NEWCOS or, to the knowledge of PC
and the NEWCOS, any other party thereto is in default under any lease,
instrument, agreement, license or permit to which PC or either NEWCO is a
party, or by which PC or either NEWCO, or any of their respective properties,
are bound (collectively, the "PC Documents"); and (a) the rights and benefits
of PC and the NEWCOS under the PC Documents will not be adversely affected by
the transactions contemplated hereby; and (b) the execution of this Agreement
and the performance of PC's and each NEWCO'S obligations hereunder and the
consummation by
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them of the transactions contemplated hereby will not result in any material
violation or breach of, or constitute a default under, any of the terms or
provisions of the PC Documents or the PC Charter Documents. Except as set
forth on Schedule 6.8, none of the PC Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and the consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit of PC or either NEWCO.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PC and the NEWCOS and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of PC and each NEWCO, and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of PC and each NEWCO.
6.10 PC STOCK. At the time of issuance thereof, the PC Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement will constitute valid
and legally issued shares of PC, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all respects to the PC Stock issued and outstanding as of
the date hereof by reason of the provisions of the Delaware GCL. The shares of
PC Stock to be issued to the STOCKHOLDER pursuant to this Agreement will not be
registered under the 1933 Act, except as provided in Section 17 hereof.
6.11 NO SIDE AGREEMENTS. Neither PC nor either NEWCO has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies or PC other than the Other
Agreements and the agreements contemplated by each of the Other Agreements,
including the employment agreements referred to therein. PC has provided to
the COMPANIES any of such documents which have been requested by either COMPANY
or the STOCKHOLDER.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PC was formed
in July 1996, and has conducted limited operations since that time. Neither PC
nor either NEWCO has conducted any
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business since the date of its inception, except in connection with this
Agreement, the Other Agreements and the IPO. Neither PC nor either NEWCO owns
or has at any time owned any real property or any material personal property or
is a party to any other agreement, except as listed on Schedule 6.12 and except
that PC is a party to the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.13 TAXES. The NEWCOS are newly formed entities which have no
tax or operational history. Except as set forth on Schedule 6.13:
(i) All Returns required to have been filed by or with respect
to PC and any affiliated, combined, consolidated, unitary or similar
group of which PC is or was a member (a "PC Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the PC Relevant Group have been paid.
(ii) The provisions for Taxes due by PC and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the PC Financial
Statements are sufficient for all unpaid Taxes, being current taxes
not yet due and payable, of the PC Relevant Group.
(iii) No corporation in the PC Relevant Group is a party to
any agreement extending the time within which to file any Return. No
claim has ever been made by any Taxing Authority in a jurisdiction in
which a corporation in the PC Relevant Group does not file Returns
that it is or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the PC Relevant Group has withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party.
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(v) No corporation in the PC Relevant Group expects any
Taxing Authority to assess any additional Taxes against or in respect
of it for any past period. There is no dispute or claim concerning
any Tax liability of any corporation in the PC Relevant Group either
(i) claimed or raised by any Taxing Authority or (ii) otherwise known
to any corporation in the PC Relevant Group. No issues have been
raised in any examination by any Taxing Authority with respect to any
corporation in the PC Relevant Group which, by application of similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Schedule 6.13(v)
attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the PC Relevant
Group for all taxable periods, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the PC Relevant Group will make
available to the STOCKHOLDER, at his request, complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, PC.
(vi) No corporation in the PC Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
(vii) No corporation in the PC Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make
any payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the PC Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the PC Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No
corporation in the PC Relevant Group is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code
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as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(x) No corporation in the PC Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of
any corporation in the PC Relevant Group is subject to an election
under Section 341(f) of the Code or comparable provisions of any state
statutes.
(xi) No corporation in the PC Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the PC
Relevant Group that could give rise to an adjustment under Section 481
of the Code for periods after the Funding and Consummation Date.
(xiii) No corporation in the PC Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered
into any written and legally binding agreement with a Taxing Authority
relating to Taxes.
(xiv) Each corporation in the PC Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662(d) of the Code.
(xv) No corporation in the PC Relevant Group has any liability
for Taxes of any person other than such corporation in the PC Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the
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utilization of the net operating losses, built-in losses, capital
losses, Tax credits or other similar items of any corporation in the
PC Relevant Group (collectively, the "Tax Losses") under (i) Section
382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of
the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21
and Section 1.1502-21A of the Treasury regulations or (vii) Sections
1.1502-91 through 1.1502-99 of the Treasury regulations, in each case
as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) Neither PC nor either NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
(xviii) Neither PC nor either NEWCO is under the jurisdiction
of a court in a Title 11 or similar case within the meaning of Section
351(e)(2) of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date
of this Agreement and the Funding and Consummation Date, upon reasonable notice
to the COMPANIES, the COMPANIES will afford to the officers and authorized
representatives of PC and the Other Founding Companies access to all of the
COMPANIES' sites, properties, books and records and will furnish PC with such
additional financial and operating data and other information as to the
business and properties of the COMPANIES as PC or the Other Founding Companies
may from time to time reasonably request. The COMPANIES will cooperate with PC
and the Other Founding Companies, their representatives, auditors and counsel
in the preparation of any documents or other material which may be required in
connection with the transactions contemplated by this Agreement. PC, the
NEWCOS, the STOCKHOLDER and the COMPANIES will treat all information obtained
in connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, PC will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
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and agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and
Consummation Date, upon reasonable notice to PC, PC will afford to the officers
and authorized representatives of the COMPANIES access to all of PC's and each
NEWCO'S sites, properties, books and records and will furnish the COMPANIES
with such additional financial and operating data and other information as to
the business and properties of PC and the NEWCOS as the COMPANIES may from time
to time reasonably request. PC and the NEWCOS will cooperate with the
COMPANIES, their representatives, auditors and counsel in the preparation of
any documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANIES, PC and the NEWCOS
will cause all information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential in accordance with
the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, each COMPANY will, except as
set forth on Schedule 7.2:
(i) carry on its business in the ordinary course as conducted
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its current obligations as required under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
material business
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relations with such COMPANY;
(vi) maintain compliance, in all material respects, with all
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or
amended debt or lease instruments, without the knowledge and consent
of PC (which consent shall not be unreasonably withheld); and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents, except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Funding and Consummation Date, neither COMPANY
will, without the prior written consent of PC:
(i) make any change in its Articles or Certificate of
Incorporation or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its
securities of any kind other than in connection with the exercise of
options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution
in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock, except for distributions by SPI to the STOCKHOLDER of
his Accumulated Adjustment Account;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditure, except if it
is in the ordinary course of business (consistent with past practice)
and involves an
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amount not in excess of $50,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties, whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $50,000 necessary or desirable for the
conduct of the business of such COMPANY, (2) (A) liens for taxes
either not yet due or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and
are being maintained) or (B) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred
to herein as "Statutory Liens"), or (3) liens set forth on Schedule
5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business;
(vii) negotiate for the acquisition of any business or
start-up any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim of such COMPANY,
provided that such COMPANY may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included on Schedule 5.11 unless specifically listed
thereon;
(x) breach or amend, other than an amendment in the ordinary
course of business, or terminate any material contract, agreement,
license, or permit to which such COMPANY is a party; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
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7.4 NO SHOP. None of the STOCKHOLDER, the COMPANIES or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of
this Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussion pertaining to, or
(iii) furnish any information to any person other than PC or
its authorized agents relating to, any acquisition or purchase of all
or a material amount of the assets of, or any equity interest in,
either COMPANY or a merger, consolidation or business combination of
either COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, each
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide PC on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDER and the COMPANIES shall terminate
(i) any stockholder agreements, voting agreements, voting trusts, options,
warrants and employment agreements between either COMPANY and any employee
listed on Schedule 9.12 hereto and (ii) any existing agreement between either
COMPANY and the STOCKHOLDER, at or prior to the Funding and Consummation Date.
Copies of such termination agreements are attached to Schedule 7.6 or will be
furnished to PC at or prior to such date.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDER and the
COMPANIES shall give prompt notice to PC of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of either COMPANY or the
STOCKHOLDER contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of the STOCKHOLDER or
either COMPANY to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by such person
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hereunder. PC and the NEWCOS shall give prompt notice to the COMPANIES of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty of PC or the
NEWCOS contained herein to be untrue or inaccurate in any material respect at
or prior to the Closing and (ii) any material failure of PC or either NEWCO to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder. The delivery of any notice pursuant to this
Section 7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections
8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Funding
and Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth
or described on the Schedules, provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to reflect
an event occurring other than in the ordinary course of business.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by either COMPANY or the STOCKHOLDER that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect may be made unless PC and a majority of the Founding
Companies other than the COMPANIES consent to such amendment or supplement; and
provided further, that no amendment or supplement to a Schedule prepared by PC
or either NEWCO that constitutes or reflects an event or occurrence would be
reasonably likely to have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement.
For all purposes of this Agreement, including without limitation for purposes
of determining whether the conditions set forth in Sections 8.1 and 9.1 have
been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this
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Section 7.8. In the event that one of the Other Founding Companies or its
stockholders seek to amend or supplement a Schedule pursuant to Section 7.8 of
one of the Other Agreements, and such amendment or supplement constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect on such Other Founding Company or the sale of its stock
by its stockholders to PC, PC shall give the COMPANIES notice promptly after it
has knowledge thereof. If PC and a majority of the Founding Companies consent
to such amendment or supplement, which consent shall have been deemed given if
no response is received within 48 hours after notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANIES do not, the COMPANIES may terminate this
Agreement pursuant to Section 12.1(iv) hereof. In the event that the COMPANIES
seek to amend or supplement a Schedule pursuant to this Section 7.8 and PC and
a majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that PC or either NEWCO seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party
if this Agreement shall be terminated pursuant to the provisions of this
Section 7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if either COMPANY or the STOCKHOLDER on the one hand, or PC or
either NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises out
of or reflects facts or circumstances which such party knew about at the time
of execution of this Agreement and knew would result in a termination of this
Agreement or if such amendment or supplement otherwise is proposed in bad
faith, such party shall pay or reimburse PC or the COMPANIES and the
STOCKHOLDER, as the case may be, for all of the legal, accounting and other out
of pocket costs reasonably incurred in connection with this Agreement and the
IPO as it relates to the COMPANIES and the STOCKHOLDER. For purposes of any
vote that occurs pursuant to this Section 7.8, it is expressly acknowledged and
agreed that the COMPANIES together shall have one collective vote and shall be
considered as one Founding Company.
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7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
COMPANIES and the STOCKHOLDER shall furnish or cause to be furnished to PC and
the Underwriters all of the information concerning the COMPANIES and the
STOCKHOLDER reasonably requested by PC or the Underwriters for inclusion in,
and will cooperate with PC and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, and in form otherwise reasonably requested by
PC or the Underwriters as suitable for inclusion in the Registration
Statement). PC and the NEWCOS agree to use their best efforts to provide to
the STOCKHOLDER and the COMPANIES copies of all drafts of the Registration
Statement circulated to the working group as a whole, including the prospectus
included therein and all amendments and exhibits thereto and any other
documents and correspondence received by or filed with the SEC, and, to the
extent practicable in light of the timetable for the IPO and the potential need
to respond promptly to SEC, NASD or NASDAQ comments, to give the STOCKHOLDER
and the COMPANIES sufficient time to review and comment upon such documents
prior to filing with the SEC. The COMPANIES and the STOCKHOLDER agree promptly
to advise PC if at any time during the 25 day period following the date of the
final prospectus with respect to the IPO (the "Final Prospectus") in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning either COMPANY or
the STOCKHOLDER and which was provided by or on behalf of the STOCKHOLDER or
either COMPANY or their respective agents or representatives for inclusion in
the Registration Statement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and to provide the information
needed to correct such misstatement or omission. Insofar as the information
requested relates solely to either COMPANY or the STOCKHOLDER and was provided
by either COMPANY or the STOCKHOLDER or their respective agents or
representatives for inclusion in the Registration Statement, each COMPANY and
the STOCKHOLDER represents and warrants that the Registration Statement at its
effective date, at the date of each of the Final Prospectus and each amendment
to the Registration Statement or supplement to the Final Prospectus, and at
each closing date with
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respect to the IPO under the Underwriting Agreement (including with respect to
any over-allotment option) will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANIES shall provide prior
to the Funding and Consummation Date, and PC shall have had sufficient time to
review, the unaudited combined balance sheets of the COMPANIES as of the end of
all fiscal quarters following the Balance Sheet Date, and the unaudited
combined statements of income, cash flows and retained earnings of the
COMPANIES for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of either
COMPANY or the results of its operations from the financial statements as of
the Balance Sheet Date. Such financial statements shall have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will present fairly the results of operations of the COMPANIES for the periods
indicated thereon.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE
COMPANIES
The obligations of the STOCKHOLDER and the COMPANIES with respect to
actions to be taken on each of the Closing Date and the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Closing Date and the Funding and Consummation Date of all of the following
conditions. As of the Closing Date or the Funding and Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANIES and the STOCKHOLDER unless such parties have notified
PC in writing to the contrary, except that no such waiver shall be deemed to
affect the survival of the representations and warranties of PC and the NEWCOS
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of PC and each NEWCO contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by PC and either
NEWCO on or before the Closing Date and the Funding and Consummation Date shall
have been duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and the Funding and
Consummation Date and signed by the President or any Vice President of PC shall
have been delivered to the STOCKHOLDER.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be satisfactory to the COMPANIES and their
counsel. The STOCKHOLDER and the COMPANIES shall be satisfied that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplement thereto, shall not contain any untrue
statement of a material fact, or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that the condition contained in this sentence shall be
deemed satisfied if either COMPANY or the STOCKHOLDER shall have failed to
inform PC in writing prior to the Funding and Consummation Date of the
existence of an untrue statement of a material fact or the
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omission of such a statement of a material fact that cannot be corrected in the
final prospectus relating thereto.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of either NEWCO with and into the respective COMPANY in
which it is to be so merged or the Mergers contemplated by the other Agreements
or the offering and sale by PC of PC Stock pursuant to the Registration
Statement.
8.4 OPINION OF COUNSEL. The COMPANIES shall have received an
opinion from counsel for PC, dated the Closing Date, in the form annexed hereto
as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, shares of PC Stock at a price to the
public of not less than $10.00 per share.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the Merger or the Mergers contemplated by the other Agreements.
8.7 GOOD STANDING CERTIFICATES. PC and the NEWCOS each shall have
delivered to the COMPANIES a certificate, dated as of a date no earlier than
five days prior to the Closing Date, duly issued by the Delaware Secretary of
State and in each state in which PC or NEWCO is authorized to do business,
showing that each of PC and each NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
PC and each NEWCO, respectively, for all periods prior to the Closing have been
filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to PC or either NEWCO which would constitute a
Material Adverse Effect.
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8.9 CLOSING OF IPO. The closing of the sale of the PC Stock to
the Underwriters in the IPO shall have occurred simultaneously with the Funding
and Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANIES shall have received a
certificate or certificates, dated the Closing Date and the Funding and
Consummation Date and signed by the Secretary of PC and of the NEWCOS,
certifying the truth and correctness of attached copies of PC's and each
NEWCO'S respective Certificates of Incorporation (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of PC and each NEWCO approving
PC's and such NEWCO'S entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto.
8.12 TAX TREATMENT. The COMPANIES and the STOCKHOLDER shall be
reasonably satisfied that (i) none of PC, the NEWCOS or any Other Founding
Company (or its stockholders) has breached any representation or warranty set
forth in this Agreement or in the Other Agreements, and (ii) no event outside
the control of the COMPANIES and the STOCKHOLDER has occurred between the date
of this Agreement and the Funding and Consummation Date, in each case so as to
jeopardize the treatment of the transactions contemplated by the PC Plan of
Organization as a transfer of property described in Section 351 of the Code.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND THE NEWCOS
The obligations of PC and each NEWCO with respect to actions to be
taken on each of the Closing Date and the Funding and Consummation Date are
subject to the satisfaction or waiver on or prior to the Closing Date and the
Funding and Consummation Date of all of the following conditions. As of the
Closing Date or the Funding and Consummation Date, as the case may be, all
conditions not satisfied shall be deemed to have been waived by PC and the
NEWCOS unless such parties have notified the COMPANIES and the STOCKHOLDER in
writing to the contrary, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of either COMPANY and the
STOCKHOLDER contained in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All the representations and warranties of the STOCKHOLDER and each COMPANY
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Funding and Consummation Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDER and each COMPANY on or before the
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDER shall have delivered to PC a certificate dated the Closing Date and
the Funding and Consummation Date and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of either NEWCO with and into the respective COMPANY into
which it is to be so merged or the offering and sale by PC of PC Stock pursuant
to the Registration Statement.
9.3 SECRETARY'S CERTIFICATE. PC shall have received a
certificate, dated the Closing Date and the Funding and Consummation Date and
signed by the Secretary of each COMPANY, certifying the truth and correctness
of attached copies of such COMPANY'S Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDER approving such
COMPANY'S entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to either COMPANY which would constitute a Material
Adverse Effect.
9.5 STOCKHOLDER'S RELEASE. The STOCKHOLDER shall have delivered
to PC an instrument dated the Closing Date releasing each COMPANY from (i) any
and all claims of the STOCKHOLDER against either COMPANY and (ii) any and all
obligations of either COMPANY to the STOCKHOLDER, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDER, (y) continuing obligations to the STOCKHOLDER
relating to his employment by either COMPANY and (z) obligations arising under
this Agreement or the transactions
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contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental hereto and all other related legal matters shall be satisfactory
to PC and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7 and consented to by PC, all existing agreements between either
COMPANY and the STOCKHOLDER shall have been canceled effective prior to or as
of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PC shall have received an opinion from
counsel to the COMPANIES and the STOCKHOLDER, dated the Closing Date, in the
form annexed hereto as Annex VII, which form shall be deemed to include any
additional opinions covering matters customary under the circumstances and
based upon reasonable requests by the Underwriters, which opinion may be relied
upon by counsel to PC in connection with any opinion requested of it by the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the Mergers.
9.10 GOOD STANDING CERTIFICATES. Each COMPANY shall have delivered
to PC a certificate, dated as of a date no earlier than five days prior to the
Closing Date, duly issued by the appropriate governmental authority in such
COMPANY's state of incorporation and, unless waived by PC, in each state in
which such COMPANY is authorized to do business, showing such COMPANY is in
good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for such COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement
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substantially in the form of Annex VIII hereto. Any employment agreement in
effect as of the date hereof between either COMPANY and any person listed on
Schedule 9.12 shall have been terminated on or prior to the Funding and
Consummation Date.
9.13 CLOSING OF THE IPO. The closing of the sale of PC Stock to
the Underwriters in the IPO shall have occurred simultaneously with the Funding
and Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. The STOCKHOLDER shall have delivered to
PC a certificate to the effect that he or she is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PC AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. PC
shall use its best efforts to have the STOCKHOLDER released from any and all
guarantees on any indebtedness that he personally guaranteed for the benefit of
either COMPANY, with all such guarantees on indebtedness being assumed by PC.
In the event that PC cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, PC shall pay off or otherwise refinance or retire such
indebtedness and, in the event that PC cannot obtain releases on or prior to
the Funding and Consummation Date, PC agrees to indemnify the STOCKHOLDER
against any and all claims made by lenders under such guarantees which arise as
a result of PC's failure to cause such guarantees to be released on or prior to
the Funding and Consummation Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, PC shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the PC Stock issued in connection with
the transactions contemplated hereby;
(b) the entering into of financial arrangements for the
benefit of the STOCKHOLDER; and
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(c) the disposition of any material part of the assets of
either COMPANY within the two years following the Funding and
Consummation Date except in the ordinary course of business or to
eliminate duplicate services or excess capacity.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) Each COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date. The STOCKHOLDER shall pay or cause to
be paid all Tax liabilities shown by such Returns to be due. PC and the NEWCOS
shall not file any amended Tax Returns for any taxable year or portion thereof
of the Surviving Corporation ending on or before the Funding and Consummation
Date without the prior written consent of the STOCKHOLDER, which consent shall
not be unreasonably withheld.
(ii) PC shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each COMPANY, each NEWCO, PC and the STOCKHOLDER shall each
comply with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and
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treat the transaction as a transfer of property under Section 351(a) of the
Code.
10.4 DIRECTORS. The persons named in the Registration Statement
shall be appointed as directors of PC not later than ten (10) days following
the closing of the IPO.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing,
PC shall not terminate any health insurance, life insurance or 401(k) plan in
effect at either COMPANY until such time as PC is able to replace such plan
with a plan that is applicable to the COMPANIES, provided that PC shall have no
obligation to provide replacement plans that have the same terms and provisions
as the existing plans, and provided, further, that any new health insurance
plan shall provide for coverage for preexisting conditions.
11. INDEMNIFICATION
The STOCKHOLDER, PC and each NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. The STOCKHOLDER
covenants and agrees that he will indemnify, defend, protect and hold harmless
PC, the NEWCOS and the Surviving Corporations at all times, from and after the
date of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and reasonable expenses of investigation) incurred by PC,
either NEWCO, either COMPANY or either Surviving Corporation as a result of or
arising from (i) any breach of the representations and warranties of the
STOCKHOLDER or either COMPANY set forth herein or on the Schedules or
certificates delivered in connection herewith, (ii) any nonfulfillment of any
agreement on the part of the STOCKHOLDER or either COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to either COMPANY or the STOCKHOLDER, and provided to PC or its
counsel by either COMPANY or the STOCKHOLDER for inclusion in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission
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or alleged omission to state therein a material fact relating to either COMPANY
or the STOCKHOLDER required to be stated therein or necessary to make the
statements therein not misleading, (iv) any Tax imposed upon or relating to any
third party for a pre-Funding and Consummation Date period, including, in each
case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury regulations (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise, or (v)
the matters described on Schedule 11.1(v), provided that any proposed amendment
to Schedule 11.1(v) made after the signing of this Agreement may only be made
with consent of the COMPANIES and the STOCKHOLDER, and provided, further, that
such indemnity shall not inure to the benefit of PC, the NEWCOS or the
Surviving Corporations to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDER provided, in writing, corrected
information to PC's counsel and to PC for inclusion in the final prospectus,
and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PC. PC covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the STOCKHOLDER as a result of or arising from (i) any breach by PC or
either NEWCO of its representations and warranties set forth herein or on the
Schedules or certificates delivered in connection herewith, (ii) any
nonfulfillment of any agreement on the part of PC or either NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDER may incur due to PC's or
either NEWCO's failure to be responsible for the liabilities and obligations of
the COMPANIES as provided in Section 1 hereof (except to the extent that PC or
the NEWCOS have claims against the STOCKHOLDER by reason of such liabilities);
(iv) any liability under the 1933 Act, the 1934 Act or other Federal or state
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to PC,
either NEWCO or any of the Other Founding Companies contained in
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any preliminary prospectus, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to PC or either NEWCO or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, or (v) the matters described on Schedule 11.2(v)
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof, to the extent known.
The Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long as the Indemnifying
Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the written
consent of the Indemnified Party, such consent not to be unreasonably withheld
or delayed. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party
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for the expenses of its counsel. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense which it subsequently incurs with respect to such
claim and all additional costs of settlement or judgment. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party
is entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of
its choice, at the cost and expense of the Indemnifying Party, and the
Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing,
which agreement shall not be unreasonably withheld or delayed. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form
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of monetary relief brought by any party to this Agreement against another
party, provided that nothing herein shall be construed to limit the right of a
party, in a proper case, to seek injunctive relief for a breach of this
Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. PC, the NEWCOS, the Surviving
Corporations and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim other than a Third Person claim for
indemnification hereunder against the STOCKHOLDER until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDER shall exceed 1.0% of the sum of the cash paid to
STOCKHOLDER plus the value of the PC Stock delivered to STOCKHOLDER (for
purposes of calculating the value of the PC Stock, such PC Stock is to be
valued at its initial public offering price as set forth in the Registration
Statement) (the "Indemnification Threshold"), provided, however, that PC, the
NEWCOS, the Surviving Corporations and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 may assert and shall be
indemnified for any claim under Sections 11.1(iv) and (v) at any time,
regardless of whether the aggregate of all claims which such persons may have
against the STOCKHOLDER exceeds the Indemnification Threshold, it being
understood that the amount of any such claim under Sections 11.1(iv) and (v)
shall not be counted towards the Indemnification Threshold. The STOCKHOLDER
shall not assert any claim (other than a Third Person claim) for
indemnification hereunder against PC or either NEWCO until such time as, and
solely to the extent that, the aggregate of all claims which the STOCKHOLDER
may have against PC or the NEWCOS shall exceed $100,000, provided, however,
that the STOCKHOLDER and the other persons or entities indemnified pursuant to
Section 11.1 or 11.2 may assert and shall be indemnified for any claim under
Section 11.2(v) at any time, regardless of whether the aggregate of all claims
which such persons may have against PC or the NEWCOS exceeds $100,000, it being
understood that the amount of any such claim under Section 11.2(v) shall not be
counted towards such $100,000 amount.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a material breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
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Notwithstanding any other term of this Agreement (except the proviso
to this sentence), the STOCKHOLDER shall not be liable under this Section 11
for an amount which exceeds $20,000,000, provided that the STOCKHOLDER's
indemnification obligations pursuant to Sections 11.1(iv) and (v) shall not be
limited.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PC and
the COMPANIES;
(ii) by the STOCKHOLDER or either COMPANY (acting through its
board of directors), on the one hand, or by PC (acting through its
board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by December 31, 1996, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDER or either COMPANY, on the one hand,
or by PC, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
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13.1 PROHIBITED ACTIVITIES. The STOCKHOLDER will not, for a period
of five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with PC or any of the subsidiaries thereof, within
100 miles of where either COMPANY or any of its subsidiaries or any of
the Other Founding Companies conducted business prior to the
effectiveness of the Mergers or proposed to conduct business as of
such time (the "Territory");
(ii) solicit any person who is, at that time, within the
Territory, an employee of PC (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
PC (including the subsidiaries thereof);
(iii) solicit any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and
Consummation Date, a customer of PC (including the subsidiaries
thereof), of either COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with PC within the Territory;
(iv) solicit any prospective acquisition candidate, on the
STOCKHOLDER's own behalf or on behalf of any competitor in the medical
software development or distribution business, which candidate was
either called upon by PC (including the subsidiaries thereof) or for
which PC (or any subsidiary thereof) made an acquisition analysis
which was known (or should have been known) to the STOCKHOLDER, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of either COMPANY to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that such COMPANY
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has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to PC as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to PC for which it
would have no other adequate remedy, the STOCKHOLDER agrees that, in the event
of a breach by the STOCKHOLDER, the foregoing covenant may be enforced by PC by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDER in light of the activities and business of PC (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PC.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the STOCKHOLDER
against PC (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by PC
of such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 13, during which the agreements and
covenants of the STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which the
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STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. Each COMPANY and the STOCKHOLDER hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that
he has had in the past, currently has and in the future may have access to
certain confidential information relating to the COMPANIES, the Other Founding
Companies and/or PC, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANIES, the
Other Founding Companies and/or PC's business. The STOCKHOLDER agrees that he
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the COMPANIES, the NEWCOS, the
Other Founding Companies and PC who need to know such information in connection
with the transactions contemplated hereby, who have been informed of the
confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing,
such information may be disclosed by the STOCKHOLDER as is required in the
course of performing their duties for PC or the Surviving Corporation unless
(i) such information becomes known to the public generally through no breach by
the STOCKHOLDER of this covenant, (ii) disclosure is required by law or the
order of any governmental authority under color of law or is necessary in order
to secure a consent or approval to consummate the transactions contemplated
hereby, provided, that prior to disclosing any information pursuant to this
clause (ii), the STOCKHOLDER shall, if possible, give prior written notice
thereof to PC and provide PC with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party and the same prior disclosure set forth immediately above is given. In
the event of
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a breach or threatened breach by the STOCKHOLDER or PC of the provisions of
this Section, PC shall be entitled to an injunction restraining the STOCKHOLDER
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting PC from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.2 PC AND NEWCO. PC and the NEWCOS recognize and acknowledge
that they had in the past and currently have access to certain confidential
information relating to the COMPANIES, such as operational policies, and
pricing and cost policies, that are valuable, special and unique assets of the
COMPANIES. PC and each NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
use or disclose such confidential information to their own benefit except in
furtherance of the Transactions contemplated by this Agreement or disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the STOCKHOLDER and
to authorized representatives of the COMPANIES who need to know such
information in connection with the transactions contemplated hereby, who have
been informed of the confidential nature of such information and who have
agreed to keep such information confidential as provided hereby, and (b) to the
Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
breach by PC or the NEWCOS of this covenant, (ii) disclosure is required by law
or the order of any governmental authority under color of law or is necessary
in order to secure a consent or approval to consummate the transactions
contemplated hereby, provided, that prior to disclosing any information
pursuant to this clause (ii), PC and the NEWCOS shall, if possible, give prior
written notice thereof to the COMPANIES and the STOCKHOLDER and provide the
COMPANIES and the STOCKHOLDER with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party and the same prior disclosure set forth immediately above is given. In
the event of a breach or threatened breach by PC or either NEWCO of the
provisions of this Section, the COMPANIES and the STOCKHOLDER shall be entitled
to an injunction restraining PC and the NEWCOS
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from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the COMPANIES and the STOCKHOLDER from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, PC and each NEWCO shall return to the
COMPANIES within a reasonable time all documents (in both paper and electronic
form) containing confidential information about the COMPANIES, and shall use
reasonable efforts to compel the Other Founding Companies to do the same. In
such instance, PC will also furnish to the COMPANIES a written statement
certifying that all documents which contained confidential information about
the COMPANIES and which had been in PC's possession had been returned by PC to
the COMPANIES.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 14.1
and 14.2, and because of the immediate and irreparable damage that would be
caused for which they would have no other adequate remedy, the parties hereto
agree that, in the event of a breach by any of them of the foregoing covenants,
the covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive notwithstanding either the termination of this Agreement or
the consummation of the transactions contemplated hereby on the Funding and
Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 15.1 (or trusts for the benefit of the STOCKHOLDER or family members,
the trustees of which so agree), for a period of two years from the Funding and
Consummation Date, except pursuant to Section 17 hereof, the STOCKHOLDER shall
not (i) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint
or otherwise dispose of (a) any shares of PC Stock received by the STOCKHOLDER
in the Mergers, or (b) any interest (including, without limitation, an option
to buy or sell) in any such shares of PC Stock, in whole or in part, and no
such attempted transfer shall be treated as
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effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of PC Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of PC Stock acquired
pursuant to Section 2 hereof (including, by way of example and not limitation,
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, (i) if the "holding period" for restricted
securities set forth in Rule 144(d) under the 1933 Act (or any similar or
successor provision) is reduced below two years, the two-year restrictive period
set forth in this Section 15.1 will be deemed to be correspondingly reduced; and
(ii) the STOCKHOLDER may encumber or pledge any of such shares of PC Stock
provided the pledgee or other beneficiary of such encumbrance or pledge agrees
to be bound by the provisions of this Section as if a STOCKHOLDER and party
hereto. The certificates evidencing the PC Stock delivered to the STOCKHOLDER
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as PC may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO
[SECOND ANNIVERSARY OF THE FUNDING AND CONSUMMATION DATE]
(PROVIDED, HOWEVER, THAT (i) IF THE "HOLDING PERIOD" FOR
RESTRICTED SECURITIES SET FORTH IN RULE 144(d) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (OR ANY SIMILAR OR
SUCCESSOR PROVISION), IS REDUCED BELOW TWO YEARS, THE
RESTRICTIVE PERIOD SET FORTH HEREIN SHALL BE CORRESPONDINGLY
REDUCED, AS
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CALCULATED FROM THE DATE TWO YEARS PRIOR TO THE DATE SET FORTH
HEREIN AND (ii) SUCH SHARES MAY BE ENCUMBERED OR PLEDGED
PROVIDED THE PLEDGEE OR OTHER BENEFICIARY OF SUCH ENCUMBRANCE
OR PLEDGE AGREES TO BE BOUND BY THE PROVISIONS OF THESE
RESTRICTIONS TO THE SAME EXTENT AS THE HOLDER HEREOF). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE (AS IT MAY BE REDUCED AS PROVIDED HEREIN).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDER acknowledges that the shares of PC Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold unless
registered under the 1933 Act or resold pursuant to an exemption from the
registration requirements of the 1933 Act. The PC Stock to be acquired by the
STOCKHOLDER pursuant to this Agreement is being acquired solely for his own
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution; provided, however that this covenant shall not prohibit any
disposition in accordance with the securities laws and this Agreement.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDER covenants, warrants and
represents that none of the shares of PC Stock issued to the STOCKHOLDER will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC and this Agreement.
All the PC Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY PC, AN OPINION OF
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COUNSEL TO PC STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDER represents and
warrants that he is able to bear the economic risk of an investment in the PC
Stock acquired pursuant to this Agreement, can afford to sustain a total loss
of such investment and has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
proposed investment in the PC Stock. The STOCKHOLDER represents and warrants
that he has had an adequate opportunity to ask questions and receive answers
from the officers of PC concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PC, the plans
for the operations of the business of PC, the business, operations and
financial condition of the Other Founding Companies, and any plans for
additional acquisitions and the like. The STOCKHOLDER has asked any and all
questions of the nature described in the preceding sentence, and all questions
have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Funding and Consummation Date, whenever PC proposes to register any PC Stock
for its own or others' account under the 1933 Act for a public offering, other
than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by PC, (ii) registrations relating to
employee benefit plans and (iii) registrations relating to rights offerings
made to the stockholders of PC, PC shall give the STOCKHOLDER prompt written
notice of its intent to do so. Upon the written request of the STOCKHOLDER
given within 30 days after receipt of such notice, PC shall cause to be
included in such registration all of the PC Stock which the STOCKHOLDER
requests, provided that PC shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares
would, in the opinion of tax counsel to PC or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free reorganization. In addition, if PC is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant
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to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than PC is greater than the number of such shares
which can be offered without adversely affecting the offering, PC may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares proposed to be sold by each such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by PC after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than PC, the
STOCKHOLDER and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDER and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a
further reduction is required, by reducing the number of shares to be sold by
the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two
years after the Funding and Consummation Date, the holders of a majority of the
shares of PC Stock issued to the stockholders of the Founding Companies
pursuant to this Agreement and the Other Agreements that have not been
previously registered or sold and that are not entitled to be sold under Rule
144(k) (or any successor provision) promulgated under the 1933 Act may request
in writing that PC file a registration statement under the 1933 Act covering
the registration of shares of PC Stock issued to such stockholders (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security that is issued by PC as)
a dividend or other distribution with respect to, or in exchange for, or in
replacement of such PC Stock) then held by such stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, PC shall
give written notice of such request to all other of such stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from any such stockholder, file and thereafter use its best efforts to cause to
become effective a registration statement covering all such shares. PC shall
be obligated to effect only one Demand Registration for all stockholders of the
Founding Companies and will keep such Demand Registration current and effective
for not less than 120 days (or such shorter period as is required to sell all
of the shares registered thereon).
Notwithstanding the foregoing paragraph, following such a
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demand a majority of PC's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If at the time of any request by the stockholders of the Founding
Companies for a Demand Registration PC has plans to file within 60 days after
such request a registration statement covering the sale of any of its
securities in a public offering under the 1933 Act, no registration of the PC
Stock held by the stockholders of the Founding Companies shall be initiated
under this Section 17.2 until 90 days after the effective date of such
registration unless PC is no longer proceeding diligently to effect such
registration; provided that PC shall provide the stockholders of the Founding
Companies the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In addition, if the stockholders offering shares are advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.2 that the number of shares to be sold by such stockholders is
greater than the number of such shares which can be offered without adversely
affecting the offering, the stockholders offering shares may reduce pro rata
the number of shares offered for the account of each stockholder (based upon
the number of shares proposed to be sold by each such stockholder) to a number
deemed satisfactory by such managing underwriter.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by PC. In connection
with registrations under Sections 17.1 and 17.2, PC shall (i) use its best
efforts to prepare and file with the SEC, as soon as reasonably practicable, a
registration statement with respect to the PC Stock and use its best efforts to
cause such registration to promptly become and remain effective for a period of
at least 120 days (or such shorter period during which holders shall have sold
all PC Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the PC Stock covered by such registration statement
under applicable state securities
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laws as the holders shall reasonably request for the distribution of the PC
Stock; and (iii) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations thereunder.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, PC and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of PC's size and investment
stature, including indemnification.
17.5 AVAILABILITY OF RULE 144. PC shall not be obligated to
register shares of PC Stock held by the STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to the STOCKHOLDER for such shares.
18. GENERAL
18.1 COOPERATION. The COMPANIES, the STOCKHOLDER, PC and the
NEWCOS shall each deliver or cause to be delivered to the other on the Funding
and Consummation Date, and at such other times and places as shall be
reasonably agreed to, such additional instruments as the other may reasonably
request for the purpose of carrying out this Agreement. The COMPANIES will
cooperate and use their reasonable efforts to have the present officers,
directors and employees of each COMPANY cooperate with PC on and after the
Funding and Consummation Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PC, and the heirs and legal representatives of the STOCKHOLDER.
18.3 ENTIRE AGREEMENT. This Agreement (including the
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Schedules, exhibits and annexes attached hereto) and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
STOCKHOLDER, the COMPANIES, the NEWCOS and PC and supersede any prior agreement
and understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the STOCKHOLDER, the
COMPANIES, the NEWCOS and PC, acting through their respective officers or
trustees, duly authorized by their respective boards of directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Each party represents and warrants that
it employed no broker or agent in connection with this transaction and agrees
to indemnify the other parties hereto against all loss, cost, damages or
expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, PC will pay the fees, expenses and disbursements of PC
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PC under this Agreement, including (subject to
the next sentence) the fees and expenses of Coopers & Lybrand LLP, Morgan,
Lewis & Bockius LLP and the costs of preparing the Registration Statement. The
COMPANIES shall pay and be fully responsible for the fees and expenses of
Coopers & Lybrand LLP in connection with its audit and preparation of the
historical financial statements of the COMPANIES to be included in the
Registration Statement, which fees and expenses shall constitute a vendor debt
of the COMPANIES. The STOCKHOLDER shall pay and be fully responsible for all
professional fees and expenses, including but not limited to legal fees and
expenses, incurred by the COMPANIES and the STOCKHOLDER in connection with the
transactions contemplated herein, whether or not such transactions are actually
consummated. The STOCKHOLDER further
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shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Mergers, other than Transfer Taxes, if any, imposed by the
State of Delaware. The STOCKHOLDER shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, the STOCKHOLDER
acknowledges that he, and not either COMPANY or PC, will pay all Taxes due upon
receipt of the consideration payable pursuant to Section 2 hereof, and will
assume all Tax risks and liabilities of the STOCKHOLDER in connection with the
transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to PC, or either NEWCO, addressed to them at:
Medical Manager Corporation
3001 Rocky Point Drive, Suite 100
Tampa, Florida 33607
Attn: John Kang, Chief Executive Officer
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDER, addressed to him at his
address set forth on Annex IV, with copies to such
counsel as is set forth with respect to the
STOCKHOLDER on such Annex IV;
(c) If to either COMPANY, addressed to it at:
Systems Plus, Inc.
500 Clyde Avenue
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Mountain View, California 94043
Attn: Richard W. Mehrlich
and marked "Personal and Confidential"
with copies to:
Wise & Shepard
3030 Hansen Way Suite 100
Palo Alto, California 94304
Attn: Amy Gilson, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, except that matters herein
within the purview of the matters covered by the General Corporation Law of the
State of Delaware shall be governed by such General Corporation Law, in each
case without reference to conflicts of laws principles.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Closing or in writing delivered
pursuant to the provisions of this Agreement shall survive the consummation of
the transactions contemplated hereby and any examination on behalf of the
parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of PC, the NEWCOS, the COMPANIES and the STOCKHOLDER.
Any amendment or waiver effected in accordance with this Section 18.15 shall be
binding upon each of the parties hereto, any other person receiving PC Stock in
connection with the Mergers and each future holder of such PC Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By /s/ John H. Kang
-------------------------------------
Name: John H. Kang
----------------------------------
Title: President
SPDI ACQUISITION I CORP
By /s/ Wayne Burks
-------------------------------------
Name: Wayne Burks
----------------------------------
Title: President
SPI ACQUISITION I CORP.
By /s/ Wayne Burks
-------------------------------------
Name: Wayne Burks
----------------------------------
Title: President
SYSTEMS PLUS DISTRIBUTION, INC.
By /s/ Richard W. Mehrlich
-------------------------------------
Name: Richard W. Mehrlich
----------------------------------
Title: President
SYSTEMS PLUS, INC.
By /s/ Richard W. Mehrlich
-------------------------------------
Name: Richard W. Mehrlich
----------------------------------
Title: President
STOCKHOLDER:
By /s/ Richard W. Mehrlich
-------------------------------------
Name: Richard W. Mehrlich
----------------------------------
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EXHIBIT 2.3
_________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
MEDICAL MANAGER CORPORATION
NMS ACQUISITION I CORP.(a subsidiary of
MEDICAL MANAGER CORPORATION)
NATIONAL MEDICAL SYSTEMS, INC.
and
the STOCKHOLDERS named herein
_________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
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1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1 Delivery and Filing of Articles of Merger.
1.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Certificate of Incorporation, By-laws and Board of Directors of Surviving Corporation. . . 5
1.4 Certain Information With Respect to the Capital Stock of the COMPANY, PC and NEWCO. . . . 5
1.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. CONVERSION OF STOCK
2.1 Manner of Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. DELIVERY OF MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. CLOSING
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Transactions in Capital Stock, Reorganization Accounting. . . . . . . . . . . . . . . . . 10
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Spin-off by the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Intellectual Property; Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . 13
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Significant Customers; Material Contracts and Commitments. . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
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5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 Compensation; Employment Agreements; Organized Labor Matters. . . . . . . . . . . . . . . 17
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.23 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.27 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.28 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.29 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.30 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.31 No Intention to Dispose of COMPANY Stock. . . . . . . . . . . . . . . . . . . . . . . . . 27
6. REPRESENTATIONS AND WARRANTIES OF PC and NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 PC Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.11 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.12 Business; Real Property;
Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Notice to Bargaining Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.6 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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7.7 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.8 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . 39
7.10 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 No Indebtedness [NMS & SMI Only]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . . . 41
8.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . . 41
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.12 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
9.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . 43
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.5 STOCKHOLDERS' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.13 Closing of the IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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10. COVENANTS OF PC AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . 45
10.2 Preservation of Tax and
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.5 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 46
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.1 General Indemnification by the STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 47
11.2 Indemnification by PC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
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13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.1 STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.2 PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
17.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.5 Availability of Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
18.9 Survival of Representations
and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Annexes
Annex I - Form of Articles of Merger
Annex II - Form of Certificate of Incorporation and By-laws of PC and NEWCO
Annex III - Consideration to be paid to the Stockholders
Annex IV - Stockholders and Stock Ownership of the COMPANY
Annex V - Stockholders and Stock Ownership of PC
Annex VI - Form of Opinion of Morgan, Lewis & Bockius LLP
Annex VII - Form of Opinion of Counsel to the COMPANY and the Stockholders
Annex VIII - Form of Employment Agreement
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made as of the 30th day of September, 1996, by and among MEDICAL MANAGER
CORPORATION, a Delaware corporation ("PC"), NMS ACQUISITION I CORP., a Delaware
corporation ("NEWCO"), National Medical Systems, Inc., a Florida corporation
(the "COMPANY"), JOHN H. KANG, RICARDO A. SALAS, WAYNE BURKS, DOMINIC SPITO,
JEFFREY W. HOGLARD, DILA HOGLARD, RAINTREE HEALTH CARE INVESTMENTS, LP, CHRIS
PEIFER, BRONSON THAYER, SUSANNAH THAYER AND LOUISE FERGUSON (the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
July 18, 1996, solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of PC, a
corporation organized and existing under the laws of the State of
Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States
of Delaware and Florida;
WHEREAS, PC is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan of Reorganization," with each
of RTI Business Systems, Inc., a New York corporation, and Systems
Plus, Inc., a California corporation, and Systems Plus Distribution,
Inc., a California corporation and Personalized Programming, Inc. a
Florida corporation, and Systems Management, Inc., an Indiana
corporation, and their respective stockholders in order to acquire
additional medical software development and distribution companies
(the COMPANY, together with each of the entities with which PC has
entered into the Other
<PAGE> 9
Agreements, are collectively referred to herein as the "Founding
Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of PC
Stock (as each is hereinafter defined) constitute the "PC Plan of
Organization";
WHEREAS, the Boards of Directors of PC and each of the Founding
Companies have approved and adopted the PC Plan of Organization as an
integrated plan to transfer the capital stock of the Founding
Companies to PC and the cash raised in the IPO of PC Stock to PC as a
transfer of property under Section 351 of the Internal Revenue Code of
1986, as amended;
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of the COMPANY has approved this Agreement as part of the PC
Plan of Organization in order to transfer the capital stock of the
COMPANY to PC;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and
not otherwise defined shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" shall mean NEWCO and each of the other
Delaware companies wholly-owned by PC prior to the Funding and Consummation
Date.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger, substantially in the form of Annex I attached
hereto, or with such other changes therein as may be required by applicable
state laws.
"Balance Sheet Date" shall mean June 30, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
2
<PAGE> 10
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Effective Time of the Merger" shall mean the time as of which the
Merger becomes effective, which the parties hereto contemplate to occur on the
Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Funding and Consummation Date" has the meaning set forth in Section
4.
"Intellectual Property" shall mean all trademarks, service marks,
trade dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention, process,
know-how, computer software, technology systems, product design or product
packaging.
"IPO" means the initial public offering of PC Stock pursuant to the
Registration Statement.
"IPO Price" means the price at which the PC Stock is sold to the
public in the IPO.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant
to this Agreement and the applicable provisions of the laws of the State of
Delaware and other applicable state laws.
"NEWCO" has the meaning set forth in the first paragraph of
3
<PAGE> 11
this Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANY.
"PC" has the meaning set forth in the first paragraph of this
Agreement.
"PC Charter Documents" has the meaning set forth in Section 6.1.
"PC Stock" means the common stock, par value $.01 per share, of PC.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by PC and the Underwriters
of the public offering price of the shares of PC Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement of
PC on Form S-1 covering the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective
4
<PAGE> 12
representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party
in the Merger.
"Tax" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger to be signed, verified and delivered
to the Secretary of State of the State of Delaware and, as required, a similar
filing to be made with the relevant authorities in the jurisdiction in which
the COMPANY is organized, on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the
Merger, NEWCO shall be merged with and into the COMPANY in accordance with the
Articles of Merger, the separate existence of NEWCO shall cease, and the
COMPANY shall be the surviving party in the Merger. The COMPANY is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger will be
effected in a single transaction.
5
<PAGE> 13
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY
then in effect shall be the Certificate or Articles of Incorporation
of the Surviving Corporation until changed as provided by law;
(ii) the By-laws of the COMPANY then in effect shall become the
By-laws of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation
initially shall consist of the following persons:
John H. Kang
Wayne Burks
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Florida and of
the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and
effective upon the Effective Time of the Merger, John H. Kang shall be
appointed as a vice president of the Surviving Corporation and Ricardo
A. Salas shall be appointed as an Assistant Secretary of the Surviving
Corporation, each of such officers to serve, subject to the provisions
of the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PC AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
COMPANY, PC and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
6
<PAGE> 14
outstanding capital stock of the COMPANY is as set forth on Schedule 1.4
hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PC will consist of 50,000,000 shares of PC
Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, and 500,000 shares of
preferred stock, $.01 par value, of which no shares will be issued and
outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten
(10) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL") and the
law of the State of Florida. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving
Corporation, shall be fully vested therewith. At the Effective Time of the
Merger, the separate existence of NEWCO shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all Taxes,
including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
COMPANY and NEWCO shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the COMPANY and NEWCO; and the title to any real estate, or
interest therein, whether by deed or otherwise, vested in the COMPANY and NEWCO
under the laws of each state of incorporation, shall not revert or be in any
way impaired by reason of the
7
<PAGE> 15
Merger. Except as otherwise provided herein, the Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations
of the COMPANY and NEWCO and any claim existing, or action or proceeding
pending, by or against the COMPANY or NEWCO may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in its
place. Neither the rights of creditors nor any liens upon the property of the
COMPANY or NEWCO shall be impaired by the Merger, and all debts, liabilities
and duties of the COMPANY and NEWCO shall attach to the Surviving Corporation,
and may be enforced against such Surviving Corporation to the same extent as if
said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) PC Stock and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares
of PC Stock set forth on Annex III hereto and (2) the right to receive
the amount of cash set forth on Annex III hereto. Such amounts of cash
and shares as set forth on Annex III hereto as of the date hereof are
final and shall not change hereafter regardless of the number of
shares sold in the IPO or the offering price of such shares;
(ii) all shares of COMPANY Stock that are held by the
COMPANY as treasury stock shall be canceled and retired and no shares
of PC Stock or other consideration shall be delivered or paid in
exchange therefor; and
(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall,
8
<PAGE> 16
by virtue of the Merger and without any action on the part of PC,
automatically be converted into one fully paid and non-assessable
share of common stock of the Surviving Corporation, which shall
constitute all of the issued and outstanding shares of common stock of
the Surviving Corporation immediately after the Effective Time of the
Merger.
All PC Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding PC
Stock by reason of the provisions of the Certificate of Incorporation of PC or
as otherwise provided by the Delaware GCL. All voting rights of such PC Stock
received by the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and
the STOCKHOLDERS shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Merger, PC shall have no class of capital
stock issued and outstanding other than the PC Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS shall, upon surrender of certificates
representing all outstanding shares of COMPANY Stock, receive (i) the
respective number of shares of PC Stock set forth on Annex III and (ii) the
amount of cash set forth on Annex III hereto, said cash to be payable by wire
transfer.
3.2 The STOCKHOLDERS shall deliver to PC at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by duly executed stock powers, with, if required
by PC, signatures guaranteed by a national or state chartered bank or other
financial institution, and with all necessary Transfer Tax and other revenue
stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to use reasonable best efforts to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such COMPANY Stock or with respect to
the stock powers accompanying any COMPANY Stock.
4. CLOSING
9
<PAGE> 17
At or prior to the Pricing, the parties shall use all reasonable best
efforts to take all actions necessary to prepare to (i) effect the Merger
(including, if permitted by applicable state law, the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective only at the Effective Time of the Merger) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger for
purposes of this Agreement or the conversion and delivery of the shares and
payment therefor referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PC hereby covenants and agrees to do all things required by
Delaware law and all things which counsel for the COMPANY advises PC are
required by applicable laws of the State of Florida in order to rescind any
merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Closing") shall take place on the closing date
(the "Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Funding and Consummation Date (x) the
Articles of Merger shall be or shall have been filed with the appropriate state
authorities so that they shall be or, as of 8:00 a.m. New York City time on the
Funding and Consummation Date, shall become effective and the Merger shall
thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of wire transfers
in amounts equal to the cash portions of the consideration which the
STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." This Agreement shall in any event terminate if the
Funding and Consummation Date has not occurred within 15 business days of the
Closing Date, provided that, PC, Newco, the COMPANY and the STOCKHOLDERS shall
act in good faith to consummate the IPO. Time is of the essence.
10
<PAGE> 18
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of the Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve (12) months (the last
day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
(and any portions thereof) ended on or prior to the Funding and Consummation
Date, which shall be deemed to be the Expiration Date for Section 5.22, and (ii)
solely for purposes of Section 11.1(iii) hereof, and solely to the extent that,
in connection with the IPO, PC actually incurs liability under the 1933 Act, the
1934 Act, or any other Federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
statute of limitations period, which shall be deemed to be the Expiration Date
for such purposes. For purposes of this Section 5, the term the "COMPANY" shall
mean and refer to the COMPANY and each of its subsidiaries, if any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or financial condition (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material
Adverse Effect") on the COMPANY. Schedule 5.1 contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as
11
<PAGE> 19
amended to date, of the COMPANY (the "Charter Documents") are all attached
hereto as Schedule 5.1. The minute books and stock records of the COMPANY, as
heretofore made available to PC, are correct and complete in all material
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten (10) business days prior to the date hereof, affirm and ratify all
prior acts of the COMPANY and of its officers and directors on behalf of the
COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full corporate right,
power and authority to enter into this Agreement and the Merger, subject to any
required approval of the shareholders and the Board of Directors of the COMPANY
described on Schedule 5.2, certified copies of which are attached thereto.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the COMPANY is as set forth in Section 1.4(i). All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of capital stock
of the COMPANY have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the STOCKHOLDERS and
were offered, issued, sold and delivered by the COMPANY in compliance in all
material respects with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation
of the preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock
since January 1, 1994. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which
obligates the COMPANY to issue any of its authorized but unissued capital stock
or its treasury stock; (ii) the COMPANY has no obligation (contingent or
otherwise) to purchase, redeem or otherwise
12
<PAGE> 20
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof; and (iii) neither the
voting stock structure of the COMPANY nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger. Schedule 5.4 also includes complete and accurate
copies of all stock option or stock purchase plans, including a list of all
outstanding options, warrants or other rights to acquire shares of the
COMPANY's stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of
each of the COMPANY's subsidiaries and sets forth the number and class of the
authorized capital stock of each of the COMPANY's subsidiaries and the number
of shares of each of the COMPANY's subsidiaries that are issued and
outstanding, all of which shares (except as set forth on Schedule 5.6) are
owned by the COMPANY, free and clear of all liens, security interests, pledges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
Except as set forth on Schedule 5.6, the COMPANY does not own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise)
or from whom the COMPANY previously acquired material assets. Except as
disclosed on Schedule 5.7, the COMPANY has not been a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the COMPANY or any other person or entity that directly, or indirectly through
one or more
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intermediaries, controls, or is controlled by, or is under common control with,
the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are
copies of the following financial statements (the "COMPANY Financial
Statements") of the COMPANY: the COMPANY's audited Consolidated Balance Sheet
as of June 30, 1996 and December 31, 1995 and 1994 and Consolidated Statements
of Income, Cash Flows and Retained Earnings for the six months ended June 30,
1996 and for each of the years in the three-year period ended December 31, 1995
(June 30, 1996 being hereinafter referred to as the "Balance Sheet Date"). Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 5.9). Except as set forth on
Schedule 5.9, such Consolidated Balance Sheets as of June 30, 1996 and December
31, 1995 and 1994 present fairly in all material respects the financial
position of the COMPANY as of the dates indicated thereon, and such
Consolidated Statements of Income, Cash Flows and Retained Earnings present
fairly in all material respects the results of operations and cash flows for
the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PC an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY which are not reflected on the
balance sheet of the COMPANY at the Balance Sheet Date and (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements to which the COMPANY is a party.
Except as set forth on Schedule 5.10, since the Balance Sheet Date, the COMPANY
has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed or otherwise accrued or reserved, a good faith
and reasonable estimate of the maximum amount which may be payable. For each
such contingent liability or liability
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for which the amount is not fixed or is contested, the COMPANY has provided to
PC the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding.
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a reasonable best estimate of the maximum amount, if any,
which is likely to become payable with respect to each such liability.
If no estimate is provided, the best estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PC
an accurate list (which is set forth on Schedule 5.11) of the accounts and
notes receivable of the COMPANY, as of the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Closing, the COMPANY shall provide
PC with an accurate list of all receivables obtained subsequent to the Balance
Sheet Date that are outstanding as of the date of the delivery of such list.
For each of the aforementioned accounts and notes receivable reports, the
COMPANY shall provide PC with an aging of all accounts and notes receivable
showing amounts due in 30 day aging categories. Except to the extent reflected
on Schedule 5.11, such accounts and notes are collectible in the amounts shown
on Schedule 5.11, and the COMPANY has not received any written notice of any
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contest, claim or right of set-off with respect to the amount or validity of
any such account receivable and has no other reason to believe that such
amounts are not fully collectible.
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect on its business,
and the COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.12) of all Intellectual Property owned or used by the COMPANY. Each
item of Intellectual Property owned or used by the COMPANY is valid and in full
force and effect. Except as set forth on Schedule 5.12, all right, title and
interest in and to each item of Intellectual Property is owned by the COMPANY
and is not subject to any license, royalty arrangement or pending or threatened
claim or dispute. None of the Intellectual Property owned or, to the COMPANY's
knowledge, none of the Intellectual Property used by the COMPANY nor any
product sold by the COMPANY, infringes any Intellectual Property right of any
other entity and no Intellectual Property owned by the COMPANY is infringed
upon by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect on its business, and the COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.12) of all such licenses, franchises,
permits and other governmental authorizations, including permits, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, franchises and certificates. To the knowledge of the COMPANY, the
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing, in each case, except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied in all material respects with and is in compliance in
all material respects with all Federal, state, local and foreign statutes
(civil and criminal), laws, ordinances, regulations, rules, notices, permits,
judgments, orders and decrees applicable to it or any of its properties,
assets, operations and businesses relating to environmental protection
(collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law); (ii) the COMPANY has obtained and adhered to all necessary permits and
other approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been
no releases or threats of releases (as defined in Environmental Laws) at, from,
in or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location
to which the COMPANY has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state, local or
foreign enforcement action or any other investigation which could lead to any
claim against the COMPANY, PC or NEWCO for any clean-up cost, remedial work,
damage to natural resources or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) the COMPANY has no contingent
liability in connection with any release of any Hazardous Waste or Hazardous
Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property
included (or that will be included) in "depreciable plant, property and
equipment" (or similarly named line item)on the balance sheet of the COMPANY as
of the Balance Sheet Date, (y) all other personal property owned by the COMPANY
with a value individually in excess of $10,000 (i) as of the
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Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
leases and agreements in respect of personal property, including, in the case
of each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases, (2) a listing of the capital costs of all such assets which are subject
to capital leases and (3) an indication as to which assets are currently owned,
or, to the COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule
5.14, (i) all personal property with a value individually in excess of $10,000
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted, and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the COMPANY, and to the COMPANY's knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PC an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, or persons or entities that are sources
of a significant number of customers (e.g., certain physician practices, HMO's,
etc.), it being understood and agreed that a "significant customer," for
purposes of this Section 5.15, means a customer (or persons or entity)
representing 5% or more of the COMPANY's annual revenues as of the end of its
last fiscal year. Except to the extent set forth on Schedule 5.15, none of the
COMPANY's significant customers (or persons or entities that are sources of a
significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances, loan
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agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements), other than
agreements listed on Schedule 5.10, 5.14, 5.16, 5.18 or 5.19,(a) in existence
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and in each case has delivered true, complete and correct copies of such
agreements to PC. The COMPANY has complied in all material respects with all
commitments and obligations pertaining to it, is not in default under any
contracts or agreements listed on Schedule 5.15, and no notice of default under
any such contract or agreement has been received. The COMPANY has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or
the acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the COMPANY (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including that reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default by
the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do not
materially adversely affect the current use of the property.
Schedule 5.16 contains true, complete and correct copies of all
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title reports and title insurance policies received or owned by the COMPANY
with respect to real property owned by the COMPANY.
Schedule 5.16 also contains an accurate list of, and true, complete
and correct copies of, all leases and agreements in respect of real property
leased by the COMPANY, which leases and agreements are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or, to the COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule
5.16, all of such leases included on Schedule 5.16 are in full force and effect
and constitute valid and binding agreements of the COMPANY, and to the
COMPANY's knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to PC, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies currently carried by the COMPANY, (ii) an accurate list
of all insurance loss runs or workers' compensation claims received for the
past three (3) policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all of
the insurance that the COMPANY is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. No insurance
carried by the COMPANY has ever been canceled by the insurer and the COMPANY
has never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
COMPANY has provided to PC true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
there have been no increases in the compensation payable or
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any special bonuses to any officer, director, key employee or other employee,
except ordinary salary increases implemented on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) no employees
of the COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) no campaign to establish such representation is in
progress and (iv) there is no pending or, to the COMPANY's knowledge,
threatened labor dispute involving the COMPANY and any group of its employees
nor has the COMPANY experienced any labor interruptions over the past three
years. The COMPANY believes its relationships with its employees to be good.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 are complete
and accurate copies, as of the Balance Sheet Date, of all employee benefit
plans, all employee welfare benefit plans, all employee pension benefit plans,
all multi-employer plans and all multi-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which
are currently maintained and/or sponsored by the COMPANY, or any benefit plans
or arrangements, formal or informal, that are not subject to ERISA, including,
without limitation, employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements, or to which
the COMPANY currently contributes, or has an obligation to contribute in the
future (including, without limitation, benefit plans or arrangements that are
not subject to ERISA, such as employment agreements and any other agreements
containing "golden parachute" provisions and deferred compensation agreements),
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans").
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does
not maintain or sponsor, and is not a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
compensation or benefit arrangement, formal or informal, with their respective
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employees, whether or not subject to ERISA. Except as set forth on Schedule
5.20, (i) all Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable laws, and have been administered, operated and managed in all
material respects in accordance with the governing documents; (ii) all Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of
the Code are so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of the current plan determination
letters, or, in the case of master or prototype plans, opinion letters, most
recent actuarial valuation reports, if any, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.20; (iii) to the extent that any Qualified Plans
have not been amended to comply with applicable law, the remedial amendment
period permitting retroactive amendment of such Qualified Plans has not expired
and will not expire within 120 days after the Funding and Consummation Date;
(iv) all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
Reports, audits or tax returns) have been timely filed or distributed, or
failure to timely file or deliver will not result in a Material Adverse Effect
to the COMPANY; (v) none of the STOCKHOLDERS, any Plan, or the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA that could result in a material tax or penalty
to the COMPANY; (vi) no Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; (vii) no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation (the "PBGC") under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty that could result in any material
liability to the COMPANY with respect to any plan now or hereafter maintained
or contributed to by the COMPANY or any member of a "controlled group" (as
defined in Section 4001(a)(14) of ERISA) that includes the COMPANY; (viii)
neither the COMPANY nor any member of a "controlled group" (as defined above)
that includes the COMPANY
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currently has (or at the Funding and Consummation Date will have) any
obligation whatsoever to contribute to any "single employer pension plan" (as
defined in ERISA Section 4001(a)(15)) or any "multi-employer pension plan" (as
defined in ERISA Section 4001(a)(3)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan; (ix) there have been no
terminations or partial terminations of, or discontinuance of contributions to,
any Qualified Plan without notice to and approval by the Internal Revenue
Service; (x) no Plan that is subject to the provisions of Title IV of ERISA has
been terminated within the three year period immediately preceding the date of
this Agreement; (xi) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Plan which were not
properly reported within the three year period immediately preceding the date
of this Agreement; (xii) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section 607(1) of
ERISA and related regulations (relating to the benefit continuation rights
imposed by "COBRA"), the COMPANY and the STOCKHOLDERS have complied (and on the
Funding and Consummation Date will have complied) in all material respects with
all reporting, disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans, and the
COMPANY has not incurred (and will not incur) any material direct or indirect
liability and is not (and will not be) subject to any material loss,
assessment, excise tax penalty, loss of Federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the COMPANY or the STOCKHOLDERS, at any time prior to the Funding and
Consummation Date, to comply with any such Federal or state benefit
continuation requirement, which is capable of being assessed or asserted before
or after the Funding and Consummation Date directly or indirectly against the
COMPANY or the STOCKHOLDERS with respect to such group health plans; and (xiii)
other than claims in the ordinary course of business there is no pending
litigation, arbitration, or disputed claim, settlement or adjudication
proceeding, and to the best of the COMPANY's and STOCKHOLDERS' knowledge, there
is no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding or any governmental or other proceeding or
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investigation with respect to any Plan, or with respect to any fiduciary,
administrator or sponsor thereof (in their capacities as such), or any party in
interest thereof.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 5.21, the COMPANY is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY or the
STOCKHOLDERS, threatened against or affecting the COMPANY, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it which would have a Material Adverse Effect, and no notice of any such claim,
action, suit or proceeding, whether pending or threatened, has been received.
The COMPANY has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing, which violation would be reasonably likely to have a
Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or
similar group of which the COMPANY is or was a member (a "Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all
other information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the COMPANY, any subsidiary and
any member of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY
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and any subsidiaries (as opposed to any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
in the COMPANY Financial Statements are sufficient for all unpaid
Taxes, being current taxes not yet due and payable, of such Acquired
Party.
(iii) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made
by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or
other third party.
(v) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been raised
in any examination by any Taxing Authority with respect to any
Acquired Party which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or
after January 1, 1990, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to PC complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party
since January 1, 1990.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
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(vii) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(ix) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within
the meaning of Section 168 of the Code. No Acquired Party is a party
to any "safe harbor lease" that is subject to the provisions of
Section 168(f)(8) of the Internal Revenue Code as in effect prior to
the Tax Reform Act of 1986, or to any "long-term contract" within the
meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(xi) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Funding and Consummation Date.
(xiii) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax
Returns all positions taken therein that could
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give rise to a substantial understatement of federal income Tax within
the meaning of Section 6662(d) of the Code.
(xv) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
(xvi) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, Tax credits
or other similar items of any Acquired Party (collectively, the "Tax
Losses") under (i) Section 382 of the Code, (ii) Section 383 of the
Code, (iii) Section 384 of the Code, (iv) Section 269 of the Code, (v)
Section 1.1502-15 and Section 1.1502-15A of the Treasury regulations,
(vi) Section 1.1502-21 and Section 1.1502-21A of the Treasury
regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and
following the Tax Reform Act of 1986.
(xvii) At the Balance Sheet Date, the Acquired Parties had
aggregate Tax Losses for federal income Tax purposes as described on
Schedule 5.22(xvii) attached hereto.
(xviii) The COMPANY is not an investment company as defined in
Section 351(e)(1) of the Code.
(xix) The fair market value of the assets of the COMPANY exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(xx) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
For purposes of this Section 5.22, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for
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purposes of a particular Tax with any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net
or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY and the
STOCKHOLDERS, any other party thereto, is in default under any lease,
instrument, agreement, license or permit set forth on Schedule 5.12, 5.14,
5.15, 5.16, 5.18 or 5.19 or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents"); and, except as
set forth on Schedule 5.23, (a) the rights and benefits of the COMPANY under
the Material Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
by the COMPANY and the STOCKHOLDERS of their obligations hereunder and the
consummation by the COMPANY and the STOCKHOLDERS of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents. Except as set forth on Schedule 5.23, none
of the Material Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
expressly
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prohibits or materially restricts the COMPANY from freely providing services to
any other customer or potential customer or the COMPANY, PC, NEWCO or any Other
Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.15, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
COMPANY;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the COMPANY to any
of its officers, directors, STOCKHOLDERS, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the COMPANY to
any person, including, without limitation, the
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STOCKHOLDERS and their affiliates;
(viii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to the COMPANY,
including, without limitation, any material indebtedness or obligation
of any STOCKHOLDERS or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
material assets, property or rights of the COMPANY or requiring
consent of any party to the transfer and assignment of any such
material assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY,
provided that, the COMPANY may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included on Schedule 5.11 unless specifically listed
thereon;
(xii) any breach, or any amendment other than an amendment in
the ordinary course of business, or termination of any material
contract, agreement, license or permit to which the COMPANY is a
party;
(xiii) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date;
(xiv) any other distribution of property or assets by the
COMPANY outside the ordinary course of business;
(xv) any other transaction by the COMPANY outside the ordinary
course of its business; or
(xvi) any other activity prohibited by Section 7.3 that
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is not specifically included in this Section 5.25.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered
to PC an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the COMPANY
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY
and a description of the terms of such power of attorney.
5.27 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 DISCLOSURE. (a) This Agreement, the schedules hereto, and the
certificates and other documents furnished by the COMPANY to PC pursuant hereto
and for inclusion in the Registration Statement(which, for purposes of this
Agreement, shall include the completed Directors and Officers Questionnaires
and Registration Statement Questionnaires), taken as a whole, do not, and as to
any representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representation and warranty, to the COMPANY's knowledge,
does not, as of their respective dates contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge and
agree (i) that there exists no firm commitment, binding
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agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, that a Registration Statement will become effective
or that the IPO pursuant thereto will occur at a particular price or within a
particular range of prices or occur at all; and (ii) that neither PC or any of
its officers, directors, agents or representatives shall have any liability to
the COMPANY, the STOCKHOLDERS or any other person affiliated or associated with
the COMPANY for any failure of the Registration Statement to become effective,
the IPO to occur at a particular price or within a particular range of prices
or to occur at all provided that PC acts in good faith, and uses its best
efforts to cause its directors and officers to act in good faith to consummate
the transactions contemplated herein.
(B) Representations and Warranties of STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at
the time of the Closing and on the Funding and Consummation Date, and
that the representations and warranties set forth in Sections 5.29 and
5.30 shall survive until the tenth anniversary of the Funding and
Consummation Date, which shall be deemed to the Expiration Date for
purposes of Sections 5.29 and 5.30.
5.29 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on the
Schedule 5.29, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind.
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5.30 PREEMPTIVE RIGHTS. As of the date hereof, such STOCKHOLDER does
not have any preemptive or other right to acquire shares of PC Stock (other
than rights of any STOCKHOLDER to acquire PC Stock pursuant to (i) this
Agreement or (ii) any option granted by PC) and, except for the rights set
forth on Schedule 5.4, such STOCKHOLDER does not have, and hereby waives, any
such preemptive or other right to acquire shares of COMPANY stock.
5.31 NO INTENTION TO DISPOSE OF COMPANY STOCK. There is no current
plan or intention by any STOCKHOLDER to sell, exchange or otherwise dispose of
shares of PC Stock received in the Merger.
6. REPRESENTATIONS AND WARRANTIES OF PC AND NEWCO
PC and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of the Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve (12) months (the last day of such period being the
"Expiration Date"), except that (i) the warranties and representations set forth
in Section 6.13 hereof shall survive until such time as the limitations period
has run for all tax periods (and any portions thereof) ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 6.13 and (ii) solely for purposes of Section 11.2(iv) hereof, and
solely to the extent that in connection with the IPO PC actually incurs
liability under the 1933 Act, the 1934 Act or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PC and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so
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authorized or qualified would not have a Material Adverse Effect. True,
complete and correct copies of the Certificate of Incorporation and By-laws,
each as amended to date, of PC and NEWCO (the "PC Charter Documents") are all
attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The respective representatives of PC and
NEWCO executing this Agreement have the authority to enter into and bind PC and
NEWCO to the terms of this Agreement and (ii) PC and NEWCO have the full
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of PC
and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of NEWCO are owned by PC
and all of the issued and outstanding shares of the capital stock of PC are
owned by the persons set forth on Annex V hereof, in each case, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of PC and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by PC and the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by PC and NEWCO in
compliance in all material respects with all applicable state and Federal laws
concerning the issuance of securities. None of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PC or
NEWCO. No preemptive or other right to acquire shares of PC or NEWCO stock has
been granted to any person other than the rights granted pursuant to this
Agreement and the transactions contemplated herein, the Other Agreements and
the transactions contemplated therein or as set forth in the Registration
Statement.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements
and as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates PC or NEWCO to issue any
of its authorized but unissued capital stock or treasury stock; and (ii)
neither PC nor NEWCO has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution
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in respect thereof. Schedule 6.4 also includes complete and accurate copies of
all stock option or stock purchase plans of PC and NEWCO, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of their respective capital stock.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. PC has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither PC nor
NEWCO owns, of record or beneficially, or controls, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is PC or NEWCO,
directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule
6.6, PC and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.7 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 6.7, neither PC nor NEWCO is in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them, which violation would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.7, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PC or NEWCO, threatened, against or affecting PC or NEWCO, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. PC and NEWCO have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, vari-
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ances, rules and regulations and are not in violation of any of the foregoing,
which violation might have a Material Adverse Effect.
6.8 NO VIOLATIONS. Neither PC nor NEWCO is in violation of any PC
Charter Document. None of PC, NEWCO or, to the knowledge of PC and NEWCO, any
other party thereto is in default under any lease, instrument, agreement,
license or permit to which PC or NEWCO is a party, or by which PC or NEWCO, or
any of their respective properties, are bound (collectively, the "PC
Documents"); and (a) the rights and benefits of PC and NEWCO under the PC
Documents will not be adversely affected by the transactions contemplated
hereby; and (b) the execution of this Agreement and the performance of PC's and
NEWCO's obligations hereunder and the consummation by them of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the PC Documents
or the PC Charter Documents. Except as set forth on Schedule 6.8, none of the
PC Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of PC or NEWCO.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PC and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of PC and NEWCO, and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of PC and NEWCO.
6.10 PC STOCK. At the time of issuance thereof, the PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PC, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all respects to the PC Stock issued and outstanding as of
the date hereof by reason of the provisions of the Delaware GCL. The shares of
PC Stock to be issued to the
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STOCKHOLDERS pursuant to this Agreement will not be registered under the 1933
Act, except as provided in Section 17 hereof.
6.11 NO SIDE AGREEMENTS. Neither PC nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or PC other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. PC has provided to the COMPANY any
of such documents which have been requested by the COMPANY or the STOCKHOLDERS.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PC was formed in
July 1996, and has conducted limited operations since that time. Neither PC nor
NEWCO has conducted any business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Neither PC
nor NEWCO owns or has at any time owned any real property or any material
personal property or is a party to any other agreement, except as listed on
Schedule 6.12 and except that PC is a party to the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.13 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.13:
(i) All Returns required to have been filed by or with respect
to PC and any affiliated, combined, consolidated, unitary or similar
group of which PC is or was a member (a "PC Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the PC Relevant Group have been paid.
(ii) The provisions for Taxes due by PC and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the PC Financial
Statements are sufficient for all unpaid Taxes, being current taxes
not yet due and
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payable, of the PC Relevant Group.
(iii) No corporation in the PC Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim
has ever been made by any Taxing Authority in a jurisdiction in which
a corporation in the PC Relevant Group does not file Returns that it
is or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the PC Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(v) No corporation in the PC Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it
for any past period. There is no dispute or claim concerning any Tax
liability of any corporation in the PC Relevant Group either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to
any corporation in the PC Relevant Group. No issues have been raised
in any examination by any Taxing Authority with respect to any
corporation in the PC Relevant Group which, by application of similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Schedule 6.13(v)
attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the PC Relevant
Group for all taxable periods, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the PC Relevant Group will make
available to the STOCKHOLDERS, at their request, complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, PC.
(vi) No corporation in the PC Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
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(vii) No corporation in the PC Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make
any payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the PC Relevant Group is a party to any
Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the PC Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No
corporation in the PC Relevant Group is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460
of the Code.
(x) No corporation in the PC Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of
any corporation in the PC Relevant Group is subject to an election
under Section 341(f) of the Code or comparable provisions of any state
statutes.
(xi) No corporation in the PC Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the PC
Relevant Group that could give rise to an adjustment under Section 481
of the Code for periods after the Funding and Consummation Date.
(xiii) No corporation in the PC Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into
any written and legally binding agreement with a Taxing Authority
relating to Taxes.
(xiv) Each corporation in the PC Relevant Group has
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disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code)
on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax
within the meaning of Section 6662(d) of the Code.
(xv) No corporation in the PC Relevant Group has any liability
for Taxes of any person other than such corporation in the PC Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, Tax credits
or other similar items of any corporation in the PC Relevant Group
(collectively, the "Tax Losses") under (i) Section 382 of the Code,
(ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A
of the Treasury regulations, (vi) Section 1.1502-21 and Section
1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax Reform Act of 1986.
(xvii) Neither PC nor NEWCO is an investment company as defined
in Section 351(e)(1) of the Code.
(xviii) Neither PC nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
351(e)(2) of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of
this Agreement and the Funding and Consummation Date, upon reasonable notice to
the COMPANY, the COMPANY will afford to the officers and authorized
representatives of PC and the Other Founding Companies access to all of the
COMPANY's sites, properties, books and records and will furnish PC with such
additional financial and operating data and
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other information as to the business and properties of the COMPANY as PC or the
Other Founding Companies may from time to time reasonably request. The COMPANY
will cooperate with PC and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other material
which may be required in connection with the transactions contemplated by this
Agreement. PC, NEWCO, the STOCKHOLDERS and the COMPANY will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, PC will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and
Consummation Date, upon reasonable notice to PC, PC will afford to the officers
and authorized representatives of the COMPANY access to all of PC's and NEWCO's
sites, properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of PC and NEWCO as the COMPANY may from time to time
reasonably request. PC and NEWCO will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with the transactions
contemplated by this Agreement. The COMPANY, PC and NEWCO will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as
set forth on Schedule 7.2:
(i) carry on its business in the ordinary course as conducted
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including
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those held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its current obligations as required under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
material business relations with the COMPANY;
(vi) maintain compliance, in all material respects, with all
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or
lease instruments, without the knowledge and consent of PC (which
consent shall not be unreasonably withheld); and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents, except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Funding and Consummation Date, the COMPANY will
not, without the prior written consent of PC:
(i) make any change in its Articles or Certificate of
Incorporation or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating
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to its securities of any kind other than in connection with the
exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is
in the ordinary course of business (consistent with past practice) and
involves an amount not in excess of $50,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties, whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $50,000 necessary or desirable for the
conduct of the business of the COMPANY, (2) (A) liens for taxes either
not yet due or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and
are being maintained) or (B) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred
to herein as "Statutory Liens"), or (3) liens set forth on Schedule
5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(vii) negotiate for the acquisition of any business or start-up
any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
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(ix) waive any material right or claim of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(x) breach or amend, other than an amendment in the ordinary
course of business, or terminate any material contract, agreement,
license, or permit to which the COMPANY is a party; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of
this Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussion pertaining to, or
(iii) furnish any information to any person other than PC or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the
COMPANY or a merger, consolidation or business combination of the
COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide PC on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders' agreements, voting agreements, voting trusts, options,
warrants and employment agreements between the COMPANY and any employee listed
on
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Schedule 9.12 hereto and (ii) any existing agreement between the COMPANY and
any STOCKHOLDER, at or prior to the Funding and Consummation Date. Copies of
such termination agreements are attached to Schedule 7.6 or will be furnished
to PC at or prior to such date.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the
COMPANY shall give prompt notice to PC of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the COMPANY or the STOCKHOLDERS contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. PC and NEWCO shall give prompt notice to
the COMPANY of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of PC or NEWCO contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of PC
or NEWCO to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification
may only be made pursuant to Section 7.8, (ii) modify the conditions set forth
in Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Funding
and Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth
or described on the Schedules, provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to reflect
an event occurring other than in the ordinary course of business.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule
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prepared by the COMPANY or the STOCKHOLDERS that constitutes or reflects an
event or occurrence that would be reasonably likely to have a Material Adverse
Effect may be made unless PC and a majority of the Founding Companies other
than the COMPANY consent to such amendment or supplement; and provided further,
that no amendment or supplement to a Schedule prepared by PC or NEWCO that
constitutes or reflects an event or occurrence would be reasonably likely to
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies or
its stockholders seek to amend or supplement a Schedule pursuant to Section 7.8
of one of the Other Agreements, and such amendment or supplement constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect on such Other Founding Company or the sale of its stock
by its stockholders to PC, PC shall give the COMPANY notice promptly after it
has knowledge thereof. If PC and a majority of the Founding Companies consent
to such amendment or supplement, which consent shall have been deemed given if
no response is received within 48 hours after notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANY does not, the COMPANY may terminate this
Agreement pursuant to Section 12.1(iv) hereof. In the event that the COMPANY
seeks to amend or supplement a Schedule pursuant to this Section 7.8 and PC and
a majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that PC or NEWCO seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party
if this Agreement shall be terminated pursuant to the provisions of this
Section 7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDERS on the one hand, or PC or
NEWCO on the other hand,
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amends or supplements a Schedule which results in a termination of this
Agreement and such amendment or supplement arises out of or reflects facts or
circumstances which such party knew about at the time of execution of this
Agreement and knew would result in a termination of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall
pay or reimburse PC or the COMPANY and the STOCKHOLDERS, as the case may be,
for all of the legal, accounting and other out of pocket costs reasonably
incurred in connection with this Agreement and the IPO as it relates to the
COMPANY and the STOCKHOLDERS.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
COMPANY and the STOCKHOLDERS shall furnish or cause to be furnished to PC and
the Underwriters all of the information concerning the COMPANY and the
STOCKHOLDERS reasonably requested by PC or the Underwriters for inclusion in,
and will cooperate with PC and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, and in form otherwise reasonably requested by
PC or the Underwriters as suitable for inclusion in the Registration
Statement). PC and NEWCO agree to use their best efforts to provide to the
STOCKHOLDERS and the COMPANY copies of all drafts of the Registration Statement
circulated to the working group as a whole, including the prospectus included
therein and all amendments and exhibits thereto and any other documents and
correspondence received by or filed with the SEC, and, to the extent
practicable in light of the timetable for the IPO and the potential need to
respond promptly to SEC, NASD or NASDAQ comments, to give the STOCKHOLDERS and
the COMPANY sufficient time to review and comment upon such documents prior to
filing with the SEC. The COMPANY and the STOCKHOLDERS agree promptly to advise
PC if at any time during the 25 day period following the date of the final
prospectus with respect to the IPO (the "Final Prospectus") in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS and which was provided by or on behalf of the STOCKHOLDERS or the
COMPANY or their respective agents or representatives for inclusion in the
Registration Statement, contains any untrue statement of a material fact or
omits to
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and to provide the information needed to
correct such misstatement or omission. Insofar as the information requested
relates solely to the COMPANY or the STOCKHOLDERS and was provided by the
COMPANY or the STOCKHOLDERS or their respective agents or representatives for
inclusion in the Registration Statement, each of the COMPANY and the
STOCKHOLDERS represents and warrants that the Registration Statement at its
effective date, at the date of each of the Final Prospectus and each amendment
to the Registration Statement or supplement to the Final Prospectus, and at
each closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to
the Funding and Consummation Date, and PC shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statements of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Such financial statements shall have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations of the COMPANY for the periods indicated thereon.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
7.12 NO INDEBTEDNESS. On or prior to the Funding and Consummation
Date, the STOCKHOLDERS shall have repaid all of the COMPANY's indebtedness
except for trade payables incurred in the ordinary course of business. In the
event that the STOCKHOLDERS have failed to repay such indebtedness on or prior
to the Funding and Consummation Date, the aggregate number of shares of PC Stock
received by the STOCKHOLDERS (as set forth on Annex III) shall be reduced by a
number of shares equal to the amount of such indebtedness divided by the IPO
Price.
7.13 INDEMNIFICATION BY THE STOCKHOLDERS. On or prior to the Funding
and Consummation Date, the STOCKHOLDERS shall pay to PC $3,200,000 which amount
represents the purchase price payable to acquire Medix. In the event that such
payment has not been made by the Funding and Consummation Date, the aggregate
number of shares of PC Stock received by the STOCKHOLDERS (as set forth on Annex
III) shall be reduced by a number of shares equal to 3,200,000 divided by the
IPO Price.
7.14 ADDITIONAL CONTRIBUTION OF CAPITAL. On or prior to the Funding
and Consummation Date, the STOCKHOLDERS shall cause an investment of not less
than $32,300,000 (the "Capital Contribution") to be contributed to the capital
account of the COMPANY. The Capital Contribution will be available in full to PC
and the COMPANY on the Funding and Consummation Date. Any investor purchasing
shares of COMPANY Stock pursuant to the Capital Contribution will be added to
Annex III, and will receive in the Merger upon conversion of such shares of
COMPANY Stock a portion of the aggregate number of shares of PC Stock set forth
on Annex III equal to such investor's percentage ownership of the COMPANY Stock
immediately prior to the Merger. In the event that all or part of the Capital
Contribution is not invested in the COMPANY and available to the COMPANY on the
Funding and Consummation Date, the aggregate number of shares of PC Stock
received by the STOCKHOLDERS (as set forth on Annex III) shall be reduced by a
number of shares equal to the shortfall divided by the IPO Price. The
$32,300,000 amount required hereunder is based upon an IPO Price of $15 and
shall be reduced or increased proportionately to the extent the IPO Price is
below or above $15, respectively. In addition, for purposes of determining if
such $32,300,000 Capital Contribution has been met, the STOCKHOLDERS may count
discount and placement fees of up to 12% actually incurred on any sale of equity
pursuant hereto up to a maximum of $3,876,000 for all sales of equity pursuant
hereto.
7.15 CONVERSION OF OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. On
or prior to the Closing Date, the holders of all outstanding options or
warrants to purchase shares of the COMPANY's common stock shall have exercised
such options or warrants, and the holders of all outstanding shares of the
COMPANY's preferred stock and all holders of any other type of securities
convertible into or exercisable or exchangeable for shares of the COMPANY's
common stock shall have converted, exercised or exchanged such securities into
or for shares of the COMPANY's common stock.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on each of the Closing Date and the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Closing Date and the Funding and Consummation Date of all of the following
conditions. As of the Closing Date or the Funding and Consummation Date, as the
case may be, all conditions not satisfied shall be deemed to have been waived
by the COMPANY and the STOCKHOLDERS unless such parties have notified PC in
writing to the contrary, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of PC and NEWCO contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PC and NEWCO contained in this Agreement
shall be true and correct in all material respects as of the Closing Date and
the Funding and Consummation Date as though such representations and warranties
had been made as of that time; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by PC and NEWCO on or before
the Closing Date and the Funding and Consummation Date shall have been duly
complied with and performed in all material respects; and a certificate to the
foregoing effect dated the Closing Date and the Funding and Consummation Date
and signed by the President or any Vice President of PC shall have been
delivered to the STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be satisfactory to the COMPANY and its
counsel. The STOCKHOLDERS and the COMPANY shall be satisfied that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplement thereto, shall not contain any untrue
statement of a material fact, or omit to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that the condition contained in
this sentence shall be deemed satisfied if the COMPANY or STOCKHOLDERS shall
have failed to inform PC in writing prior to the Funding and Consummation Date
of the existence of an untrue statement of a material fact or the omission of
such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the Mergers
contemplated by the other Agreements or the offering and sale by PC of PC Stock
pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion
from counsel for PC, dated the Closing Date, in the form annexed hereto as
Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, shares of PC Stock at a price to the
public of not less than $10.00 per share.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the Merger or the Mergers contemplated by the other Agreements.
8.7 GOOD STANDING CERTIFICATES. PC and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which PC or NEWCO is authorized to do business, showing
that each of PC and NEWCO is in good standing and authorized to do business and
that all state franchise and/or income tax returns and taxes for PC and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to PC or NEWCO which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and the Funding and
Consummation Date and signed by the Secretary of PC and of NEWCO, certifying
the truth and correctness of attached copies of PC's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors and,
if required, the stockholders of PC and NEWCO approving PC's and NEWCO's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto.
8.12 TAX TREATMENT. The COMPANY and the STOCKHOLDERS shall be
reasonably satisfied that (i) none of PC, NEWCO or any Other Founding Company
(or its STOCKHOLDERS) has breached any representation or warranty set forth in
this Agreement or in the Other Agreements, and (ii) no event outside the
control of the COMPANY and the STOCKHOLDERS has occurred between the date of
this Agreement and the Funding and Consummation Date, in each case so as to
jeopardize the treatment of the transactions contemplated by the PC Plan of
Organization as a transfer of property described in Section 351 of the Code.
8.13 CONVERSION OF OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. On
or prior to the Closing, the holders of all outstanding options or warrants to
purchase shares of the COMPANY's common stock shall have exercised such options
or warrants, and the holders of all outstanding shares of the COMPANY'S
preferred stock and all holders of any other type of securities convertible
into or exercisable or exchangeable for shares of the COMPANY's common stock
shall have converted, exercised or exchanged such securities into or for shares
of the COMPANY's common stock.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
The obligations of PC and NEWCO with respect to actions to be taken on
each of the Closing Date and the Funding and Consummation Date are subject to
the satisfaction or waiver on or prior to the Closing Date and the Funding and
Consummation Date of all of the following conditions. As of the Closing Date or
the Funding and Consummation Date, as the case may be, all conditions not
satisfied shall be deemed to have been waived by PC and NEWCO unless such
parties have notified the COMPANY and the STOCKHOLDERS in writing to the
contrary, except that no such waiver shall be deemed to affect the survival of
the representations and warranties of the COMPANY and the STOCKHOLDERS
contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of the STOCKHOLDERS and the COMPANY
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Funding and Consummation Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDERS and the COMPANY on or before the
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDERS shall have delivered to PC a certificate dated the Closing Date
and the Funding and Consummation Date and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the offering and sale
by PC of PC Stock pursuant to the Registration Statement.
9.3 SECRETARY'S CERTIFICATE. PC shall have received a certificate,
dated the Closing Date and the Funding and Consummation Date and signed by the
Secretary of the COMPANY, certifying the truth and correctness of attached
copies of the COMPANY's Certificate or Articles of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the board of directors and the STOCKHOLDERS approving the COMPANY's entering
into this Agreement and the consummation of the transactions contemplated
hereby.
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9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
PC an instrument dated the Closing Date releasing the COMPANY from (i) any and
all claims of the STOCKHOLDERS against the COMPANY and (ii) any and all
obligations of the COMPANY to the STOCKHOLDERS, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to the STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental hereto and all other related legal matters shall be satisfactory
to PC and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 and consented to by PC, all existing agreements between the
COMPANY and the STOCKHOLDERS shall have been canceled effective prior to or as
of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PC shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date, in the
form annexed hereto as Annex VII, which form shall be deemed to include any
additional opinions covering matters customary under the circumstances and
based upon reasonable requests by the Underwriters, which opinion may be relied
upon by counsel to PC in connection with any opinion requested of it by the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the Merger.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PC a certificate, dated as of a date no earlier
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than five days prior to the Closing Date, duly issued by the appropriate
governmental authority in the COMPANY's state of incorporation and, unless
waived by PC, in each state in which the COMPANY is authorized to do business,
showing the COMPANY is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for the COMPANY for all
periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto. Any employment agreement in effect as of the date hereof
between the COMPANY and any person listed on Schedule 9.12 shall have been
terminated on or prior to the Funding and Consummation Date.
9.13 CLOSING OF THE IPO. The closing of the sale of PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to PC
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PC AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. PC
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the COMPANY, with all such guarantees on indebtedness being assumed by PC.
In the event that PC cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, PC shall pay off or otherwise refinance or retire such
indebtedness and, in the event that PC cannot obtain releases on or prior to
the Funding and Consummation Date, PC agrees to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees which arise as
a result of PC's failure to cause such guarantees to be released on or prior to
the Funding and Consummation Date.
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10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, PC shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the PC Stock issued in connection with
the transactions contemplated hereby;
(b) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS; and
(c) the disposition of any material part of the assets of
the COMPANY within the two years following the Funding and
Consummation Date except in the ordinary course of business or to
eliminate duplicate services or excess capacity.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date. Each STOCKHOLDER shall pay or cause
to be paid all Tax liabilities shown by such Returns to be due. PC and NEWCO
shall not file any amended Tax Returns for any taxable year or portion thereof
of the Surviving Corporation ending on or before the Funding and Consummation
Date without the prior written consent of the STOCKHOLDERS, which consent shall
not be unreasonably withheld.
(ii) PC shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work
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papers, relevant documents relating to rulings or other determinations by
Taxing Authorities and relevant records concerning the ownership and Tax basis
of property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, PC and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a transfer
of property under Section 351(a) of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall
be appointed as directors of PC not later than ten (10) days following the
closing of the IPO.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing, PC
shall not terminate any health insurance, life insurance or 401(k) plan in
effect at the COMPANY until such time as PC is able to replace such plan with a
plan that is applicable to the COMPANY, provided that PC shall have no
obligation to provide replacement plans that have the same terms and provisions
as the existing plans, and provided, further, that any new health insurance
plan shall provide for coverage for preexisting conditions.
11. INDEMNIFICATION
The STOCKHOLDERS, PC and NEWCO each make the following covenants that
are applicable to them, respectively:
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11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless PC, NEWCO and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by PC, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
Schedules or certificates delivered in connection herewith, STOCKHOLDERS or the
COMPANY under this Agreement, (iii) any liability under the 1933 Act, the 1934
Act or other Federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PC or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) any Tax imposed upon or relating to
any third party for a pre-Funding and Consummation Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury regulations (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise, or (v)
the matters described on Schedule 11.1(v), provided that any proposed amendment
to Schedule 11.1(v) made after the signing of this Agreement may only be made
with consent of the COMPANY and the STOCKHOLDERS, and provided, further, that
such indemnity shall not inure to the benefit of PC, NEWCO or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PC's counsel and to PC for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no STOCKHOLDER shall be liable for any indemnification obligation
pursuant to this
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Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other STOCKHOLDER.
11.2 INDEMNIFICATION BY PC. PC covenants and agrees that it will indemnify,
defend, protect and hold harmless the STOCKHOLDERS at all times from and after
the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by the STOCKHOLDERS as a result of or arising from (i) any breach by PC or
NEWCO of its representations and warranties set forth herein or on the
Schedules or certificates delivered in connection herewith, (ii) any
nonfulfillment of any agreement on the part of PC or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to PC's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 1 hereof (except to the extent that PC or NEWCO
has claims against the STOCKHOLDERS by reason of such liabilities); (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to PC, NEWCO
or any of the Other Founding Companies contained in any preliminary prospectus,
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to PC or
NEWCO or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading, or (v) the matters
described on Schedule 11.2(v).
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice
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shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof, to the extent known. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any criminal
proceeding without the written consent of the Indemnified Party, such consent
not to be unreasonably withheld or delayed. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest in
the opinion of such counsel that prevents counsel for the Indemnifying Party
from representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the expenses of its
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person and the Indemnified Party shall
reimburse the Indemnifying Party for any additional costs of defense which it
subsequently incurs with
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respect to such claim and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense
through counsel of its choice, at the cost and expense of the Indemnifying
Party, and the Indemnified Party may settle such matter, and the Indemnifying
Party shall reimburse the Indemnified Party for the amount paid in such
settlement and any other liabilities or expenses incurred by the Indemnified
Party in connection therewith, provided, however, that under no circumstances
shall the Indemnified Party settle any Third Person claim without the written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. All settlements hereunder shall effect a complete release
of the Indemnified Party, unless the Indemnified Party otherwise agrees in
writing, which agreement shall not be unreasonably withheld or delayed. The
parties hereto will make appropriate adjustments for insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. PC, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim other than a Third Person claim for
indemnification hereunder against the STOCKHOLDERS until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDERS shall exceed 1.0% of the sum of the cash paid to
STOCKHOLDERS plus the value of the PC Stock delivered to STOCKHOLDERS (for
purposes of calculating the value of the PC Stock, such PC Stock is to be
valued at its initial public offering price as set forth in the Registration
Statement) (the "Indemnification Threshold"), provided, however, that PC,
NEWCO, the Surviving Corporation and the other persons or entities indemnified
pursuant to Section 11.1 or 11.2 may assert and shall be indemnified for any
claim under Sections 11.1(iv) and (v) at any time, regardless of whether the
aggregate of all claims which such persons may have against any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood
that the amount of any such claim under Sections
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11.1(iv) and (v) shall not be counted towards the Indemnification Threshold.
The STOCKHOLDERS shall not assert any claim (other than a Third Person claim)
for indemnification hereunder against PC or NEWCO until such time as, and
solely to the extent that, the aggregate of all claims which the STOCKHOLDERS
may have against PC or NEWCO shall exceed $100,000, provided, however, that the
STOCKHOLDERS and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons may have against PC or NEWCO exceeds $100,000, it being understood
that the amount of any such claim under Section 11.2(v) shall not be counted
towards such $100,000 amount.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a material breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of the cash
paid to the STOCKHOLDER plus the value of the PC Stock delivered to the
STOCKHOLDER as calculated above, provided that a STOCKHOLDER's indemnification
obligations pursuant to Sections 11.1(iv) and (v) shall not be limited.
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12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PC and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its
board of directors), on the one hand, or by PC (acting through its
board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by December 31, 1996, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by
PC, on the other hand, if a material breach or default shall be made
by the other party in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period
of five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business
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of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with PC or any of the subsidiaries thereof, within
100 miles of where the COMPANY or any of its subsidiaries or any of
the other Founding Companies conducted business prior to the
effectiveness of the Merger or proposed to conduct business as of such
time (the "Territory");
(ii) solicit any person who is, at that time, within the
Territory, an employee of PC (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
PC (including the subsidiaries thereof);
(iii) solicit any person or entity which is, at that time,
or which has been, within one (1) year prior to the Funding and
Consummation Date, a customer of PC (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with PC within the Territory;
(iv) solicit any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in the medical
software development or distribution business, which candidate was
either called upon by PC (including the subsidiaries thereof) or for
which PC (or any subsidiary thereof) made an acquisition analysis
which was known (or should have been known) to the STOCKHOLDER, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the COMPANY to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the COMPANY has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an
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investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses
to PC as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to PC for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of a
breach by such STOCKHOLDER, the foregoing covenant may be enforced by PC by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PC (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PC.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PC (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by PC
of such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they had in the past, currently have and in the future may have access to
certain confidential information relating to the COMPANY, the Other Founding
Companies and/or PC, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY, the
Other Founding Companies and/or PC's business. The STOCKHOLDERS agree that they
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the COMPANY, NEWCO, the Other
Founding Companies and PC who need to know such information in connection with
the transactions contemplated hereby, who have been informed of the
confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing,
such information may be disclosed by the STOCKHOLDERS as is required in the
course of performing their duties for PC or the Surviving Corporation unless
(i) such information becomes known to the public generally through no breach by
the STOCKHOLDERS of this covenant, (ii) disclosure is required by law or the
order of any governmental authority under color of law or is necessary in order
to secure a consent or approval to consummate the transactions contemplated
hereby, provided, that prior to disclosing any information pursuant to this
clause (ii), the STOCKHOLDERS shall, if possible, give prior written notice
thereof to PC and provide PC with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party and the same prior disclosure set forth immediately above is given. In
the event of a breach or threatened breach by any of the STOCKHOLDERS or PC of
the provisions of this Section, PC shall be entitled to an injunction
restraining the STOCKHOLDERS from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting PC
from pursuing any other available remedy for such breach or
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threatened breach, including the recovery of damages.
14.2 PC AND NEWCO. PC and NEWCO recognize and acknowledge that they
had in the past and currently have access to certain confidential information
relating to the COMPANY, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY. PC and
NEWCO agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not use or disclose such
confidential information to their own benefit except in furtherance of the
Transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the STOCKHOLDERS and to
authorized representatives of the COMPANY who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no breach by PC or
NEWCO of this covenant, (ii) disclosure is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause
(ii), PC and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party and the same prior disclosure
set forth immediately above is given. In the event of a breach or threatened
breach by PC or NEWCO of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining PC and NEWCO from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the COMPANY and the STOCKHOLDERS from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, PC and NEWCO shall return to the
COMPANY within a reasonable time all
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documents (in both paper and electronic form) containing confidential
information about the COMPANY, and shall use reasonable efforts to compel the
Other Founding Companies to do the same. In such instance, PC will also furnish
to the COMPANY a written statement certifying that all documents which
contained confidential information about the COMPANY and which had been in PC's
possession had been returned by PC to the COMPANY.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
be enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated hereby on the Funding and
Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section
15.1 (or trusts for the benefit of the STOCKHOLDERS or family members, the
trustees of which so agree), for a period of two years from the Funding and
Consummation Date, except pursuant to Section 17 hereof, none of the
STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (a) any shares of PC Stock received
by the STOCKHOLDERS in the Merger, or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of PC Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for
any purpose; or (ii) engage in any transaction, whether or not with respect to
any shares of PC Stock or any interest therein, the intent or effect of which
is to reduce the risk of owning the shares of PC Stock acquired pursuant to
Section 2 hereof (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions).
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Notwithstanding the foregoing, (i) if the "holding period" for restricted
securities set forth in Rule 144(d) under the 1933 Act (or any similar or
successor provision) is reduced below two years, the two-year restrictive period
set forth in this Section 15.1 will be deemed to be correspondingly reduced; and
(ii) the STOCKHOLDERS may encumber or pledge any of such shares of PC Stock
provided the pledgee or other beneficiary of such encumbrance or pledge agrees
to be bound by the provisions of this Section as if a STOCKHOLDER and party
hereto. The certificates evidencing the PC Stock delivered to the STOCKHOLDERS
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as PC may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [SECOND
ANNIVERSARY OF THE FUNDING AND CONSUMMATION DATE] (PROVIDED,
HOWEVER, THAT (I) IF THE "HOLDING PERIOD" FOR RESTRICTED
SECURITIES SET FORTH IN RULE 144(D) UNDER THE SECURITIES ACT OF
1933, AS AMENDED (OR ANY SIMILAR OR SUCCESSOR PROVISION), IS
REDUCED BELOW TWO YEARS, THE RESTRICTIVE PERIOD SET FORTH HEREIN
SHALL BE CORRESPONDINGLY REDUCED, AS CALCULATED FROM THE DATE
TWO YEARS PRIOR TO THE DATE SET FORTH HEREIN AND (II) SUCH
SHARES MAY BE ENCUMBERED OR PLEDGED PROVIDED THE PLEDGEE OR
OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE AGREES TO BE
BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME EXTENT
AS THE HOLDER HEREOF). UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
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THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE
REDUCED AS PROVIDED HEREIN).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold unless
registered under the 1933 Act or resold pursuant to an exemption from the
registration requirements of the 1933 Act. The PC Stock to be acquired by the
STOCKHOLDERS pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution; provided, however that this covenant shall not prohibit
any disposition in accordance with the securities laws and this Agreement.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of PC Stock issued to the STOCKHOLDERS will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC and this Agreement.
All the PC Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY PC, AN OPINION OF COUNSEL TO PC
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS represent and
warrant that they are able to bear the economic risk of an investment in the PC
Stock acquired pursuant to this Agreement, can afford to sustain a total loss
of such investment
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and have such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of the proposed investment
in the PC Stock. The STOCKHOLDERS represent and warrant that they have had an
adequate opportunity to ask questions and receive answers from the officers of
PC concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of PC, the plans for the operations of the
business of PC, the business, operations and financial condition of the Other
Founding Companies, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions of the nature described in the
preceding sentence, and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever PC proposes to register any PC Stock for its
own or others' account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions
of additional businesses by PC, (ii) registrations relating to employee benefit
plans and (iii) registrations relating to rights offerings made to the
stockholders of PC, PC shall give each of the STOCKHOLDERS prompt written
notice of its intent to do so. Upon the written request of any of the
STOCKHOLDERS given within 30 days after receipt of such notice, PC shall cause
to be included in such registration all of the PC Stock which any such
STOCKHOLDER requests, provided that PC shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares would, in the opinion of tax counsel to PC or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free reorganization. In addition, if PC is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than PC is greater than the number of such shares which can be offered without
adversely affecting the offering, PC may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by
such
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managing underwriter, provided, that, for each such offering made by PC after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than PC, the STOCKHOLDERS and the stockholders of the
Other Founding Companies (collectively, the STOCKHOLDERS and the stockholders
of the other Founding Companies being referred to herein as the "Founding
Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date, the holders of a majority of the
shares of PC Stock issued to the stockholders of the Founding Companies
pursuant to this Agreement and the Other Agreements that have not been
previously registered or sold and that are not entitled to be sold under Rule
144(k) (or any successor provision) promulgated under the 1933 Act may request
in writing that PC file a registration statement under the 1933 Act covering
the registration of shares of PC Stock issued to such stockholders (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security that is issued by PC as)
a dividend or other distribution with respect to, or in exchange for, or in
replacement of such PC Stock) then held by such stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, PC shall
give written notice of such request to all other of such stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from any such stockholder, file and thereafter use its best efforts to cause to
become effective a registration statement covering all such shares. PC shall be
obligated to effect only one Demand Registration for all stockholders of the
Founding Companies and will keep such Demand Registration current and effective
for not less than 120 days (or such shorter period as is required to sell all
of the shares registered thereon).
Notwithstanding the foregoing paragraph, following such a demand a
majority of PC's disinterested directors (i.e., directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request by the stockholders of the Founding
Companies for a Demand Registration PC has plans to file
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within 60 days after such request a registration statement covering the sale of
any of its securities in a public offering under the 1933 Act, no registration
of the PC Stock held by the stockholders of the Founding Companies shall be
initiated under this Section 17.2 until 90 days after the effective date of
such registration unless PC is no longer proceeding diligently to effect such
registration; provided that PC shall provide the stockholders of the Founding
Companies the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In addition, if the stockholders offering shares are advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.2 that the number of shares to be sold by such stockholders is
greater than the number of such shares which can be offered without adversely
affecting the offering, the stockholders offering shares may reduce pro rata
the number of shares offered for the account of each stockholder (based upon
the number of shares proposed to be sold by each such stockholder) to a number
deemed satisfactory by such managing underwriter.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by PC. In connection
with registrations under Sections 17.1 and 17.2, PC shall (i) use its best
efforts to prepare and file with the SEC, as soon as reasonably practicable, a
registration statement with respect to the PC Stock and use its best efforts to
cause such registration to promptly become and remain effective for a period of
at least 120 days (or such shorter period during which holders shall have sold
all PC Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the PC Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution
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of the PC Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, PC and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of PC's size and investment
stature, including indemnification.
17.5 AVAILABILITY OF RULE 144. PC shall not be obligated to register
shares of PC Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to such STOCKHOLDER for such shares.
18. GENERAL
18.1 COOPERATION. The COMPANY, the STOCKHOLDERS, PC and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation Date, and at such other times and places as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of carrying out this Agreement. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PC on and after the Funding and Consummation Date in
furnishing information, evidence, testimony and other assistance in connection
with any Tax Return filing obligations, actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PC, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the
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<PAGE> 81
documents delivered pursuant hereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and PC and supersede
any prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and
may be modified or amended only by a written instrument executed by the
STOCKHOLDERS, the COMPANY, NEWCO and PC, acting through their respective
officers or trustees, duly authorized by their respective boards of directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, PC will pay the fees, expenses and disbursements of PC
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PC under this Agreement, including (subject to
the next sentence) the fees and expenses of Coopers & Lybrand LLP, Morgan,
Lewis & Bockius LLP and the costs of preparing the Registration Statement. The
COMPANY shall pay and be fully responsible for the fees and expenses of Coopers
& Lybrand LLP in connection with its audit and preparation of the historical
financial statements of the COMPANY to be included in the Registration
Statement, which fees and expenses shall constitute a vendor debt of the
COMPANY. The STOCKHOLDERS shall pay and be fully responsible for all
professional fees and expenses, including but not limited to legal fees and
expenses, incurred by the COMPANY and the STOCKHOLDERS in connection with the
transactions contemplated herein, whether or not such transactions are actually
consummated. Each STOCKHOLDER further shall pay all sales, use, transfer, real
property transfer,
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recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that such STOCKHOLDER, and not the
COMPANY or PC, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and liabilities of
such STOCKHOLDER in connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to PC, or NEWCO, addressed to them at:
Medical Manager Corporation
3001 Rocky Point Drive, Suite 100
Tampa, Florida 33607
Attn: John Kang, Chief Executive Officer
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex IV, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
3001 North Rocky Point Drive
Suite 100
Tampa, Florida 33607
Attn: John H. Kang
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and marked "Personal and Confidential"
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York, except that matters herein within the
purview of the matters covered by the General Corporation Law of the State of
Delaware shall be governed by such General Corporation Law, in each case
without reference to conflicts of laws principles.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Closing or in writing delivered
pursuant to the provisions of this Agreement shall survive the consummation of
the transactions contemplated hereby and any examination on behalf of the
parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to
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<PAGE> 84
be valid, legal and enforceable but so as to most nearly retain the intent of
the parties, and if such modification is not possible, such provision shall be
severed from this Agreement, and in either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of PC, NEWCO, the COMPANY and the STOCKHOLDERS who
hold or will hold more than 50% of the PC Stock issued pursuant to this
Agreement. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving PC Stock in connection with the Merger and each future holder of such
PC Stock.
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<PAGE> 85
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By /s/ John H. Kang
-------------------------------
Name: John H. Kang
Title: Chief Executive Officer
NMS ACQUISITION I CORP.
By /s/ Wayne Burks
-------------------------------
Name: Wayne Burks
Title: President
NATIONAL MEDICAL SYSTEMS, INC.
By /s/ John H. Kang
-------------------------------
Name: John H. Kang
Title: President
STOCKHOLDERS:
By /s/ John H. Kang
-------------------------------
Name: John H. Kang
By /s/ Ricardo Salas
-------------------------------
Name: Ricardo Salas
By /s/ Wayne Burks
-------------------------------
Name: Wayne Burks
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<PAGE> 86
STOCKHOLDERS:
By /s/ Dominic Sputo
-------------------------------
Name: Dominic Sputo
By /s/ Jeffrey W. Hogland
-------------------------------
Name: Jeffrey W. Hogland
By /s/ Dila Hogland
-------------------------------
Name: Dila Hogland
By /s/ Doug Beck
-------------------------------
Name: Raintree Health Care
Investments, LP
By /s/ Chris Peifer
-------------------------------
Name: Chris Peifer
By /s/ Bronson Thayer
-------------------------------
Name: Bronson Thayer
By /s/ Susannah Thayer
-------------------------------
Name: Susannah Thayer
By /s/ Louise Ferguson
-------------------------------
Name: Louise Ferguson
79
<PAGE> 1
Exhibit 2.4
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
MEDICAL MANAGER CORPORATION
RTI ACQUISITION I CORP. (a subsidiary of
MEDICAL MANAGER CORPORATION)
RTI BUSINESS SYSTEMS, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1 Delivery and Filing of Articles of Merger.
1.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Certificate of Incorporation, By-laws and Board of Directors of Surviving Corporation. . . . 5
1.4 Certain Information With Respect to the Capital Stock of the COMPANY, PC and NEWCO. . . . . 5
1.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. CONVERSION OF STOCK
2.1 Manner of Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. DELIVERY OF MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. CLOSING
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Transactions in Capital Stock, Reorganization Accounting. . . . . . . . . . . . . . . . . 10
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Spin-off by the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Intellectual Property; Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . 13
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Significant Customers; Material Contracts and Commitments. . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
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5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 Compensation; Employment Agreements; Organized Labor Matters. . . . . . . . . . . . . . . 17
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.23 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.27 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.28 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.29 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.30 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.31 No Intention to Dispose of COMPANY Stock. . . . . . . . . . . . . . . . . . . . . . . . . 27
6. REPRESENTATIONS AND WARRANTIES OF PC and NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 PC Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.11 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.12 Business; Real Property;
Material Agreements. 31
6.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Notice to Bargaining Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.6 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
ii
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7.7 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.8 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9 Cooperation in Preparation of Registration Statement. . . . . . . . . . . . . . . . . . . 39
7.10 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 No Indebtedness [NMS & SMI Only]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . 41
8.1 Representations and Warranties; Performance of Obligations. 41
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.12 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
9.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . 43
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.5 STOCKHOLDERS' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.13 Closing of the IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<TABLE>
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10. COVENANTS OF PC AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . 45
10.2 Preservation of Tax and
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.5 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 47
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.1 General Indemnification by the STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 47
11.2 Indemnification by PC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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<TABLE>
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13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.1 STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.2 PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
17.5 Availability of Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
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<TABLE>
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18.9 Survival of Representations
and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Annexes
Annex I - Form of Articles of Merger
Annex II - Form of Certificate of Incorporation and By-laws of PC and NEWCO
Annex III - Consideration to be paid to the Stockholders
Annex IV - STOCKHOLDERS and Stock Ownership of the COMPANY
Annex V - STOCKHOLDERS and Stock Ownership of PC
Annex VI - Form of Opinion of Morgan, Lewis & Bockius LLP
Annex VII - Form of Opinion of Counsel to the COMPANY and the STOCKHOLDERS
Annex VIII - Form of Employment Agreement
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made as of the 30th day of September, 1996, by and among MEDICAL MANAGER
CORPORATION, a Delaware corporation ("PC"), RTI ACQUISITION I CORP., a Delaware
corporation ("NEWCO"), RTI BUSINESS SYSTEMS, INC., a New York corporation (the
"COMPANY"), HENRY HOLBROOK and MARK SOBOLEWSKI (the "STOCKHOLDERS"). The
STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
July 26, 1996, solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of PC, a
corporation organized and existing under the laws of the State of
Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States
of Delaware and New York;
WHEREAS, PC is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan of Reorganization," with each
of Personalized Programming, Inc., a Florida corporation, and Systems
Management, Inc., an Indiana corporation, and Systems Plus, Inc., a
California corporation, and Systems Plus Distribution, Inc., a
California corporation, and National Medical Systems, Inc., a Florida
Corporation, and their respective stockholders in order to acquire
additional medical software development and distribution companies
(the COMPANY, together with each of the entities with which PC has
entered into the Other Agreements, are collectively referred to herein
as the "Founding Companies");
<PAGE> 9
WHEREAS, this Agreement, the Other Agreements and the IPO of PC
Stock (as each is hereinafter defined) constitute the "PC Plan of
Organization";
WHEREAS, the Boards of Directors of PC and each of the Founding
Companies have approved and adopted the PC Plan of Organization as an
integrated plan to transfer the capital stock of the Founding
Companies to PC and the cash raised in the IPO of PC Stock to PC as a
transfer of property under Section 351 of the Internal Revenue Code of
1986, as amended;
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of the COMPANY has approved this Agreement as part of the PC
Plan of Organization in order to transfer the capital stock of the
COMPANY to PC;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and
not otherwise defined shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" shall mean NEWCO and each of the other
Delaware companies wholly-owned by PC prior to the Funding and Consummation
Date.
"Articles of Merger" shall mean those Articles or Certificates of
Merger with respect to the Merger, substantially in the form of Annex I attached
hereto, or with such other changes therein as may be required by applicable
state laws.
"Balance Sheet Date" shall mean June 30, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
2
<PAGE> 10
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Effective Time of the Merger" shall mean the time as of which the
Merger becomes effective, which the parties hereto contemplate to occur on
the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Funding and Consummation Date" has the meaning set forth in Section
4.
"Intellectual Property" shall mean all trademarks, service marks,
trade dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention, process,
know- how, computer software, technology systems, product design or product
packaging.
"IPO" means the initial public offering of PC Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant
to this Agreement and the applicable provisions of the laws of the State of
Delaware and other applicable state laws.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per
3
<PAGE> 11
share, of NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANY.
"PC" has the meaning set forth in the first paragraph of this
Agreement.
"PC Charter Documents" has the meaning set forth in Section 6.1.
"PC Stock" means the common stock, par value $.01 per share, of PC.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by PC and the Underwriters of
the public offering price of the shares of PC Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement of
PC on Form S-1 covering the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange
4
<PAGE> 12
Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party
in the Merger.
"Tax" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger to be signed, verified and delivered
to the Secretary of State of the State of Delaware and, as required, a similar
filing to be made with the relevant authorities in the jurisdiction in which
the COMPANY is organized, on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the
Merger, NEWCO shall be merged with and into the COMPANY in accordance with the
Articles of Merger, the separate existence of NEWCO shall cease, and the
COMPANY shall be the surviving party in the Merger. The COMPANY is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger will be
effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the
5
<PAGE> 13
Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY
then in effect shall be the Certificate or Articles of Incorporation
of the Surviving Corporation until changed as provided by law;
(ii) the By-laws of the COMPANY then in effect shall become the
By-laws of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation
initially shall consist of the following persons:
John H. Kang
Mark Sobolewski
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of New York and of
the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and
effective upon the Effective Time of the Merger, John H. Kang shall be
appointed as a vice president of the Surviving Corporation and Ricardo
A. Salas shall be appointed as an Assistant Secretary of the Surviving
Corporation, each of such officers to serve, subject to the provisions
of the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PC AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
COMPANY, PC and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the COMPANY is as set forth on Schedule
1.4 hereto;
6
<PAGE> 14
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PC will consist of 50,000,000 shares of PC
Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, and 500,000 shares of
preferred stock, $.01 par value, of which no shares will be issued and
outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten
(10) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL") and the
law of the State of New York. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving
Corporation, shall be fully vested therewith. At the Effective Time of the
Merger, the separate existence of NEWCO shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all Taxes,
including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
COMPANY and NEWCO shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the COMPANY and NEWCO; and the title to any real estate, or
interest therein, whether by deed or otherwise, vested in the COMPANY and NEWCO
under the laws of each state of incorporation, shall not revert or be in any
way impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any
7
<PAGE> 15
claim existing, or action or proceeding pending, by or against the COMPANY or
NEWCO may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors
nor any liens upon the property of the COMPANY or NEWCO shall be impaired by
the Merger, and all debts, liabilities and duties of the COMPANY and NEWCO
shall attach to the Surviving Corporation, and may be enforced against such
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) PC Stock and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares
of PC Stock set forth on Annex III hereto and (2) the right to receive
the amount of cash set forth on Annex III hereto. Such amounts of cash
and shares as set forth on Annex III hereto as of the date hereof are
final and shall not change hereafter regardless of the number of
shares sold in the IPO or the offering price of such shares;
(ii) all shares of COMPANY Stock that are held by the
COMPANY as treasury stock shall be canceled and retired and no shares
of PC Stock or other consideration shall be delivered or paid in
exchange therefor; and
(iii) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of PC, automatically
be converted into one fully paid and non-assessable share of common
stock of the Surviving
8
<PAGE> 16
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after
the Effective Time of the Merger.
All PC Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding PC
Stock by reason of the provisions of the Certificate of Incorporation of PC or
as otherwise provided by the Delaware GCL. All voting rights of such PC Stock
received by the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and
the STOCKHOLDERS shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Merger, PC shall have no class of capital
stock issued and outstanding other than the PC Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS shall, upon surrender of certificates
representing all outstanding shares of COMPANY Stock, receive (i) the
respective number of shares of PC Stock set forth on Annex III and (ii) the
amount of cash set forth on Annex III hereto, said cash to be payable by wire
transfer.
3.2 The STOCKHOLDERS shall deliver to PC at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by duly executed stock powers, with, if required
by PC, signatures guaranteed by a national or state chartered bank or other
financial institution, and with all necessary Transfer Tax and other revenue
stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to use reasonable best efforts to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such COMPANY Stock or with respect to
the stock powers accompanying any COMPANY Stock.
4. CLOSING
At or prior to the Pricing, the parties shall use all reasonable best
efforts to take all actions necessary to prepare
9
<PAGE> 17
to (i) effect the Merger (including, if permitted by applicable state law, the
advance filing with the appropriate state authorities of the Articles of
Merger, which shall become effective only at the Effective Time of the Merger)
and (ii) effect the conversion and delivery of shares referred to in Section 3
hereof; provided, that such actions shall not include the actual completion of
the Merger for purposes of this Agreement or the conversion and delivery of the
shares and payment therefor referred to in Section 3 hereof, each of which
actions shall only be taken upon the Funding and Consummation Date as herein
provided. In the event that there is no Funding and Consummation Date and this
Agreement terminates, PC hereby covenants and agrees to do all things required
by Delaware law and all things which counsel for the COMPANY advises PC are
required by applicable laws of the State of New York in order to rescind any
merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Closing") shall take place on the closing date
(the "Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Funding and Consummation Date (x) the
Articles of Merger shall be or shall have been filed with the appropriate state
authorities so that they shall be or, as of 8:00 a.m. New York City time on the
Funding and Consummation Date, shall become effective and the Merger shall
thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of wire transfers
in amounts equal to the cash portions of the consideration which the
STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." This Agreement shall in any event terminate if the
Funding and Consummation Date has not occurred within 15 business days of the
Closing Date, provided that, PC, Newco, the COMPANY and the STOCKHOLDERS shall
act in good faith to consummate the IPO. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and
10
<PAGE> 18
STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of the Closing and the Funding
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of twelve (12) months
(the last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax
periods (and any portions thereof) ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22, and (ii) solely for purposes of Section 11.1(iii) hereof, and solely to
the extent that, in connection with the IPO, PC actually incurs liability under
the 1933 Act, the 1934 Act, or any other Federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable statute of limitations period, which shall be
deemed to be the Expiration Date for such purposes. For purposes of this Section
5, the term the "COMPANY" shall mean and refer to the COMPANY and each of its
subsidiaries, if any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, properties, assets or financial condition (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material
Adverse Effect") on the COMPANY. Schedule 5.1 contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended to date, of the COMPANY (the
"Charter Documents") are all attached hereto as Schedule 5.1. The minute books
and stock records of the COMPANY, as heretofore made available to PC, are
11
<PAGE> 19
correct and complete in all material respects. The most recent minutes of the
COMPANY, which are dated no earlier than ten (10) business days prior to the
date hereof, affirm and ratify all prior acts of the COMPANY and of its
officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full corporate right,
power and authority to enter into this Agreement and the Merger, subject to any
required approval of the shareholders and the Board of Directors of the COMPANY
described on Schedule 5.2, certified copies of which are attached thereto.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the COMPANY is as set forth in Section 1.4(i). All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of capital stock
of the COMPANY have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the STOCKHOLDERS and
were offered, issued, sold and delivered by the COMPANY in compliance in all
material respects with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation
of the preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock
since January 1, 1994. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which
obligates the COMPANY to issue any of its authorized but unissued capital stock
or its treasury stock; (ii) the COMPANY has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure
of the COMPANY nor
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the relative ownership of shares among any of its respective stockholders has
been altered or changed in contemplation of the Merger. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. The COMPANY has no subsidiaries. Except as set
forth on Schedule 5.6, the COMPANY does not own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise)
or from whom the COMPANY previously acquired material assets. Except as
disclosed on Schedule 5.7, the COMPANY has not been a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the COMPANY or any other person or entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are
copies of the following financial statements (the "COMPANY Financial
Statements") of the COMPANY: the COMPANY's audited Consolidated Balance Sheet
as of June 30, 1996 and December 31, 1995 and 1994 and Consolidated Statements
of Income, Cash Flows and Retained Earnings for the six months ended June 30,
1996 and for each of the years in the three-year period ended December 31, 1995
(June 30, 1996 being hereinafter referred
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to as the "Balance Sheet Date"). Such Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 5.9). Except as set forth on Schedule 5.9, such Consolidated
Balance Sheets as of June 30, 1996 and December 31, 1995 and 1994 present
fairly in all material respects the financial position of the COMPANY as of the
dates indicated thereon, and such Consolidated Statements of Income, Cash Flows
and Retained Earnings present fairly in all material respects the results of
operations and cash flows for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PC an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY which are not reflected on the
balance sheet of the COMPANY at the Balance Sheet Date and (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements to which the COMPANY is a party.
Except as set forth on Schedule 5.10, since the Balance Sheet Date, the COMPANY
has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed or otherwise accrued or reserved, a good faith
and reasonable estimate of the maximum amount which may be payable. For each
such contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to PC the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
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(c) name of claimant and all other parties to the claim, suit
or proceeding.
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a reasonable best estimate of the maximum amount, if any,
which is likely to become payable with respect to each such liability.
If no estimate is provided, the best estimate shall for purposes of
this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PC
an accurate list (which is set forth on Schedule 5.11) of the accounts and
notes receivable of the COMPANY, as of the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Closing, the COMPANY shall provide
PC with an accurate list of all receivables obtained subsequent to the Balance
Sheet Date that are outstanding as of the date of the delivery of such list.
For each of the aforementioned accounts and notes receivable reports, the
COMPANY shall provide PC with an aging of all accounts and notes receivable
showing amounts due in 30 day aging categories. Except to the extent reflected
on Schedule 5.11, such accounts and notes are collectible in the amounts shown
on Schedule 5.11, and the COMPANY has not received any written notice of any
contest, claim or right of set-off with respect to the amount or validity of
any such account receivable and has no other reason to believe that such
amounts are not fully collectible.
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect on its business,
and the COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.12) of all Intellectual Property owned or used by the COMPANY. Each
item of Intellectual Property owned or used by the COMPANY is valid and in full
force and effect. Except as set forth on Schedule 5.12,
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all right, title and interest in and to each item of Intellectual Property is
owned by the COMPANY and is not subject to any license, royalty arrangement or
pending or threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY, infringes any Intellectual
Property right of any other entity and no Intellectual Property owned by the
COMPANY is infringed upon by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect on its business, and the COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.12) of all such licenses, franchises,
permits and other governmental authorizations, including permits, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, franchises and certificates. To the knowledge of the COMPANY, the
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing, in each case, except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied in all material respects with and is in compliance in
all material respects with all Federal, state, local and foreign statutes
(civil and criminal), laws, ordinances, regulations, rules, notices, permits,
judgments, orders and decrees applicable to it or any of its properties,
assets, operations and businesses relating to environmental protection
(collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable
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Environmental Law); (ii) the COMPANY has obtained and adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of
and otherwise handle Hazardous Wastes and Hazardous Substances and has
reported, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the COMPANY where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined
in Environmental Laws) at, from, in or on any property owned or operated by the
COMPANY except as permitted by Environmental Laws; (iv) the COMPANY knows of no
on-site or off-site location to which the COMPANY has transported or disposed
of Hazardous Wastes and Hazardous Substances or arranged for the transportation
of Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the COMPANY, PC or NEWCO for any clean-up
cost, remedial work, damage to natural resources or personal injury, including,
but not limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) the COMPANY has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property
included (or that will be included) in "depreciable plant, property and
equipment" (or similarly named line item)on the balance sheet of the COMPANY as
of the Balance Sheet Date, (y) all other personal property owned by the COMPANY
with a value individually in excess of $10,000 (i) as of the Balance Sheet Date
and (ii) acquired since the Balance Sheet Date and (z) all leases and
agreements in respect of personal property, including, in the case of each of
(x), (y) and (z), (1) true, complete and correct copies of all such leases, (2)
a listing of the capital costs of all such assets which are subject to capital
leases and (3) an indication as to which assets are currently owned, or, to the
COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or affiliates of the
COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal
property with a value individually in excess of $10,000 used by the COMPANY in
its business is either owned by the COMPANY or leased by the COMPANY pursuant
to a lease included on
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Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted, and (iii)
all leases and agreements included on Schedule 5.14 are in full force and
effect and constitute valid and binding agreements of the COMPANY, and to the
COMPANY's knowledge, of the parties (and their successors) thereto in
accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PC an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, or persons or entities that are sources
of a significant number of customers (e.g., certain physician practices, HMO's,
etc.), it being understood and agreed that a "significant customer," for
purposes of this Section 5.15, means a customer (or persons or entity)
representing 5% or more of the COMPANY's annual revenues as of the end of its
last fiscal year. Except to the extent set forth on Schedule 5.15, none of the
COMPANY's significant customers (or persons or entities that are sources of a
significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements), other than agreements listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19,(a) in existence as of the Balance Sheet Date
and (b) entered into since the Balance Sheet Date, and in each case has
delivered true, complete and correct copies of such agreements to PC. The
COMPANY has complied in all material respects with all commitments and
obligations pertaining to it, is not in default under any contracts or
agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects
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involving the opening of new operations, expansion of existing operations or
the acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the COMPANY (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including that reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default by
the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do not
materially adversely affect the current use of the property.
Schedule 5.16 contains true, complete and correct copies of all title reports
and title insurance policies received or owned by the COMPANY with respect to
real property owned by the COMPANY.
Schedule 5.16 also contains an accurate list of, and true, complete
and correct copies of, all leases and agreements in respect of real property
leased by the COMPANY, which leases and agreements are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or, to the COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule
5.16, all of such leases included on Schedule 5.16 are in full force and effect
and constitute valid and binding
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agreements of the COMPANY, and to the COMPANY's knowledge, of the parties (and
their successors) thereto in accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to PC, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies currently carried by the COMPANY, (ii) an accurate list
of all insurance loss runs or workers' compensation claims received for the
past three (3) policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all of
the insurance that the COMPANY is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. No insurance
carried by the COMPANY has ever been canceled by the insurer and the COMPANY
has never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
COMPANY has provided to PC true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
there have been no increases in the compensation payable or any special bonuses
to any officer, director, key employee or other employee, except ordinary
salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) no employees
of the COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) no campaign to establish such representation is in
progress and (iv) there is no pending or, to the COMPANY's knowledge,
threatened labor dispute involving the COMPANY and any
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group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationships with its
employees to be good.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 are complete
and accurate copies, as of the Balance Sheet Date, of all employee benefit
plans, all employee welfare benefit plans, all employee pension benefit plans,
all multi-employer plans and all multi-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which
are currently maintained and/or sponsored by the COMPANY, or any benefit plans
or arrangements, formal or informal, that are not subject to ERISA, including,
without limitation, employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements, or to which
the COMPANY currently contributes, or has an obligation to contribute in the
future (including, without limitation, benefit plans or arrangements that are
not subject to ERISA, such as employment agreements and any other agreements
containing "golden parachute" provisions and deferred compensation agreements),
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans").
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does
not maintain or sponsor, and is not a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
compensation or benefit arrangement, formal or informal, with their respective
employees, whether or not subject to ERISA. Except as set forth on Schedule
5.20, (i) all Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable laws, and have been administered, operated and managed in all
material respects in accordance with the governing documents; (ii) all Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of
the Code are so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of the current plan determination
letters, or, in the case of master or prototype plans, opinion letters, most
recent actuarial valuation reports, if any, most recent Form 5500, or,
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as applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.20; (iii) to the extent that any Qualified Plans
have not been amended to comply with applicable law, the remedial amendment
period permitting retroactive amendment of such Qualified Plans has not expired
and will not expire within 120 days after the Funding and Consummation Date;
(iv) all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
Reports, audits or tax returns) have been timely filed or distributed, or
failure to timely file or deliver will not result in a Material Adverse Effect
to the COMPANY; (v) none of the STOCKHOLDERS, any Plan, or the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA that could result in a material tax or penalty
to the COMPANY; (vi) no Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; (vii) no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation (the "PBGC") under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty that could result in any material
liability to the COMPANY with respect to any plan now or hereafter maintained
or contributed to by the COMPANY or any member of a "controlled group" (as
defined in Section 4001(a)(14) of ERISA) that includes the COMPANY; (viii)
neither the COMPANY nor any member of a "controlled group" (as defined above)
that includes the COMPANY currently has (or at the Funding and Consummation
Date will have) any obligation whatsoever to contribute to any "single employer
pension plan" (as defined in ERISA Section 4001(a)(15)) or any "multi-employer
pension plan" (as defined in ERISA Section 4001(a)(3)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections
4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan; (ix) there
have been no terminations or partial terminations of, or discontinuance of
contributions to, any Qualified Plan without notice to and approval by the
Internal Revenue Service; (x) no Plan that is subject to the provisions of
Title IV of ERISA has
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been terminated within the three year period immediately preceding the date of
this Agreement; (xi) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Plan which were not
properly reported within the three year period immediately preceding the date of
this Agreement; (xii) with respect to Plans which qualify as "group health
plans" under Section 4980B of the Internal Revenue Code and Section 607(1) of
ERISA and related regulations (relating to the benefit continuation rights
imposed by "COBRA"), the COMPANY and the STOCKHOLDERS have complied (and on the
Funding and Consummation Date will have complied) in all material respects with
all reporting, disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans, and the
COMPANY has not incurred (and will not incur) any material direct or indirect
liability and is not (and will not be) subject to any material loss, assessment,
excise tax penalty, loss of Federal income tax deduction or other sanction,
arising on account of or in respect of any direct or indirect failure by the
COMPANY or the STOCKHOLDERS, at any time prior to the Funding and Consummation
Date, to comply with any such Federal or state benefit continuation requirement,
which is capable of being assessed or asserted before or after the Funding and
Consummation Date directly or indirectly against the COMPANY or the STOCKHOLDERS
with respect to such group health plans; and (xiii) other than claims in the
ordinary course of business there is no pending litigation, arbitration, or
disputed claim, settlement or adjudication proceeding, and to the best of the
COMPANY's and STOCKHOLDERS' knowledge, there is no threatened litigation,
arbitration or disputed claim, settlement or adjudication proceeding or any
governmental or other proceeding or investigation with respect to any Plan, or
with respect to any fiduciary, administrator or sponsor thereof (in their
capacities as such), or any party in interest thereof.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 5.21, the COMPANY is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or,
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to the knowledge of the COMPANY or the STOCKHOLDERS, threatened against or
affecting the COMPANY, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality having jurisdiction over it which would have a Material
Adverse Effect, and no notice of any such claim, action, suit or proceeding,
whether pending or threatened, has been received. The COMPANY has conducted and
is conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing, which
violation would be reasonably likely to have a Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or
similar group of which the COMPANY is or was a member (a "Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all
other information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the COMPANY, any subsidiary and
any member of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the COMPANY
Financial Statements are sufficient for all unpaid Taxes, being
current taxes not yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made
by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file Returns that it is or may be subject to taxation by that
jurisdiction.
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(iv) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or
other third party.
(v) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been raised
in any examination by any Taxing Authority with respect to any
Acquired Party which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or
after January 1, 1990, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to PC complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party
since January 1, 1990.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(ix) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax-exempt use property, within
the meaning of Section 168 of the Code.
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No Acquired Party is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(xi) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Funding and Consummation Date.
(xiii) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
(xvi) There currently are no limitations on the utilization of
the net operating losses, built-in losses,
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capital losses, Tax credits or other similar items of any Acquired
Party (collectively, the "Tax Losses") under (i) Section 382 of the
Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code,
(iv) Section 269 of the Code, (v) Section 1.1502-15 and Section
1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) Sections
1.1502-91 through 1.1502-99 of the Treasury regulations, in each case
as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At ______________, the Acquired Parties had aggregate Tax
Losses for federal income Tax purposes as described on Schedule
5.22(xvii) attached hereto.
(xviii) The COMPANY is not an investment company as defined in
Section 351(e)(1) of the Code.
(xix) The fair market value of the assets of the COMPANY exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(xx) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) of
the Code.
For purposes of this Section 5.22, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax
with any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net
or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
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"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY and the
STOCKHOLDERS, any other party thereto, is in default under any lease,
instrument, agreement, license or permit set forth on Schedule 5.12, 5.14,
5.15, 5.16, 5.18 or 5.19 or any other material agreement to which it is a party
or by which its properties are bound (the "Material Documents"); and, except as
set forth on Schedule 5.23, (a) the rights and benefits of the COMPANY under
the Material Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
by the COMPANY and the STOCKHOLDERS of their obligations hereunder and the
consummation by the COMPANY and the STOCKHOLDERS of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Documents or the Charter Documents. Except as set forth on Schedule 5.23, none
of the Material Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
expressly prohibits or materially restricts the COMPANY from freely providing
services to any other customer or potential customer or the COMPANY, PC, NEWCO
or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.15, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise),
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income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
COMPANY;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the COMPANY to any
of its officers, directors, STOCKHOLDERS, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the COMPANY to
any person, including, without limitation, the STOCKHOLDERS and their
affiliates;
(viii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to the COMPANY,
including, without limitation, any material indebtedness or obligation
of any STOCKHOLDERS or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
material assets, property or rights of the COMPANY or requiring
consent of any party to the transfer and assignment of any such
material assets, property or
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rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY,
provided that, the COMPANY may negotiate and adjust bills in the
course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included on Schedule 5.11 unless specifically listed
thereon;
(xii) any breach, or any amendment other than an amendment in
the ordinary course of business, or termination of any material
contract, agreement, license or permit to which the COMPANY is a
party;
(xiii) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date;
(xiv) any other distribution of property or assets by the
COMPANY outside the ordinary course of business;
(xv) any other transaction by the COMPANY outside the ordinary
course of its business; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered
to PC an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the COMPANY
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
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(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY
and a description of the terms of such power of attorney.
5.27 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 DISCLOSURE. (a) This Agreement, the schedules hereto, and the
certificates and other documents furnished by the COMPANY to PC pursuant hereto
and for inclusion in the Registration Statement(which, for purposes of this
Agreement, shall include the completed Directors and Officers Questionnaires
and Registration Statement Questionnaires), taken as a whole, do not, and as to
any representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representation and warranty, to the COMPANY's knowledge,
does not, as of their respective dates contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge and
agree (i) that there exists no firm commitment, binding agreement, or promise
or other assurance of any kind, whether express or implied, oral or written,
that a Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; and (ii) that neither PC or any of its officers, directors,
agents or representatives shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all
provided that PC acts in good faith, and uses its best efforts to cause its
directors and officers to act in good faith to consummate the transactions
contemplated herein.
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(B) Representations and Warranties of STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of the
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.29 and 5.30 shall survive until the tenth
anniversary of the Funding and Consummation Date, which shall be deemed to the
Expiration Date for purposes of Sections 5.29 and 5.30.
5.29 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on the
Schedule 5.29, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind.
5.30 PREEMPTIVE RIGHTS. As of the date hereof, such STOCKHOLDER does
not have any preemptive or other right to acquire shares of PC Stock (other
than rights of any STOCKHOLDER to acquire PC Stock pursuant to (i) this
Agreement or (ii) any option granted by PC) and, except for the rights set
forth on Schedule 5.4, such STOCKHOLDER does not have, and hereby waives, any
such preemptive or other right to acquire shares of COMPANY stock.
5.31 NO INTENTION TO DISPOSE OF COMPANY STOCK. There is no current
plan or intention by any STOCKHOLDER to sell, exchange or otherwise dispose of
shares of PC Stock received in the Merger.
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6. REPRESENTATIONS AND WARRANTIES OF PC AND NEWCO
PC and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of the Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve (12) months (the last day of such period being the
"Expiration Date"), except that (i) the warranties and representations set
forth in Section 6.13 hereof shall survive until such time as the limitations
period has run for all tax periods (and any portions thereof) ended on or prior
to the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 6.13 and (ii) solely for purposes of Section 11.2(iv) hereof,
and solely to the extent that in connection with the IPO PC actually incurs
liability under the 1933 Act, the 1934 Act or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PC and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as amended to date, of PC and
NEWCO (the "PC Charter Documents") are all attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The respective representatives of PC and
NEWCO executing this Agreement have the authority to enter into and bind PC and
NEWCO to the terms of this Agreement and (ii) PC and NEWCO have the full
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of PC
and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding
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shares of the capital stock of NEWCO are owned by PC and all of the issued and
outstanding shares of the capital stock of PC are owned by the persons set
forth on Annex V hereof, in each case, free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of the capital
stock of PC and NEWCO have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by PC and the
persons set forth on Annex V, respectively, and were offered, issued, sold and
delivered by PC and NEWCO in compliance in all material respects with all
applicable state and Federal laws concerning the issuance of securities. None
of such shares were issued in violation of the preemptive rights of any past or
present stockholder of PC or NEWCO. No preemptive or other right to acquire
shares of PC or NEWCO stock has been granted to any person other than the
rights granted pursuant to this Agreement and the transactions contemplated
herein, the Other Agreements and the transactions contemplated therein or as
set forth in the Registration Statement.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements
and as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates PC or NEWCO to issue any
of its authorized but unissued capital stock or treasury stock; and (ii)
neither PC nor NEWCO has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 6.4 also includes complete and accurate copies of all stock option or
stock purchase plans of PC and NEWCO, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of their respective capital stock.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. PC has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither PC nor
NEWCO owns, of record or beneficially, or controls, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is PC or NEWCO,
directly or indirectly, a
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participant in any joint venture, partnership or other non-corporate entity.
6.6 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule
6.6, PC and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.7 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 6.7, neither PC nor NEWCO is in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them, which violation would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.7, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PC or NEWCO, threatened, against or affecting PC or NEWCO, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. PC and NEWCO have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing, which violation might have a Material Adverse Effect.
6.8 NO VIOLATIONS. Neither PC nor NEWCO is in violation of any PC
Charter Document. None of PC, NEWCO or, to the knowledge of PC and NEWCO, any
other party thereto is in default under any lease, instrument, agreement,
license or permit to which PC or NEWCO is a party, or by which PC or NEWCO, or
any of their respective properties, are bound (collectively, the "PC
Documents"); and (a) the rights and benefits of PC and NEWCO under the PC
Documents will not be adversely affected by the transactions contemplated
hereby; and (b) the execution of this Agreement and the performance of PC's and
NEWCO's obligations
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hereunder and the consummation by them of the transactions contemplated hereby
will not result in any material violation or breach of, or constitute a default
under, any of the terms or provisions of the PC Documents or the PC Charter
Documents. Except as set forth on Schedule 6.8, none of the PC Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect, and the consummation of the
transactions contemplated hereby will not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit of PC
or NEWCO.
6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PC and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of PC and NEWCO, and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of PC and NEWCO.
6.10 PC STOCK. At the time of issuance thereof, the PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PC, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all respects to the PC Stock issued and outstanding as of
the date hereof by reason of the provisions of the Delaware GCL. The shares of
PC Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.11 NO SIDE AGREEMENTS. Neither PC nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or PC other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. PC has provided to the COMPANY any
of such documents which have been requested by the COMPANY or the STOCKHOLDERS.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PC was formed in
July 1996, and has conducted limited operations
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since that time. Neither PC nor NEWCO has conducted any business since the date
of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Neither PC nor NEWCO owns or has at any time owned any
real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.12 and except that PC is a party to
the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
6.13 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule 6.13:
(i) All Returns required to have been filed by or with respect
to PC and any affiliated, combined, consolidated, unitary or similar
group of which PC is or was a member (a "PC Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the PC Relevant Group have been paid.
(ii) The provisions for Taxes due by PC and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the PC Financial
Statements are sufficient for all unpaid Taxes, being current taxes
not yet due and payable, of the PC Relevant Group.
(iii) No corporation in the PC Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim
has ever been made by any Taxing Authority in a jurisdiction in which
a corporation in the PC Relevant Group does not file Returns that it
is or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the PC Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
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(v) No corporation in the PC Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it
for any past period. There is no dispute or claim concerning any Tax
liability of any corporation in the PC Relevant Group either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to
any corporation in the PC Relevant Group. No issues have been raised
in any examination by any Taxing Authority with respect to any
corporation in the PC Relevant Group which, by application of similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Schedule 6.13(v)
attached hereto lists all federal, state, local and foreign income Tax
Returns filed by or with respect to any corporation in the PC Relevant
Group for all taxable periods, indicates those Returns, if any, that
have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the PC Relevant Group will make
available to the STOCKHOLDERS, at their request, complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, PC.
(vi) No corporation in the PC Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
(vii) No corporation in the PC Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make
any payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the PC Relevant Group is a party to any
Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the PC Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No
corporation in the PC Relevant Group is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code
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as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(x) No corporation in the PC Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of
any corporation in the PC Relevant Group is subject to an election
under Section 341(f) of the Code or comparable provisions of any state
statutes.
(xi) No corporation in the PC Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the PC
Relevant Group that could give rise to an adjustment under Section 481
of the Code for periods after the Funding and Consummation Date.
(xiii) No corporation in the PC Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into
any written and legally binding agreement with a Taxing Authority
relating to Taxes.
(xiv) Each corporation in the PC Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662(d) of the Code.
(xv) No corporation in the PC Relevant Group has any liability
for Taxes of any person other than such corporation in the PC Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the
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utilization of the net operating losses, built-in losses, capital
losses, Tax credits or other similar items of any corporation in the
PC Relevant Group (collectively, the "Tax Losses") under (i) Section
382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of
the Code, (iv) Section 269 of the Code, (v) Section 1.1502- 15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21
and Section 1.1502-21A of the Treasury regulations or (vii) Sections
1.1502-91 through 1.1502-99 of the Treasury regulations, in each case
as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) Neither PC nor NEWCO is an investment company as defined
in Section 351(e)(1) of the Code.
(xviii) Neither PC nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
351(e)(2) of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of
this Agreement and the Funding and Consummation Date, upon reasonable notice to
the COMPANY, the COMPANY will afford to the officers and authorized
representatives of PC and the Other Founding Companies access to all of the
COMPANY's sites, properties, books and records and will furnish PC with such
additional financial and operating data and other information as to the
business and properties of the COMPANY as PC or the Other Founding Companies
may from time to time reasonably request. The COMPANY will cooperate with PC
and the Other Founding Companies, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with the transactions contemplated by this Agreement. PC, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, PC will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
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and agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and
Consummation Date, upon reasonable notice to PC, PC will afford to the officers
and authorized representatives of the COMPANY access to all of PC's and NEWCO's
sites, properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of PC and NEWCO as the COMPANY may from time to time
reasonably request. PC and NEWCO will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with the transactions
contemplated by this Agreement. The COMPANY, PC and NEWCO will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as
set forth on Schedule 7.2:
(i) carry on its business in the ordinary course as conducted
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its current obligations as required under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
material business relations with the COMPANY;
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(vi) maintain compliance, in all material respects, with all
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or
lease instruments, without the knowledge and consent of PC (which
consent shall not be unreasonably withheld); and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents, except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Funding and Consummation Date, the COMPANY will
not, without the prior written consent of PC:
(i) make any change in its Articles or Certificate of
Incorporation or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its
securities of any kind other than in connection with the exercise of
options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is
in the ordinary course of business (consistent with past practice) and
involves an amount not in excess of $50,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or
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properties, whether now owned or hereafter acquired, except (1) with
respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$50,000 necessary or desirable for the conduct of the business of the
COMPANY, (2) (A) liens for taxes either not yet due or being contested
in good faith and by appropriate proceedings (and for which adequate
reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set
forth in clause (2) being referred to herein as "Statutory Liens"), or
(3) liens set forth on Schedule 5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(vii) negotiate for the acquisition of any business or start-up
any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(x) breach or amend, other than an amendment in the ordinary
course of business, or terminate any material contract, agreement,
license, or permit to which the COMPANY is a party; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the
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date of this Agreement and ending with the earlier to occur of the Funding and
Consummation Date or the termination of this Agreement in accordance with its
terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussion pertaining to, or
(iii) furnish any information to any person other than PC or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the
COMPANY or a merger, consolidation or business combination of the
COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide PC on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders' agreements, voting agreements, voting trusts, options,
warrants and employment agreements between the COMPANY and any employee listed
on Schedule 9.12 hereto and (ii) any existing agreement between the COMPANY and
any STOCKHOLDER, at or prior to the Funding and Consummation Date. Copies of
such termination agreements are attached to Schedule 7.6 or will be furnished
to PC at or prior to such date.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the
COMPANY shall give prompt notice to PC of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the COMPANY or the STOCKHOLDERS contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. PC and NEWCO shall give prompt notice to
the COMPANY of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause
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any representation or warranty of PC or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of PC or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Funding
and Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth
or described on the Schedules, provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to reflect
an event occurring other than in the ordinary course of business.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect may be made unless PC and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement; and
provided further, that no amendment or supplement to a Schedule prepared by PC
or NEWCO that constitutes or reflects an event or occurrence would be
reasonably likely to have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the
Other Founding Companies or its stockholders seek to amend or supplement a
Schedule pursuant to Section 7.8 of one of the Other Agreements, and such
amendment or supplement constitutes or reflects an event
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or occurrence that would be reasonably likely to have a Material Adverse Effect
on such Other Founding Company or the sale of its stock by its stockholders to
PC, PC shall give the COMPANY notice promptly after it has knowledge thereof.
If PC and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given if no response is
received within 48 hours after notice of such amendment or supplement (or
sooner if required by the circumstances under which such consent is requested),
but the COMPANY does not, the COMPANY may terminate this Agreement pursuant to
Section 12.1(iv) hereof. In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and PC and a majority of the
Other Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that PC or NEWCO seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party
to this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8, except that,
notwithstanding anything to the contrary contained in this Agreement, if the
COMPANY or the STOCKHOLDERS on the one hand, or PC or NEWCO on the other hand,
amends or supplements a Schedule which results in a termination of this
Agreement and such amendment or supplement arises out of or reflects facts or
circumstances which such party knew about at the time of execution of this
Agreement and knew would result in a termination of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall
pay or reimburse PC or the COMPANY and the STOCKHOLDERS, as the case may be,
for all of the legal, accounting and other out of pocket costs reasonably
incurred in connection with this Agreement and the IPO as it relates to the
COMPANY and the STOCKHOLDERS.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
COMPANY and the STOCKHOLDERS shall furnish or cause to be furnished to PC and
the Underwriters all of the information concerning the COMPANY and the
STOCKHOLDERS reasonably requested by PC or the Underwriters for inclusion in,
and will cooperate with PC and the Underwriters in the
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preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, and in form otherwise reasonably
requested by PC or the Underwriters as suitable for inclusion in the
Registration Statement). PC and NEWCO agree to use their best efforts to
provide to the STOCKHOLDERS and the COMPANY copies of all drafts of the
Registration Statement circulated to the working group as a whole, including
the prospectus included therein and all amendments and exhibits thereto and any
other documents and correspondence received by or filed with the SEC, and, to
the extent practicable in light of the timetable for the IPO and the potential
need to respond promptly to SEC, NASD or NASDAQ comments, to give the
STOCKHOLDERS and the COMPANY sufficient time to review and comment upon such
documents prior to filing with the SEC. The COMPANY and the STOCKHOLDERS agree
promptly to advise PC if at any time during the 25 day period following the
date of the final prospectus with respect to the IPO (the "Final Prospectus")
in which a prospectus relating to the IPO is required to be delivered under the
Securities Act, any information contained in the prospectus concerning the
COMPANY or the STOCKHOLDERS and which was provided by or on behalf of the
STOCKHOLDERS or the COMPANY or their respective agents or representatives for
inclusion in the Registration Statement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and to provide the
information needed to correct such misstatement or omission. Insofar as the
information requested relates solely to the COMPANY or the STOCKHOLDERS and was
provided by the COMPANY or the STOCKHOLDERS or their respective agents or
representatives for inclusion in the Registration Statement, each of the
COMPANY and the STOCKHOLDERS represents and warrants that the Registration
Statement at its effective date, at the date of each of the Final Prospectus
and each amendment to the Registration Statement or supplement to the Final
Prospectus, and at each closing date with respect to the IPO under the
Underwriting Agreement (including with respect to any over- allotment option)
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall
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provide prior to the Funding and Consummation Date, and PC shall have had
sufficient time to review, the unaudited consolidated balance sheets of the
COMPANY as of the end of all fiscal quarters following the Balance Sheet Date,
and the unaudited consolidated statements of income, cash flows and retained
earnings of the COMPANY for all fiscal quarters ended after the Balance Sheet
Date, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of
the Balance Sheet Date. Such financial statements shall have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will present fairly the results of operations of the COMPANY for the periods
indicated thereon.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
7.12 Limitation on Indebtedness. As of the Funding and Consummation
Date, the amount outstanding under the COMPANY's line of credit (as evidenced
by that certain Demand Grid Note, dated October 27, 1995, between Marine
Midland Bank and the COMPANY (the "Note")), shall be no greater than $350,000.
In the event that the amount outstanding under the note exceeds $350,000 as of
the Funding and Consummation Date, the COMPANY and the STOCKHOLDERS, jointly
and severally, hereby agree to indemnify PC in the amount of such excess.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on each of the Closing Date and the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Closing Date and the Funding and Consummation Date of all of the following
conditions. As of the Closing Date or the Funding and Consummation Date, as the
case may be, all conditions not satisfied shall be deemed to have been waived
by the COMPANY and the STOCKHOLDERS unless such parties have notified PC in
writing to the contrary, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of PC and NEWCO contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PC and NEWCO contained in this Agreement
shall be true and correct in all material respects as of the Closing Date and
the Funding and Consummation Date as though such representations and warranties
had been made as of that time; all of the terms, covenants and
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conditions of this Agreement to be complied with and performed by PC and NEWCO
on or before the Closing Date and the Funding and Consummation Date shall have
been duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and the Funding and
Consummation Date and signed by the President or any Vice President of PC shall
have been delivered to the STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be satisfactory to the COMPANY and its
counsel. The STOCKHOLDERS and the COMPANY shall be satisfied that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplement thereto, shall not contain any untrue
statement of a material fact, or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that the condition contained in this sentence shall be
deemed satisfied if the COMPANY or STOCKHOLDERS shall have failed to inform PC
in writing prior to the Funding and Consummation Date of the existence of an
untrue statement of a material fact or the omission of such a statement of a
material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the Mergers
contemplated by the other Agreements or the offering and sale by PC of PC Stock
pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion
from counsel for PC, dated the Closing Date, in the form annexed hereto as
Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, shares of PC Stock at a price to the
public of not less than $10.00 per share.
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8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the Merger or the Mergers contemplated by the other Agreements.
8.7 GOOD STANDING CERTIFICATES. PC and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which PC or NEWCO is authorized to do business, showing
that each of PC and NEWCO is in good standing and authorized to do business and
that all state franchise and/or income tax returns and taxes for PC and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to PC or NEWCO which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and the Funding and
Consummation Date and signed by the Secretary of PC and of NEWCO, certifying
the truth and correctness of attached copies of PC's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors and,
if required, the stockholders of PC and NEWCO approving PC's and NEWCO's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto.
8.12 TAX TREATMENT. The COMPANY and the STOCKHOLDERS shall be
reasonably satisfied that (i) none of PC, NEWCO or any Other Founding Company
(or its STOCKHOLDERS) has breached any representation or warranty set forth in
this Agreement or in the Other Agreements, and (ii) no event outside the
control of the COMPANY and the STOCKHOLDERS has occurred between the date of
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this Agreement and the Funding and Consummation Date, in each case so as to
jeopardize the treatment of the transactions contemplated by the PC Plan of
Organization as a transfer of property described in Section 351 of the Code.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
The obligations of PC and NEWCO with respect to actions to be taken on
each of the Closing Date and the Funding and Consummation Date are subject to
the satisfaction or waiver on or prior to the Closing Date and the Funding and
Consummation Date of all of the following conditions. As of the Closing Date or
the Funding and Consummation Date, as the case may be, all conditions not
satisfied shall be deemed to have been waived by PC and NEWCO unless such
parties have notified the COMPANY and the STOCKHOLDERS in writing to the
contrary, except that no such waiver shall be deemed to affect the survival of
the representations and warranties of the COMPANY and the STOCKHOLDERS
contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of the STOCKHOLDERS and the COMPANY
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Funding and Consummation Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDERS and the COMPANY on or before the
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDERS shall have delivered to PC a certificate dated the Closing Date
and the Funding and Consummation Date and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the offering and sale
by PC of PC Stock pursuant to the Registration Statement.
9.3 SECRETARY'S CERTIFICATE. PC shall have received a certificate,
dated the Closing Date and the Funding and Consummation Date and signed by the
Secretary of the COMPANY, certifying the truth and correctness of attached
copies of the
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COMPANY's Certificate or Articles of Incorporation (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the board
of directors and the STOCKHOLDERS approving the COMPANY's entering into this
Agreement and the consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
PC an instrument dated the Closing Date releasing the COMPANY from (i) any and
all claims of the STOCKHOLDERS against the COMPANY and (ii) any and all
obligations of the COMPANY to the STOCKHOLDERS, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to the STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental hereto and all other related legal matters shall be satisfactory
to PC and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 and consented to by PC, all existing agreements between the
COMPANY and the STOCKHOLDERS shall have been canceled effective prior to or as
of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PC shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date, in the
form annexed hereto as Annex VII, which form shall be deemed to include any
additional opinions covering matters customary under the circumstances and
based upon reasonable requests by the Underwriters, which opinion may be relied
upon by counsel to PC in connection with any opinion requested of it by the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third
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parties listed on Schedule 5.23 shall have been obtained; and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PC a certificate, dated as of a date no earlier than five days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by PC, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto. Any employment agreement in effect as of the date hereof
between the COMPANY and any person listed on Schedule 9.12 shall have been
terminated on or prior to the Funding and Consummation Date.
9.13 CLOSING OF THE IPO. The closing of the sale of PC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to PC
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PC AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. PC
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the COMPANY, with all such guarantees on indebtedness being assumed by PC.
In the event that PC cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, PC shall pay off or otherwise refinance or retire such
indebtedness and, in the event that PC cannot obtain releases on or prior to
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the Funding and Consummation Date, PC agrees to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees which arise as
a result of PC's failure to cause such guarantees to be released on or prior to
the Funding and Consummation Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, PC shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the PC Stock issued in connection with
the transactions contemplated hereby;
(b) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS; and
(c) the disposition of any material part of the assets of
the COMPANY within the two years following the Funding and
Consummation Date except in the ordinary course of business or to
eliminate duplicate services or excess capacity.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date. Each STOCKHOLDER shall pay or cause
to be paid all Tax liabilities shown by such Returns to be due. PC and NEWCO
shall not file any amended Tax Returns for any taxable year or portion thereof
of the Surviving Corporation ending on or before the Funding and Consummation
Date without the prior written consent of the STOCKHOLDERS, which consent shall
not be unreasonably withheld.
(ii) PC shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or
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claim for refund, determining a liability for Taxes or a right to refund of
Taxes or in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, NEWCO, PC and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a transfer
of property under Section 351(a) of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall
be appointed as directors of PC not later than ten (10) days following the
closing of the IPO.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing, PC
shall not terminate any health insurance, life insurance or 401(k) plan in
effect at the COMPANY until such time as PC is able to replace such plan with a
plan that is applicable to the COMPANY, provided that PC shall have no
obligation to provide replacement plans that have the same terms and provisions
as the existing plans, and provided, further, that any new health insurance
plan shall provide for coverage for preexisting conditions.
11. INDEMNIFICATION
The STOCKHOLDERS, PC and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless PC, NEWCO and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands,
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assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by PC, NEWCO, the COMPANY or the Surviving Corporation
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
Schedules or certificates delivered in connection herewith, (ii) any
nonfulfillment of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to PC
or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, (iv) any Tax imposed upon or relating to
any third party for a pre-Funding and Consummation Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury regulations (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise, or (v)
the matters described on Schedule 11.1(v), provided that any proposed amendment
to Schedule 11.1(v) made after the signing of this Agreement may only be made
with consent of the COMPANY and the STOCKHOLDERS, and provided, further, that
such indemnity shall not inure to the benefit of PC, NEWCO or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PC's counsel and to PC for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no STOCKHOLDER shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
STOCKHOLDER.
11.2 INDEMNIFICATION BY PC. PC covenants and agrees
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that it will indemnify, defend, protect and hold harmless the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the STOCKHOLDERS as a result of or arising from (i) any breach by
PC or NEWCO of its representations and warranties set forth herein or on the
Schedules or certificates delivered in connection herewith, (ii) any
nonfulfillment of any agreement on the part of PC or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDERS may incur due to PC's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 1 hereof (except to the extent that PC or NEWCO
has claims against the STOCKHOLDERS by reason of such liabilities); (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to PC, NEWCO
or any of the Other Founding Companies contained in any preliminary prospectus,
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to PC or
NEWCO or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading, or (v) the matters
described on Schedule 11.2(v).
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof, to the extent known. The
Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long
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as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party, such consent not to be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to
defend or settle, it shall promptly notify the Indemnified Party of its
intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest in
the opinion of such counsel that prevents counsel for the Indemnifying Party
from representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the expenses of its
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person and the Indemnified Party shall
reimburse the Indemnifying Party for any additional costs of defense which it
subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of
its choice, at the cost and expense of the Indemnifying Party, and the
Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing,
which agreement shall not be unreasonably withheld or delayed. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. PC, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim other than a Third Person claim for
indemnification hereunder against the STOCKHOLDERS until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDERS shall exceed 1.0% of the sum of the cash paid to
STOCKHOLDERS plus the value of the PC Stock delivered to STOCKHOLDERS (for
purposes of calculating the value of the PC Stock, such PC Stock is to be
valued at its initial public offering price as set forth in the Registration
Statement) (the "Indemnification Threshold"), provided, however, that PC,
NEWCO, the Surviving Corporation and the other persons or entities indemnified
pursuant to Section 11.1 or 11.2 may assert and shall be indemnified for any
claim under Sections
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11.1(iv) and (v) at any time, regardless of whether the aggregate of all claims
which such persons may have against any STOCKHOLDER or all STOCKHOLDERS exceeds
the Indemnification Threshold, it being understood that the amount of any such
claim under Sections 11.1(iv) and (v) shall not be counted towards the
Indemnification Threshold. The STOCKHOLDERS shall not assert any claim (other
than a Third Person claim) for indemnification hereunder against PC or NEWCO
until such time as, and solely to the extent that, the aggregate of all claims
which the STOCKHOLDERS may have against PC or NEWCO shall exceed $100,000,
provided, however, that the STOCKHOLDERS and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 may assert and shall be
indemnified for any claim under Section 11.2(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against PC or
NEWCO exceeds $100,000, it being understood that the amount of any such claim
under Section 11.2(v) shall not be counted towards such $100,000 amount.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a material breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of the cash
paid to the STOCKHOLDER plus the value of the PC Stock delivered to the
STOCKHOLDER as calculated above, provided that a STOCKHOLDER's indemnification
obligations pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PC and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its
board of directors), on the one hand, or by PC (acting through its
board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by December 31, 1996, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
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obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by
PC, on the other hand, if a material breach or default shall be made
by the other party in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period
of five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with PC or any of the subsidiaries thereof, within
100 miles of where the COMPANY or any of its subsidiaries or any of
the other Founding Companies conducted business prior to the
effectiveness of the Merger or proposed to conduct business as of such
time (the "Territory");
(ii) solicit any person who is, at that time, within the
Territory, an employee of PC (including the subsidiaries thereof) in a
sales representative or managerial capacity
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for the purpose or with the intent of enticing such employee away from
or out of the employ of PC (including the subsidiaries thereof);
(iii) solicit any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and
Consummation Date, a customer of PC (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with PC within the Territory;
(iv) solicit any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in the medical
software development or distribution business, which candidate was
either called upon by PC (including the subsidiaries thereof) or for
which PC (or any subsidiary thereof) made an acquisition analysis
which was known (or should have been known) to the STOCKHOLDER, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the COMPANY to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the COMPANY has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses
to PC as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to PC for which it would
have no other adequate remedy, each STOCKHOLDER agrees that, in the event of a
breach by such STOCKHOLDER, the foregoing covenant may be enforced by PC by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PC (including the
subsidiaries
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thereof) on the date of the execution of this Agreement and the current plans
of PC.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PC (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by PC
of such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they had in the past, currently have and in the future may have access to
certain confidential information relating to the COMPANY, the Other Founding
Companies and/or PC, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY, the
Other Founding Companies and/or PC's business. The STOCKHOLDERS agree that they
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for
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any purpose or reason whatsoever, except (a) to authorized representatives of
the COMPANY, NEWCO, the Other Founding Companies and PC who need to know such
information in connection with the transactions contemplated hereby, who have
been informed of the confidential nature of such information and who have
agreed to keep such information confidential as provided hereby, and (b)
following the Closing, such information may be disclosed by the STOCKHOLDERS as
is required in the course of performing their duties for PC or the Surviving
Corporation unless (i) such information becomes known to the public generally
through no breach by the STOCKHOLDERS of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law
or is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), the STOCKHOLDERS shall, if possible,
give prior written notice thereof to PC and provide PC with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the same prior disclosure set forth immediately above
is given. In the event of a breach or threatened breach by any of the
STOCKHOLDERS or PC of the provisions of this Section, PC shall be entitled to
an injunction restraining the STOCKHOLDERS from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting PC from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.2 PC AND NEWCO. PC and NEWCO recognize and acknowledge that they
had in the past and currently have access to certain confidential information
relating to the COMPANY, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY. PC and
NEWCO agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not use or disclose such
confidential information to their own benefit except in furtherance of the
Transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the STOCKHOLDERS and to
authorized representatives of the COMPANY who need to know such information in
connection with the transactions contemplated
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hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
and (b) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no breach by PC or NEWCO of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law
or is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), PC and NEWCO shall, if possible, give
prior written notice thereof to the COMPANY and the STOCKHOLDERS and provide
the COMPANY and the STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party and the same prior disclosure set forth immediately above is
given. In the event of a breach or threatened breach by PC or NEWCO of the
provisions of this Section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining PC and NEWCO from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the COMPANY and the STOCKHOLDERS from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. In the
event that the transactions contemplated herein are not consummated, PC and
NEWCO shall return to the COMPANY within a reasonable time all documents (in
both paper and electronic form) containing confidential information about the
COMPANY, and shall use reasonable efforts to compel the Other Founding
Companies to do the same. In such instance, PC will also furnish to the COMPANY
a written statement certifying that all documents which contained confidential
information about the COMPANY and which had been in PC's possession had been
returned by PC to the COMPANY.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
be enforced against the other parties by
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injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated hereby on the Funding and
Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of two years from the Funding and Consummation
Date, except pursuant to Section 17 hereof, none of the STOCKHOLDERS shall (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (a) any shares of PC Stock received by the STOCKHOLDERS in
the Merger, or (b) any interest (including, without limitation, an option to buy
or sell) in any such shares of PC Stock, in whole or in part, and no such
attempted transfer shall be treated as effective for any purpose; or (ii) engage
in any transaction, whether or not with respect to any shares of PC Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of PC Stock acquired pursuant to Section 2 hereof (including, by way
of example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). Notwithstanding the foregoing, (i) if the "holding
period" for restricted securities set forth in Rule 144(d) under the 1933 Act
(or any similar or successor provision) is reduced below two years, the two-
year restrictive period set forth in this Section 15.1 will be deemed to be
correspondingly reduced; and (ii) the STOCKHOLDERS may encumber or pledge any of
such shares of PC Stock provided the pledgee or other beneficiary of such
encumbrance or pledge agrees to be bound by the provisions of this Section as if
a STOCKHOLDER and party hereto. The certificates evidencing the PC Stock
delivered to the STOCKHOLDERS pursuant to Section 3 of this Agreement will bear
a legend substantially in the form set forth below and containing such other
information as PC may deem necessary or appropriate:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [SECOND
ANNIVERSARY OF THE FUNDING AND CONSUMMATION DATE] (PROVIDED,
HOWEVER, THAT (I) IF THE "HOLDING PERIOD" FOR RESTRICTED
SECURITIES SET FORTH IN RULE 144(D) UNDER THE SECURITIES ACT OF
1933, AS AMENDED (OR ANY SIMILAR OR SUCCESSOR PROVISION), IS
REDUCED BELOW TWO YEARS, THE RESTRICTIVE PERIOD SET FORTH HEREIN
SHALL BE CORRESPONDINGLY REDUCED, AS CALCULATED FROM THE DATE
TWO YEARS PRIOR TO THE DATE SET FORTH HEREIN AND (II) SUCH
SHARES MAY BE ENCUMBERED OR PLEDGED PROVIDED THE PLEDGEE OR
OTHER BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE AGREES TO BE
BOUND BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME EXTENT
AS THE HOLDER HEREOF). UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE (AS IT MAY BE REDUCED AS PROVIDED
HEREIN).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold unless
registered under the 1933 Act or resold pursuant to an exemption from the
registration requirements of the 1933 Act. The PC Stock to be acquired by the
STOCKHOLDERS pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution; provided, however that this covenant shall not prohibit
any disposition in accordance with the securities laws and this Agreement.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of PC Stock issued to the STOCKHOLDERS will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after
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full compliance with all of the applicable provisions of the 1933 Act and the
rules and regulations of the SEC and this Agreement. All the PC Stock shall
bear the following legend in addition to the legend required under Section 15
of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY PC, AN OPINION OF COUNSEL TO PC
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS represent and
warrant that they are able to bear the economic risk of an investment in the PC
Stock acquired pursuant to this Agreement, can afford to sustain a total loss
of such investment and have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks of
the proposed investment in the PC Stock. The STOCKHOLDERS represent and warrant
that they have had an adequate opportunity to ask questions and receive answers
from the officers of PC concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PC, the plans
for the operations of the business of PC, the business, operations and
financial condition of the Other Founding Companies, and any plans for
additional acquisitions and the like. The STOCKHOLDERS have asked any and all
questions of the nature described in the preceding sentence, and all questions
have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever PC proposes to register any PC Stock for its
own or others' account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions
of additional businesses by PC, (ii) registrations relating to employee benefit
plans and (iii) registrations
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relating to rights offerings made to the stockholders of PC, PC shall give each
of the STOCKHOLDERS prompt written notice of its intent to do so. Upon the
written request of any of the STOCKHOLDERS given within 30 days after receipt
of such notice, PC shall cause to be included in such registration all of the
PC Stock which any such STOCKHOLDER requests, provided that PC shall have the
right to reduce the number of shares included in such registration to the
extent that inclusion of such shares would, in the opinion of tax counsel to PC
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
reorganization. In addition, if PC is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than PC is greater than the number
of such shares which can be offered without adversely affecting the offering,
PC may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by PC after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
PC, the STOCKHOLDERS and the stockholders of the Other Founding Companies
(collectively, the STOCKHOLDERS and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of
shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date, the holders of a majority of the
shares of PC Stock issued to the stockholders of the Founding Companies
pursuant to this Agreement and the Other Agreements that have not been
previously registered or sold and that are not entitled to be sold under Rule
144(k) (or any successor provision) promulgated under the 1933 Act may request
in writing that PC file a registration statement under the 1933 Act covering
the registration of shares of PC Stock issued to such stockholders (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security that is issued by PC as)
a dividend or other distribution with respect to, or in
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exchange for, or in replacement of such PC Stock) then held by such
stockholders (a "Demand Registration"). Within ten (10) days of the receipt of
such request, PC shall give written notice of such request to all other of such
stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any such stockholder, file and thereafter use its best
efforts to cause to become effective a registration statement covering all such
shares. PC shall be obligated to effect only one Demand Registration for all
stockholders of the Founding Companies and will keep such Demand Registration
current and effective for not less than 120 days (or such shorter period as is
required to sell all of the shares registered thereon).
Notwithstanding the foregoing paragraph, following such a demand a
majority of PC's disinterested directors (i.e., directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request by the stockholders of the Founding
Companies for a Demand Registration PC has plans to file within 60 days after
such request a registration statement covering the sale of any of its
securities in a public offering under the 1933 Act, no registration of the PC
Stock held by the stockholders of the Founding Companies shall be initiated
under this Section 17.2 until 90 days after the effective date of such
registration unless PC is no longer proceeding diligently to effect such
registration; provided that PC shall provide the stockholders of the Founding
Companies the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In addition, if the stockholders offering shares are advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.2 that the number of shares to be sold by such stockholders
is greater than the number of such shares which can be offered without
adversely affecting the offering, the stockholder offering shares may reduce
pro rata the number of shares offered for the account of each stockholder
(based upon the number of shares proposed to be sold by each such stockholder)
to a number deemed satisfactory by such managing underwriter.
17.3 REGISTRATION PROCEDURES. All expenses incurred in
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connection with the registrations under this Article 17 (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts), shall be borne by PC. In
connection with registrations under Sections 17.1 and 17.2, PC shall (i) use
its best efforts to prepare and file with the SEC, as soon as reasonably
practicable, a registration statement with respect to the PC Stock and use its
best efforts to cause such registration to promptly become and remain effective
for a period of at least 120 days (or such shorter period during which holders
shall have sold all PC Stock which they requested to be registered); (ii) use
its best efforts to register and qualify the PC Stock covered by such
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution of the PC Stock; and (iii) take
such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, PC and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of PC's size and investment
stature, including indemnification.
17.5 AVAILABILITY OF RULE 144. PC shall not be obligated to register
shares of PC Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER for such shares.
18. GENERAL
18.1 COOPERATION. The COMPANY, the STOCKHOLDERS, PC and NEWCO shall
each deliver or cause to be delivered to the other on the Funding and
Consummation Date, and at such other times and places as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of carrying out this Agreement. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with
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PC on and after the Funding and Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any Tax Return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PC, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
STOCKHOLDERS, the COMPANY, NEWCO and PC and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and PC,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, PC will pay the fees, expenses and disbursements of PC
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PC under this Agreement,
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including (subject to the next sentence) the fees and expenses of Coopers &
Lybrand LLP, Morgan, Lewis & Bockius LLP and the costs of preparing the
Registration Statement. The COMPANY shall pay and be fully responsible for the
fees and expenses of Coopers & Lybrand LLP in connection with its audit and
preparation of the historical financial statements of the COMPANY to be
included in the Registration Statement, which fees and expenses shall
constitute a vendor debt of the COMPANY. The STOCKHOLDERS shall pay and be
fully responsible for all professional fees and expenses, including but not
limited to legal fees and expenses, incurred by the COMPANY and the
STOCKHOLDERS in connection with the transactions contemplated herein, whether
or not such transactions are actually consummated. Each STOCKHOLDER further
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each STOCKHOLDER shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each STOCKHOLDER
acknowledges that such STOCKHOLDER, and not the COMPANY or PC, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to PC, or NEWCO, addressed to them at:
Medical Manager Corporation
3001 Rocky Point Drive, Suite 100
Tampa, Florida 33607
Attn: John Kang, Chief Executive Officer
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with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex IV, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
RTI Business Systems, Inc.
5 Washington Square
Albany, NY 12205
Attn: Mark E. Sobolewski
and marked "Personal and Confidential"
with copies to:
RTI Business Systems, Inc.
5 Washington Square
Albany, NY 12205
Attn: Henry Holbrook
and
D'Agostino, Hablock, Graslei & Siegel, P.C.
39 North Pearl Street
Albany, NY 12207
Attn: Christian J. Dribusch
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York, except that matters herein within the
purview of the matters covered by the General Corporation Law of the State of
Delaware shall be
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governed by such General Corporation Law, in each case without reference to
conflicts of laws principles.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Closing or in writing delivered
pursuant to the provisions of this Agreement shall survive the consummation of
the transactions contemplated hereby and any examination on behalf of the
parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of PC, NEWCO, the COMPANY and the STOCKHOLDERS. Any
amendment or waiver effected in accordance with this Section 18.15 shall be
binding upon each of the parties hereto, any other person receiving PC Stock
in connection with the Merger and each future holder of such PC Stock.
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<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By /s/ John H. Kang
----------------------------
Name: John H. Kang
Title: Chief Executive Officer
RTI ACQUISITION I CORP.
By /s/ Wayne Burks
--------------------------
Name: Wayne Burks
Title: President
RTI BUSINESS SYSTEM, INC.
By /s/ Henry W. Holbrook
---------------------------
Name: Henry W. Holbrook
Title: President
STOCKHOLDERS:
By /s/ Henry W. Holbrook
---------------------------
Name: Henry W. Holbrook
By /s/ Mark E. Sobolewski
---------------------------
Name: Mark E. Sobolewski
<PAGE> 1
Exhibit 2.5
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
MEDICAL MANAGER CORPORATION
SMI ACQUISITION I CORP. (a subsidiary of
MEDICAL MANAGER CORPORATION)
SYSTEMS MANAGEMENT, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1 Delivery and Filing of Articles of Merger. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Certain Information With Respect to the Capital Stock of the COMPANY, PC and NEWCO. . . . . 5
1.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. CONVERSION OF STOCK
2.1 Manner of Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. DELIVERY OF MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. CLOSING
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Transactions in Capital Stock,
Reorganization Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Spin-off by the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Intellectual Property; Permits and
Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
5.15 Significant Customers; Material Contracts
and Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 Compensation; Employment Agreements;
Organized Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.23 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.27 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.28 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.29 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.30 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.31 No Intention to Dispose of COMPANY Stock. . . . . . . . . . . . . . . . . . . . . . . . . 27
6. REPRESENTATIONS AND WARRANTIES OF PC and NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Capital Stock of the COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 Validity of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 PC Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.11 No Side Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.12 Business; Real Property; Material
Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Notice to Bargaining Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<TABLE>
<S> <C> <C> <C>
7.6 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.7 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.8 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9 Cooperation in Preparation of Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.10 Final Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . 41
8.1 Representations and Warranties; Performance
of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.7 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.9 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.10 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.12 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.1 Representations and Warranties; Performance of Obligations. . . . . . . . . . . . . . . . 43
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.5 STOCKHOLDERS' Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.6 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Termination of Related Party Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11 Registration Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.13 Closing of the IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<TABLE>
<S> <C> <C> <C>
10. COVENANTS OF PC AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Release From Guarantees; Repayment of Certain Obligations. . . . . . . . . . . . . . . . . 45
10.2 Preservation of Tax and Accounting
Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.5 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.1 General Indemnification by the STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 47
11.2 Indemnification by PC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.1 STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.2 PC AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C>
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
17.5 Availability of Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.9 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 63
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Annexes
-------
<S> <C> <C>
Annex I - Form of Articles of Merger
Annex II - Form of Certificate of Incorporation and By-laws of PC and NEWCO
Annex III - Consideration to be paid to the STOCKHOLDERS
Annex IV - STOCKHOLDERS and Stock Ownership of the COMPANY
Annex V - STOCKHOLDERS and Stock Ownership of PC
Annex VI - Form of Opinion of Morgan, Lewis & Bockius LLP
Annex VII - Form of Opinion of Counsel to the COMPANY and the STOCKHOLDERS
Annex VIII - Form of Employment Agreement
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of the 30th day of September, 1996, by and among MEDICAL MANAGER
CORPORATION, a Delaware corporation ("PC"), SMI ACQUISITION I CORP., a Delaware
corporation ("NEWCO"), SYSTEMS MANAGEMENT, INC., an Indiana corporation (the
"COMPANY"), THOMAS P. LIDDELL and TIMOTHY S. LIDDELL (the "STOCKHOLDERS"). The
STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
July 26, 1996, solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of PC, a
corporation organized and existing under the laws of the State of
Delaware;
WHEREAS, the respective Boards of Directors of NEWCO and the
COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best
interests of the Constituent Corporations and their respective
stockholders that NEWCO merge with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the States
of Delaware and Indiana;
WHEREAS, PC is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan of Reorganization," with each
of National Medical Systems, Inc., a Florida corporation, and Systems
Plus, Inc., a California corporation, and Systems Plus Distribution,
Inc., a California corporation and RTI Business Systems, Inc., a New
York corporation, and Personalized Programming, Inc., a Florida
corporation, and their respective stockholders in order to acquire
additional medical software development and distribution companies
(the COMPANY, together with each of the entities with which PC has
entered into the Other Agreements, are collectively referred to herein
as the "Founding Companies");
<PAGE> 9
WHEREAS, this Agreement, the Other Agreements and the IPO of
PC Stock (as each is hereinafter defined) constitute the "PC Plan of
Organization";
WHEREAS, the Boards of Directors of PC and each of the
Founding Companies have approved and adopted the PC Plan of
Organization as an integrated plan to transfer the capital stock of
the Founding Companies to PC and the cash raised in the IPO of PC
Stock to PC as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended;
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of the COMPANY has approved this Agreement as part of the PC
Plan of Organization in order to transfer the capital stock of the
COMPANY to PC;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and
not otherwise defined shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" shall mean NEWCO and each of the other
Delaware companies wholly-owned by PC prior to the Funding and Consummation
Date.
"Articles of Merger" shall mean those Articles or Certificates of
Merger with respect to the Merger, substantially in the form of Annex I attached
hereto, or with such other changes therein as may be required by applicable
state laws.
"Balance Sheet Date" shall mean June 30, 1996.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
2
<PAGE> 10
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Effective Time of the Merger" shall mean the time as of which the
Merger becomes effective, which the parties hereto contemplate to occur on the
Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Intellectual Property" shall mean all trademarks, service marks,
trade dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design or
product packaging.
"IPO" means the initial public offering of PC Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant
to this Agreement and the applicable provisions of the laws of the State of
Delaware and other applicable state laws.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per
3
<PAGE> 11
share, of NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANY.
"PC" has the meaning set forth in the first paragraph of this
Agreement.
"PC Charter Documents" has the meaning set forth in Section 6.1.
"PC Stock" means the common stock, par value $.01 per share, of PC.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by PC and the Underwriters
of the public offering price of the shares of PC Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement of
PC on Form S-1 covering the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange
4
<PAGE> 12
Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party
in the Merger.
"Tax" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger to be signed, verified and delivered
to the Secretary of State of the State of Delaware and, as required, a similar
filing to be made with the relevant authorities in the jurisdiction in which
the COMPANY is organized, on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the
Merger, NEWCO shall be merged with and into the COMPANY in accordance with the
Articles of Merger, the separate existence of NEWCO shall cease, and the
COMPANY shall be the surviving party in the Merger. The COMPANY is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger will be
effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION. At the Effective Time of the
5
<PAGE> 13
Merger:
(i) the Certificate or Articles of Incorporation of the
COMPANY then in effect shall be the Certificate or Articles of
Incorporation of the Surviving Corporation until changed as provided
by law;
(ii) the By-laws of the COMPANY then in effect shall become
the By-laws of the Surviving Corporation until amended as provided by
law;
(iii) the Board of Directors of the Surviving Corporation
initially shall consist of the following persons:
John H. Kang
Thomas P. Liddell
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Indiana and of
the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and
effective upon the Effective Time of the Merger, John H. Kang shall be
appointed as a vice president of the Surviving Corporation and Ricardo
A. Salas shall be appointed as an Assistant Secretary of the Surviving
Corporation, each of such officers to serve, subject to the provisions
of the Certificate or Articles of Incorporation and By-laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PC AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
COMPANY, PC and NEWCO as of the date of this Agreement are as follows:
6
<PAGE> 14
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the COMPANY is as set forth on Schedule
1.4 hereto;
(ii) immediately prior to the Funding and Consummation Date,
the authorized capital stock of PC will consist of 50,000,000 shares
of PC Stock, of which the number of issued and outstanding shares will
be set forth in the Registration Statement, and 500,000 shares of
preferred stock, $.01 par value, of which no shares will be issued and
outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten
(10) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL") and the
law of the State of Indiana. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving
Corporation, shall be fully vested therewith. At the Effective Time of the
Merger, the separate existence of NEWCO shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all Taxes,
including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
COMPANY and NEWCO shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the COMPANY and NEWCO; and the title to any real estate, or
interest therein, whether by deed or otherwise, vested in the COMPANY and NEWCO
under the laws of each state of incorporation,
7
<PAGE> 15
shall not revert or be in any way impaired by reason of the Merger. Except as
otherwise provided herein, the Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of the COMPANY
and NEWCO and any claim existing, or action or proceeding pending, by or
against the COMPANY or NEWCO may be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted in its place. Neither
the rights of creditors nor any liens upon the property of the COMPANY or NEWCO
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and NEWCO shall attach to the Surviving Corporation, and may be
enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(i) outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) PC Stock and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) that number of shares
of PC Stock set forth on Annex III hereto and (2) the right to receive
the amount of cash set forth on Annex III hereto. Such amounts of
cash and shares as set forth on Annex III hereto as of the date hereof
are final and shall not change hereafter regardless of the number of
shares sold in the IPO or the offering price of such shares;
(ii) all shares of COMPANY Stock that are held by the
COMPANY as treasury stock shall be canceled and retired and no shares
of PC Stock or other consideration shall be delivered or paid in
exchange therefor; and
(iii) each share of NEWCO Stock issued and outstanding
8
<PAGE> 16
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of PC, automatically
be converted into one fully paid and non-assessable share of common
stock of the Surviving Corporation, which shall constitute all of the
issued and outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All PC Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding PC
Stock by reason of the provisions of the Certificate of Incorporation of PC or
as otherwise provided by the Delaware GCL. All voting rights of such PC Stock
received by the STOCKHOLDERS shall be fully exercisable by the STOCKHOLDERS and
the STOCKHOLDERS shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Merger, PC shall have no class of capital
stock issued and outstanding other than the PC Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS shall, upon surrender of certificates
representing all outstanding shares of COMPANY Stock, receive (i) the
respective number of shares of PC Stock set forth on Annex III and (ii) the
amount of cash set forth on Annex III hereto, said cash to be payable by wire
transfer.
3.2 The STOCKHOLDERS shall deliver to PC at the Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by duly executed stock powers, with, if required
by PC, signatures guaranteed by a national or state chartered bank or other
financial institution, and with all necessary Transfer Tax and other revenue
stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to use reasonable best efforts to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such COMPANY Stock or with respect to
the stock powers accompanying any COMPANY Stock.
9
<PAGE> 17
4. CLOSING
At or prior to the Pricing, the parties shall use all reasonable best
efforts to take all actions necessary to prepare to (i) effect the Merger
(including, if permitted by applicable state law, the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective only at the Effective Time of the Merger) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger for
purposes of this Agreement or the conversion and delivery of the shares and
payment therefor referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In
the event that there is no Funding and Consummation Date and this Agreement
terminates, PC hereby covenants and agrees to do all things required by
Delaware law and all things which counsel for the COMPANY advises PC are
required by applicable laws of the State of Indiana in order to rescind any
merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Closing") shall take place on the closing date
(the "Closing Date") at the offices of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178. On the Funding and Consummation Date (x) the
Articles of Merger shall be or shall have been filed with the appropriate state
authorities so that they shall be or, as of 8:00 a.m. New York City time on the
Funding and Consummation Date, shall become effective and the Merger shall
thereby be effected, (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares, the delivery of wire transfers
in amounts equal to the cash portions of the consideration which the
STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to in
Section 3 hereof and (z) the closing with respect to the IPO shall occur and be
deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." This Agreement shall in any event terminate if the
Funding and Consummation Date has not occurred within 15 business days of the
Closing Date, provided that, PC, Newco, the COMPANY and the STOCKHOLDERS shall
act in good faith to consummate the IPO. Time is of the essence.
10
<PAGE> 18
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of the Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve (12) months (the last
day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
(and any portions thereof) ended on or prior to the Funding and Consummation
Date, which shall be deemed to be the Expiration Date for Section 5.22, and (ii)
solely for purposes of Section 11.1(iii) hereof, and solely to the extent that,
in connection with the IPO, PC actually incurs liability under the 1933 Act, the
1934 Act, or any other Federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
statute of limitations period, which shall be deemed to be the Expiration Date
for such purposes. For purposes of this Section 5, the term the "COMPANY" shall
mean and refer to the COMPANY and each of its subsidiaries, if any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and is duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on its business in the places and in the manner as now conducted
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or financial condition (as used herein
with respect to the COMPANY, or with respect to any other person, a "Material
Adverse Effect") on the COMPANY. Schedule 5.1 contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended to date, of the
11
<PAGE> 19
COMPANY (the "Charter Documents") are all attached hereto as Schedule 5.1. The
minute books and stock records of the COMPANY, as heretofore made available to
PC, are correct and complete in all material respects. The most recent minutes
of the COMPANY, which are dated no earlier than ten (10) business days prior to
the date hereof, affirm and ratify all prior acts of the COMPANY and of its
officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY
executing this Agreement have the authority to enter into and bind the COMPANY
to the terms of this Agreement and (ii) the COMPANY has the full corporate
right, power and authority to enter into this Agreement and the Merger, subject
to any required approval of the shareholders and the Board of Directors of the
COMPANY described on Schedule 5.2, certified copies of which are attached
thereto.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the COMPANY is as set forth in Section 1.4(i). All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the
STOCKHOLDERS and were offered, issued, sold and delivered by the COMPANY in
compliance in all material respects with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, REORGANIZATION ACCOUNTING.
Except as set forth on Schedule 5.4, the COMPANY has not acquired any COMPANY
Stock since January 1, 1994. Except as set forth on Schedule 5.4, (i) no
option, warrant, call, conversion right or commitment of any kind exists which
obligates the COMPANY to issue any of its authorized but unissued capital stock
or its treasury stock; (ii) the COMPANY has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or
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to pay any dividend or make any distribution in respect thereof; and (iii)
neither the voting stock structure of the COMPANY nor the relative ownership of
shares among any of its respective stockholders has been altered or changed in
contemplation of the Merger. Schedule 5.4 also includes complete and accurate
copies of all stock option or stock purchase plans, including a list of all
outstanding options, warrants or other rights to acquire shares of the
COMPANY's stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. The COMPANY has no subsidiaries. Except as set
forth on Schedule 5.6, the COMPANY does not own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a list
of all names of all predecessor companies of the COMPANY, including the names
of any entities acquired by the COMPANY (by stock purchase, merger or
otherwise) or from whom the COMPANY previously acquired material assets.
Except as disclosed on Schedule 5.7, the COMPANY has not been a subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of either
the COMPANY or any other person or entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are
copies of the following financial statements (the "COMPANY Financial
Statements") of the COMPANY: the COMPANY's audited Balance Sheet as of June
30, 1996 and December 31, 1995 and 1994 and Statements of Income, Cash Flows
and Retained Earnings for the six months ended June 30, 1996 and for each of
the years in
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the three-year period ended December 31, 1995 (June 30, 1996 being hereinafter
referred to as the "Balance Sheet Date"). Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance Sheets as
of June 30, 1996 and December 31, 1995 and 1994 present fairly in all material
respects the financial position of the COMPANY as of the dates indicated
thereon, and such Statements of Income, Cash Flows and Retained Earnings
present fairly in all material respects the results of operations and cash
flows for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PC
an accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY which are not reflected on the
balance sheet of the COMPANY at the Balance Sheet Date and (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000
which are not reflected on the balance sheet as of the Balance Sheet Date) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements to which the COMPANY is a party.
Except as set forth on Schedule 5.10, since the Balance Sheet Date, the COMPANY
has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed or otherwise accrued or reserved, a good faith
and reasonable estimate of the maximum amount which may be payable. For each
such contingent liability or liability for which the amount is not fixed or is
contested, the COMPANY has provided to PC the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or
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relief sought; and
(c) name of claimant and all other parties to the claim,
suit or proceeding.
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted;
and
(iv) a reasonable best estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the best estimate shall for
purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to
PC an accurate list (which is set forth on Schedule 5.11) of the accounts and
notes receivable of the COMPANY, as of the Balance Sheet Date, including any
such amounts which are not reflected in the balance sheet as of the Balance
Sheet Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Closing, the COMPANY shall provide
PC with an accurate list of all receivables obtained subsequent to the Balance
Sheet Date that are outstanding as of the date of the delivery of such list.
For each of the aforementioned accounts and notes receivable reports, the
COMPANY shall provide PC with an aging of all accounts and notes receivable
showing amounts due in 30 day aging categories. Except to the extent reflected
on Schedule 5.11, such accounts and notes are collectible in the amounts shown
on Schedule 5.11, and the COMPANY has not received any written notice of any
contest, claim or right of set-off with respect to the amount or validity of
any such account receivable and has no other reason to believe that such
amounts are not fully collectible.
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect on its business,
and the COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.12) of all Intellectual Property owned or used by the COMPANY. Each
item of
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Intellectual Property owned or used by the COMPANY is valid and in full force
and effect. Except as set forth on Schedule 5.12, all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or pending or threatened claim or
dispute. None of the Intellectual Property owned or, to the COMPANY's
knowledge, none of the Intellectual Property used by the COMPANY nor any
product sold by the COMPANY, infringes any Intellectual Property right of any
other entity and no Intellectual Property owned by the COMPANY is infringed
upon by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect on its business, and the COMPANY has delivered to PC an accurate
list (which is set forth on Schedule 5.12) of all such licenses, franchises,
permits and other governmental authorizations, including permits, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, franchises and certificates. To the knowledge of the COMPANY, the
licenses, franchises, permits and other governmental authorizations listed on
Schedule 5.12 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
permits, licenses, orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing, in each case, except where such non-
compliance or violation would not have a Material Adverse Effect on the
COMPANY.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13,
(i) the COMPANY has complied in all material respects with and is in compliance
in all material respects with all Federal, state, local and foreign statutes
(civil and criminal), laws, ordinances, regulations, rules, notices, permits,
judgments, orders and decrees applicable to it or any of its properties,
assets, operations and businesses relating to environmental protection
(collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment
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or disposal of Hazardous Wastes and Hazardous Substances (as such terms are
defined in any applicable Environmental Law); (ii) the COMPANY has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances and has reported, to the extent required by all
Environmental Laws, all past and present sites owned and operated by the
COMPANY where Hazardous Wastes or Hazardous Substances have been treated,
stored, disposed of or otherwise handled; (iii) there have been no releases or
threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned or operated by the COMPANY except as permitted by Environmental
Laws; (iv) the COMPANY knows of no on-site or off-site location to which the
COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PC or NEWCO for any clean-up cost, remedial work, damage
to natural resources or personal injury, including, but not limited to, any
claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) the COMPANY has no contingent
liability in connection with any release of any Hazardous Waste or Hazardous
Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to PC an
accurate list (which is set forth on Schedule 5.14) of (x) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" (or similarly named line item)on the balance sheet of the
COMPANY as of the Balance Sheet Date, (y) all other personal property owned by
the COMPANY with a value individually in excess of $10,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all
leases and agreements in respect of personal property, including, in the case
of each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases, (2) a listing of the capital costs of all such assets which are subject
to capital leases and (3) an indication as to which assets are currently owned,
or, to the COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule
5.14, (i) all personal property with a value individually in excess of $10,000
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used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted, and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the COMPANY, and to the COMPANY's knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
The COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, or persons or entities that
are sources of a significant number of customers (e.g., certain physician
practices, HMO's, etc.), it being understood and agreed that a "significant
customer," for purposes of this Section 5.15, means a customer (or persons or
entity) representing 5% or more of the COMPANY's annual revenues as of the end
of its last fiscal year. Except to the extent set forth on Schedule 5.15, none
of the COMPANY's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced
or, to the knowledge of the COMPANY, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements), other than agreements listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19,(a) in existence as of the Balance Sheet Date
and (b) entered into since the Balance Sheet Date, and in each case has
delivered true, complete and correct copies of such agreements to PC. The
COMPANY has complied in all material respects with all commitments and
obligations pertaining to it, is not in default under any contracts or
agreements listed on Schedule 5.15, and no notice of default under any such
contract
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or agreement has been received. The COMPANY has also indicated on Schedule
5.15 a summary description of all plans or projects involving the opening of
new operations, expansion of existing operations or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the COMPANY (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including that reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default by
the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the County
Clerks in which the properties, assets and leasehold estates are
located which do not materially adversely affect the current use of
the property.
Schedule 5.16 contains true, complete and correct copies of all title reports
and title insurance policies received or owned by the COMPANY with respect to
real property owned by the COMPANY.
Schedule 5.16 also contains an accurate list of, and true, complete
and correct copies of, all leases and agreements in respect of real property
leased by the COMPANY, which leases and agreements are attached to Schedule
5.16, and an indication as to which such properties, if any, are currently
owned, or, to the COMPANY's knowledge, were formerly owned, by STOCKHOLDERS or
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth
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on Schedule 5.16, all of such leases included on Schedule 5.16 are in full
force and effect and constitute valid and binding agreements of the COMPANY,
and to the COMPANY's knowledge, of the parties (and their successors) thereto
in accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to PC, as set forth on
and attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet
Date of all insurance policies currently carried by the COMPANY, (ii) an
accurate list of all insurance loss runs or workers' compensation claims
received for the past three (3) policy years and (iii) true, complete and
correct copies of all insurance policies currently in effect. Such insurance
policies evidence all of the insurance that the COMPANY is required to carry
pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. Such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Funding and
Consummation Date. No insurance carried by the COMPANY has ever been canceled
by the insurer and the COMPANY has never been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
The COMPANY has delivered to PC an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
COMPANY has provided to PC true, complete and correct copies of any employment
agreements for persons listed on Schedule 5.18. Since the Balance Sheet Date,
there have been no increases in the compensation payable or any special bonuses
to any officer, director, key employee or other employee, except ordinary
salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not
bound by or subject to (and none of its respective assets or properties is
bound by or subject to) any arrangement with any labor union, (ii) no employees
of the COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) no campaign to establish such representation is
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in progress and (iv) there is no pending or, to the COMPANY's knowledge,
threatened labor dispute involving the COMPANY and any group of its employees
nor has the COMPANY experienced any labor interruptions over the past three
years. The COMPANY believes its relationships with its employees to be good.
5.19 EMPLOYEE PLANS. Attached hereto as Schedule 5.19 are complete
and accurate copies, as of the Balance Sheet Date, of all employee benefit
plans, all employee welfare benefit plans, all employee pension benefit plans,
all multi-employer plans and all multi-employer welfare arrangements (as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which
are currently maintained and/or sponsored by the COMPANY, or any benefit plans
or arrangements, formal or informal, that are not subject to ERISA, including,
without limitation, employment agreements and any other agreements containing
"golden parachute" provisions and deferred compensation agreements, or to which
the COMPANY currently contributes, or has an obligation to contribute in the
future (including, without limitation, benefit plans or arrangements that are
not subject to ERISA, such as employment agreements and any other agreements
containing "golden parachute" provisions and deferred compensation agreements),
together with copies of any trusts related thereto and a classification of
employees covered thereby (collectively, the "Plans").
5.20 COMPLIANCE WITH ERISA. Except for the Plans, the COMPANY does
not maintain or sponsor, and is not a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
compensation or benefit arrangement, formal or informal, with their respective
employees, whether or not subject to ERISA. Except as set forth on Schedule
5.20, (i) all Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable laws, and have been administered, operated and managed in all
material respects in accordance with the governing documents; (ii) all Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of
the Code are so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of the current plan determination
letters, or, in the
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case of master or prototype plans, opinion letters, most recent actuarial
valuation reports, if any, most recent Form 5500, or, as applicable, Form
5500-C/R filed with respect to each such Qualified Plan or employee welfare
benefit plan and most recent trustee or custodian report, are included as part
of Schedule 5.20; (iii) to the extent that any Qualified Plans have not been
amended to comply with applicable law, the remedial amendment period permitting
retroactive amendment of such Qualified Plans has not expired and will not
expire within 120 days after the Funding and Consummation Date; (iv) all
reports and other documents required to be filed with any governmental agency
or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
Reports, audits or tax returns) have been timely filed or distributed, or
failure to timely file or deliver will not result in a Material Adverse Effect
to the COMPANY; (v) none of the STOCKHOLDERS, any Plan, or the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA that could result in a material tax or penalty
to the COMPANY; (vi) no Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; (vii) no
circumstances exist pursuant to which the COMPANY could have any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation (the "PBGC") under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty that could result in any material
liability to the COMPANY with respect to any plan now or hereafter maintained
or contributed to by the COMPANY or any member of a "controlled group" (as
defined in Section 4001(a)(14) of ERISA) that includes the COMPANY; (viii)
neither the COMPANY nor any member of a "controlled group" (as defined above)
that includes the COMPANY currently has (or at the Funding and Consummation
Date will have) any obligation whatsoever to contribute to any "single employer
pension plan" (as defined in ERISA Section 4001(a)(15)) or any "multi-employer
pension plan" (as defined in ERISA Section 4001(a)(3)), nor has any withdrawal
liability whatsoever (whether or not yet assessed) arising under or capable of
assertion under Title IV of ERISA (including, but not limited to, Sections
4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan; (ix) there
have been no terminations or partial terminations of, or discontinuance of
contributions to, any Qualified Plan without
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notice to and approval by the Internal Revenue Service; (x) no Plan that is
subject to the provisions of Title IV of ERISA has been terminated within the
three year period immediately preceding the date of this Agreement; (xi) there
have been no "reportable events" (as that phrase is defined in Section 4043 of
ERISA) with respect to any Plan which were not properly reported within the
three year period immediately preceding the date of this Agreement; (xii) with
respect to Plans which qualify as "group health plans" under Section 4980B of
the Internal Revenue Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by "COBRA"), the COMPANY
and the STOCKHOLDERS have complied (and on the Funding and Consummation Date
will have complied) in all material respects with all reporting, disclosure,
notice, election and other benefit continuation requirements imposed thereunder
as and when applicable to such plans, and the COMPANY has not incurred (and
will not incur) any material direct or indirect liability and is not (and will
not be) subject to any material loss, assessment, excise tax penalty, loss of
Federal income tax deduction or other sanction, arising on account of or in
respect of any direct or indirect failure by the COMPANY or the STOCKHOLDERS,
at any time prior to the Funding and Consummation Date, to comply with any such
Federal or state benefit continuation requirement, which is capable of being
assessed or asserted before or after the Funding and Consummation Date directly
or indirectly against the COMPANY or the STOCKHOLDERS with respect to such
group health plans; and (xiii) other than claims in the ordinary course of
business there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the best of the COMPANY's and
STOCKHOLDERS' knowledge, there is no threatened litigation, arbitration or
disputed claim, settlement or adjudication proceeding or any governmental or
other proceeding or investigation with respect to any Plan, or with respect to
any fiduciary, administrator or sponsor thereof (in their capacities as such),
or any party in interest thereof.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 5.21, the COMPANY is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse
Effect; and
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except to the extent set forth on Schedule 5.10, there are no claims, actions,
suits or proceedings, pending or, to the knowledge of the COMPANY or the
STOCKHOLDERS, threatened against or affecting the COMPANY, at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it which would have a Material Adverse Effect, and no notice of any such claim,
action, suit or proceeding, whether pending or threatened, has been received.
The COMPANY has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing, which violation would be reasonably likely to have a
Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or
similar group of which the COMPANY is or was a member (a " Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all
other information required to be reported thereon. All Taxes (whether
or not shown on any Return) owed by the COMPANY, any subsidiary and
any member of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the COMPANY
Financial Statements are sufficient for all unpaid Taxes, being
current taxes not yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made
by any Taxing Authority in a jurisdiction in which an Acquired Party
does not file
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Returns that it is or may be subject to taxation by that jurisdiction.
(iv) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or
other third party.
(v) No Acquired Party expects any Taxing Authority to assess
any additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been
raised in any examination by any Taxing Authority with respect to any
Acquired Party which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other
period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or
after January 1, 1990, indicates those Returns, if any, that have been
audited, and indicates those Returns that currently are the subject of
audit. Each Acquired Party has delivered to PC complete and correct
copies of all federal, state, local and foreign income Tax Returns
filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party
since January 1, 1990.
(vi) No Acquired Party has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or
sharing agreement.
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(ix) None of the assets of any Acquired Party constitutes
tax-exempt bond financed property or tax- exempt use property, within
the meaning of Section 168 of the Code. No Acquired Party is a party
to any "safe harbor lease" that is subject to the provisions of
Section 168(f)(8) of the Internal Revenue Code as in effect prior to
the Tax Reform Act of 1986, or to any "long-term contract" within the
meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341(f) of the Code or comparable
provisions of any state statutes.
(xi) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Funding and Consummation Date.
(xiii) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No Acquired Party has any liability for Taxes of any
person other than such Acquired Party (i) under Section 1.1502-6 of
the Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
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(xvi) The COMPANY is not an investment company as defined in
Section 351(e)(1) of the Code.
(xvii) The fair market value of the assets of the COMPANY
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(xviii) The COMPANY is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 351(e)(2)
of the Code.
(xix) The COMPANY made a valid election to be an S
Corporation, as defined in Section 1361 of the Code, for Federal,
state and local tax purposes for its taxable year, beginning on
January 1, 1990, and has been taxed as an S Corporation for Federal,
state and local tax purposes for such taxable year and all subsequent
years.
For purposes of this Section 5.22, the following definitions
shall apply:
"Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax
with any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having jurisdiction with
respect to any Tax.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any
Charter Document. Neither the COMPANY nor, to the knowledge of
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the COMPANY and the STOCKHOLDERS, any other party thereto, is in default under
any lease, instrument, agreement, license or permit set forth on Schedule 5.12,
5.14, 5.15, 5.16, 5.18 or 5.19 or any other material agreement to which it is
a party or by which its properties are bound (the "Material Documents"); and,
except as set forth on Schedule 5.23, (a) the rights and benefits of the
COMPANY under the Material Documents will not be adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and
the performance by the COMPANY and the STOCKHOLDERS of their obligations
hereunder and the consummation by the COMPANY and the STOCKHOLDERS of the
transactions contemplated hereby will not result in any material violation or
breach of, or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any
of the transactions contemplated hereby in order to remain in full force and
effect and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit. Except as set forth on Schedule 5.23, none of the Material
Documents expressly prohibits or materially restricts the COMPANY from freely
providing services to any other customer or potential customer or the COMPANY,
PC, NEWCO or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.15,
the COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
the COMPANY;
(ii) any damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or
business of the COMPANY;
(iii) any change in the authorized capital of the
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COMPANY or its outstanding securities or any change in its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock
of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the COMPANY to any
of its officers, directors, STOCKHOLDERS, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, materially adversely
affecting the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the COMPANY to
any person, including, without limitation, the STOCKHOLDERS and their
affiliates;
(viii) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to the COMPANY,
including, without limitation, any material indebtedness or obligation
of any STOCKHOLDERS or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in any of the
material assets, property or rights of the COMPANY or requiring
consent of any party to the transfer and assignment of any such
material assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business;
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(xi) any waiver of any material rights or claims of the
COMPANY, provided that, the COMPANY may negotiate and adjust bills in
the course of good faith disputes with customers in a manner
consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included on Schedule 5.11 unless
specifically listed thereon;
(xii) any breach, or any amendment other than an amendment in
the ordinary course of business, or termination of any material
contract, agreement, license or permit to which the COMPANY is a
party;
(xiii) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date;
(xiv) any other distribution of property or assets by the
COMPANY outside the ordinary course of business;
(xv) any other transaction by the COMPANY outside the
ordinary course of its business; or
(xvi) any other activity prohibited by Section 7.3 that is
not specifically included in this Section
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has
delivered to PC an accurate schedule (which is set forth on Schedule 5.26) as
of the date of this Agreement of:
(i) the name of each financial institution in which the
COMPANY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special
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power of attorney from the COMPANY and a description of the terms of such power
of attorney.
5.27 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered
or agreed to offer anything of value to any governmental official, political
party or candidate for government office nor has it otherwise taken any action
which would cause the COMPANY to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any law of similar effect.
5.28 DISCLOSURE. (a) This Agreement, the schedules hereto, and the
certificates and other documents furnished by the COMPANY to PC pursuant hereto
and for inclusion in the Registration Statement(which, for purposes of this
Agreement, shall include the completed Directors and Officers Questionnaires
and Registration Statement Questionnaires), taken as a whole, do not, and as to
any representation or warranty made to the knowledge of the COMPANY or the
STOCKHOLDERS, such representation and warranty, to the COMPANY's knowledge,
does not, as of their respective dates contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(b) The COMPANY and the STOCKHOLDERS acknowledge and
agree (i) that there exists no firm commitment, binding agreement, or promise
or other assurance of any kind, whether express or implied, oral or written,
that a Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; and (ii) that neither PC or any of its officers, directors,
agents or representatives shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all
provided that PC acts in good faith, and uses its best efforts to cause its
directors and officers to act in good faith to consummate the transactions
contemplated herein.
(B) Representations and Warranties of STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the
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date of this Agreement and, subject to Section 7.8 hereof, shall be true at the
time of the Closing and on the Funding and Consummation Date, and that the
representations and warranties set forth in Sections 5.29 and 5.30 shall
survive until the tenth anniversary of the Funding and Consummation Date, which
shall be deemed to the Expiration Date for purposes of Sections 5.29 and 5.30.
5.29 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal
right, power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on the
Schedule 5.29, such COMPANY Stock is owned free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions, encumbrances
and claims of every kind.
5.30 PREEMPTIVE RIGHTS. As of the date hereof, such STOCKHOLDER
does not have any preemptive or other right to acquire shares of PC Stock
(other than rights of any STOCKHOLDER to acquire PC Stock pursuant to (i) this
Agreement or (ii) any option granted by PC) and, except for the rights set
forth on Schedule 5.4, such STOCKHOLDER does not have, and hereby waives, any
such preemptive or other right to acquire shares of COMPANY stock.
5.31 NO INTENTION TO DISPOSE OF COMPANY STOCK. There is no current
plan or intention by any STOCKHOLDER to sell, exchange or otherwise dispose of
shares of PC Stock received in the Merger.
6. REPRESENTATIONS AND WARRANTIES OF PC AND NEWCO
PC and NEWCO jointly and severally represent and warrant that
all of the following representations and warranties in this Section 6 are true
at the date of this Agreement and, subject to Section 7.8 hereof, shall be true
at the time of the Closing and the Funding and Consummation Date, and that
such representations and warranties shall survive the Funding and Consummation
Date for a period of twelve (12) months (the last day of such period being the
"Expiration Date"), except that (i)
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the warranties and representations set forth in Section 6.13 hereof shall
survive until such time as the limitations period has run for all tax periods
(and any portions thereof) ended on or prior to the Funding and Consummation
Date, which shall be deemed to be the Expiration Date for Section 6.13 and (ii)
solely for purposes of Section 11.2(iv) hereof, and solely to the extent that in
connection with the IPO PC actually incurs liability under the 1933 Act, the
1934 Act or any other Federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
6.1 DUE ORGANIZATION. PC and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Certificate of Incorporation and By-laws, each as amended to date, of PC and
NEWCO (the "PC Charter Documents") are all attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The respective representatives of PC and
NEWCO executing this Agreement have the authority to enter into and bind PC and
NEWCO to the terms of this Agreement and (ii) PC and NEWCO have the full
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
PC and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively. All
of the issued and outstanding shares of the capital stock of NEWCO are owned by
PC and all of the issued and outstanding shares of the capital stock of PC are
owned by the persons set forth on Annex V hereof, in each case, free and clear
of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of PC and NEWCO have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by PC and the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by PC and NEWCO in
compliance
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in all material respects with all applicable state and Federal laws concerning
the issuance of securities. None of such shares were issued in violation of
the preemptive rights of any past or present stockholder of PC or NEWCO. No
preemptive or other right to acquire shares of PC or NEWCO stock has been
granted to any person other than the rights granted pursuant to this Agreement
and the transactions contemplated herein, the Other Agreements and the
transactions contemplated therein or as set forth in the Registration
Statement.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements
and as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates PC or NEWCO to issue any
of its authorized but unissued capital stock or treasury stock; and (ii)
neither PC nor NEWCO has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 6.4 also includes complete and accurate copies of all stock option or
stock purchase plans of PC and NEWCO, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of their respective capital stock.
6.5 SUBSIDIARIES. NEWCO has no subsidiaries. PC has no
subsidiaries except for NEWCO and each of the companies identified as "NEWCO"
in each of the Other Agreements. Except as set forth in the preceding
sentence, neither PC nor NEWCO owns, of record or beneficially, or controls,
directly or indirectly, any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, association or business
entity nor is PC or NEWCO, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
6.6 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule
6.6, PC and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.7 CONFORMITY WITH LAW; LITIGATION. Except to the extent
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set forth on Schedule 6.7, neither PC nor NEWCO is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them, which violation would have a Material
Adverse Effect; and except to the extent set forth in Schedule 6.7, there are
no material claims, actions, suits or proceedings, pending or, to the knowledge
of PC or NEWCO, threatened, against or affecting PC or NEWCO, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them, and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. PC and NEWCO
have conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing, which violation might have a Material Adverse Effect.
6.8 NO VIOLATIONS. Neither PC nor NEWCO is in violation of any
PC Charter Document. None of PC, NEWCO or, to the knowledge of PC and NEWCO,
any other party thereto is in default under any lease, instrument, agreement,
license or permit to which PC or NEWCO is a party, or by which PC or NEWCO, or
any of their respective properties, are bound (collectively, the "PC
Documents"); and (a) the rights and benefits of PC and NEWCO under the PC
Documents will not be adversely affected by the transactions contemplated
hereby; and (b) the execution of this Agreement and the performance of PC's and
NEWCO's obligations hereunder and the consummation by them of the transactions
contemplated hereby will not result in any material violation or breach of, or
constitute a default under, any of the terms or provisions of the PC Documents
or the PC Charter Documents. Except as set forth on Schedule 6.8, none of the
PC Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of PC or NEWCO.
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6.9 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PC and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of PC and NEWCO, and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of PC and NEWCO.
6.10 PC STOCK. At the time of issuance thereof, the PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PC, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all respects to the PC Stock issued and outstanding as of
the date hereof by reason of the provisions of the Delaware GCL. The shares of
PC Stock to be issued to the STOCKHOLDERS pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.11 NO SIDE AGREEMENTS. Neither PC nor NEWCO has entered or will
enter into any agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies or PC other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. PC has provided to the COMPANY any
of such documents which have been requested by the COMPANY or the STOCKHOLDERS.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PC was formed
in July 1996, and has conducted limited operations since that time. Neither PC
nor NEWCO has conducted any business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Neither PC
nor NEWCO owns or has at any time owned any real property or any material
personal property or is a party to any other agreement, except as listed on
Schedule 6.12 and except that PC is a party to the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
6.13 TAXES. NEWCO is a newly formed entity which has no tax or
operational history. Except as set forth on Schedule
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6.13:
(i) All Returns required to have been filed by or with respect
to PC and any affiliated, combined, consolidated, unitary or similar
group of which PC is or was a member (a "PC Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on
any Return) owed by the PC Relevant Group have been paid.
(ii) The provisions for Taxes due by PC and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the PC Financial
Statements are sufficient for all unpaid Taxes, being current taxes
not yet due and payable, of the PC Relevant Group.
(iii) No corporation in the PC Relevant Group is a party to
any agreement extending the time within which to file any Return. No
claim has ever been made by any Taxing Authority in a jurisdiction in
which a corporation in the PC Relevant Group does not file Returns
that it is or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the PC Relevant Group has withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(v) No corporation in the PC Relevant Group expects any Taxing
Authority to assess any additional Taxes against or in respect of it
for any past period. There is no dispute or claim concerning any Tax
liability of any corporation in the PC Relevant Group either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to
any corporation in the PC Relevant Group. No issues have been raised
in any examination by any Taxing Authority with respect to any
corporation in the PC Relevant Group which, by application of similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so
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examined. Schedule 6.13(v) attached hereto lists all federal, state,
local and foreign income Tax Returns filed by or with respect to any
corporation in the PC Relevant Group for all taxable periods,
indicates those Returns, if any, that have been audited, and indicates
those Returns that currently are the subject of audit. Each
corporation in the PC Relevant Group will make available to the
STOCKHOLDERS, at their request, complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all
Tax examination reports and statements of deficiencies assessed
against or agreed to by, PC.
(vi) No corporation in the PC Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency.
(vii) No corporation in the PC Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make
any payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the PC Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the PC Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No
corporation in the PC Relevant Group is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460
of the Code.
(x) No corporation in the PC Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of
any corporation in the PC Relevant Group is subject to an election
under Section 341(f) of the Code or comparable provisions of any state
statutes.
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(xi) No corporation in the PC Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the PC
Relevant Group that could give rise to an adjustment under Section 481
of the Code for periods after the Funding and Consummation Date.
(xiii) No corporation in the PC Relevant Group has received
any written ruling of a Taxing Authority related to Taxes or entered
into any written and legally binding agreement with a Taxing Authority
relating to Taxes.
(xiv) Each corporation in the PC Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662(d) of the Code.
(xv) No corporation in the PC Relevant Group has any liability
for Taxes of any person other than such corporation in the PC Relevant
Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a
transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of
the net operating losses, built-in losses, capital losses, Tax credits
or other similar items of any corporation in the PC Relevant Group
(collectively, the "Tax Losses") under (i) Section 382 of the Code,
(ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A
of the Treasury regulations, (vi) Section 1.1502-21 and Section
1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in
effect both prior to and following the Tax Reform Act of 1986.
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(xvii) Neither PC nor NEWCO is an investment company as
defined in Section 351(e)(1) of the Code.
(xviii) Neither PC nor NEWCO is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
351(e)(2) of the Code.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date
of this Agreement and the Funding and Consummation Date, upon reasonable notice
to the COMPANY, the COMPANY will afford to the officers and authorized
representatives of PC and the Other Founding Companies access to all of the
COMPANY's sites, properties, books and records and will furnish PC with such
additional financial and operating data and other information as to the
business and properties of the COMPANY as PC or the Other Founding Companies
may from time to time reasonably request. The COMPANY will cooperate with PC
and the Other Founding Companies, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with the transactions contemplated by this Agreement. PC, NEWCO,
the STOCKHOLDERS and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, PC will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and
Consummation Date, upon reasonable notice to PC, PC will afford to the officers
and authorized representatives of the COMPANY access to all of PC's and NEWCO's
sites, properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of PC and NEWCO as the COMPANY may from time to time
reasonably request. PC and NEWCO will cooperate with the COMPANY, its
representatives, auditors and counsel in
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the preparation of any documents or other material which may be required in
connection with the transactions contemplated by this Agreement. The COMPANY,
PC and NEWCO will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as
set forth on Schedule 7.2:
(i) carry on its business in the ordinary course as conducted
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its current obligations as required under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
material business relations with the COMPANY;
(vi) maintain compliance, in all material respects, with all
permits, laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments in
accordance with their respective terms and not enter into new or
amended debt or lease instruments, without the knowledge and consent
of PC (which consent shall not be unreasonably withheld); and
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(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents, except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3,
between the date hereof and the Funding and Consummation Date, the COMPANY will
not, without the prior written consent of PC:
(i) make any change in its Articles or Certificate of
Incorporation or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its
securities of any kind other than in connection with the exercise of
options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution
in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock except for distributions to the STOCKHOLDERS of their
Accumulated Adjustment Accounts;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditure, except if it
is in the ordinary course of business (consistent with past practice)
and involves an amount not in excess of $50,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties, whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $50,000 necessary or desirable for the
conduct of the business of the COMPANY, (2) (A) liens for taxes either
not yet due or being contested in good faith and by appropriate
proceedings (and for which adequate reserves have been established and
are being maintained) or (B) materialmen's, mechanics',
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workers', repairmen's, employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being
referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedule 5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business;
(vii) negotiate for the acquisition of any business or
start-up any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim of the COMPANY,
provided that the COMPANY may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(x) breach or amend, other than an amendment in the ordinary
course of business, or terminate any material contract, agreement,
license, or permit to which the COMPANY is a party; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of
this Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussion pertaining to, or
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(iii) furnish any information to any person other than PC or
its authorized agents relating to, any acquisition or purchase of all
or a material amount of the assets of, or any equity interest in, the
COMPANY or a merger, consolidation or business combination of the
COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide PC on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate
(i) any stockholders' agreements, voting agreements, voting trusts, options,
warrants and employment agreements between the COMPANY and any employee listed
on Schedule 9.12 hereto and (ii) any existing agreement between the COMPANY and
any STOCKHOLDER, at or prior to the Funding and Consummation Date. Copies of
such termination agreements are attached to Schedule 7.6 or will be furnished
to PC at or prior to such date.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the
COMPANY shall give prompt notice to PC of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the COMPANY or the STOCKHOLDERS contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. PC and NEWCO shall give prompt notice
to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of PC or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of PC or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies
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available hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Funding
and Consummation Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth
or described on the Schedules, provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be
delivered at the Closing Date, unless such Schedule is to be amended to reflect
an event occurring other than in the ordinary course of business.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDERS that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
Material Adverse Effect may be made unless PC and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement; and
provided further, that no amendment or supplement to a Schedule prepared by PC
or NEWCO that constitutes or reflects an event or occurrence would be
reasonably likely to have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement.
For all purposes of this Agreement, including without limitation for purposes
of determining whether the conditions set forth in Sections 8.1 and 9.1 have
been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. In the event that one of
the Other Founding Companies or its stockholders seek to amend or supplement a
Schedule pursuant to Section 7.8 of one of the Other Agreements, and such
amendment or supplement constitutes or reflects an event or occurrence that
would be reasonably likely to have a Material Adverse Effect on such Other
Founding Company or the sale of its stock by its stockholders to PC, PC shall
give the COMPANY notice promptly after it has knowledge thereof. If PC and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given if no response is received within 48
hours after notice of such amendment or supplement (or sooner if required by
the circumstances under which such consent is requested), but the COMPANY does
not, the COMPANY may terminate this Agreement pursuant to Section 12.1(iv)
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hereof. In the event that the COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8 and PC and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that PC or NEWCO seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8, except that,
notwithstanding anything to the contrary contained in this Agreement, if the
COMPANY or the STOCKHOLDERS on the one hand, or PC or NEWCO on the other hand,
amends or supplements a Schedule which results in a termination of this
Agreement and such amendment or supplement arises out of or reflects facts or
circumstances which such party knew about at the time of execution of this
Agreement and knew would result in a termination of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall
pay or reimburse PC or the COMPANY and the STOCKHOLDERS, as the case may be,
for all of the legal, accounting and other out of pocket costs reasonably
incurred in connection with this Agreement and the IPO as it relates to the
COMPANY and the STOCKHOLDERS.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
COMPANY and the STOCKHOLDERS shall furnish or cause to be furnished to PC and
the Underwriters all of the information concerning the COMPANY and the
STOCKHOLDERS reasonably requested by PC or the Underwriters for inclusion in,
and will cooperate with PC and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, and in form otherwise reasonably requested by
PC or the Underwriters as suitable for inclusion in the Registration
Statement). PC and NEWCO agree to use their best efforts to provide to the
STOCKHOLDERS and the COMPANY copies of all drafts of the Registration Statement
circulated to the working group as a whole, including the prospectus included
therein and all amendments and exhibits thereto and any other documents and
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correspondence received by or filed with the SEC, and, to the extent
practicable in light of the timetable for the IPO and the potential need to
respond promptly to SEC, NASD or NASDAQ comments, to give the STOCKHOLDERS and
the COMPANY sufficient time to review and comment upon such documents prior to
filing with the SEC. The COMPANY and the STOCKHOLDERS agree promptly to advise
PC if at any time during the 25 day period following the date of the final
prospectus with respect to the IPO (the "Final Prospectus") in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS and which was provided by or on behalf of the STOCKHOLDERS or the
COMPANY or their respective agents or representatives for inclusion in the
Registration Statement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and to provide the information
needed to correct such misstatement or omission. Insofar as the information
requested relates solely to the COMPANY or the STOCKHOLDERS and was provided by
the COMPANY or the STOCKHOLDERS or their respective agents or representatives
for inclusion in the Registration Statement, each of the COMPANY and the
STOCKHOLDERS represents and warrants that the Registration Statement at its
effective date, at the date of each of the Final Prospectus and each amendment
to the Registration Statement or supplement to the Final Prospectus, and at
each closing date with respect to the IPO under the Underwriting Agreement
(including with respect to any over-allotment option) will not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior
to the Funding and Consummation Date, and PC shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statements of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet
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Date, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of
the Balance Sheet Date. Such financial statements shall have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will present fairly the results of operations of the COMPANY for the periods
indicated thereon.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on each of the Closing Date and the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Closing Date and the Funding and Consummation Date of all of the following
conditions. As of the Closing Date or the Funding and Consummation Date, as
the case may be, all conditions not satisfied shall be deemed to have been
waived by the COMPANY and the STOCKHOLDERS unless such parties have notified PC
in writing to the contrary, except that no such waiver shall be deemed to
affect the survival of the representations and warranties of PC and NEWCO
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of PC and NEWCO contained in this Agreement
shall be true and correct in all material respects as of the Closing Date and
the Funding and Consummation Date as though such representations and warranties
had been made as of that time; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by PC and NEWCO on or before
the Closing Date and the Funding and Consummation Date shall have been duly
complied with and performed in all material respects; and a certificate to the
foregoing effect dated the Closing Date and the Funding and Consummation Date
and signed by the President or any Vice
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President of PC shall have been delivered to the STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be satisfactory to the COMPANY and its
counsel. The STOCKHOLDERS and the COMPANY shall be satisfied that the
Registration Statement and the prospectus forming a part thereof, including any
amendments thereof or supplement thereto, shall not contain any untrue
statement of a material fact, or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that the condition contained in this sentence shall be
deemed satisfied if the COMPANY or STOCKHOLDERS shall have failed to inform PC
in writing prior to the Funding and Consummation Date of the existence of an
untrue statement of a material fact or the omission of such a statement of a
material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the Mergers
contemplated by the other Agreements or the offering and sale by PC of PC Stock
pursuant to the Registration Statement.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an
opinion from counsel for PC, dated the Closing Date, in the form annexed hereto
as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall have been instituted or shall be pending or
contemplated under the 1933 Act and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, shares of PC Stock at a price to the
public of not less than $10.00 per share.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the Merger or the Mergers contemplated by the other Agreements.
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8.7 GOOD STANDING CERTIFICATES. PC and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which PC or NEWCO is authorized to do business, showing
that each of PC and NEWCO is in good standing and authorized to do business and
that all state franchise and/or income tax returns and taxes for PC and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred with respect to PC or NEWCO which would constitute a Material
Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the PC Stock to
the Underwriters in the IPO shall have occurred simultaneously with the Funding
and Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and the Funding and
Consummation Date and signed by the Secretary of PC and of NEWCO, certifying
the truth and correctness of attached copies of PC's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors and,
if required, the stockholders of PC and NEWCO approving PC's and NEWCO's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto.
8.12 TAX TREATMENT. The COMPANY and the STOCKHOLDERS shall be
reasonably satisfied that (i) none of PC, NEWCO or any Other Founding Company
(or its STOCKHOLDERS) has breached any representation or warranty set forth in
this Agreement or in the Other Agreements, and (ii) no event outside the
control of the COMPANY and the STOCKHOLDERS has occurred between the date of
this Agreement and the Funding and Consummation Date, in each case so as to
jeopardize the treatment of the transactions contemplated by the PC Plan of
Organization as a transfer of property described in Section 351 of the Code.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PC AND NEWCO
The obligations of PC and NEWCO with respect to actions to be taken on
each of the Closing Date and the Funding and Consummation Date are subject to
the satisfaction or waiver on or prior to the Closing Date and the Funding and
Consummation Date of all of the following conditions. As of the Closing Date
or the Funding and Consummation Date, as the case may be, all conditions not
satisfied shall be deemed to have been waived by PC and NEWCO unless such
parties have notified the COMPANY and the STOCKHOLDERS in writing to the
contrary, except that no such waiver shall be deemed to affect the survival of
the representations and warranties of the COMPANY and the STOCKHOLDERS
contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All the representations and warranties of the STOCKHOLDERS and the COMPANY
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Funding and Consummation Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDERS and the COMPANY on or before the
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDERS shall have delivered to PC a certificate dated the Closing Date
and the Funding and Consummation Date and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted to restrain or
prohibit the merger of NEWCO with and into the COMPANY or the offering and sale
by PC of PC Stock pursuant to the Registration Statement.
9.3 SECRETARY'S CERTIFICATE. PC shall have received a
certificate, dated the Closing Date and the Funding and Consummation Date and
signed by the Secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
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resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to the COMPANY which would constitute a Material
Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered
to PC an instrument dated the Closing Date releasing the COMPANY from (i) any
and all claims of the STOCKHOLDERS against the COMPANY and (ii) any and all
obligations of the COMPANY to the STOCKHOLDERS, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the STOCKHOLDERS, (y) continuing obligations to the STOCKHOLDERS
relating to their employment by the COMPANY and (z) obligations arising under
this Agreement or the transactions contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental hereto and all other related legal matters shall be satisfactory
to PC and its counsel.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 9.7 and consented to by PC, all existing agreements between the
COMPANY and the STOCKHOLDERS shall have been canceled effective prior to or as
of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PC shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date, in the
form annexed hereto as Annex VII, which form shall be deemed to include any
additional opinions covering matters customary under the circumstances and
based upon reasonable requests by the Underwriters, which opinion may be relied
upon by counsel to PC in connection with any opinion requested of it by the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the Merger.
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9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered
to PC a certificate, dated as of a date no earlier than five days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by PC, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.12 shall have entered into an employment agreement substantially in the form
of Annex VIII hereto. Any employment agreement in effect as of the date hereof
between the COMPANY and any person listed on Schedule 9.12 shall have been
terminated on or prior to the Funding and Consummation Date.
9.13 CLOSING OF THE IPO. The closing of the sale of PC Stock to
the Underwriters in the IPO shall have occurred simultaneously with the Funding
and Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to
PC a certificate to the effect that he or she is not a foreign person pursuant
to Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PC AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. PC
shall use its best efforts to have the STOCKHOLDERS released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the COMPANY, with all such guarantees on indebtedness being assumed by PC.
In the event that PC cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to 120 days subsequent to the Funding and
Consummation Date, PC shall pay off or otherwise refinance or retire such
indebtedness and, in the event that PC cannot obtain releases on or prior to
the Funding and Consummation Date, PC agrees to indemnify the STOCKHOLDERS
against any and all claims made by lenders under such guarantees which arise as
a result of PC's failure to cause
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such guarantees to be released on or prior to the Funding and Consummation
Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, PC shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the reorganization, including:
(a) the retirement or reacquisition, directly or
indirectly, of all or part of the PC Stock issued in connection with
the transactions contemplated hereby;
(b) the entering into of financial arrangements for the
benefit of the STOCKHOLDERS; and
(c) the disposition of any material part of the assets of
the COMPANY within the two years following the Funding and
Consummation Date except in the ordinary course of business or to
eliminate duplicate services or excess capacity.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date. Each STOCKHOLDER shall pay or cause
to be paid all Tax liabilities shown by such Returns to be due. PC and NEWCO
shall not file any amended Tax Returns for any taxable year or portion thereof
of the Surviving Corporation ending on or before the Funding and Consummation
Date without the prior written consent of the STOCKHOLDERS, which consent shall
not be unreasonably withheld.
(ii) PC shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include
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providing copies of all relevant portions of relevant Returns, together with
relevant accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and relevant
records concerning the ownership and Tax basis of property, which such party
may possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any documents
or information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs of
filing such Returns.
(iv) Each of the COMPANY, NEWCO, PC and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a transfer
of property under Section 351(a) of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement
shall be appointed as directors of PC not later than ten (10) days following the
closing of the IPO.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing,
PC shall not terminate any health insurance, life insurance or 401(k) plan in
effect at the COMPANY until such time as PC is able to replace such plan with a
plan that is applicable to the COMPANY, provided that PC shall have no
obligation to provide replacement plans that have the same terms and provisions
as the existing plans, and provided, further, that any new health insurance
plan shall provide for coverage for preexisting conditions.
11. INDEMNIFICATION
The STOCKHOLDERS, PC and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless PC, NEWCO and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by PC, NEWCO,
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the COMPANY or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the STOCKHOLDERS or the COMPANY
set forth herein or on the Schedules or certificates delivered in connection
herewith, (ii) any nonfulfillment of any agreement on the part of the
STOCKHOLDERS or the COMPANY under this Agreement, (iii) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the
STOCKHOLDERS, and provided to PC or its counsel by the COMPANY or the
STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to the COMPANY or the STOCKHOLDERS required to be
stated therein or necessary to make the statements therein not misleading, (iv)
any Tax imposed upon or relating to any third party for a pre-Funding and
Consummation Date period, including, in each case, any such Tax for which an
Acquired Party may be liable under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, or (v) the matters described on Schedule
11.1(v), provided that any proposed amendment to Schedule 11.1(v) made after
the signing of this Agreement may only be made with consent of the COMPANY and
the STOCKHOLDERS, and provided, further, that such indemnity shall not inure to
the benefit of PC, NEWCO or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to PC's counsel and to PC for
inclusion in the final prospectus, and such information was not so included or
properly delivered, and provided further, that no STOCKHOLDER shall be liable
for any indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 INDEMNIFICATION BY PC. PC covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims,
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damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as
a result of or arising from (i) any breach by PC or NEWCO of its
representations and warranties set forth herein or on the Schedules or
certificates delivered in connection herewith, (ii) any nonfulfillment of any
agreement on the part of PC or NEWCO under this Agreement, (iii) any liability
which the STOCKHOLDERS may incur due to PC's or NEWCO's failure to be
responsible for the liabilities and obligations of the COMPANY as provided in
Section 1 hereof (except to the extent that PC or NEWCO has claims against the
STOCKHOLDERS by reason of such liabilities); (iv) any liability under the 1933
Act, the 1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to PC, NEWCO or any of the Other Founding
Companies contained in any preliminary prospectus, the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to PC or NEWCO or any of the
Other Founding Companies required to be stated therein or necessary to make the
statements therein not misleading, or (v) the matters described on Schedule
11.2(v).
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1 or 11.2 hereof (hereinafter the "Indemnifying Party"), give the
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof, to the extent known.
The Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long as the Indemnifying
Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the written
consent of the
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Indemnified Party, such consent not to be unreasonably withheld or delayed. If
the Indemnifying Party undertakes to defend or settle, it shall promptly notify
the Indemnified Party of its intention to do so, and the Indemnified Party
shall cooperate with the Indemnifying Party and its counsel in the defense
thereof and in any settlement thereof. Such cooperation shall include, but
shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties
shall use the same counsel, which shall be the counsel selected by Indemnifying
Party, provided that if counsel to the Indemnifying Party shall have a conflict
of interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party
for the expenses of its counsel. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense which it subsequently incurs with respect to such
claim and all additional costs of settlement or judgment. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party
is entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of
its choice, at the cost and expense of the Indemnifying Party, and the
Indemnified Party may settle such
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matter, and the Indemnifying Party shall reimburse the Indemnified Party for
the amount paid in such settlement and any other liabilities or expenses
incurred by the Indemnified Party in connection therewith, provided, however,
that under no circumstances shall the Indemnified Party settle any Third Person
claim without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. All settlements hereunder shall
effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing, which agreement shall not be unreasonably
withheld or delayed. The parties hereto will make appropriate adjustments for
insurance proceeds in determining the amount of any indemnification obligation
under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. PC, NEWCO, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim other than a Third Person claim for
indemnification hereunder against the STOCKHOLDERS until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDERS shall exceed 1.0% of the sum of the cash paid to
STOCKHOLDERS plus the value of the PC Stock delivered to STOCKHOLDERS (for
purposes of calculating the value of the PC Stock, such PC Stock is to be
valued at its initial public offering price as set forth in the Registration
Statement) (the "Indemnification Threshold"), provided, however, that PC,
NEWCO, the Surviving Corporation and the other persons or entities indemnified
pursuant to Section 11.1 or 11.2 may assert and shall be indemnified for any
claim under Sections 11.1(iv) and (v) at any time, regardless of whether the
aggregate of all claims which such persons may have against any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood
that the amount of any such claim under Sections 11.1(iv) and (v) shall not be
counted towards the Indemnification Threshold. The STOCKHOLDERS shall not
assert any claim (other than a Third Person claim) for indemnification
hereunder against
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PC or NEWCO until such time as, and solely to the extent that, the aggregate of
all claims which the STOCKHOLDERS may have against PC or NEWCO shall exceed
$100,000, provided, however, that the STOCKHOLDERS and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 may assert and shall be
indemnified for any claim under Section 11.2(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against PC or
NEWCO exceeds $100,000, it being understood that the amount of any such claim
under Section 11.2(v) shall not be counted towards such $100,000 amount.
No person shall be entitled to indemnification under this Section 11
if and to the extent that such person's claim for indemnification is directly
or indirectly related to a material breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement.
Notwithstanding any other term of this Agreement (except the proviso
to this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of the cash
paid to the STOCKHOLDER plus the value of the PC Stock delivered to the
STOCKHOLDER as calculated above, provided that a STOCKHOLDER's indemnification
obligations pursuant to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PC and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its
board of directors), on the one hand, or by PC (acting through its
board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not
have been consummated by December 31, 1996, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
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(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or
by PC, on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained herein, and the curing of such default shall not have been
made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a
period of five (5) years following the Funding and Consummation Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with PC or any of the subsidiaries thereof, within
100 miles of where the COMPANY or any of its subsidiaries or any of
the other Founding Companies conducted business prior to the
effectiveness of the Merger or proposed to conduct business as of such
time (the "Territory");
(ii) solicit any person who is, at that time, within the
Territory, an employee of PC (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
PC (including the subsidiaries thereof);
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(iii) solicit any person or entity which is, at that time,
or which has been, within one (1) year prior to the Funding and
Consummation Date, a customer of PC (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with PC within the Territory;
(iv) solicit any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in the medical
software development or distribution business, which candidate was
either called upon by PC (including the subsidiaries thereof) or for
which PC (or any subsidiary thereof) made an acquisition analysis
which was known (or should have been known) to the STOCKHOLDER, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the COMPANY to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the COMPANY has in the past disclosed such information to the
public for valid business reasons. Notwithstanding the above, the
foregoing covenant shall not be deemed to prohibit any STOCKHOLDER
from acquiring as an investment not more than one percent (1%) of the
capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic
losses to PC as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to PC for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of a breach by such STOCKHOLDER, the foregoing covenant may be enforced by PC
by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PC (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PC.
13.4 SEVERABILITY; REFORMATION. The covenants in this
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Section 13 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and this Agreement shall thereby be
reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PC (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by PC
of such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 13, during which the agreements and
covenants of each STOCKHOLDER made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree
that this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they had in the past, currently have and in the future may have access to
certain confidential information relating to the COMPANY, the Other Founding
Companies and/or PC, such as operational policies, and pricing and cost
policies, that are valuable, special and unique assets of the COMPANY, the
Other Founding Companies and/or PC's business. The STOCKHOLDERS agree that
they will not use or disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, NEWCO, the
Other Founding
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Companies and PC who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, and (b) following the Closing, such
information may be disclosed by the STOCKHOLDERS as is required in the course
of performing their duties for PC or the Surviving Corporation unless (i) such
information becomes known to the public generally through no breach by the
STOCKHOLDERS of this covenant, (ii) disclosure is required by law or the order
of any governmental authority under color of law or is necessary in order to
secure a consent or approval to consummate the transactions contemplated
hereby, provided, that prior to disclosing any information pursuant to this
clause (ii), the STOCKHOLDERS shall, if possible, give prior written notice
thereof to PC and provide PC with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party and the same prior disclosure set forth immediately above is given. In
the event of a breach or threatened breach by any of the STOCKHOLDERS or PC of
the provisions of this Section, PC shall be entitled to an injunction
restraining the STOCKHOLDERS from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting PC
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.2 PC AND NEWCO. PC and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information relating to the COMPANY, such as operational policies, and pricing
and cost policies, that are valuable, special and unique assets of the COMPANY.
PC and NEWCO agree that, prior to the Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to their own benefit except in
furtherance of the Transactions contemplated by this Agreement or disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to the STOCKHOLDERS and
to authorized representatives of the COMPANY who need to know such information
in connection with the transactions contemplated hereby, who have been informed
of the confidential nature of such information and who have agreed to keep such
information
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confidential as provided hereby, and (b) to the Other Founding Companies and
their representatives pursuant to Section 7.1(a), unless (i) such information
becomes known to the public generally through no breach by PC or NEWCO of this
covenant, (ii) disclosure is required by law or the order of any governmental
authority under color of law or is necessary in order to secure a consent or
approval to consummate the transactions contemplated hereby, provided, that
prior to disclosing any information pursuant to this clause (ii), PC and NEWCO
shall, if possible, give prior written notice thereof to the COMPANY and the
STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth
immediately above is given. In the event of a breach or threatened breach by
PC or NEWCO of the provisions of this Section, the COMPANY and the STOCKHOLDERS
shall be entitled to an injunction restraining PC and NEWCO from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the COMPANY and the STOCKHOLDERS from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein
are not consummated, PC and NEWCO shall return to the COMPANY within a
reasonable time all documents (in both paper and electronic form) containing
confidential information about the COMPANY, and shall use reasonable efforts to
compel the Other Founding Companies to do the same. In such instance, PC will
also furnish to the COMPANY a written statement certifying that all documents
which contained confidential information about the COMPANY and which had been
in PC's possession had been returned by PC to the COMPANY.
14.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 14.1
and 14.2, and because of the immediate and irreparable damage that would be
caused for which they would have no other adequate remedy, the parties hereto
agree that, in the event of a breach by any of them of the foregoing covenants,
the covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article
14 shall survive notwithstanding either the termination of this Agreement or
the consummation of the
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transactions contemplated hereby on the Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 15.1 (or trusts for the benefit of the STOCKHOLDERS or family members,
the trustees of which so agree), for a period of two years from the Funding and
Consummation Date, except pursuant to Section 17 hereof, none of the
STOCKHOLDERS shall (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (a) any shares of PC Stock received
by the STOCKHOLDERS in the Merger, or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of PC Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect to any
shares of PC Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of PC Stock acquired pursuant to Section 2
hereof (including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, (i) if the "holding period" for restricted securities set forth in
Rule 144(d) under the 1933 Act (or any similar or successor provision) is
reduced below two years, the two-year restrictive period set forth in this
Section 15.1 will be deemed to be correspondingly reduced; and (ii) the
STOCKHOLDERS may encumber or pledge any of such shares of PC Stock provided the
pledgee or other beneficiary of such encumbrance or pledge agrees to be bound by
the provisions of this Section as if a STOCKHOLDER and party hereto. The
certificates evidencing the PC Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as PC may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
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TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF THE FUNDING AND
CONSUMMATION DATE] (PROVIDED, HOWEVER, THAT (I) IF THE
"HOLDING PERIOD" FOR RESTRICTED SECURITIES SET FORTH IN RULE
144(D) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (OR ANY
SIMILAR OR SUCCESSOR PROVISION), IS REDUCED BELOW TWO YEARS,
THE RESTRICTIVE PERIOD SET FORTH HEREIN SHALL BE
CORRESPONDINGLY REDUCED, AS CALCULATED FROM THE DATE TWO YEARS
PRIOR TO THE DATE SET FORTH HEREIN AND (II) SUCH SHARES MAY BE
ENCUMBERED OR PLEDGED PROVIDED THE PLEDGEE OR OTHER
BENEFICIARY OF SUCH ENCUMBRANCE OR PLEDGE AGREES TO BE BOUND
BY THE PROVISIONS OF THESE RESTRICTIONS TO THE SAME EXTENT AS
THE HOLDER HEREOF). UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE REDUCED AS
PROVIDED HEREIN).
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of PC Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold unless
registered under the 1933 Act or resold pursuant to an exemption from the
registration requirements of the 1933 Act. The PC Stock to be acquired by the
STOCKHOLDERS pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
cwith a distribution; provided, however that this covenant shall not prohibit
any disposition in accordance with the securities laws and this Agreement.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of PC Stock issued to the STOCKHOLDERS will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC and this Agreement.
All the PC Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS AND, IF REQUIRED BY PC, AN OPINION OF COUNSEL TO PC
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS represent and
warrant that they are able to bear the economic risk of an investment in the PC
Stock acquired pursuant to this Agreement, can afford to sustain a total loss
of such investment and have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks of
the proposed investment in the PC Stock. The STOCKHOLDERS represent and
warrant that they have had an adequate opportunity to ask questions and receive
answers from the officers of PC concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PC, the plans
for the operations of the business of PC, the business, operations and
financial condition of the Other Founding Companies, and any plans for
additional acquisitions and the like. The STOCKHOLDERS have asked any and all
questions of the nature described in the preceding sentence, and all questions
have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Funding and Consummation Date, whenever PC proposes to register any PC Stock
for its own or others' account under the 1933 Act for a public offering, other
than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by PC, (ii) registrations relating to
employee benefit plans and (iii) registrations relating to rights offerings
made to the stockholders of PC, PC shall give each of the STOCKHOLDERS prompt
written notice of its intent to do so. Upon the written request of any of the
STOCKHOLDERS given within 30 days after receipt of such notice,
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PC shall cause to be included in such registration all of the PC Stock which any
such STOCKHOLDER requests, provided that PC shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares would, in the opinion of tax counsel to PC or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free reorganization. In addition, if PC is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than PC is greater than the number of such shares which can be offered without
adversely affecting the offering, PC may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by such
managing underwriter, provided, that, for each such offering made by PC after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than PC, the STOCKHOLDERS and the stockholders of the
Other Founding Companies (collectively, the STOCKHOLDERS and the stockholders of
the other Founding Companies being referred to herein as the "Founding
Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two
years after the Funding and Consummation Date, the holders of a majority of the
shares of PC Stock issued to the stockholders of the Founding Companies
pursuant to this Agreement and the Other Agreements that have not been
previously registered or sold and that are not entitled to be sold under Rule
144(k) (or any successor provision) promulgated under the 1933 Act may request
in writing that PC file a registration statement under the 1933 Act covering
the registration of shares of PC Stock issued to such stockholders (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security that is issued by PC as)
a dividend or other distribution with respect to, or in exchange for, or in
replacement of such PC Stock) then held by such stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, PC shall
give written notice of such request to all other of such stockholders and
shall, as soon as
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practicable but in no event later than 45 days after notice from any such
stockholder, file and thereafter use its best efforts to cause to become
effective a registration statement covering all such shares. PC shall be
obligated to effect only one Demand Registration for all stockholders of the
Founding Companies and will keep such Demand Registration current and effective
for not less than 120 days (or such shorter period as is required to sell all
of the shares registered thereon).
Notwithstanding the foregoing paragraph, following such a demand a
majority of PC's disinterested directors (i.e., directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request by the stockholders of the Founding
Companies for a Demand Registration PC has plans to file within 60 days after
such request a registration statement covering the sale of any of its
securities in a public offering under the 1933 Act, no registration of the PC
Stock held by the stockholders of the Founding Companies shall be initiated
under this Section 17.2 until 90 days after the effective date of such
registration unless PC is no longer proceeding diligently to effect such
registration; provided that PC shall provide the stockholders of the Founding
Companies the right to participate in such public offering pursuant to, and
subject to, Section 17.1 hereof.
In addition, if the stockholders offering shares are advised in writing
in good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.2 that the number of shares to be sold by such stockholders is
greater than the number of such shares which can be offered without adversely
affecting the offering, the stockholders offering shares may reduce pro rata
the number of shares offered for the account of each stockholder (based upon the
number of shares proposed to be sold by each such stockholder) to a number
deemed satisfactory by such managing underwriter.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Article 17 (including all registration,
filing, qualification, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by PC. In connection
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with registrations under Sections 17.1 and 17.2, PC shall (i) use its best
efforts to prepare and file with the SEC, as soon as reasonably practicable, a
registration statement with respect to the PC Stock and use its best efforts to
cause such registration to promptly become and remain effective for a period of
at least 120 days (or such shorter period during which holders shall have sold
all PC Stock which they requested to be registered); (ii) use its best efforts
to register and qualify the PC Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution of the PC Stock; and (iii) take such other actions as are
reasonable and necessary to comply with the requirements of the 1933 Act and
the regulations thereunder.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registered public
offering, PC and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such managing underwriters and companies of PC's size and investment
stature, including indemnification.
17.5 AVAILABILITY OF RULE 144. PC shall not be obligated to
register shares of PC Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER for such shares.
18. GENERAL
18.1 COOPERATION. The COMPANY, the STOCKHOLDERS, PC and NEWCO
shall each deliver or cause to be delivered to the other on the Funding and
Consummation Date, and at such other times and places as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of carrying out this Agreement. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PC on and after the Funding and Consummation Date in
furnishing information, evidence, testimony and other assistance in connection
with any Tax Return filing obligations, actions, proceedings, arrangements or
disputes of any nature with respect
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to matters pertaining to all periods prior to the Funding and Consummation
Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PC, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 ENTIRE AGREEMENT. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
STOCKHOLDERS, the COMPANY, NEWCO and PC and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the STOCKHOLDERS, the COMPANY,
NEWCO and PC, acting through their respective officers or trustees, duly
authorized by their respective boards of directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Each party represents and warrants that
it employed no broker or agent in connection with this transaction and agrees
to indemnify the other parties hereto against all loss, cost, damages or
expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, PC will pay the fees, expenses and disbursements of PC
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PC under this Agreement, including (subject to
the next sentence) the fees and expenses of Coopers & Lybrand LLP, Morgan,
Lewis & Bockius LLP and the costs of preparing the Registration Statement. The
COMPANY shall pay and be fully responsible for the fees and expenses of Coopers
&
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Lybrand LLP in connection with its audit and preparation of the historical
financial statements of the COMPANY to be included in the Registration
Statement, which fees and expenses shall constitute a vendor debt of the
COMPANY. The STOCKHOLDERS shall pay and be fully responsible for all
professional fees and expenses, including but not limited to legal fees and
expenses, incurred by the COMPANY and the STOCKHOLDERS in connection with the
transactions contemplated herein, whether or not such transactions are actually
consummated. Each STOCKHOLDER further shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar taxes and
fees ("Transfer Taxes") imposed in connection with the Merger, other than
Transfer Taxes, if any, imposed by the State of Delaware. Each STOCKHOLDER
shall file all necessary documentation and Returns with respect to such
Transfer Taxes. In addition, each STOCKHOLDER acknowledges that such
STOCKHOLDER, and not the COMPANY or PC, will pay all Taxes due upon receipt of
the consideration payable pursuant to Section 2 hereof, and will assume all Tax
risks and liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to PC, or NEWCO, addressed to them at:
Medical Manager Corporation
3001 Rocky Point Drive, Suite 100
Tampa, Florida 33607
Attn: John Kang, Chief Executive Officer
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their
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addresses set forth on Annex IV, with copies to such
counsel as is set forth with respect to each
STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Systems Management, Inc.
537202 Generation Drive
South Bend, IN 46635
Attn: Thomas P. Liddell
and marked "Personal and Confidential"
with copies to:
Systems Management, Inc.
537202 Generation Drive
South Bend, IN 46635
Attn: Timothy S. Liddell
Thorne, Grodnik, Ransel, Duncan, Bryan & Hostetler
310 Valley American Bank & Trust Building
310 W. McKinley Avenue
P.O. Box 1210
Mishawaka, IN 45545-1210
Attn: Michael Trippel
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, except that matters herein
within the purview of the matters covered by the General Corporation Law of the
State of Delaware shall be governed by such General Corporation Law, in each
case without reference to conflicts of laws principles.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Closing or in writing delivered
pursuant to the
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provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties until the
Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or
in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of PC, NEWCO, the COMPANY and the STOCKHOLDERS who
hold or will hold more than 50% of the PC Stock issued pursuant to this
Agreement. Any amendment or waiver effected in accordance with this Section
18.15 shall be
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binding upon each of the parties hereto, any other person receiving PC Stock in
connection with the Merger and each future holder of such PC Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By /s/ John H. Kang
---------------------------
Name: John H. Kang
Title: Chief Executive Officer
SMI ACQUISITION I CORP.
By /s/ Wayne Burks
---------------------------
Name: Wayne Burks
Title: President
SYSTEMS MANAGEMENT, INC.
By /s/ Thomas P. Liddell
---------------------------
Name: Thomas P. Liddell
Title: President
STOCKHOLDERS:
By /s/ Thomas P. Liddell
---------------------------
Name: Thomas P. Liddell
By /s/ Timothy S. Liddell
---------------------------
Name: Timothy S. Liddell
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MEDICAL MANAGER CORPORATION
ARTICLE ONE
The name of the corporation is:
Medical Manager Corporation
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is United Corporate Services, Inc.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE FOUR
<PAGE> 2
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifty million five hundred
thousand (50,500,000) shares, of which five hundred thousand (500,000) shares,
designated as Preferred Stock, shall have a par value of One Cent ($.01) per
share (the "Preferred Stock"), and fifty million (50,000,000) shares,
designated as Common Stock, shall have a par value of One Cent ($.01) per share
(the "Common Stock").
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class
of stock of the Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the
provisions of this Certificate of Incorporation and the limitations prescribed
by law, the Board of Directors is expressly authorized by adopting
resolutions to issue the shares, fix the number of shares and change the number
of shares constituting any series, and to provide for or change
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the voting powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof, including dividend rights (and whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the shares
constituting any class or series of the Preferred Stock, without any further
action or vote by the stockholders.
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COMMON STOCK
1. Dividends.
Subject to the preferred rights of the holders of shares of any
class or series of Preferred Stock as provided by the Board of Directors with
respect to any such class or series of Preferred Stock, the holders of the
Common Stock shall be entitled to receive, as and when declared by the Board of
Directors out of the funds of the Corporation legally available therefor, such
dividends (payable in cash, stock or otherwise) as the Board of Directors may
from time to time determine, payable to stockholders of record on such dates,
not exceeding 60 days preceding the dividend payment dates, as shall be fixed
for such purpose by the Board of Directors in advance of payment of each
particular dividend.
2. Liquidation.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after
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the distribution or payment to the holders of shares of any class or series of
Preferred Stock as provided by the Board of Directors with respect to any such
class or series of Preferred Stock, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among and paid
to the holders of Common Stock ratably in proportion to the number of shares of
Common Stock held by them respectively.
3. Votinq Rights.
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote for
each share standing in such holder's name of the books of the Corporation,
ARTICLE FIVE
1. Board of Directors
<PAGE> 6
Effective upon the closing of the Corporation's initial public
offering of Common Stock, the directors shall be classified with respect to
the time for which they shall severally hold office into three classes as
nearly equal in number as possible. The Class I directors shall be elected to
hold office for an initial term expiring at the 1997 annual meeting of
stockholders, the Class II directors shall be elected to hold office for an
initial term expiring at the 1998 annual meeting of stockholders and the Class
III directors Shall be elected to hold office for an initial term expiring at
the 1999 annual meeting of stockholders, with the members of each class of
directors to hold office until their successors have been duly elected and
qualified. At each annual meeting of stockholders, the successors to the class
of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election and until their successors have
been duly elected and qualified. At each annual meeting of stockholders at
which a quorum is present, the persons receiving a plurality of the votes cast
shall be directors. No director or class of directors may be removed from
office by a vote of the
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stockholders at any time except for cause. Election of directors need not be
by written ballot unless the By-Laws of the Corporation so provide.
2. Vacancies.
Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other
cause, as well as any vacancy resulting from an increase in the number of
directors which occurs between annual meetings of the stockholders at which
directors are elected, shall be filled only by a majority vote of the remaining
directors then in office, though less than a quorum, except that those
vacancies resulting from removal from office by a vote of the stockholders may
be filled by a vote of the stockholders at the same meeting at which such
removal occurs. The directors chosen to fill vacancies shall hold office for a
term expiring at the end of the next annual meeting of stockholders at which
the term of the class to which they have been elected expires. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
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Notwithstanding the foregoing, whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately, as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE FOUR applicable thereto, and each
director so elected shall not be subject to the provisions of this ARTICLE FIVE
unless otherwise provided therein.
3. Amendment and Repeal of ARTICLE FIVE
Notwithstanding any provision of this Certificate of
Incorporation and of the By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by Delaware law, unless such action has been
approved by a majority vote of the full Board of Directors, the affirmative
vote of 66 2/3 percent of the votes which all holders of the then outstanding
shares of capital stock of the Corporation would be entitled to cast thereon,
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voting together as a single class, shall be required to amend or repeal any
provision of this ARTICLE FIVE or to adopt any provision inconsistent with this
ARTICLE FIVE. In the event such action has been previously approved by a
majority vote of the full Board of Directors, the affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon shall
be sufficient to amend or repeal any provision of this ARTICLE FIVE or adopt
any provision inconsistent with this ARTICLE FIVE.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter and
repeal the By-Laws of the Corporation.
ARTICLE SEVEN
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any
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breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify each director and officer of the Corporation from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-Law, agreement, vote of stockholders, vote of
disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors
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and administrators of such persons and the Corporation may purchase and
maintain insurance on behalf of any director or officer to the extent permitted
by Section 145 of the Delaware General Corporation Law.
ARTICLE NINE
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court
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directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
IN WITNESS WHEREOF, I have signed this Certificate this 10th
day of July, 1996,
/s/ Christopher T. Jensen
-----------------------------------
Christopher T. Jensen, Incorporator
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Exhibit 10.1
MEDICAL MANAGER CORPORATION
1996 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1996 Long-Term Incentive Plan
(the "Plan") of Medical Manager Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing a means to attract, retain and reward executive officers and other
key employees and consultants and others providing services of substantial
value to the Company and its subsidiaries and to enable such persons to
acquire or increase a proprietary interest in the Company, thereby promoting a
closer identity of interests between such persons and the Company's
stockholders.
2. Definitions. The definitions of awards under the Plan,
including Options, SARs (including Limited SARs), Restricted Stock, Deferred
Stock, Stock granted as a bonus or in lieu of other awards, Dividend
Equivalents and Other Stock-Based Awards are set forth in Section 6 of the
Plan. Such awards, together with any other right or interest granted to a
Participant under the Plan, are termed "Awards." For purposes of the Plan, the
following additional terms shall be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract,
notice or other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee
benefit plan of the Company, acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the Exchange Act)
of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial
Owner of voting securities representing 50 percent or more of the
total voting power of all of the then-outstanding voting securities of
the Company;
(ii) the following individuals no longer constitute a
majority of the members of the Board: (A) the individuals who, as of
the closing date of the Initial Public Offering, constitute the Board
(the "Original Directors"); (B) the
<PAGE> 2
individuals who thereafter are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board and whose election, or nomination for election,
to the Board was approved by a vote of at least two-thirds (2/3) of
the Original Directors and Additional Original Directors then still in
office (such directors also becoming "Additional Original Directors"
immediately following their election);
(iii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not obtained, other
than any such transaction which would result in at least 75 percent of
the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
Beneficially Owned by at least 75 percent of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or
(iv) the stockholders of the Company shall approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50 percent or more of the total assets of the
Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(f) "Committee" means the Compensation Committee of the Board, or
such other Board committee as may be designated by the Board to administer the
Plan; provided, however, that the Committee shall consist solely of two or more
directors. In appointing members of the Committee, the Board will consider
whether each member will qualify as a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) and as an "outside director" within the meaning of
Treasury Regulation 1.162-27(e)(3) under Code Section 162(m), but such members
are not required to so qualify at the time of appointment or during their term
of service on the Committee.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or
other property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the
<PAGE> 3
Committee, provided, however, that (i) if the Stock is listed on a national
securities exchange or quoted in an interdealer quotation system, the Fair
Market Value of such Stock on a given date shall be based upon the last sales
price or, if unavailable, the average of the closing bid and asked prices per
share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading
or quotation) as reported in the Wall Street Journal (or other reporting
service approved by the Committee), (ii) the "Fair Market Value" of Stock
subject to Options granted effective upon commencement of the Initial Public
Offering shall be the Initial Public Offering price of the shares so issued and
sold in the Initial Public Offering, as set forth in the first final prospectus
used in such offering (the provisions of clause (i) notwithstanding) and (iii)
the "Fair Market Value" of Stock prior to the date of the Initial Public
Offering shall be as determined by the Board of Directors.
(i) "Initial Public Offering" shall mean an initial public
offering of shares of Stock in a firm commitment underwriting registered with
the Securities and Exchange Commission in compliance with the provisions of the
Securities Act of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible
under Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect
and applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company
and such other securities as may be substituted for Stock or such other
securities pursuant to Section 4.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by
the Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be
granted to each such person;
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not
limited to, any exercise price,
<PAGE> 4
grant price or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an
Award, and waivers or accelerations thereof, performance conditions
relating to an Award (including performance conditions relating to
Awards not intended to be governed by Section 7(f) and waivers and
modifications thereof), based in each case on such considerations as
the Committee shall determine), and all other matters to be determined
in connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Stock, other Awards, or other property, or
an Award may be cancelled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the
election of the Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such
rules and regulations and appoint such agents as the Committee may
deem necessary or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan and to construe and interpret
the Plan and any Award, rules and regulations, Award Agreement or
other instrument hereunder; and
(ix) to make all other decisions and determinations as may
be required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan, including without limitation for the
purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is performing a
function of the Committee under the Plan, each reference to the Committee
herein shall be deemed to refer to the Board.
(b) Manner of Exercise of Committee Authority. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant
and stockholders, except to the extent the Committee may subsequently modify,
or take further action not consistent
<PAGE> 5
with, its prior action. If not specified in the Plan, the time at which the
Committee must or may make any determination shall be determined by the
Committee, and any such determination may thereafter by modified by the
Committee (subject to Section 8(e)). The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. Except as
provided under Section 7(f), the Committee may delegate to officers or managers
of the Company or any subsidiary of the Company the authority, subject to such
terms as the Committee shall determine, to perform such functions as the
Committee may determine, to the extent permitted under applicable law.
(c) Limitation of Liability. Each member of the Committee shall
be entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total amount of Stock that may
be subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of two million shares or 10% of the total
number of shares of Stock outstanding at the effective time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000 (subject to adjustment as provided
in Section 4(c)), and the number of shares that may be delivered as Restricted
Stock and Deferred Stock (other than pursuant to an Award granted under Section
7(f)) shall not in the aggregate exceed 500,000 (subject to adjustment as
provided in Section 4(c)), provided, however, that shares subject to ISOs,
Restricted Stock or Deferred Stock Awards shall not be deemed delivered if such
Awards are forfeited, expire or otherwise terminate without delivery of shares
to the Participant. If an Award valued by reference to Stock may only be
settled in cash, the number of shares to which such Award relates shall be
deemed to be Stock subject to such Award for purposes of this Section 4(a). Any
shares of Stock delivered pursuant to an Award may consist, in whole or in part,
of authorized and unissued shares, treasury shares or shares acquired in the
market for a Participant's Account.
(b) Annual Per-Participant Limitations. During any calendar year,
no Participant may be granted Awards that may be settled by delivery of more
than 250,000 shares of Stock, subject to adjustment as provided in Section
4(c). In
<PAGE> 6
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts
relating to such Awards that exceed the greater of the Fair Market Value of the
number of shares of Stock set forth in the preceding sentence at the date of
grant or the date of settlement of Award. This provision sets forth two
separate limitations, so that Awards that may be settled solely by delivery of
Stock will not operate to reduce the amount of cash-only Awards, and vice
versa; nevertheless, Awards that may be settled in Stock or cash must not
exceed either limitation.
(c) Adjustments. In the event that the Committee shall determine
that any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend
or distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Section 4(a), including shares reserved for the ISOs and Restricted and
Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and
kind of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence) affecting the Company
or any subsidiary or the financial statements of the Company or any subsidiary,
or in response to changes in applicable laws, regulations, or accounting
principles. The foregoing notwithstanding, no adjustments shall be authorized
under this Section 4(c) with respect to ISOs or SARs in tandem therewith to the
extent that such authority would cause the Plan to fail to comply with Section
422(b)(1) of the Code, and no such adjustment shall be authorized with respect
to Options, SARs or other Awards subject to Section 7(f) to the extent that
such authority would cause such Awards to fail to qualify as "qualified
performance-based compensation" under Section 162(m)(4)(C) of the Code.
5. Eligibility. Executive officers and other key employees of
the Company and its subsidiaries, including any director or officer who is also
such an employee, and persons who provide consulting or other services to the
Company deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, a person who has
been offered employment by the Company or its subsidiaries is eligible to be
granted an Award under the Plan; provided, however, that such Award shall be
cancelled if such person fails to commence such employment, and no payment of
value may be made in connection with such Award
<PAGE> 7
until such person has commenced such employment.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on any
Award or the exercise thereof such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine,
including terms requiring forfeiture of Awards in the event of termination of
employment or service of the Participant. Except as provided in Section 6(f),
6(h), or 7(a), or to the extent required to comply with requirements of the
Delaware General Corporation Law that lawful consideration be paid for Stock,
only services may be required as consideration for the grant (but not the
exercise) of any Award.
(b) Options. The Committee is authorized to grant Options
(including "reload" options automatically granted to offset specified exercises
of Options) on the following terms and conditions ("Options"):
(i) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee; provided, however, that, except as provided in Section
7(a), such exercise price shall be not less than the Fair Market Value
of a share on the date of grant of such Option.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part, the methods by which such exercise price may be paid
or deemed to be paid, the form of such payment, including, without
limitation, cash, Stock, other Awards or awards granted under other
Company plans or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis, such
as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered
or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan
shall comply in all respects with the provisions of Section 422 of the
Code, including but not limited to the requirement that no ISO shall
be granted more than ten years after the effective date of the Plan.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs shall be interpreted, amended, or altered, nor
shall any discretion or authority granted under the Plan be exercised,
so as to disqualify either the Plan or any ISO under Section 422 of
the Code, unless requested by the affected Participant.
(iv) Termination of Employment. Unless otherwise
determined by the Committee, upon termination of a Participant's
employment with the Company and its subsidiaries, such Participant may
exercise any Options during the three-month period following such
termination of employment, but only to the
<PAGE> 8
extent such Option was exercisable immediately prior to such
termination of employment. Notwithstanding the foregoing, if the
Committee determines that such termination is for cause, all Options
held by the Participant shall terminate as of the termination of
employment.
(c) Stock Appreciation Rights. The Committee is authorized to
grant SARs on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the
Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of Stock
on the date of exercise (or, if the Committee shall so determine in
the case of any such right other than one related to an ISO, the Fair
Market Value of one share at any time during a specified period before
or after the date of exercise), over (B) the grant price of the SAR as
determined by the Committee as of the date of grant of the SAR, which,
except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time
or times at which an SAR may be exercised in whole or in part, the
method of exercise, method of settlement, form of consideration
payable in settlement, method by which Stock will be delivered or
deemed to be delivered to Participants, whether or not an SAR shall be
in tandem with any other Award, and any other terms and conditions of
any SAR. Limited SARs that may only be exercised upon the occurrence
of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs
may be either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the Committee
may determine. Except to the extent restricted under the terms of the
Plan and any Award Agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote
Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined
under criteria established by the Committee) during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided, however, that the Committee may provide, by rule or
<PAGE> 9
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, such certificates may bear
an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, the Company may
retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank,
relating to the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall
be either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or the payment of such dividends shall be deferred
and/or the amount or value thereof automatically reinvested in
additional Restricted Stock, other Awards, or other investment
vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other
property has been distributed, unless otherwise determined by the
Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur
upon expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the Committee, as
elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions as the Committee may impose, if any,
which restrictions may lapse at the expiration of the deferral period
or at earlier specified times, separately or in combination, in
installments or otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined
under criteria established by the Committee) during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award Agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to such
forfeiture conditions shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Deferred Stock will be waived in
whole or in part in the event of termination resulting from specified
causes.
<PAGE> 10
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents entitling the Participant to receive cash, Stock, other
Awards or other property equal in value to dividends paid with respect to a
specified number of shares of Stock ("Dividend Equivalents"). Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant such other Awards that
may be denominated or payable in, valued in whole or in part by reference to,
or otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes
of the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under
this Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards, or other property, as the Committee shall determine. Cash
awards, as an element of or supplement to any other Award under the Plan, may
be granted pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with or in substitution for
any other Award granted under the Plan or any award granted under any other
plan of the Company, any subsidiary or any business entity to be acquired by
the Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Awards granted in addition to or
in tandem with other Awards or awards may be granted either as of the same time
as or a different time from the grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided, however, that in no
event shall the term of any ISO or an SAR granted in tandem therewith exceed a
period of ten years from the date of its grant (or such shorter period as may
be applicable under Section 422 of the
<PAGE> 11
Code).
(c) Form of Payment Under Awards. Subject to the terms of the
Plan and any applicable Award Agreement, payments to be made by the Company or
a subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single
payment or transfer, in installments or on a deferred basis. Such payments may
include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents in respect of installment or deferred
payments denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including
derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of
the Exchange Act, equity securities acquired under
the Plan must be held for a period of six months
following the date of such acquisition, provided that
this condition shall be satisfied with respect to a
derivative security if at least six months elapse
from the date of acquisition of the derivative
security to the date of disposition of the derivative
security (other than upon exercise or conversion) or
its underlying equity security.
(ii) Other Compliance Provisions. With respect to a
Participant who is then subject to Section 16 of the
Exchange Act in respect of the Company, the Committee
shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that
each transaction by such a Participant is exempt from
liability under Rule 16b-3, except that such a
Participant may be permitted to engage in a
non-exempt transaction under the Plan if written
notice has been given to the Participant regarding
the non-exempt nature of such transaction. The
Committee may authorize the Company to repurchase any
Award or shares of Stock resulting from any Award in
order to prevent a Participant who is subject to
Section 16 of the Exchange Act from incurring
liability under Section 16(b). Unless otherwise
specified by the Participant, equity securities,
including derivative securities, acquired under the
Plan which are disposed of by a Participant shall be
deemed to be disposed of in the order acquired by the
Participant.
(e) Loan Provisions. With the consent of the Committee, and
subject at all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
provisions applicable to the Company, the Company may make, guarantee or
arrange for a loan or loans to a Participant with
<PAGE> 12
respect to the exercise of any Option or other payment in connection with any
Award, including the payment by a Participant of any or all federal, state or
local income or other taxes due in connection with any Award. Subject to such
limitations, the Committee shall have full authority to decide whether to make
a loan or loans hereunder and to determine the amount, terms and provisions of
any such loan or loans, including the interest rate to be charged in respect of
any such loan or loans, whether the loan or loans are to be with or without
recourse against the borrower, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
(f) Performance-Based Awards. The Committee may, in its
discretion, designate any Award the exercisability or settlement of which is
subject to the achievement of performance conditions as a performance-based
Award subject to this Section 7(f), in order to qualify such Award as
"qualified performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. The performance objectives for an Award
subject to this Section 7(f) shall consist of one or more business criteria and
a targeted level or levels of performance with respect to such criteria, as
specified by the Committee but subject to this Section 7(f). Performance
objectives shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code. Business criteria used by the Committee in
establishing performance objectives for Awards subject to this Section 7(f)
shall be selected from among the following:
(1) Annual return on capital;
(2) Annual earnings or earnings per
share;
(3) Annual cash flow provided by
operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria,
consisting of one or more objectives based on meeting
specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals
relating to acquisitions or divestitures.
The levels of performance required with respect to such business criteria may
be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants.
The Committee shall specify the weighting to be given to each performance
objective for purposes of determining the final amount payable with respect to
any such Award. The Committee may, in its discretion, reduce the amount of a
payout otherwise to be made in connection with an Award subject to this Section
7(f), but may not exercise discretion to increase such amount, and the
Committee may consider other performance criteria in exercising such
<PAGE> 13
discretion. All determinations by the Committee as to the achievement of
performance objectives shall be in writing. The Committee may not delegate any
responsibility with respect to an Award subject to this Section 7(f).
(g) Acceleration upon a Change of Control. Notwithstanding
anything contained herein to the contrary, unless otherwise provided by the
Committee in an Award Agreement, all conditions and restrictions relating to an
Award, including limitations on exercisability, risks of forfeiture, deferral
periods and conditions and restrictions requiring the continued performance of
services or the achievement of performance objectives with respect to the
exercisability or settlement of such Award, shall immediately lapse upon a
Change in Control.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not
be obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under
the Plan will not be transferable by a Participant except by will or the laws
of descent and distribution or to a Beneficiary in the event of the
Participant's death, shall not be pledged, mortgaged, hypothecated or otherwise
encumbered, or otherwise subject to the claims of creditors, and, in the case
of ISOs and SARs in tandem therewith, shall be exercisable during the lifetime
of a Participant only by such Participant or his guardian or legal
representative; provided, however, that such Awards and other rights (other
than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant to the extent and on such
terms as then may be permitted by the Committee.
(c) No Right to Continued Employment or Service. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee or
other person the right to be retained in the employ or service of the Company
or any of its subsidiaries, nor shall it interfere in any way with the right of
the Company or any of its subsidiaries to terminate any employee's employment
or other person's service at any time.
(d) Taxes. The Company and any subsidiary is authorized to
withhold from any Award granted or to be settled, any delivery of Stock in
connection with an Award,
<PAGE> 14
any other payment relating to an Award or any payroll or other payment to a
Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or
Participants, except that any such action shall be subject to the approval of
the Company's stockholders at or before the next annual meeting of stockholders
for which the record date is after such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to stockholders for approval; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under any Award
theretofore granted to him. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor
of the Company; provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the Company's obligations
under the Plan to deliver cash, Stock, other Awards, or other property pursuant
to any Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan
by the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other compensatory arrangements as it may deem desirable, including,
without limitation, the granting of
<PAGE> 15
stock options otherwise than under the Plan, and such arrangements may be
either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that employee Options, SARs and other Awards designated as Awards
subject to Section 7(f) shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m). Accordingly, if any
provision of the Plan or any Award Agreement relating to such an Award does not
comply or is inconsistent with the requirements of Code Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer upon
the Committee or any other person discretion to increase the amount of
compensation otherwise payable in connection with any such Award upon
attainment of the performance objectives.
(k) Governing Law. The validity, construction and effect of the
Plan, any rules and regulations relating to the Plan and any Award Agreement
shall be determined in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of laws, and applicable
federal law.
(l) Effective Date; Plan Termination. The Plan shall become
effective as of the date of its adoption by the Board, subject to stockholder
approval prior to the commencement of the Initial Public Offering, and shall
continue in effect until terminated by the Board.
<PAGE> 1
Exhibit 10.2
MEDICAL MANAGER CORPORATION
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1996 Non-Employee
Directors' Stock Plan (the "Plan") of Medical Manager Corporation, a Delaware
corporation (the "Company"), is to advance the interests of the Company and its
stockholders by providing a means to attract and retain highly qualified
persons to serve as non-employee directors of the Company and to enable such
persons to acquire or increase a proprietary interest in the Company, thereby
promoting a closer identity of interests between such persons and the Company's
stockholders.
2. Definitions. In addition to terms defined elsewhere in the
Plan, the following are defined terms under the Plan:
(a) "Annual Option" means an Option to purchase the number of
shares specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(c) "Deferred Share" means a credit to a Participant's deferral
account under Section 7 which represents the right to receive one Share upon
settlement of the deferral account. Deferral accounts, and Deferred Shares
credited thereto, are maintained solely as bookkeeping entries by the Company
evidencing unfunded obligations of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act shall be deemed to
include rules thereunder and successor provisions and rules thereto.
(e) "Fair Market Value" of a Share on a given date mean the last
sales price or, if last sales information is generally unavailable, the average
of the closing bid and asked prices per Share on such date (or, if there was no
trading or quotation in the stock on such date, on the next preceding date on
which there was trading or quotation) as reported in the Wall Street Journal;
provided, however, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall be the price of the shares so issued and sold, as set forth in
the first final prospectus used in such Initial Public Offering.
(f) "Initial Option" means an Option to purchase the number of shares
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specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(g) "Initial Public Offering" means an initial public offering of
shares in a firm commitment underwriting registered with the Securities and
Exchange Commission in compliance with the provisions of the Securities Act of
1933, as amended.
(h) "Option" means the right, granted to a director under Section 6,
to purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified
stock options.
(i) "Participant" means a person who, as a non-employee director of
the Company, has been granted an Option or Deferred Shares which remain
outstanding or who has elected to be paid fees in the form of Shares or
Deferred Shares under the Plan.
(j) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(k) "Share" means a share of common stock, $.01 par value, of the
Company and such other securities as may be substituted for such Share or such
other securities pursuant to Section 8.
3. Shares Available Under the Plan. Subject to adjustment as
provided in Section 8, the total number of Shares reserved and available for
issuance under the Plan is 250,000. Such Shares may be authorized but
unissued Shares, treasury Shares, or Shares acquired in the market for the
account of the Participant. For purposes of the Plan, Shares that may be
purchased upon exercise of an Option or delivered in settlement of Deferred
Shares will not be considered to be available after such Option has been
granted or Deferred Share credited, except for purposes of issuance in
connection with such Option or Deferred Share; provided, however, that, if an
Option expires for any reason without having been exercised in full, the Shares
subject to the unexercised portion of such Option will again be available for
issuance under the Plan.
4. Administration of the Plan. The Plan will be administered by
the Board of Directors of the Company; provided, however, that any action by
the Board relating to the Plan will be taken only if, in addition to any other
required vote, such action is approved by the affirmative vote of a majority of
those directors who are not then eligible to participate in the Plan.
5. Eligibility. Each director of the Company who, at the time an
Option is to be granted under Section 6 or at which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or
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defer fees in the form of Deferred Shares under Section 7. No person other
than those specified in this Section 5 will be eligible to participate in the
Plan.
6. Options. An Initial Option will be automatically granted (i)
at the commencement of the Initial Public Offering, to each person who is
serving as a director of the Company at that time or who becomes a director of
the Company at that time and who is eligible under Section 5 at that time, and
thereafter (ii) at the effective date of initial election to the Board of
Directors, to each person so elected who is eligible under Section 5 at that
date. In addition, an Annual Option will be automatically granted, at the
close of business of the date of final adjournment of each annual meeting of
stockholders of the Company, to each member of the Board of Directors who is
then eligible under Section 5. Notwithstanding the foregoing, any person who
has been automatically granted an Initial Option at the effective date of
initial election to the Board of Directors shall not be automatically granted
an Annual Option at the first annual meeting of stockholders following such
initial election if such annual meeting takes place within three months of the
effective date of such person's initial election to the Board of Directors.
(a) Number of Shares Subject to Automatic Option Grants. In the
case of any Initial or Annual Option granted on or before the date of the first
annual meeting of shareholders following the Initial Public Offering, the
number of Shares to be subject to each Initial Option shall be 10,000, and
the number of Shares to be subject to each Annual Option shall be 5,000, in
each case subject to adjustment as provided in Section 8. In the case of any
Initial or Annual Option granted thereafter, the number of Shares to be subject
to each Initial and Annual Option shall be the applicable number specified in
the preceding sentence or, if so determined by the Board of Directors, such
other number of Shares specified in the most recent resolution of the Board
adopted on or prior to the date of the annual meeting of shareholders that
coincides with or most recently precedes the date of grant of the Option.
(b) Exercise Price. The exercise price per Share purchasable upon
exercise of an Option will be equal to 100% of the Fair Market Value of a Share
on the date of grant of the Option.
(c) Option Expiration. A Participant's Option will expire at the
earlier of (i) 10 years after the date of grant or (ii) one year after the date
the Participant ceases to serve as a director of the Company for any reason.
(d) Exercisability. Each Option may be exercised, prior to its
expiration, commencing one year after the date of grant, or at such earlier
date as may be specified by the Board of Directors; provided, however, that an
option may be exercised following a Participant's termination of service as a
director for reasons other than death or disability only if the director served
for at least 11 months after the date of grant or the option was otherwise
exercisable at the date of termination.
(e) Method of Exercise. A Participant may exercise an Option, in
whole or in
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part, at such time as it is exercisable and prior to its expiration, by giving
written notice of exercise to the Secretary of the Company, specifying the
Option to be exercised and the number of Shares to be purchased, and paying in
full the exercise price in cash (including by check) or by surrender of Shares
already owned by the Participant (except for Shares acquired from the Company
by exercise of an option less than six months before the date of surrender)
having a Fair Market Value at the time of exercise equal to the exercise price,
or by a combination of cash and Shares.
7. Receipt of Shares or Deferred Shares In Lieu of Fees. Each
director of the Company may elect to be paid fees, in his or her capacity as a
director (including annual retainer fees for service on the Board, fees for
service on a Board committee, fees for service as chairman of a Board
committee, and any other fees paid to directors) in the form of Shares or
Deferred Shares in lieu of cash payment of such fees, if such director is
eligible to do so under Section 5 at the date any such fee is otherwise
payable. If so elected, payment of fees in the form of Shares or Deferred
Shares shall be made in accordance with this Section 7.
(a) Elections. Each director who elects to be paid fees for a
given calendar year in the form of Shares or to defer such payment of fees in
the form of Deferred Shares for such year must file an irrevocable written
election with the Secretary of the Company no later than December 31 of the
year preceding such calendar year or such other date as may be specified by the
Secretary; provided, however, that a director serving at the time the Plan
becomes effective, and any director newly elected or appointed thereafter, may
file an election applicable to compensation payable for any period of service
that has not yet commenced within the year of such effectiveness, election, or
appointment prior to the commencement of such period of service. An election
by a director shall be deemed to be continuing and therefore applicable to
subsequent Plan years unless the director revokes or changes such election by
filing a new election form by the due date for such form specified in this
Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by the Company's Secretary).
(b) Payment of Fees in the Form of Shares. At any date on which fees
are payable to a Participant who has elected to receive such fees in the form
of Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable
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without requiring the actual issuance of fractional Shares, the Company shall
cause fractional Shares to be credited to the Participant's account. If
fractional Shares are not so credited, any part of the Participant's fees not
paid in the form of whole Shares will be payable in cash to the Participant
(either paid separately or included in a subsequent payment of fees, including
a subsequent payment of fees subject to an election under this Section 7).
(c) Deferral of Fees in the Form of Deferred Shares. The Company
will establish a deferral account for each Participant who elects to defer fees
in the form of Deferred Shares under this Section 7. At any date on which fees
are payable to a Participant who has elected to defer fees in the form of
Deferred Shares, the Company will credit such Participant's deferral account
with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
(d) Crediting of Dividend Equivalents. Whenever dividends are
paid or distributions made with respect to Shares, a Participant to whom
Deferred Shares are then credited in a deferral account shall be entitled to
receive, as dividend equivalents, an amount equal in value to the amount of the
dividend paid or property distributed on a single Share multiplied by the
number of Deferred Shares (including any fractional Share) credited to his or
her deferral account as of the record date for such dividend or distribution.
Such dividend equivalents shall be credited to the Participant's deferral
account as a number of Deferred Shares determined by dividing the aggregate
value of such dividend equivalents by the Fair Market Value of a Share at the
payment date of the dividend or distribution.
(e) Settlement of Deferred Shares. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited
to such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
provided, however, that a Participant may further defer settlement of Deferred
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
(f) Nonforfeitability. The interest of each Participant in any
fees paid in the form of Shares or Deferred Shares (and any deferral account
relating thereto) at all times will be nonforfeitable.
8. Adjustment Provisions.
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(a) Corporate Transactions and Events. In the event of any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Shares or other
securities, Share dividend or other special, large and non- recurring dividend
or distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event
affects the Shares such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Board shall, in such manner as it may deem equitable, adjust any or all of the
(i) number and kind of Shares remaining reserved and available for issuance
under Section 3, (ii) number and kind of Shares to be subject to each automatic
grant of an Option under Section 6, (iii) number and kind of Shares issuable
upon exercise of outstanding Options, and/or exercise price per Share thereof
(provided that no fractional Shares will be issued upon exercise of any
Option), (iv) kind of Shares to be issued in lieu of fees under Section 7, and
(v) number and kind of Shares to be issued upon settlement of Deferred Shares
under Section 7.
(b) Insufficient Number of Shares. If at any date an insufficient
number of Shares are available under the Plan for the automatic grant of
Options or the receipt of fees in the form of Shares or deferral of fees in the
form of Deferred Shares at that date, Options will first be automatically
granted proportionately to each eligible director, to the extent Shares are
then available (provided that no fractional Shares will be issued upon exercise
of any Option) and otherwise as provided under Section 6, and then, if any
Shares remain available, fees shall be paid in the form of Shares or deferred
in the form of Deferred Shares proportionately among directors then eligible to
participate to the extent Shares are then available and otherwise as provided
under Section 7.
9. Changes to the Plan. The Board of Directors may amend, alter,
suspend, discontinue, or terminate the Plan or authority to grant Options or
pay fees in the form of Shares or Deferred Shares under the Plan without the
consent of stockholders or Participants, except that any amendment or
alteration will be subject to the approval of the Company's stockholders at or
before the next annual meeting of stockholders for which the record date is
after the date of such Board action if such stockholder approval is required by
any federal or state law or regulation or the rules of any stock exchange or
automated quotation system as then in effect, and the Board may otherwise
determine to submit other such amendments or alterations to stockholders for
approval; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such
Participant with respect to any previously granted Option or any previous
payment of fees in the form of Shares or Deferred Shares.
10. General Provisions.
(a) Agreements. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as
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the Board of Directors may from time to time approve.
(b) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under
any listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of
the Company, until the Company is satisfied that such laws, regulations, and
other obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws,
regulations, and other obligations of the Company, including any requirement
that a legend or legends be placed thereon.
(c) Limitations on Transferability. Options, Deferred Shares, and
any other right under the Plan will not be transferable by a Participant except
by will or the laws of descent and distribution or to a designated beneficiary
in the event of a Participant's death; provided, however, that Options and
Deferred Shares (and rights relating thereto) may be transferred to one or more
transferees during the lifetime of the Participant for purposes of the
Participant's estate planning. The Company may rely upon the beneficiary
designation last filed in accordance with this Section 10(c). Options,
Deferred Shares, and other rights under the Plan may not be pledged, mortgaged,
hypothecated, or otherwise encumbered, and shall not be subject to the claims
of creditors of any Participant.
(d) Compliance with Rule 16b-3.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including
derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of
the Exchange Act, equity securities acquired under
the Plan must be held for a period of six months
following the date of such acquisition, provided that
this condition shall be satisfied with respect to a
derivative security if at least six months elapse
from the date of acquisition of the derivative
security to the date of disposition of the derivative
security (other than upon exercise or conversion) or
its underlying equity security.
(ii) Other Compliance Provisions. With respect to a
Participant who is then subject to Section 16 of the
Exchange Act in respect of the Company, it is the
intent of the Company that transactions shall be
implemented under the Plan in a manner that will
ensure that each transaction by such a Participant is
exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a
non-exempt transaction under the Plan if written
notice has
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been given to the Participant regarding the
non-exempt nature of such transaction. The Board may
authorize the Company to repurchase any Shares
acquired in connection with the Plan in order to
prevent a Participant who is subject to Section 16 of
the Exchange Act from incurring liability under
Section 16(b). Unless otherwise specified by the
Participant, equity securities, including derivative
securities, acquired under the Plan which are
disposed of by a Participant shall be deemed to be
disposed of in the order acquired by the Participant.
(e) No Right To Continue as a Director. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant any right to
continue to serve as a director of the Company.
(f) No Stockholder Rights Conferred. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant (or any person
or entity claiming rights by or through a Participant) any rights of a
stockholder of the Company unless and until Shares are in fact issued to such
Participant (or person) or, in the case an Option, such Option is validly
exercised in accordance with Section 6.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan
by the Board of Directors nor its submission to the stockholders of the Company
for approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may
deem desirable.
(h) Governing Law. The validity, construction, and effect of the
Plan and any agreement hereunder will be determined in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
laws, and applicable federal law.
11. Stockholder Approval, Effective Date, and Plan Termination.
The Plan will be effective as of the date of its adoption by the Board, subject
to stockholder approval prior to the commencement of the Initial Public
Offering, and, unless earlier terminated by action of the Board of Directors,
shall terminate at such time as no Shares remain available for issuance under
the Plan and the Company and Participants have no further rights or obligations
under the Plan.
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and MICHAEL
A. SINGER, (the "Executive").
WHEREAS, the Executive is currently the President and sole shareholder of
Personalized Programming, Inc. ("PPI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, PPI and the Executive (the "Business Combination"). PPI will become
a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of PPI and to employ
the Executive as the Chief Executive Officer and Chairman of the Board of the
Company following the Business Combination, and to set forth certain additional
agreements between the Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the Company,
under the terms of this Agreement for an initial term of five (5) years,
commencing on the effective date of the Business Combination (which also will be
the closing date of the Company's initial public offering of Common Stock).
Effective as of the expiration of such initial five-year term and as of each
anniversary date thereof, the term of this Agreement shall be extended for an
additional 12- month period unless, not later than two months prior to each such
respective date, the Company shall have given notice to the Executive that the
term shall not be so extended. Notwithstanding the foregoing, the Executive's
employment hereunder may be earlier terminated, as provided in Section 4 hereof.
The term of this Agreement, as in effect from time to time in accordance with
the foregoing, shall be referred to herein as the "Term". The period of time
between the commencement and the termination of the Executive's employment
hereunder shall be referred to herein as the "Employment Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its Chief Executive Officer and Chairman
of the Board and as the President of PPI on the terms and
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use its best efforts to cause the Executive to be nominated and re-nominated for
election as Chairman of the Board of Directors of the Company (the "Board") for
each term of such office commencing during the Employment Period. During the
Employment Period, the Executive shall report directly to the Board and the
Board of Directors of PPI in his respective capacities with each such company.
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and PPI,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be solely responsible to the Board with respect to the
research and development functions of the Company and its subsidiaries. During
the Employment Period, the Executive shall devote his full business time, skill
and efforts to the business of the Company. Notwithstanding the foregoing, the
Executive may (i) make and manage passive personal business investments of his
choice and serve in any capacity with any civic, educational or charitable
organization, or any trade association, without seeking or obtaining approval by
the Board, provided such activities and service do not materially interfere or
conflict with the performance of his duties hereunder and (ii) with the approval
of the Board, serve on the boards of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $ 150,000
per annum, payable in arrears not less frequently than monthly in accordance
with the normal payroll practices of the Company. Such base salary shall be
subject to review each year for possible increase by the Board in its sole
discretion, but shall in no event be decreased from its then-existing level
during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. The Executive shall be eligible to be
granted stock options to acquire shares of the Common Stock of the Company under
the Company's 1996 Long-Term Incentive Plan. In addition, the Executive shall be
entitled to receive awards under any other stock option or equity based
incentive compensation plan or arrangement adopted by the Company during the
Employment Period for which senior executives are eligible. The level of the
executive's future participation in any such plan or arrangement shall be in the
sole discretion of the Board.
2
<PAGE> 3
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which are
generally available to senior executives of the Company, subject to and on a
basis consistent with the terms, conditions and overall administration of such
plans, programs and arrangements. In addition, during the Employment Period, the
Executive shall be entitled to fringe benefits and perquisites comparable to
those of other senior executives of the Company, including, but not limited to,
four weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this Agreement,
in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any action,
suit or proceeding (other than any action, suit or proceeding brought by the
Company against the Executive) to which he may be made a party by reason of
being or having been a director, officer or employee of the Company or PPI or
his serving or having served any other enterprise as a director, officer or
employee at the request of the Company.
(g) TRAVEL. During the Executive's employment with the Company,
any travel by the Executive will be at the Executive's discretion.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm
to the Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the
Company; or
(iii) the conviction for, or plea or nolo contender to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 ( c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
3
<PAGE> 4
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in
Section 2 hereof;
(ii) a failure of the Board to have the Executive elected or
re-elected to the office of the Chairman of the Board;
(iii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iv) a notice of non-renewal of the Agreement by the Company
in accordance with Section 1 hereof;
(v) a notice of termination by the Executive under Section 4
( c) hereof within 12 months following the occurrence of a Change
in Control (as defined in Section 4 (e) hereof); or
(vi) a material breach by the Company of any other term of
this Agreement.
( c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to terminate
the Executive's employment for "cause" and the Executive's right to terminate
his employment for "good reason" that (1) the party seeking the termination
shall first have given the other party written notice stating with specificity
the reason for the termination ("breach") and (2) if such breach is susceptible
of cure or remedy, a period of 30 days from and after the giving of such notice
shall have elapsed without the breaching party having effectively cured or
remedied such breach during such 30-day period, unless such breach cannot be
cured or remedied within 30 days, in which case the period for remedy or cure
shall be extended for a reasonable time (not to exceed an additional 30 days),
provided the breaching party has made and continues to make a diligent effort to
effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason of
a disability of the Executive, the Company shall give 30 days' advance written
notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
( i) there shall be consummated any consolidation or merger
of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which
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shares of the Company's capital stock are converted into cash,
securities or other property other than a consolidation or merger
of the Company in which the holders of the Company's voting stock
immediately prior to the consolidation or merger shall, upon
consummation of the consolidation or merger, own at least 50% of
the voting stock of the surviving corporation, or any sale,
lease, exchange or other transfer (in one transaction or a series
of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company;
or
(ii) any person (as such term is used in Sections
13(d) and 14 (d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") ), shall after the date hereof
become the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of securities of
the Company representing 35% or more of the voting power of all
then outstanding securities of the Company having the right under
ordinary circumstances to vote in an election of the Board
(including, without limitation, any securities of the Company
that any such person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned
by such person); or
(iii) individuals who at the date hereof constitute
the entire Board and any new directors whose election by the
Board, or whose nomination for election by the Company's
stockholders, shall have been approved by a vote of at least a
majority of the directors then in office who either were
directors at the date hereof or whose election or nomination for
election shall have been so approved (the "Continuing Directors")
shall cease for any reason to constitute a majority of the
members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of PPI or all or substantially all of the assets of
PPI, or the liquidation on dissolution of PPI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form
of continuation of the Executive's base salary as in effect
immediately prior to such termination over the longer of; (A) the
then-remaining Term hereof; or (B) 24 months (the "Severance
Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care,
disability and life insurance benefit plans or arrangements in
which the Executive is participating at the time of termination;
provided, however, that the Company's obligation to provide such
coverages shall be terminated if the Executive obtains
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comparable substitute coverage from another employer at any time
during the Severance Period. The Executive shall be entitled, at
the expiration of the Severance Period, to elect continued
medical coverage in accordance with section 4980B of the Internal
Revenue Code of 1986, as amended (or any successor provision
thereto); and
(iii) STOCK OPTIONS - all options to purchase
shares of the Company's Common Stock held by the Executive
immediately prior to termination of employment shall become
immediately vested and exercisable and, subject to the terms of
the Company's 1996 Long- Term Incentive Plan, shall remain
exercisable for the duration of the Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
( c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination, and
payment of any accrued but unpaid rights solely in accordance with the terms of
any incentive bonus, stock option or employee benefit plan or program of the
Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any confidential
information or trade secrets concerning the business of the Company, including,
without limiting the generality of the foregoing, the techniques, methods or
systems of its operation or management, any information regarding its financial
matters, or any other material information concerning the business of the
Company, its manner of operation, its plans or other material data. The
provisions of this Section 6 shall not apply to (i) information that is public
knowledge other than as a result of disclosure by the Executive in breach of
this Section 6; (ii) information disseminated by the Company to third parties in
the ordinary course of business; (iii) information lawfully received by the
Executive from a third party who, based upon inquiry by the Executive, is not
bound by a confidential relationship to the Company; or (iv) information
disclosed under a requirement of law or as directed by applicable legal
authority having jurisdiction over the Executive.
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7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions of
value to Company. The Executive hereby assigns to Company all right, title and
interest in such contributions and inventions made or conceived by the Executive
alone or jointly with others during the Employment Period which relate to the
business of the Company. This assignment shall include (a) the right to file and
prosecute patent applications on such inventions in any and all countries, (b)
the patent applications filed and patents issuing thereon, and (c) the right to
obtain copyright, trademark or trade name protection for any such work product.
The Executive shall promptly and fully disclose all such contributions and
inventions to Company and assist the Company in obtaining and protecting the
rights therein (including patents thereon), in any and all countries; provided,
however, that said contributions and inventions will be the property of Company,
whether or not patented or registered for copyright, trademark or trade name
protection, as the case may be. Inventions conceived by the Executive which are
not related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
(a) Prohibited Activities. The Executive will not, for a period
of five years from the effectiveness of the Business Combination, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any business selling
any products or services in direct competition with the
Company or any of the subsidiaries thereof, within 100 miles of
where PPI or any of the other for businesses which are part of
the Business Combination (the "Other Foundry Companies
conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) solicit any person who is at that time within the
Territory, an employee of the Company (including the
subsidiaries thereof) in a sales representative or managerial
capacity for the purpose or with the intent of enticing such
employee away from or out of the Company (including the
subsidiaries thereof);
(iii) solicit any person or entity which is, at that
time, or which has been within one (1) year prior to the
consummation of the Business Combination, a customer of the
Company (including the subsidiaries thereof), of PPI or of any
of the Other Founding companies within the Territory for the
purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) solicit any prospective acquisition candidate, on
the Executive's own behalf or on behalf of any competitor in
the medical software development or distribution business,
which candidate was either called upon by the Company
(including the subsidiaries thereof) or for which the Company
(or any subsidiary thereof) made an acquisition analysis which
was known (or should have been known) to the Executive, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or
proposed, of PPI to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever except to the
extent that PPI has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit the Executive from acquiring as an investment not more than
three percent (3%) of the capital stock of a competitive business whose stock
is traded on a national securities exchange or over-the-counter.
Notwithstanding the foregoing, in the event the Executive is
not during the initial five-year term hereof actively employed by the Company
not receiving any severance pay under Section 5(a)(i) hereof, the Company shall
pay the Executive, in equal monthly installments, an amount equal to $25,000 per
annum, as a condition of the Executive being bound by the non-competition
provisions set forth above.
(b) Reasonable Restraint. It is agreed by the parties hereto
that the foregoing covenants in this Section 8 impose a reasonable restraint on
the Executive in light of the activities and business of the Company (including
the subsidiaries thereof) on the date of the execution of this Agreement and
the current plans of the Company; but it is also the intent of the Company and
the Executive that such covenant be construed and enforced in accordance with
the changing activities and business of the Company (including the subsidiaries
thereof) throughout the term of this covenant so long as such activities and
business are reasonably related to the activities of the Company immediately
upon consummation of the Company Plan of Organization.
(c) Severability; Reformation. The covenants in this Section 8
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
(d) Independent Covenant. all of the Covenants in this Section
8 shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the Executive
against the Company (including the subsidiaries thereof), whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by Company of such covenants. The covenants contained in Section 8 shall not be
affect by any breach of any other provision hereof by any party hereto and
shall have no effect if the transactions contemplated by this Agreement are not
consummated.
(e) Materiality, PPI and the Executive each hereby agree that
this covenant is a material and substantial part of this transaction. The
Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period and, if applicable, the Severance Period,
without the approval of the board, directly or indirectly, along or as
partner, joint venturer, officer, director, employee, consultant, agent
independent contractor or stockholder (other than as provided below) of any
company or business, engage in any "Competitive Business" within the United
States. For purposes of the foregoing, the term "Competitive Business" shall
mean any business involved in the development, sale or support of health care
information systems. Notwithstanding the foregoing, the executive shall not be
prohibited during the non-competition period applicable above from acting as a
passive investor where he owns not more than one percent (1%) of the issued and
outstanding capital stock of an publicly-held company. During the period that
the above non-competition restriction applies, the Executive shall not, without
the written consent of the Company, solicit any employee of the Company or any
current or future subsidiary or affiliate thereof to terminate his or her
employment.
(f) Additional Restrictions. The Executive agrees that he
shall not during the Employment Period and, if applicable, the Severance Period,
without the approval of the Board, directly or indirectly, alone or as partner,
joint venturer, officer, director, employee, consultant, agent, independent
contractor or stockholder (other than as provided below) of any company or
business, engage in any "Competitive Business" within the United States. For
purposes of the foregoing, the term "Competitive Business" shall mean any
business involved in the development, sale or support of health care
information systems. Notwithstanding the foregoing, the Executive shall not be
prohibited during the non-competition period applicable above from acting as
a passive investor where he owns not more than five percent (5%) of the issued
and outstanding capital stock of a publicly-held company. During the period
that the above non-competition restriction applies, the Executive shall not,
without the written consent of the Company, solicit any employee of the Company
or any current or future subsidiary or affiliate thereof to terminate his or
her employment. Notwithstanding the foregoing this provision only applies
after the initial five-year term hereof is completed; provisions 8(a)-8(e)
hereof shall govern during such initial five-year term.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered
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or (unless otherwise specified) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to the Company, to:
MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
MICHAEL A. SINGER
PERSONALIZED PROGRAMMING, INC.
15151 NORTHWEST 99TH STREET
ALACHUA, FL 32615
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in Florida in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. The Company shall reimburse the Executive for all
reasonable legal fees and costs and other fees and expenses which the Executive
may incur in respect of any dispute or controversy against the Company arising
under or in connection with this Agreement; provided, however, that the Company
shall not reimburse any such fees, costs and expenses if the fact finder
determines that the action brought by the Executive was substantially without
merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale
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of all or substantially all of the Company's assets, or upon any merger,
consolidation or reorganization of the Company with or into any other
corporation, all as though such successors and assigns of the Company and their
respective successors and assigns were the Company; and (ii) this Agreement
shall inure to the benefit of and be binding upon the heirs, assigns or
designees of the Executive to the extent of any payments due to them hereunder.
As used in this Agreement, the term "Company" shall be deemed to refer to any
such successor or assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the Executive
with respect to the subject matter hereof and supersedes any and all prior
agreements or understandings between the Executive and the Company with respect
to the subject matter hereof, whether written or oral. This Agreement may be
amended or modified only by a written instrument executed by the Executive and
the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of ____________, 1996.
MEDICAL MANAGER CORPORATION
--------------------------------
By:
THE EXECUTIVE
--------------------------------
MICHAEL A. SINGER
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Richard W. Mehrlich (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(vi) the involuntary relocation of the Executive to a
place of employment that is more than 50 miles from his current place
of employment.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
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<PAGE> 7
conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other than
as provided below) of any company or business, engage in any "Competitive
Business" within the United States. For purposes of the foregoing, the term
"Competitive Business" shall mean any business involved in development,
marketing, sale or support of health care information systems. Notwithstanding
the foregoing, the Executive shall not be prohibited during the non-competition
period applicable above from acting as a passive investor where he owns not more
than one percent (1%) of the issued and outstanding capital stock of any
publicly-held company. During the period that the above non-competition
restriction applies, the Executive shall not, without the written consent of the
Company, solicit any employee of the Company or any current or future subsidiary
or affiliate thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
10
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
John H. Kang (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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<PAGE> 3
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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<PAGE> 4
(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(iv) the involuntary relocation of the Executive to a place
of employment that is more than 50 miles from his current place of
employment.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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<PAGE> 5
corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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<PAGE> 6
of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
6
<PAGE> 7
conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other than
as provided below) of any company or business, engage in any "Competitive
Business" within the United States. For purposes of the foregoing, the term
"Competitive Business" shall mean any business involved in development,
marketing, sale or support of health care information systems. Notwithstanding
the foregoing, the Executive shall not be prohibited during the non-competition
period applicable above from acting as a passive investor where he owns not more
than one percent (1%) of the issued and outstanding capital stock of any
publicly-held company. During the period that the above non-competition
restriction applies, the Executive shall not, without the written consent of the
Company, solicit any employee of the Company or any current or future subsidiary
or affiliate thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
10
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Frederick B. Karl, Jr. (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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<PAGE> 3
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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<PAGE> 4
(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(iv) the involuntary relocation of the Executive to a place
of employment that is more than 50 miles from his current place of
employment.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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<PAGE> 5
corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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<PAGE> 6
of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
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<PAGE> 7
conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other than
as provided below) of any company or business, engage in any "Competitive
Business" within the United States. For purposes of the foregoing, the term
"Competitive Business" shall mean any business involved in development,
marketing, sale or support of health care information systems. Notwithstanding
the foregoing, the Executive shall not be prohibited during the non-competition
period applicable above from acting as a passive investor where he owns not more
than one percent (1%) of the issued and outstanding capital stock of any
publicly-held company. During the period that the above non-competition
restriction applies, the Executive shall not, without the written consent of the
Company, solicit any employee of the Company or any current or future subsidiary
or affiliate thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Wayne Burks (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial three-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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<PAGE> 3
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof); or
(v) a material breach by the Company of any other term of
this Agreement.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(I) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
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conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder (other than
as provided below) of any company or business, engage in any "Competitive
Business" within the United States. For purposes of the foregoing, the term
"Competitive Business" shall mean any business involved in development,
marketing, sale or support of health care information systems. Notwithstanding
the foregoing, the Executive shall not be prohibited during the non-competition
period applicable above from acting as a passive investor where he owns not more
than one percent (1%) of the issued and outstanding capital stock of any
publicly-held company. During the period that the above non-competition
restriction applies, the Executive shall not, without the written consent of the
Company, solicit any employee of the Company or any current or future subsidiary
or affiliate thereof to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Henry W. Holbrook (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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<PAGE> 3
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(iv) the involuntary relocation of the Executive to a place
of employment that is more than 50 miles from his current place of
employment.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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<PAGE> 5
corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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<PAGE> 6
of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
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<PAGE> 7
conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director, employee,
consultant, agent, independent contractor or stockholder (other than as provided
below) of any company or business, engage in any "Competitive Business" within
the United States. For purposes of the foregoing, the term "Competitive
Business" shall mean any business involved in development, marketing, sale or
support of health care information systems. Notwithstanding the foregoing, the
Executive shall not be prohibited during the non-competition period applicable
above from acting as a passive investor where he owns not more than one percent
(1%) of the issued and outstanding capital stock of any publicly-held company.
During the period that the above non-competition restriction applies, the
Executive shall not, without the written consent of the Company, solicit any
employee of the Company or any current or future subsidiary or affiliate thereof
to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
10
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ________ day of _______, 1996, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Thomas P. Liddell (the "Executive").
WHEREAS, the Executive is currently the ____________________ and [sole][a]
shareholder of _____________________________; and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiar[y][ies], the ___________ and the stockholders thereof (the "Business
Combination"), ______________________ will become a wholly-owned subsidiary of
the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the _____________________
of _________________________________ and to employ the Executive as the
[___________________________] of the Company following the Business
Combination, and to set forth certain additional agreements between the
Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM.
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the effective date of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-year term and as
of each anniversary date thereof, the term of this Agreement shall be extended
for an additional 12-month period unless, not later than two months prior to
each such respective date, the Company shall have given notice to the Executive
that the term shall not be so extended. Notwithstanding the foregoing, the
Executive's employment hereunder may be earlier terminated, as provided in
Section 4 hereof. The term of this Agreement, as in effect from time to time
in accordance with the foregoing, shall be referred to herein as the "Term".
The period of time between the commencement and the termination of the
Executive's employment hereunder shall be referred to herein as the "Employment
Period".
2. EMPLOYMENT.
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as its [______________________] and as the
[__________] of ___________________ on the terms and conditions set forth in
this Agreement.
<PAGE> 2
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and ___________,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be responsible to the President of the Company.
During the Employment Period, the Executive shall devote his full business
time, skill and efforts to the business of the Company. Notwithstanding the
foregoing, the Executive may (i) make and manage passive personal business
investments of his choice (in the case of publicly held corporations not to
exceed 1% of the outstanding voting stock) and serve in any capacity with any
civic, educational or charitable organization, or any trade association,
without seeking or obtaining approval by the Board, provided such activities
and service do not materially interfere or conflict with the performance of his
duties hereunder and (ii) with the approval of the Board, serve on the boards
of directors of other corporations.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of $150,000 per
annum, payable in arrears not less frequently than monthly in accordance with
the normal payroll practices of the Company. Such base salary shall be subject
to review each year for possible increase by the President, but shall in no
event be decreased from its then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
_______shares of the Common Stock of the Company, subject to the terms and
conditions of the stock option agreement between the Company and the Executive
dated as of the date hereof and the Company's 1996 Long-Term Incentive Plan.
In addition, the Executive shall be entitled to receive awards under any other
stock option or equity based incentive compensation plan or arrangement adopted
by the Company during the Employment Period for which senior executives are
eligible. The level of the executive's future participation in any such plan
or arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such
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<PAGE> 3
plans, programs and arrangements. In addition, during the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites comparable
to those of other senior executives of the Company, including, but not limited
to, [_____] weeks of vacation pay per year.
(e) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(f) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
______________ or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
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<PAGE> 4
(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non-renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(iv) the involuntary relocation of the Executive to a place
of employment that is more than 50 miles from his current place of
employment.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period shall be terminated by the death of the Executive. The
Employment Period may be terminated by the Company if the Executive shall be
rendered incapable of performing his duties to the Company by reason of any
medically determined physical or mental impairment that can be expected to
result in death or that can be expected to last for a period of six or more
consecutive months from the first date of the Executive's absence due to the
Disability (a "Disability"). If the Employment Period is terminated by reason
of a Disability of the Executive, the Company shall give 30 days' advance
written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
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<PAGE> 5
corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13(d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") ), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereof or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board; or
(iv) the sale by the Company of the majority of the
capital stock of _______ or all or substantially all of the assets of
___________, or the liquidation on dissolution of ________.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payments in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of; (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive obtains comparable substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code
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<PAGE> 6
of 1986, as amended (or any successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) hereof, the Executive shall not be entitled to any severance pay,
benefits continuation or stock option rights contemplated by the foregoing,
except as may otherwise be provided under the applicable benefit plans or award
agreements relating to the Executive.
(c) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY.
The Executive agrees that he will not at any time during the Term hereof or at
any time thereafter for any reason, in any fashion, form or manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
7. INVENTIONS.
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to Company all right, title
and interest in such contributions and inventions made or
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<PAGE> 7
conceived by the Executive alone or jointly with others during the Employment
Period which relate to the business or of the Company. This assignment shall
include (a) the right to file and prosecute patent applications on such
inventions in any and all countries, (b) the patent applications filed and
patents issuing thereon, and (c) the right to obtain copyright, trademark
or trade name protection for any such work product. The Executive shall
promptly and fully disclose all such contributions and inventions to Company
and assist the Company in obtaining and protecting the rights therein
(including patents thereon), in any and all countries; provided, however, that
said contributions and inventions will be the property of Company, whether or
not patented or registered for copyright, trademark or trade name protection,
as the case may be. Inventions conceived by the Executive which are not
related to the business of the Company, will remain the property of the
Executive.
8. NON-COMPETITION.
The Executive agrees that he shall not during the Employment Period and, if
applicable, the Severance Period, without the approval of the Board, directly
or indirectly, alone or as partner, joint venturer, officer, director, employee,
consultant, agent, independent contractor or stockholder (other than as provided
below) of any company or business, engage in any "Competitive Business" within
the United States. For purposes of the foregoing, the term "Competitive
Business" shall mean any business involved in development, marketing, sale or
support of health care information systems. Notwithstanding the foregoing, the
Executive shall not be prohibited during the non-competition period applicable
above from acting as a passive investor where he owns not more than one percent
(1%) of the issued and outstanding capital stock of any publicly-held company.
During the period that the above non-competition restriction applies, the
Executive shall not, without the written consent of the Company, solicit any
employee of the Company or any current or future subsidiary or affiliate thereof
to terminate his or her employment.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
10. NOTICE.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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<PAGE> 9
Executive to the extent of any payments due to them hereunder. As used in this
Agreement, the term "Company" shall be deemed to refer to any such successor or
assign or the Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by a written instrument executed by the
Executive and the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 1996.
MEDICAL MANAGER CORPORATION
By:
-------------------------------------
THE EXECUTIVE
-----------------------------------------
10
<PAGE> 1
Exhibit 10.12
[LOGO]
MASTER LICENSE AGREEMENT
This Agreement is made and entered into as of the Fifteenth (15) day of
November, 1982, between:
LICENSOR:
NAME - Personalized Programming
BUSINESS ADDRESS - Route 3, Box 90
Alachua, FL 32615
MAIL ADDRESS - Route 3, Box 90
Alachua, FL 32615
PHONE - 904-462-2148
LICENSEE: Systems Plus, Inc.
1120 San Antonio Road
Palo Alto, California 94303
415-969-7047
WHEREAS, LICENSOR is the owner of all right, title and interest
(including copyright) in a certain computer software program(s) including any
Updates, Upgrades and New Versions known as MEDICAL MANAGER more fully described
in Exhibit A hereto (the "Program") and the user's manual for such Program (the
"Manual");
WHEREAS, LICENSEE is in the business of marketing computer software
product(s); and
WHEREAS, LICENSEE desires to market the Program and LICENSOR desires to
license LICENSEE to market the Program on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, LICENSOR and LICENSEE agree as follows:
1. LICENSE
1.1 Subject to the terms and conditions contained in this agreement,
LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, an exclusive,
worldwide license, to use, reproduce, and distribute copies of the Program and
of the Manual and other marketing materials and brochures pertinent thereto.
1.2 Except as specified in Section 13 hereof, nothing in this license
shall be construed as a grant from LICENSOR to LICENSEE of the right to prepare
and distribute copies of derivative works, which terms shall include new
versions of the Program as defined herein. All derivative works of the Program
which are the subject of this agreement (except as specified in Section 13)
shall be new versions of the Program prepared by LICENSOR. Unless otherwise
stated in a specific provision hereof, the grant of all licenses to reproduce
copies of the Program granted herein shall include the right to reproduce and
<PAGE> 2
distribute copies of derivative works of the Program prepared by LICENSOR.
The scope of this license does include the right of LICENSEE to
sublicense the rights hereunder to any third party. LICENSEE'S obligation to
LICENSOR herein to make payments of royalties on monies received pursuant to
such sublicense, shall be set forth in Exhibit C.
During the exclusive term of this license, LICENSEE agrees that it will
neither distribute nor promote any other competitive software unless such other
competitive software is particularly suited to be operated on a computer
operating system which cannot support any version of the program existing, or
for which LICENSEE has actual notice that LICENSOR is preparing a comparable new
version of the Program, at the time LICENSEE creates, or acquires the right to
distribute, such other competitive software.
2. TERM
This agreement shall, in all its terms, commence as of November 15,
1982, and, unless earlier terminated by the provisions of Section 14 hereof,
shall continue for a period of two (2) years. After said two (2) year period,
this agreement shall be automatically extended on a year-to-year basis, from
each anniversary thereof, unless written notice of termination of exclusivity
is given by either party six months before the expiration date of the then
current term, or until the agreement is otherwise terminated as provided in
Section 14.
3. DELIVERY
3.1 Manual. LICENSOR shall deliver to LICENSEE the current standard
version of the Manual as described in Exhibit B hereto in machine readable
source code form. LICENSEE has the right to modify and enhance the manual.
3.2 Object Code. LICENSOR shall deliver to LICENSEE, promptly upon
execution hereof, a copy of the Program in object code form on a format as
specified in Exhibit A hereto.
3.3 Source Code. LICENSOR agrees to provide a copy of the Program in
source code form for use by LICENSEE in maintaining and supporting the
Program. When any corrections, or new versions of the Program in object code
are delivered to the LICENSEE, new source code of such corrections and new
versions shall concurrently be delivered to LICENSEE.
As used herein, the term "New versions" of the Program shall include
upgrades, and updates of the Program prepared by LICENSOR as well as any
modifications of the Program capable of running on operating systems,
computers, or in conjunction with peripheral equipment, different from the
versions of the Program existing at the time of execution of this agreement.
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<PAGE> 3
4. PRICES AND PAYMENTS
4.1 In consideration of the license granted to LICENSEE, LICENSEE
shall pay LICENSOR the amounts specified in Exhibit C hereof. LICENSEE shall
not, however, be obligated to make any payment to LICENSOR for copies of the
Program which LICENSEE exchanges for defective copies pursuant to LICENSEE's
warranty obligations to its customers or for any copies distributed free of
charge for marketing purposes. LICENSEE shall have the right to distribute a
reasonable number of copies of the Program free of charge for purposes of
promotion and marketing of the Program.
4.2 Time for Payment. Payments under Section 4.1 are due and payable
as follows: Fifty percent (50%) of the amount owed shall be payable on the 10th
day of the month following the billing thereof by LICENSEE, and the remaining
fifty percent (50%) of the amount owed shall be payable on the 30th day of such
month. LICENSEE's obligations to make payments hereunder shall survive
termination of this agreement.
4.3 Reports. On a quarterly basis, LICENSEE shall submit to LICENSOR,
a written report certifying the number of copies of the Program sold by
LICENSEE, and the number of copies exchanged by LICENSEE for defective copies
during the previous quarter, and the number of copies distributed free of
charge pursuant to Paragraph 4.1. LICENSEE shall provide to LICENSOR a listing
of addresses, where practicable, of end users.
4.4 Records and Inspection. LICENSEE shall keep written records of
the number of copies of the Program made, and shipments of copies of the
Program to customers. LICENSOR or its designated representative may, from
time-to-time, but no more than twice yearly, inspect such records. At
LICENSOR's reasonable request, LICENSEE shall make such records available for
inspection at the offices of LICENSEE during regular business hours. Because
LICENSEE has obligations to multiple licensors under similar agreements,
LICENSOR agrees to coordinate its inspection activity with such other licensors
upon LICENSEE's request. If any such inspection reveals that the royalties
reported and paid are in error by an amount exceeding ten percent (10%), then
the cost of such inspection shall be borne by LICENSEE.
5. MARKETING OF PROGRAM BY LICENSEE
5.1 Marketing Efforts. LICENSEE shall use its best efforts to
maximize its sales of the Program as authorized herein.
5.2 Trademarks. Licensee may market the Program under any trademark
or descriptive name of its choosing. LICENSEE will notify LICENSOR in writing
of all trademarks used by LICENSEE in connection with the sale of the Program.
Additionally, if LICENSEE chooses to market the Program under the registered
trademark of LICENSOR, LICENSEE agrees to be bound by the term of
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<PAGE> 4
the trademark license granted herein in Exhibit E hereto.
5.3 Copyright Notices. LICENSEE shall apply to all copies of the
Program prepared and distributed by LICENSEE, as well as to all copies of the
Manual, a statutory notice of copyright as set forth in Section 401 of Title 17
of the United States Code, and the regulations of the Register of Copyrights
promulgated thereunder. The form of all printed notices shall be as follows:
Copyright 1982, Personalized Programming
A printed form of the notice shall appear on each label attached to a
diskette, or other machine-readable format, in which copies of the Program are
fixed and distributed, and on either the inside cover or a title page of all
copies of the Manual distributed by LICENSEE. Or, if LICENSEE is required to
modify said manual significantly, notice will state that excerpts have been
taken for LICENSOR copyright work.
In addition, LICENSEE agrees that copies of the Program will not be
modified to defeat the display of LICENSOR's copyright notice which appears on
the screen of the user's machine and, during the term of any nonexclusive
license subsequent to the period of exclusivity defined herein, LICENSEE shall
continue to cause notice of LICENSOR's copyright to appear as specified
immediately above.
LICENSEE further agrees to include all copyright notices of third party
licensors of substituent runtime, disk operating system modules, or other
utilities used in the Program as required by such licenses. LICENSOR shall
provide to LICENSEE a copy of each license to which it is a party from any third
party licensor.
5.4 Customer License. LICENSEE shall distribute each copy of the
Program subject to a customer license agreement in substantially the form
attached herein as Exhibit D, or in such other form as may be approved by
LICENSOR in writing.
5.5 Warranty and Disclaimer. All copies of the Program reproduced and
distributed by LICENSEE shall contain a conspicuous warranty disclaimer in
substantially the following form:
DISCLAIMER OF WARRANTY:
SYSTEMS PLUS, INC. AND PERSONALIZED PROGRAMMING MAKES NO WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO THE SOFTWARE OR ITS QUALITY, PERFORMANCE,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. THE SOFTWARE IS LICENSED
AND DELIVERED "AS IS".
LIMITATION OF LIABILITY:
IN NO EVENT WILL SYSTEMS PLUS, INC. OR PERSONALIZED PROGRAMMING BE
LIABLE FOR ANY DIRECT, INCIDENTAL, INDIRECT,
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SPECIAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THE
EXISTENCE, FURNISHING, FAILURE TO FURNISH OR USE OF THE SOFTWARE, EVEN IF
SYSTEMS PLUS, INC. HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. ERROR CORRECTIONS, UPDATES, UPGRADES AND NEW VERSIONS.
6.1 Errors. Upon receipt of a written error report from LICENSEE and
any available documentation to verify and demonstrate that an error exists in
the Program as supplied by LICENSOR hereunder, LICENSOR shall provide to
LICENSEE within fifteen (15) days corrections of all errors in the Program which
are specified in the written request.
6.2 Updates. LICENSOR shall provide LICENSEE with updated master
copies of the Program and the Manual to correct errors or make minor changes in
the Program.
6.3 Upgrades. The Program presently operates on the operating systems
specified in Exhibit A. Upon request of the LICENSEE, LICENSOR shall upgrade
the Program to operate on new versions of such operating systems and provide
such upgrades of the Program and the Manual to Licensee under this Agreement.
6.4 New Versions. Any new versions of the Program which add new
features or significantly improve the Program, which are created by LICENSOR
during the term of exclusivity of this license, shall be provided to LICENSEE
along with necessary documentation for creating a manual for such new version.
All provisions of this agreement relating to the Program shall be construed to
include any new versions.
6.5 New Products. As used herein, the term "New Products" means any
software product of LICENSEE which is not a new version of the Program which is
the subject matter of this present license. LICENSOR hereby grants to LICENSEE
an option of first refusal of any New Product that LICENSOR develops during the
term of this agreement which is effective to provide an exclusive license to
LICENSEE. LICENSOR shall provide to LICENSEE a copy of all New Products
developed by LICENSOR during said term. For each New Product provided to
LICENSEE, LICENSEE shall have a ninety (90) day option period after the delivery
of same in which to provide written notice to LICENSOR that LICENSEE is
exercising its option hereunder. In the event that such option is exercised for
any New Product, a license shall arise in favor of LICENSEE to reproduce and
distribute copies of the New Product which shall be deemed to include all
grants, payment terms, obligations, and termination provisions of the present
license. Each new license created with respect to a New Product shall be
considered to have been granted upon the date which LICENSEE delivers written
notice of exercise of its option hereunder with respect to such New Product, and
a full two (2) year term of exclusively shall commence upon such date.
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The failure of LICENSEE to exercise such option as to any New Product
shall terminate all of LICENSOR's obligations with respect to such New Product,
but shall not terminate LICENSOR's obligation to submit any subsequently created
New Products in accordance with the terms hereof.
6.6 Notices. LICENSOR shall provide LICENSEE with two months prior
written notice of all new versions.
7. WARRANTY
7.1 Right to License. LICENSOR hereby represents and warrants that,
except for substituent modules of the Program which are copyrighted software of
third parties and which are identified in Exhibit A hereto, LICENSOR is the sole
owner of the copyrights in and to the Program and the delivered Manual. LICENSOR
further warrants that it has the right to enter into this agreement and to grant
the licenses granted herein. LICENSOR further warrants that it is the current
owner of a valid nonexclusive license to reproduce copies of the substituent
modules, copyrights to which are owned by third parties, which are identified in
Exhibit A hereto.
7.2 Limitation on Warranties. LICENSOR MAKES NO WARRANTIES, WHETHER
EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE PROGRAM.
8. INDEMNIFICATION
LICENSOR shall indemnify LICENSEE, its employees, distributors, dealers,
agents and customers, and hold them harmless from any and all damages,
liabilities, costs and expenses (including but not limited to attorneys' fees)
incurred by LICENSEE as a result of any judgment or adjudication against
LICENSEE which is determined that the duplication or distribution of the Program
or the Manual as provided by LICENSOR hereunder infringes any copyright or trade
secret trademark or other proprietary right of any third party and shall
similarly indemnify and hold LICENSEE harmless from all damages, liabilities,
costs and expenses of LICENSEE as a result of any judgment or adjudication
against LICENSEE based on a finding that sale of the Program by LICENSEE under
the trademark MEDICAL MANAGER infringes any trademark right of a third party.
LICENSOR's obligations hereunder shall extend to litigation, threatened
litigation, or claim made by any third party that sale of the program under any
trademark other than MEDICAL MANAGER infringes any trademark of, or constitutes
any form of unfair competition with, such third party. LICENSOR's obligations
under this paragraph shall be contingent upon LICENSEE (a) promptly notifying
LICENSOR in writing of any such claim as soon as LICENSEE becomes aware of such
claim; and (b) cooperates with LICENSOR in defending or settling such claim.
LICENSOR shall indemnify LICENSEE and personnel of LICENSEE for any reasonable
expenses actually incurred for travel, meals, and lodging pursuant to LICENSEE's
obligation to cooperate, but shall not be required to pay LICENSEE or any
personnel of LICENSEE any
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fees for time spent pursuant to such cooperation. Neither this obligation nor
LICENSOR's covenant not to seek contribution shall extend to any claim made by
any third party owner of copyrighted substituent modules of the Program based
on LICENSEE's failure to comply with the final provision of Section 5.3 above.
9. LIMITATION OF LIABILITY
Except as set forth under Sections 6.1, 6.2, 7, and 8 LICENSOR shall
not under any circumstances be liable to LICENSEE or any of its distributors,
dealers, agents, or customers for special, incidental or consequential damages,
or damages suffered because of a claim by an end user, even if LICENSOR has
been advised of the possibility of such damages.
10. NON-DISCLOSURE AGREEMENT
10.1 Confidentiality of Disclosures. In the course of performing this
Agreement, LICENSEE and LICENSOR may disclose to each other information
concerning their respective confidential business information, inventions,
confidential know-how and trade secrets. Such confidential business
information, inventions, confidential know-how and trade secrets disclosed
hereunder shall remain the sole property of the party disclosing them, and the
receiving party shall have no interest in or rights with respect thereto except
as expressly set forth in this Agreement. Among other things, the source code
for the Program, the internal specification documents, preliminary object code
and any test copies of the program are regarded as confidential information by
LICENSOR and, if disclosed to LICENSEE, shall be subject to the nondisclosure
provisions of this Section. Any confidential information disclosed to LICENSOR
pursuant to the inspection right granted under subsection 3.4 shall be subject
to the nondisclosure provisions of this Section.
10.2 Nondisclosure Obligations. LICENSEE and LICENSOR each agree to
maintain all such confidential information in confidence to the same extent
that it protects its own similar proprietary information, which in no event
will be less than the safeguards a reasonably prudent business would exercise
in similar circumstances, and further agrees to take reasonable precautions to
prevent any unauthorized disclosure of such information. The foregoing
restrictions on disclosure shall survive termination of this Agreement but
shall not apply with respect to any information which (a) becomes generally
known or publicly available through no act or failure to act on the part of the
receiving party; (b) if furnished to others by the disclosing party without
restriction on disclosure; or (c) is rightfully and lawfully furnished to the
receiving party by a third party without restriction on disclosure.
11. TRAINING
11.1 LICENSOR shall provide one training session to LICENSEE upon
delivery to LICENSEE of the Program and an
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additional training session upon the delivery of each New Version and New
Product.
12. TECHNICAL SUPPORT
LICENSOR shall provide to LICENSEE, reasonable technical support for
the Program. LICENSEE shall provide customer technical support during
reasonable normal business hours to be specified by LICENSEE.
13. NOTICE OF DISCONTINUANCE
Licensor shall provide Licensee with six (6) months prior written
notice of discontinuance of the Program. Licensee shall have the right, at its
sole option, to continue to reproduce and distribute the Program in its then
current version so long as LICENSEE continues to make payments to LICENSOR in
accordance with Section 3 hereof. LICENSEE shall have the right to make
Corrections, Updates and Upgrades to the discontinued Program as it deems
appropriate and shall not be required to make payments to LICENSOR for any
Corrections, Updates or Upgrades it produces or acquires from a third party.
14. TERMINATION
14.1 LICENSEE's Right to Terminate. LICENSEE shall have the right to
terminate this Agreement if LICENSOR defaults on any of its obligations under
this Agreement, unless within thirty (30) days after written notice of such
default, LICENSOR remedies the default.
14.2 LICENSOR's Right to Terminate. LICENSOR shall have the right to
terminate this Agreement or the licenses granted under Section 1 of this
Agreement if LICENSEE defaults on any of its obligations under this Agreement,
unless within thirty (30) days after written notice of such default, LICENSEE
remedies the default.
14.3 Effect of Termination. Upon the termination of this Agreement,
LICENSEE shall discontinue reproduction and distribution of the Program and the
Manual provided, however, that LICENSEE shall have the right to sell any copies
remaining in its inventory. Neither termination of this Agreement nor waiver
of any right to terminate under this Section shall impair or limit any
additional rights or remedies that either LICENSEE or LICENSOR may have at law
in equity.
14.4 In all events, this license shall terminate, and all obligations
of both parties hereunder shall terminate upon the expiration of LICENSOR's
copyrights to the Program as provided by Title 17 of the United States Code.
15. ATTORNEY'S FEES
In the event of any litigation or other legal proceeding
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<PAGE> 9
between the parties arising from this Agreement, the prevailing party shall be
entitled to recover, in addition to any other relief awarded or granted, its
reasonable costs and expenses (including attorneys' fees) incurred in the
proceeding.
16. GENERAL
16.1 Notices. All notices, demands or consents required or permitted
under this Agreement shall be in writing and shall be delivered personally or
sent by certified or registered mail to the respective parties at the
addresses set forth on the first page of this Agreement or at such other
address as shall be given by either party to the other in writing.
16.2 Waiver; Amendment. No waiver, amendment or modification of any
provision of this Agreement shall be effective unless in writing and signed by
the party against whom such waiver, amendment or modification is sought to be
enforced. No failure or delay by either party in exercising any right, power
or remedy under this Agreement, except as specifically provided herein, shall
operate as a waiver of any such right, power or remedy.
16.3 Assignment. This Agreement shall be binding upon and inure to
the benefit of the successors and permitted assigns of the parties hereto.
Neither party may assign any of its rights or delegate any of its obligations
under this Agreement to any third party without the express written consent of
the other party.
16.4 Choice of Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of California.
16.5 Equitable Remedies. The parties understand and acknowledge that
violation of their respective convenants and agreements contained herein may
cause the other irreparable harm and damage, which may not be recovered at law,
and each agrees that the other's remedies for breach hereof may be in equity by
way of injunctive relief, as well as for damages and any other relief available
to the non-breaching party, whether in law or in equity.
16.6 Captions and Section Headings. Captions and section headings
used herein are for convenience only and are not a part of this Agreement and
shall not be used in construing it.
16.7 Severability. If any provision of this Agreement shall be held
by a court of competent jurisdiction to be contrary to law, the remaining
provisions of this Agreement shall remain in full force and effect.
16.8 Entire Agreement. This Agreement including the Exhibits hereto
constitutes the entire agreement between the parties concerning the subject
matter hereof, and shall supersede
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all previous communications, representations, understandings, and agreements,
whether oral or written between the parties or any official or representative
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date and year first written above.
LICENSEE - Systems Plus, Inc.
By:
------------------------------------
Name: Richard W. Mehrlich
Title: President
LICENSOR - Personalized Programming
By:
------------------------------------
Name: Mickey Singer
Title: President
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EXHIBIT A
Description of Programs:
TITLE:____________________________________VERSION:__________________________
Program File Names:
Operating Systems on which the Program Currently Operates:
Computers/Disk Formats on which Program will run:
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<PAGE> 12
EXHIBIT B
Delivered Manual Specifications:
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<PAGE> 13
EXHIBIT C
Payment and Payment Schedule
Royalty Base
The royalty base shall be LICENSEE's net billings from sales of the
Program less LICENSEE's shipping costs attributable to the Program if a separate
shipping charge is made to LICENSEE's customers. Net is defined herein as all
gross sales of the Program minus any returns.
LICENSEE shall pay all licenses for runtime systems, disk operating
systems and the like, that is included in the sale price required to be used by
the Program (including new versions of the Program) and the amounts of such
payments shall be deducted from the royalty base.
Payment shall be made monthly and the royalty base for each month during
the term of this agreement shall be calculated on a month-to-month basis. All
media freight costs will be deducted from royalty payments if an update must be
sent out due to errors in the program. All update charges will be absorbed by
LICENSEE if it is deemed to be an error of the LICENSEE.
The royalty base for each month shall be calculated based on the number
of copies of the Program for which LICENSEE bills its customers in the
particular month.
In the event this license becomes nonexclusive pursuant to Section 13,
and LICENSEE distributes any derivative version of the Program, no payments of
any type made to third parties in connections with the creation of said
derivative version may be deducted from the royalty base.
Royalties
LICENSOR shall receive, for each month during the effective term of this
agreement, twenty-five percent (25%) of the royalty base specified above for
dealers and distributors. LICENSOR shall receive, for each month during the
effective term of this agreement, thirty-five percent (35%) of the royalty base
specified above for OEM distribution (OEM's manufacture their own hardware).
LICENSOR and LICENSEE will negotiate royalty base on buy-outs and different
operating system configurations.
Exclusitivity
LICENSEE shall have a two (2) year exclusive with a minimum commitment,
commencing three (3) months after initial shipment. If a minimum commitment of
three hundred (300) units are not sold during the following twelve (12) months
the royalty rate on net billings will increase to thirty five (35%) for the
remainder of the exclusive period.
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ENHANCEMENTS
LICENSEE requests the following enhancements to the original MEDICAL
MANAGER program: Recall, Scheduling, Drug History, and Referral. Upon bug free
completion of these four (4) programs and one (1) month of testing by Systems
Plus a payment of five thousand dollars ($5,000) towards future royalties will
be paid to LICENSOR by LICENSEE. With implementation of the following operating
systems, IBM-PC, CPM-86, and MPM-86 (multi-user with record lock out); LICENSEE
agrees to pay LICENSOR five thousand dollars ($5,000) towards future royalties.
Specifications for above to be developed with input from both LICENSOR and
LICENSEE. Enhancements other than the above to be negotiated at the time of
input.
A minimum of ten thousand dollars ($10,000) per month (average) will be
spent on promoting the Medical Manager. This will include direct mail, direct
sales solicitation, marketing materials and advertising.
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EXHIBIT D
SOFTWARE LICENSE AGREEMENT
Systems Plus, Inc. agrees to grant to the named customer a nontransferable and
nonexclusive license to use the Software program(s) delivered herewith and named
below (herein referred to as "Software"). Customer, by acceptance hereof,
agrees to accept the Software with the following terms and conditions.
The Software license granted under this agreement authorizes the customer to use
the Software only on a single computer system. A separate license shall be
required for each additional system on which the program is to be used.
This agreement and the Software licensed hereunder may not be transferred,
assigned or sublicensed without the prior written consent of Systems Plus, Inc.
Customer shall not copy or print the Software in while or in part except for
back-up or archive purposes. The customer shall make his best effort to
protect the Software against unauthorized use or reproduction.
Systems Plus, Inc. makes no warranties, either express or implied, with
respect to the Software described herein, its quality, performance,
merchantability or fitness for any particular purpose. This Software is
licensed "as is". The entire risk as to its quality and performance is with
the buyer.
NO SUPPORT WILL BE PROVIDED UNTIL SYSTEMS PLUS, INC. IS IN RECEIPT OF A
PROPERLY EXECUTED SOFTWARE LICENSE AGREEMENT (SEE ATTACHED). NO OTHER
WARRANTY, EITHER EXPRESS OR IMPLIED, IS OFFERED BY SYSTEMS PLUS, INC. CUSTOMER
ACKNOWLEDGES THAT SYSTEMS PLUS, INC. IS NOT LIABLE FOR ANY DAMAGES, EITHER
CONSEQUENTIAL OR DIRECT, ARISING OUT OF THE USE OF THE SOFTWARE.
<PAGE> 16
ADDENDUM TO MASTER LICENSE AGREEMENT
DATED SEVENTEENTH DAY OF NOVEMBER, 1982,
BETWEEN PERSONALIZED PROGRAMMING, INC., LICENSOR,
AND SYSTEMS PLUS, INC., LICENSEE
THIS ADDENDUM supplements and amends the said Master License Agreement
and exhibits thereto, revoking portions in whole and in part, and adding
additional covenants. The parties hereby agree that this Addendum supersedes
the Master License Agreement and exhibits thereto and, wherever discrepancies,
modifications or revocations appear, the agreements contained in this Addendum
shall prevail, any language in the Master License Agreement and exhibits
thereto to the contrary notwithstanding.
The said parties further agree as follows:
1. The name of the Licensor is PERSONALIZED PROGRAMMING, INC. Wherever
used herein or in the Master License Agreement and exhibits thereto, the terms
PERSONALIZED PROGRAMMING and Licensor shall refer to PERSONALIZED PROGRAMMING,
INC., a Florida corporation, and shall so appear on any warranty, disclaimer or
notice or copyright.
2. Wherever used herein the terms "updates," "upgrades," and
"modifications" shall be defined as those modifications to the program which
will be supplied by Licensor to Licensee at no additional charge and which do
not constitute "enhancements" to the program as defined hereinbelow.
3. Wherever used herein the terms "enhancements," "new versions," and
"derivative works" are defined to mean significant improvements to the program,
including but not limited to:
A. Functions not currently carried out;
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B. The ability to run the program on different operating systems;
C. Custom modifications to the program for O.E.M.'s.
4. Wherever used herein, the term "demo" shall mean any program, or
copy thereof, which is distributed free of charge for purposes of promotion and
marketing. These "demo" programs shall be non-serialized and the number of
guarantors will be limited by Licensor, and shall remain unchanged by
Licensee. Licensee's right to distribute a reasonable number of copies of the
program for promotion and marketing is limited to demos only, with the
exception that Licensee may distribute two serialized programs (non-demos) per
month until termination of this agreement.
5. Wherever used herein, the term "new products" shall mean those
products produced by Licensor which are medically oriented and interface with
the current program.
6. The exercise of Licensee's option of first refusal on any "new
product" shall be made pursuant to the provisions contained hereinafter for the
exercise of Licensee's option of first refusal for "enhancements" of the
program, as provided hereinbelow.
7. Licensee shall have an option of first refusal for each enhancement
or new product and the terms of said option will be negotiated on a separate
contractual basis for each enhancement or new product, which negotiations shall
be commercially reasonable and based upon an actual bid price or per hour wage
for the product or service to be performed; and, upon entry into one of these
contractual agreements, this Master License Agreement, Addendum and exhibits
thereto will prevail, except as
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otherwise modified by the separate contractual agreement for that enhancement
or new product.
8. Licensor hereby agrees to do the following enhancements for no
additional charges to Licensee:
A. MP/M-86 version with multi-user handling;
B. CP/M-86 version;
C. Transfer to the "Accounting Plus" general ledger version number
3.02;
D. Referral handling.
9. There shall be an exception to the exclusive worldwide license
hereby granted, in favor of Licensor and its employees but excluding its
selling agents for purposes of sales of this program to end users within the
State of Florida.
10. Licensee's right to substantially modify an enhance the manual
shall be subject to Licensor's prior written approval.
11. Licensor's indemnification of Licensee, as set forth in the Master
License Agreement, shall include no indemnification for any damages or claims
for damages resulting from any further duplication or distribution of the
Program or the manual following the institution of an action against Licensee
or following Licensor's notification to Licensee that a claim has been made
against Licensor or a third party. No expenses, including but not limited to
the costs of defending or settling any claim or litigation, attorney's fees,
travel, meals, or lodging, shall be paid unless Licensee shall have obtained
Licensor's prior written consent.
12. Licensor shall deliver to Licensee two copies of the program in
source form. It is Licensor's and Licensee's express
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intent and understanding that the source code for the program is provided to
Licensee for storage use only and shall be kept in a secured, safe place and in
a manner so as to protect it from theft, copying, or inspection by unauthorized
persons. Licensee is not permitted to make copies of the source code, and is
not permitted to allow inspection by anyone except the officers and employees of
Licensee, and Licensee hereby agrees that Licensor would suffer substantial
damages to its competitive position if the contents of the source code were
revealed to customers, competitors or possible future competitors, and that
there shall be no distribution of the source code whatsoever without the prior
written consent of Licensor or its successors in interest.
13. This agreement including the Master License Agreement, the exhibits
thereto, and this Addendum constitute the entire agreement between the parties
concerning the subject matter hereof, and shall supersede all previous
communications, representations, understandings, and agreements whether oral or
written between the parties or any official or representative thereof, provided
however that this Addendum shall supersede any previous agreement or
understanding contained in the Master License Agreement or exhibits thereto, to
the extent that this Addendum modifies, contradicts, or supplements same.
14. The payment schedule and times for delivery under this agreement
shall be as follows:
A. Upon full execution of this agreement by Licensor and
Licensee, Licensee shall pay to Licensor as an advance against future royalties
the sum of Ten Thousand and no/100
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Dollars ($10,00.00), upon receipt of which Licensor shall deliver the program,
without an accompanying serialization program, as a test program. Thereafter,
Licensee shall have a period of time not to exceed one (1) month from date of
delivery to test said program. License may, by written request accompanied by
an additional payment of Ten Thousand and no/100 Dollars ($10,000.00) as a
further advance against future royalties, signify its acceptance of same and
demand completion of delivery. No more than fifty percent (50%) of the
royalties paid per month will be applied toward the advanced royalties.
Licensor shall, within one (1) week's time from date of such request, provide
Licensee with an executable copy of the serialization program and a machine
readable copy of the source code and manual. When Licensee receives the
serialization program, a fifteen (15) month period of time shall commence to
run during which time Licensee agrees to use its best efforts to sell at least
three hundred (300) non-O.E.M. program packages (serialized program disks and
manual). If the minimum of three hundred (300) program packages is not sold
during that period, the royalty rate on gross collections of all monies
received from non-O.E.M. sales, as provided hereinbelow, shall increase to
thirty-five per cent (35%) for the remainder of the term of this agreement
which shall at that time become non-exclusive.
15. The royalty base for determination of any and all amounts owed to
Licensor for non-O.E.M. sales shall be defined as the gross collection of all
monies received, less returns, without deduction for shipping costs, freight
charges or license payments. Licensor shall receive twenty-five per cent (25%)
of
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the royalty base for all non-O.E.M. sales, and as provided elsewhere
hereinbelow.
16. The royalty base for all O.E.M. sales shall be set by negotiation
between Licensor and Licensee with Licensor having the rights to participate
indirectly through Licensee in the negotiation of sale's price to any O.E.M.
Licensor shall receive fifty per cent (50%) of the royalty base for all O.E.M.
sales without deductions for shipping charges, freight charges or license
payments.
17. In addition to the definitions of royalty base as provided
hereinabove, a Four Hundred Twenty-Five Dollars ($425.00) base royalty to
Licensor on all non-O.E.M. sales shall apply, in such manner that the minimum
royalties paid to Licensor during any quarter equals the number of non-O.E.M.
sales times the price of Four Hundred Twenty-Five ($425.00) per sale. Should
Licensor have received less royalties than the sum produced by the above
computation, Licensee shall immediately pay any difference to Licensor at the
end of that quarter. Should Licensor have received an amount greater than the
sum computed by the above method, there shall be not redistribution and not
carry-over into any other quarterly period, but rather, Licensor shall be
entitled to keep any coverage without adjustment or reimbursement to Licensee.
18. The parties agree to omit the requirements of payment of Five
Thousand Dollars ($5,000.00) advance against royalties for recall, scheduling,
drug history and referral programs and the Five Thousand Dollars ($5,000.000)
advance against royalties for
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IBM-PC, CPM-86 and MPM-86 operating systems set forth in Schedule C of the
Master License Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum and
agreement by their duly authorized representatives as of this 19 day of
November, 1982.
Witnesses:
/s/ [ILLEGIBLE] LICENSEE - Systems Plus, Inc.
- --------------------
/s/ [ILLEGIBLE] BY /s/ RICHARD W. MEHRLICH
- -------------------- --------------------------------
Richard W. Mehrlich
President
/s/ [ILLEGIBLE] LICENSOR - Personalized Programming, Inc.
- --------------------
/s/ [ILLEGIBLE] BY /s/ MICKEY SINGER
- -------------------- --------------------------------
Mickey Singer, President
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ADDENDUM TO MASTER LICENSE AGREEMENT DATED NOVEMBER 17, 1982,
BETWEEN PERSONALIZED PROGRAMMING, INC. AND SYSTEMS PLUS, INC.
WHEREAS, Personalized Programming, Inc. (Licensor) and Systems Plus, Inc.
(Licensee) entered into a Master License Agreement on the Fifteenth (15) day of
November, 1982, which consisted of ten (10) typewritten pages and Exhibits "A"
through "D" (pages 11 through 15); and,
WHEREAS, the parties executed the "ADDENDUM TO MASTER LICENSE AGREEMENT" on
November 19, 1982, consisting of seven (7) typewritten pages, together with a
separate addendum signed by the parties hereto on "Personalized Programming"
letterhead; and
WHEREAS, Paragraph 14.A. of the aforementioned ADDENDUM TO MASTER LICENSE
AGREEMENT (page 5) provides, among other things, that, if a minimum of three
hundred (300) program packages are not sold during the fifteen (15) month
period immediately following Licensee's receipt of the serialization program,
then the agreement shall become non-exclusive; and
WHEREAS, pursuant to said Paragraph 14.A., Licensee did not sell the required
three hundred (300) packages during the said fifteen (15) month period, and the
agreement thereby became non-exclusive; and
WHEREAS, the parties hereto have found the exclusive, worldwide license
agreement to be mutually profitable and beneficial, and the parties have orally
agreed to continue the exclusive agreement; and
WHEREAS, the parties accordingly wish to formalize their oral agreement in
writing and thereby recreate the exclusive license agreement.
NOW THEREFORE, in consideration of the promises and premises contained herein,
Licensor and Licensee agree as follows:
1. This Addendum supplements and amends the aforementioned Master License
Agreement, Exhibits and Addenda thereto (these documents together are
hereinafter referred to as the "ORIGINAL AGREEMENT"), revoking portions whole
and in part, and adding additional covenants. The parties hereby agree that
this Addendum supersedes the ORIGINAL AGREEMENT and, wherever discrepancies,
modifications, inconsistencies or revocations appear, the definitions, language
and agreements contained in this Addendum shall prevail, any and all language
in the ORIGINAL AGREEMENT to the contrary notwithstanding.
LICENSE
2. Subject to the terms and conditions contained in this ADDENDUM and the
ORIGINAL AGREEMENT, Licensor hereby grants to Licensee, and Licensee hereby
accepts, an exclusive, worldwide license, to use, reproduce and distribute
copies of the Program and the Manual and other marketing materials and
brochures pertinent thereto.
1
<PAGE> 24
TERM
3. This Agreement, consisting of the ORIGINAL AGREEMENT and this ADDENDUM
shall, in all its terms, commence as of June 1, 1984, and, unless earlier
terminated by other provisions hereof, shall continue for a period of two (2)
years. After said two (2) year period, this agreement shall be automatically
extended as provided herein.
PRICES AND PAYMENTS
4. Payments under Section 4.1. of the Master License Agreement shall be
payable on the fifteenth (15th) and last day of each month as otherwise
provided herein.
ROYALTIES
5.(a) Licensor shall receive, for each month during the effective term of this
Agreement, twenty-five (25) percent of the royalty base specified in Exhibit
"C" of the Master License Agreement for dealers and distributors.
5.(b) Licensor shall receive for each month during the effective term of this
Agreement, fifty (50) percent of the royalty base specified in Exhibit "C" of
the Master License Agreement for "Large Contractual Sales". Large Contractual
Sales are defined as any sale which includes or involves:
(i) The purchase by an Original Equipment Manufacturer ("OEM") of
twenty (20) programs or more during the term of this Agreement; OR
(ii) The change of name for the program, also known as "private
labeling contracts"; OR
(iii) The contractual purchase(s) from any one (1) vendor of
fifty-five (55) programs, or involving seventy-five thousand dollars ($75,000)
or more in price in which any one of the following conditions applies:
(1) An exclusive hardware or territorial right is granted, OR
(2) The vendor is not classified as a wholesale distributor, that is
(a) the vendor's primary intention is not to sell the Program to retail outlets
or other distributors on a piece-meal basis; or (b) the vendor does not
primarily package software products with the necessary hardware and sell the
package as a "total (system) solution".
5.(c) The minimum royalty for all non-Large Contractual Sales shall be four
hundred and twenty five dollars ($425) for each MEDICAL MANAGER Program, and an
additional minimum royalty of fifty dollars ($50) for each OFFICE MANAGEMENT
MODULE and fifty dollars ($50) for each multi-user option.
2
<PAGE> 25
SALES BY LICENSOR
6. In addition to the provisions made in section 9 of the addendum of November
19, 1982, Licensor shall have the right to sell to dealers in the State of
Florida, without limitation, except for the following restrictions:
(i) Licensor must limit sales to any five (5) dealers in Florida
during a "Royalty Period" in which the total royalties paid to the Licensor by
the Licensee exceeds twenty thousand dollars ($20,000). A "Royalty Period" is
defined as two consecutive calendar months which begin with the months of
January, March, May, July, September, or November.
(ii) Licensor is required to inform licensee at the end of each
Royalty Period of which dealer(s) were sent programs and to whom they were
serialized.
(iii) In the event the royalty in subparagraph (i) above is attained,
then all sales after the sales to the five dealers mentioned above by the
licensor shall be treated as if they were made by Licensee under the terms
herein.
SOURCE CODE
7. For purposes of this Agreement, the Source Code shall not be considered
part of the Program. If the sale of the Source Code becomes necessary in order
to meet the requirements of the particular purchaser, then the sale and support
of the Source Code is exclusively the responsibility of the licensor, but is
subject to the approval of the licensee.
Systems Plus, Inc.
By: /s/ RICHARD W. MEHRLICH Date 7/3/84
-------------------------------- ------------------
Richard W. Mehrlich, President
Personalized Programming, Inc.
By: /s/ MICKEY SINGER Date 6/13/84
--------------------------------- ------------------
Mickey Singer, President
3
<PAGE> 26
THIRD ADDENDUM TO MASTER LICENSE AGREEMENT
THIS ADDENDUM dated this 1st day of April, 1985 ("EFFECTIVE DATE"),
supplements and amends the MASTER LICENSE AGREEMENT between PERSONALIZED
PROGRAMMING, INC., a Florida Corporation (hereinafter referred to as
"LICENSOR"), and SYSTEMS PLUS, INC. a California Corporation (hereinafter
referred to as "LICENSEE"), dated November 15, 1982, and amended in writing on
November 19, 1982 ("ADDENDUM I."), and August 3, 1984 ("ADDENDUM II."),
(hereinafter collectively referred to as the "ORIGINAL AGREEMENT").
WHEREAS, LICENSOR has developed an enhanced version of THE PROGRAM (THE MEDICAL
MANAGER VERSION FIVE, hereinafter referred to as "VERSION FIVE"); and
WHEREAS, LICENSEE has an option of first refusal to enter into a contractual
agreement for the right to sell VERSION FIVE; and
WHEREAS, LICENSEE desires to exercise such right under the terms and conditions
of this ADDENDUM.
NOW THEREFORE, LICENSEE AND LICENSOR further agree as follows:
1. AMENDMENT: This ADDENDUM amends the ORIGINAL AGREEMENT, revoking
portions in whole and in part, and creating additional covenants, and, wherever
discrepancies, modifications or revocations appear, the agreements contained in
this ADDENDUM shall prevail, any language in the ORIGINAL AGREEMENT to the
contrary notwithstanding. In all other respects the terms and conditions set
forth in the original agreement shall continue in full force and effect.
2. LICENSE: Subject to the terms and conditions contained in this ADDENDUM,
LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, an exclusive,
worldwide license to use, reproduce and distribute copies of VERSION FIVE and
the Manual and other marketing materials and brochures pertinent thereto.
3. TERM: This ADDENDUM shall, in all its terms, commence as of the
EFFECTIVE DATE hereof, and unless earlier terminated by other provisions
hereof, shall continue through May 31, 1986. After May 31, 1986, unless
otherwise terminated by other provisions hereof, this ADDENDUM and the ORIGINAL
AGREEMENT (hereinafter collectively referred to as the "MASTER LICENSE
AGREEMENT") shall be automatically extended on a year-to-year basis, from each
anniversary thereof, unless written NOTICE OF DISCONTINUANCE is given by either
party at least six months before the expiration date of the then current term.
4. NOTICE OF DISCONTINUANCE: As set forth in the ORIGINAL LICENSE
AGREEMENT, LICENSOR shall provide LICENSEE with six (6) months prior written
notice of its election not to extend the term of this MASTER LICENSE
AGREEMENT. In the event that such NOTICE OF DISCONTINUANCE is given to
LICENSEE, and LICENSOR thereby also desires to terminate
<PAGE> 27
LICENSEE'S right to continue to reproduce and distribute the program in any form
as provided for in the ORIGINAL AGREEMENT, then, upon the payment to LICENSEE of
the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), all rights to the program in
any form shall immediately terminate as set forth in section 8, herein.
5. EXCEPTIONS TO EXCLUSIVITY: There shall be an exception to the
exclusive license granted to LICENSEE as follows:
(a) LICENSOR hereby reserves the right to sell and distribute
VERSION FIVE to dealers in the State of Florida as set forth in section
6, of ADDENDUM II. A dealer shall be defined as any vendor whose
primary intention is not to sell the program to retail outlets or other
distributors, but primarily packages software products with the
necessary hardware and sells the package as a total system to end-users
residing in the state of Florida.
(b) LICENSOR hereby reserves the right to sell and distribute
VERSION FIVE to Blue Cross and Blue Shield of New York, or any of its
subsidiaries, for the primary purpose of resale, to end-user packaged as
a total system. LICENSEE shall receive, for each month during the
effective term of this MASTER LICENSE AGREEMENT, twenty-five (25)
percent of the royalty base set forth in the MASTER LICENSE AGREEMENT
for such sales to Blue Cross and Blue Shield of New York. Payment is due
on the 15th of the month following either shipment of product or
receipt of prepayment.
6. TERMINATION: Either party, at its election, may treat this
MASTER LICENSE AGREEMENT as having been breached and, without prejudice to any
other of its rights, may forthwith terminate such MASTER LICENSE AGREEMENT by
written notice to the other party on occurrence of any of the following events:
(a) The other party shall file a petition in bankruptcy or
shall be adjudged a bankrupt.
(b) The other party shall file a petition in reorganization
under the provisions of Federal or State bankruptcy law.
(c) The other party shall become or be declared insolvent.
(d) A receiver of all or substantially all of the property
of the other party shall be appointed and not removed within thirty (30)
days.
(e) The other party shall make a general assignment for the
benefits of its creditors.
(f) The other party shall make any three payments by check
or bank draft which are not timely under section 4. of the ADDENDUM
II. and/or returned for insufficient funds.
2
<PAGE> 28
(g) There shall be a substantial failure by the other party to
perform one or more of its obligations hereunder which shall not have
been cured within twenty (20) days after written notice specifying the
nature of such failure.
7. BUY OUT: The LICENSOR and LICENSEE expressly agree that it would be
mutually beneficial and desirable for LICENSOR to buy-out LICENSEE, and
thereby terminate this MASTER LICENSE AGREEMENT upon the payment to LICENSEE of
an amount sufficient to compensate LICENSEE for the expected returns for the
balance of the term of the exclusive license. LICENSEE and LICENSOR therefore
expressly agree to terminate this MASTER LICENSE AGREEMENT, after thirty (30)
days prior written notice, and upon the payment to LICENSEE of a sum equal to
the number of remaining months in the exclusive license, times the sum of
THIRTY THOUSAND DOLLARS ($30,000). In the event this MASTER LICENSE AGREEMENT
is rescinded prior to February 28, 1986, and LICENSOR enters into an exclusive
license agreement with Blue Cross and Blue Shield of New York which provides
for a guaranteed royalty of SIX HUNDRED THOUSAND DOLLARS ($600,000) or more for
subsequent annual renewals of the license agreement, LICENSOR agrees to pay
LICENSEE the additional sums of FIFTY THOUSAND DOLLARS ($50,000) each upon the
receipt of the first and second annual renewals.
8. EFFECT OF TERMINATION: Upon the TERMINATION or BUY OUT of the
MASTER LICENSE AGREEMENT, any and all rights of LICENSEE to use, reproduce,
serialize and distribute copies of THE PROGRAM, in any form or version
whatsoever, including but not limited to VERSION FIVE, shall immediately
terminate, and LICENSEE shall not be permitted to so use, reproduce, serialize
or distribute such programs without the prior and express written consent of
LICENSOR. LICENSOR shall have exclusive rights and control over THE PROGRAM,
in all forms and all versions whatsoever, including but not limited to VERSION
FIVE, and shall have the right to enter into an exclusive license agreement
with any third party for VERSION FIVE, or any other version or form of THE
PROGRAM without permission and without compensation of any nature or form to
LICENSEE.
9. NON-COMPETITION: LICENSEE warrants, covenants and agrees that it
will not, either directly or indirectly, compete against or sell products
similar to THE PROGRAM, in any form or version whatsoever, including but not
limited to VERSION FIVE, during the term of the LICENSE AGREEMENT and for one
(1) year after the TERMINATION or BUY OUT hereof, pursuant to Payment for
Termination of Right to Continue (Section 4), Termination (Section 6) or Buy Out
(Section 7), in any state within which THE PROGRAM has been sold.
10. RIGHT OF FIRST REFUSAL: In the event LICENSOR develops a new
enhancement to THE PROGRAM (as defined in paragraph 3. of Addendum I.),
LICENSEE shall have the option of first refusal (as set forth in paragraph 7.
of ADDENDUM I.). LICENSOR shall send a copy of such enhanced version of THE
PROGRAM to LICENSEE, and LICENSEE shall have thirty (30) days within which to
meet the terms of a bona fide offer which LICENSOR has received, or, at the
election of LICENSEE, to pay the per hour rate of SIXTY-FIVE DOLLARS ($65.00)
per hour for the
3
<PAGE> 29
development of the enhanced version. In the event LICENSEE is unable or
unwilling to exercise such option within thirty (30) days, the LICENSOR shall
be free to sell or distribute the enhanced version of THE PROGRAM, in its
entirety, without limitation and without compensation of any kind to LICENSEE.
LICENSEE shall nevertheless retain the right to sell and distribute the program
in its then current form, under the terms and conditions of this MASTER
LICENSE AGREEMENT.
11. INDEMNIFICATION. In addition to paragraph 8 in Master License
Agreement, LICENSEE agrees to indemnify and hold harmless LICENSOR, its
officers, agents and employees, from any and all damages, liabilities, costs and
expenses, including court costs and reasonable attorney's fees, incurred by
LICENSOR arising out of any matter relating to THE PROGRAM, to the extent
attributable to LICENSEE'S misconduct or negligence in any form or version
whatsoever, including but not limited to VERSION FIVE. LICENSEE'S obligations
hereunder shall extend to litigation, threatened litigation or claim made by
any third party that such third party has paid for or has the right to receive
THE PROGRAM, in any form or version whatsoever, including but not limited to
VERSION FIVE. LICENSEE'S obligations under this paragraph shall be contingent
upon LICENSOR (a) promptly notifying LICENSEE in writing of such claim as
LICENSOR becomes aware of such claim; and (b) cooperates with LICENSEE in
defending or settling such claim. LICENSEE shall indemnify LICENSOR and
personnel of LICENSOR for any reasonable expenses actually incurred for travel,
meals, and lodging pursuant to LICENSOR'S obligation to cooperate, but shall
not be required to pay LICENSOR or any personnel of LICENSOR any fees for time
spent pursuant to such cooperation.
12. SUPPORT OF PACKAGES: To the extent that LICENSOR continues to
provide support to LICENSEE. LICENSEE covenants and agrees that it will
continue to provide technical support to the customers who have previously
purchased THE PROGRAM during reasonable business hours as needed, and to
continue to support and service such packages sold.
13. NOTICES: Any notice, request, demand, or other communication
required or permitted hereunder shall be deemed to be properly given when
deposited in the United States Mail, postage paid, or when deposited with a
public telegraph company for transmittal, charged prepaid, and addressed:
(a) In the case of LICENSOR, to Michael A. Singer, Route 3, Box
90, Alachua, Florida 32615, or to such other person or address as
LICENSOR may from time to time furnish to LICENSEE.
(B) In the case of LICENSEE, to Richard W. Mehrlich, 1120 San
Antonio Road, Palo Alto, CA 94303, or to such other person or address as
LICENSEE may from time to time furnish to LICENSOR.
14. ASSIGNMENT. This MASTER LICENSE AGREEMENT shall be binding on and
enure to the benefit of the respective successors and assigns of the parties.
However, any assignment by LICENSEE of its rights hereunder, without the prior
written consent of LICENSOR, shall immediately terminate this Agreement without
notice.
4
<PAGE> 30
15. ATTORNEY'S FEES. If any action at law or in equity shall be
brought to recover any money under this Agreement, or for or on account of any
breach of, or to enforce or interpret any of the provisions of this Agreement,
the prevailing party's costs, reasonable attorney's fees, including appellate
fees, the amount of which shall be fixed by the Court and shall be made part of
any judgment or decree rendered.
16. ENTIRE AGREEMENT: This MASTER LICENSE AGREEMENT constitutes the
entire agreement between the parties concerning the subject matter hereof, and
shall supersede all previous communications, representations, understandings,
and agreements whether oral or written between the parties or any official or
representative thereof.
17. APPLICABLE LAW: The validity, construction and performance of this
MASTER LICENSE AGREEMENT shall be governed by the laws of the State of
California, and venue for any action brought hereunder shall lie in Santa Clara
County, California.
18. For VERSION FIVE and EMC modules, LICENSOR will receive twenty five
percent (25%) of all additional revenue generated by the sale with the minimum
base addition to royalty of $50.00 each as per Section 17 of the ADDENDUM to the
original contract.
IN WITNESS WHEREOF, the parties have executed this ADDENDUM by their
duly authorized representatives as of the date and year set forth below.
Systems Plus, Inc. Personalized Programming, Inc.
By: RICHARD W. MEHRLICH By: MICHAEL A. SINGER
--------------------------------- -------------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 4/18/85 Date: 4/16/85
------------------------------- -----------------------------
<PAGE> 31
VERSION FOUR TO FIVE CONVERSION AGREEMENT
This is to serve as a legal contract between Personalized Programming, Inc. and
Systems Plus, Inc. regarding their financial relationship in the distribution
of conversion packages for the upgrade from Version 4.08 (4.A8) to Version 5.0
of THE MEDICAL MANAGER.
1. It is understood by both parties that in order for any users to
upgrade to Version 5.0 a new serialization number must be issued by Systems
Plus, Inc. to the end-user or the end-user's dealer. All such
re-serializations are to be reported to Personalized Programming, Inc. along
with an updated list of dealer and end-user names and addresses. This
converted systems re-serialization report is to be included along with the
normal royalty reports for each month.
2. Both parties have agreed that a price of $400 will be charged for
the conversion package. Systems Plus will pay royalties of fifty percent (50%)
of all revenues received through the sale of such conversion packages. The
payment of this royalty amount is to be included with, and is under the same
terms as, the monthly royalty payments covered by the master license agreement
and its addendums.
We agree to the above terms of this contract.
/s/ MICHAEL A. SINGER /s/ RICH MEHRLICH
- ------------------------------ -----------------------------
Michael A. Singer, President Rich Mehrlich, President
Personalized Programming, Inc. Systems Plus, Inc.
5/21/85 5/24/85
- ----------------- -----------------
Date Date
Note: Special Data prior to April 1985 will be at a 25% (twenty five) royalty.
<PAGE> 32
VERSION FOUR TO FIVE CONVERSION AGREEMENT
This is to serve as a legal contract between Personalized Programming, Inc. and
Systems Plus, Inc. regarding their financial relationship in the distribution
of conversion packages for the upgrade from Version 4.08 (4.A8) to Version 5.0
of THE MEDICAL MANAGER.
1. It is understood by both parties that in order for any users to
upgrade to Version 5.0 a new serialization number must be issued by Systems
Plus, Inc. to the end-user or the end-user's dealer. All such
re-serializations are to be reported to Personalized Programming, Inc. along
with an updated list of dealer and end-user names and addresses. This
converted systems re-serialization report is to be included along with the
normal royalty reports for each month.
2. Both parties have agreed that a price of $400 will be charged for
the conversion package. Systems Plus will pay royalties of fifty percent (50%)
of all revenues received through the sale of such conversion packages. The
payment of this royalty amount is to be included with, and is under the same
terms as, the monthly royalty payments covered by the master license agreement
and its addendums.
We agree to the above terms of this contract.
/s/ MICHAEL A. SINGER /s/ RICH MEHRLICH
- ---------------------------- ---------------------------------
Michael A. Singer, President Rich Mehrlich, President
Personalized Programming, Inc. Systems Plus, Inc.
5/21/85 5/24/85
- ----------------- ----------------
Date Date
Note: Special Data prior to April 1985 will be at a 25% (twenty five) royalty.
<PAGE> 33
FOURTH ADDENDUM TO MASTER LICENSE AGREEMENT
THIS ADDENDUM dated this 1st day of October, 1985 ("EFFECTIVE DATE"),
supplements and amends the MASTER LICENSE AGREEMENT between PERSONALIZED
PROGRAMMING, INC., a Florida Corporation (hereinafter referred to as
"LICENSOR"), and SYSTEMS PLUS, INC., a California Corporation (hereinafter
referred to as "LICENSEE"), dated November 15, 1982, and amended in writing on
November 19, 1982 ("ADDENDUM I."), August 3, 1984 ("ADDENDUM II."), and April 1,
1985 ("ADDENDUM III."), (hereinafter collectively referred to as the "ORIGINAL
AGREEMENT").
WHEREAS, LICENSOR has developed Electronic Media Claims (EMC), and is
developing Novell Network and IBM-Xenix and PC-Net versions; and
WHEREAS, LICENSEE desires to distribute these new versions; and
WHEREAS, LICENSOR and LICENSEE both wish to change the method of contract
renewal and option to buy-out.
NOW THEREFORE, LICENSEE AND LICENSOR further agree as follows:
1. AMENDMENT: This ADDENDUM amends the ORIGINAL AGREEMENT, revoking
portions in whole and in part, and creating additional covenants, and, wherever
discrepancies, modifications or revocations appear, the agreements contained in
this ADDENDUM shall prevail, any language in the ORIGINAL AGREEMENT to the
contrary notwithstanding. In all other respects the terms and conditions set
forth in the original agreement shall continue in full force and effect.
2. LICENSEE: Subject to the terms and conditions contained in this
ADDENDUM, LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, an
exclusive, worldwide license to use, reproduce and distribute copies of
Electronic Media Claim (EMC) Modules, and both Novell Network and IBM-Xenix and
PC-Net versions when they are completed, and the Manuals and other marketing
materials and brochures pertinent thereto.
3. TERM: This ADDENDUM shall, in all its terms, commence as of the
EFFECTIVE DATE hereof, and unless earlier terminated by other provisions hereof,
shall continue through May 31, 1986. After May 31, 1986, unless otherwise
terminated by other provisions hereof, this ADDENDUM and the ORIGINAL AGREEMENT
(hereinafter collectively referred to as the "MASTER LICENSE AGREEMENT") shall
be automatically extended on a year-to-year basis, from each anniversary
thereof, unless written NOTICE OF DISCONTINUANCE is given by either party at
least three months before the expiration date of the then current term.
4. ROYALTY PAYMENTS: LICENSOR shall receive, for each month during the
effective term of this agreement, thirty three and one third (33-1/3) percent of
the royalty base specified in Exhibit "C" of the MASTER LICENSE AGREEMENT for
dealers and distributors. In addition, LICENSOR shall receive ninety (90)
percent of the wholesale price (currently $250) for the first seven hundred and
fifty (750) EMC
1
<PAGE> 34
Modules sold to dealers and distributors. LICENSOR shall receive for the seven
hundred and fifty first (751) EMC Module, and all thereafter, fifty (50) percent
of the then current wholesale price. LICENSOR shall continue to receive fifty
(50) percent of all Version Four to Five Conversions as well as fifty (50)
percent of all large contractual sales.
5. NOTICE OF DISCONTINUANCE: The first sentence of SECTION FOUR of
ADDENDUM III of the MASTER LICENSE AGREEMENT is modified to read: "LICENSOR
shall provide LICENSEE with three (3) months prior written notice of its
election not to extend the term of this MASTER LICENSE AGREEMENT."
6. BUY-OUT: SECTION SEVEN of ADDENDUM III of the MASTER LICENSE
AGREEMENT is hereby stricken and shall be of no further force and effect.
7. EXCEPTIONS TO EXCLUSIVITY: In addition to the Exceptions of
Exclusivity in SECTION FIVE of ADDENDUM III of the MASTER LICENSE AGREEMENT,
there shall be an ADDITIONAL EXCEPTION to the exclusive licence granted to
LICENSOR as follows:
LICENSEE hereby grants to LICENSOR, and LICENSOR hereby accepts, the
right to enter into an unrestricted licensing agreement and to sell and
distribute all current and future versions of THE PROGRAM to Orbis,
Inc., a Rhode Island Corporation, or any of its subsidiaries or assigns,
under a private label. The only restriction is that Orbis, Inc., or any
of its subsidiaries or assigns, may not use or make any reference to the
registered trademark of "THE MEDICAL MANAGER" or "Systems Plus, Inc."
without written approval from Systems Plus, Inc.
IN WITNESS WHEREOF, the parties have executed this ADDENDUM by their
duly authorized representatives as of the date and year set forth below.
Systems Plus, Inc. Personalized Programming, Inc.
By: /s/ RICHARD W. MEHRLICH By: /s/ MICHAEL A. SINGER
--------------------------------- -------------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 10/3/85 Date: 10/01/85
------------------------------- -----------------------------
2
<PAGE> 35
FIFTH ADDENDUM TO MASTER LICENSE AGREEMENT
THIS ADDENDUM dated this 26th day of September, 1986 ("EFFECTIVE
DATE"), supplements and amends the MASTER LICENSE AGREEMENT between
PERSONALIZED PROGRAMMING, INC., a Florida Corporation (hereinafter referred to
as "LICENSOR"), and SYSTEMS PLUS, INC., a California Corporation (hereinafter
referred to as "LICENSEE"), dated November 15, 1982, and amended in writing on
November 19, 1982 ("ADDENDUM I."), August 3, 1984 ("ADDENDUM II."), April 1,
1985 ("ADDENDUM III."), and October 1, 1985 ("ADDENDUM IV."), (hereinafter
collectively referred to as the "ORIGINAL AGREEMENT").
WHEREAS, LICENSOR has developed Version 6.0 under the C-programming language
which is portable to Xenix, Unix and other operating systems; and
WHEREAS, LICENSEE desires to distribute these new versions on all hardware and
operating systems to which it is ported; and
NOW THEREFORE, LICENSEE AND LICENSOR further agree as follows:
1. AMENDMENT: This ADDENDUM amends the ORIGINAL AGREEMENT, revoking
portions in whole or in part, and creating additional covenants, and, wherever
discrepancies, modifications or revocations appear, the agreements contained in
this ADDENDUM shall prevail, any language in the ORIGINAL AGREEMENT to the
contrary notwithstanding. In all other respects the terms and conditions set
forth in the ORIGINAL AGREEMENT shall continue in full force and effect.
2. LICENSE: Subject to the terms and conditions contained in this
ADDENDUM, LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, an
exclusive, worldwide license to use, reproduce and distribute copies of the
C-language version of the product on any operating system to which it is
ported, and the Manuals and other marketing materials and brochures pertinent
thereto.
3. TERM: This ADDENDUM shall, in all its terms, commence as of the
EFFECTIVE DATE hereof, and unless earlier terminated by other provisions
hereof, shall continue under the same terms as the ORIGINAL
AGREEMENT, whose term is being extended in section 7, herein.
4. DEVELOPMENT COSTS: The direct costs of porting to hardware and/or
Operating Systems which are not compatible with MS-DOS (PC-DOS), Concurrent
CP/M, Novell Netware, IBM-compatible Xenix (for the 80286) or ALTOS Xenix
(for the 80286), will be shared 50% by the LICENSOR and 50% by the LICENSEE.
Direct costs are expenditures which are made by the LICENSOR for hardware
and software for porting and continued upgrading. All such costs by LICENSOR
are to be submitted to LICENSEE with a copy of original invoices and 50% of
such costs are to be remitted to LICENSOR, net 30. If the LICENSEE does not
wish to share the direct costs of any particular port, the LICENSOR assumes
exclusive rights for that hardware and Operating System.
<PAGE> 36
5. ROYALTY PAYMENTS: LICENSOR shall receive, for each month during the
effective term of this agreement, the same royalty percentages specified in the
ORIGINAL AGREEMENT. In addition, an initial $25,000.00 payment shall be made
upon execution of this addendum, and $15,000.00 shall be added to each months
royalty payment for ten consecutive months, beginning in the first month when
master diskettes are delivered to LICENSEE for a sellable version on a
Unix/Xenix machine.
6. EXCEPTIONS TO EXCLUSIVITY: All Exceptions of Exclusivity for previous
versions as described in SECTION FIVE of ADDENDUM III and SECTION SEVEN of
ADDENDUM IV of the ORIGINAL AGREEMENT, shall continue for Version 6.0 and all
future versions.
7. EXTENSION OF TERM: The term of the ORIGINAL AGREEMENT and the
addendum, herein, shall be extended one year, from May 31, 1987 to May 31,
1988. All other conditions regarding term and cancellation shall remain intact.
IN WITNESS WHEREOF, the parties have executed this ADDENDUM by their
duly authorized representatives as of the date and year set forth below.
Systems Plus, Inc. Personalized Programming, Inc.
By: /s/ RICHARD W. MEHRLICH By: /s/ MICHAEL A. SINGER
------------------------------- ------------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 10/2/86 Date: 10/2/86
------------------- --------------------
<PAGE> 37
CONCURRENT PC DOS XM DISTRIBUTION AGREEMENT
This is to serve as a legal contract between PERSONALIZED PROGRAMMING,
INC., of Alachua, Florida (hereinafter referred to as "DEVELOPER"), and
SYSTEMS PLUS, INC., of Mountainview, California (hereinafter referred to as
"DISTRIBUTOR"), for the distribution of Concurrent PC DOS XM and associated
multi-port hardware (hereinafter referred to as "PRODUCTS").
1. The DEVELOPER will provide the DISTRIBUTOR customized versions of
Concurrent PC DOS XM in the following configurations:
A. Standard three-user system.
B. Seven-user system to support four-port expansion board.
C. Eleven-user system to support eight-port expansion board.
D. Other configurations which market demand may from time to time
deem profitable, including upgrades between versions and
configurations.
The DISTRIBUTOR will purchase Concurrent PC DOS XM exclusively from the
DEVELOPER in minimum quantities of twenty (20) licenses per order. They will
be billed at the DEVELOPER's direct cost of purchase per license plus direct
manufacturing cost and shipping, where applicable. All such invoices are to be
paid to the DEVELOPER, net 15.
2. The DEVELOPER will provide the DISTRIBUTOR the necessary four-port
expansion boards and when it becomes available the eight-port expansion boards
and any other port configurations which the market deems profitable.
The DISTRIBUTOR will purchase all multi-port expansion boards to be used with
Concurrent PC DOS XM exclusively from the DEVELOPER in minimum quantities of
twenty (20) units per order. They will be billed at the DEVELOPER's direct cost
plus direct shipping costs where applicable. All such invoices are to be paid
to the DEVELOPER, net 15.
3. The DISTRIBUTOR will sell products at a mutually agreed upon
wholesale price which is at this time:
A. Three-user version w/manual $450.00
B. Seven-user version w/manual and w/four-port board $900.00
All agreements concerning standard wholesale pricing and upgrade costs of these
products shall be stated in a signed letter by both parties.
4. The DEVELOPER shall receive payments on a monthly basis equal to
fifty percent (50%) of the profit which is earned on these products. Profit is
defined as gross sales minus cost charged by DEVELOPER for the unit sold minus
the direct cost of the Concurrent manual where applicable. For example:
Sales price of seven-port system $900.00
Cost of CCP/M-XM -$115.00
Cost of four-port board (inc. shipping) -$220.00
Cost of CCP/M manual -$ 45.00
-------------------------------------------------------
Gross Profit $520.00
Monthly payment to the DEVELOPER (50%) $260.00
<PAGE> 38
The DEVELOPER shall receive all such profit-sharing payments on the same monthly
payment schedule as is currently in effect between DEVELOPER and DISTRIBUTOR.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT by their duly
authorized representatives as of the date and year set forth below.
Systems Plus, Inc. Personalized Programming, Inc.
By: /s/ RICHARD W. MEHRLICH By: /s/ MICHAEL A. SINGER
------------------------------ -----------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 10/15/86 Date: 10/8/86
------------------ -------------------
<PAGE> 39
PERSONALIZED PROGRAMMING
Rt. 3, Box 90 - Alachua, FL 32615
(904) 462-2148
ADDENDUM to MASTER LICENSE AGREEMENT
This is to serve as an addendum to the MASTER LICENSE AGREEMENT and all
earlier Addendums between Systems Plus, Inc., Distributor, and Personalized
Programming, Inc., Developer.
Developer will provide Distributor with Version 5.2 of THE MEDICAL
MANAGER Systems Analyst Toolbox for PC-DOS single-user, Concurrent CP/M, Novell
Network, and associated documentation.
The terms of distribution, royalties, and expiration of contract are to
remain as stated in the existing agreements governing relations between
Distributor and Developer as stated in the MASTER LICENSE AGREEMENT and all
Addendums. All sales of the Systems Analyst Toolbox are to be for $500.00 per
purchaser plus $100.00 for each additional operating system. The only exception
to these prices is that the dealers who had purchased THE MEDICAL MANAGER prior
to March, 1986 can purchase the Systems Analyst Toolbox per one operating system
for $350.00.
All sales of the Systems Analyst Toolbox, as priced above, are to yield
royalties of 50% to the Developer.
Manner of Delivery. This will confirm our verbal agreement stating that
as of January 1, 1985 all deliverable items shall be transmitted by Licensor or
Licensor's agent to Licensee electronically via telephone at Licensor's expense
or such other means as Licensee shall designate at Licensee's expense. LICENSOR
SHALL NOT DELIVER ANY OF THE DELIVERABLE ITEMS IN ANY TANGIBLE MEDIUM UNLESS
SPECIFICALLY AGREED BY LICENSEE. Upon either party's reasonable request,
Licensor and Licensee shall execute such certificates or other documents as
Licensee may request attesting that such items were transmitted electronically
as specified herein. Licensor shall give Licensee written notice of each
delivery identifying the deliverable item, and no delivery shall be considered
complete until Licensee has received the notice.
/s/ MICHAEL A. SINGER 7/23/86
- --------------------------------- -------------------------------
Michael A. Singer, President Date
Personalized Programming, Inc.
/s/ RICK MEHRLICH 7/24/86
- --------------------------------- -------------------------------
Rick Mehrlich, President Date
Systems Plus, Inc.
<PAGE> 40
PERSONALIZED PROGRAMMING
Rt. 3, Box 90 - Alachua, FL 32615
(904) 462-2148
ADDENDUM to MASTER LICENSE AGREEMENT
This is to serve as an addendum to the MASTER LICENSE AGREEMENT and all
earlier Addendums between Systems Plus, Inc., Distributor, and Personalized
Programming, Inc., Developer.
For the fee of $5,000, payable upon acceptance of contract, Developer
will provide Distributor with Version 5.2 of THE MEDICAL MANAGER and DDS MEDICAL
MANAGER with versions for PC-DOS single-user, Concurrent CP/M, Novell Network,
and associated documentation.
The terms of distribution, royalties, and expiration of contract are to
remain as stated in the existing agreements governing relations between
Distributor and Developer as stated in the MASTER LICENSE AGREEMENT and all
Addendums. All update and Conversion fees to Version 5.2 are to yield royalties
of 50% to the Developer.
/s/ MICHAEL A. SINGER 3/18/86
- --------------------------------- -------------------------------
Michael A. Singer, President Date
Personalized Programming, Inc.
/s/ RICK MEHRLICH 3/19/86
- --------------------------------- -------------------------------
Rick Mehrlich, President Date
Systems Plus, Inc.
<PAGE> 41
PERSONALIZED PROGRAMMING
Rt. 3, Box 90 Alachua, FL 32615
(904) 462-2148
PC DOS ROYALTY AGREEMENT
This is to serve as a legal contract between Personalized Programming,
Inc. of Alachua, Florida and Systems Plus, Inc. of Mountain View, California
concerning royalty payments for custom modifications and continuing update and
support of the Concurrent Operating System (PC DOS). Personalized Programming
is to receive one third (1/3) of all profits made on all PC DOS product shipped
by Systems Plus, Inc. after December 31, 1985.
Profits are defined as gross revenue on each sale less actual cost paid
to Digital Research, Inc. for product serialization and documentation (if
included), less a reasonable cost for manufacturing the five diskettes. For
example, the current intended sales price and product costs would compute
profits as follows:
Gross Revenue - DRI License - DRI Manual - Manf Cost = Profit Figure
$450.00 - $88.00 - $65.00 - $22.00 = $275.00
Profit Figure X Royalty
$275.00 X 1/3 = $91.66
This contract and the details covering royalty payment are to be covered
under the same terms of the master license agreement and all its addendums,
which currently defines the relationship between the two parties.
/s/ MICHAEL A. SINGER 1/02/86
- --------------------------------- -------------------------------
Michael A. Singer, President Date
Personalized Programming, Inc.
/s/ RICK MEHRLICH 1/3/86
- --------------------------------- -------------------------------
Rick Mehrlich, President Date
Systems Plus, Inc.
<PAGE> 42
PERSONALIZED PROGRAMMING
Microcomputer Software
Rt. 3, Box 90 - Alachua, FL 32615
(904) 462-2148
The following is to serve as an addendum to the legal contract between
Systems Plus, Inc. and Personalized Programming, Inc. signed on 19 November 1982
detailing the distribution arrangement of THE MEDICAL MANAGER Software System.
The following optional module is to be added to THE MEDICAL MANAGER
System.
OFFICE MANAGEMENT
includes:
Appointments Scheduler
Recall Management
Clinical History Management
Procedure & Diagnosis Analysis
Financial History
Hospital Rounds
Encounter Forms
For legal purposes, Office Management module is to be considered part of
the original package, and termination dates, percentages and rights, etc. which
apply to the original package under the original contract and its addendum are
to apply to Office Management.
In particular, Systems Plus, Inc. maintains exclusive distribution
rights over Office Management for the length of time that they would hold such
rights over the original system. For all Office Management modules sold,
Personalized Programming, Inc. will receive 25% of all additional revenue
generated by the sale of Office Management, with the minimum base royalty of
$50.00 as per section 17 of the ADDENDUM to the original contract.
/s/ RICK MEHRLICH
- -----------------------------------------
Systems Plus, Inc., President
/s/ MICHAEL A. SINGER
- -----------------------------------------
Personalized Programming, Inc., President
<PAGE> 43
SIXTH ADDENDUM TO MASTER LICENSE AGREEMENT
THIS ADDENDUM dated this 1st day of August, 1987 ("EFFECTIVE DATE"),
supplements and amends the MASTER LICENSE AGREEMENT between PERSONALIZED
PROGRAMMING, INC., a Florida Corporation ("LICENSOR"), and SYSTEMS PLUS, INC.,
a California Corporation ("LICENSEE"), dated November 15, 1982, and amended in
writing on November 19, 1982 ("ADDENDUM I."), August 3, 1984 ("ADDENDUM II."),
April 1, 1985 ("ADDENDUM III."), October 1, 1985 ("ADDENDUM IV."), and
September 16, 1986 ("ADDENDUM V."). The MASTER LICENSE AGREEMENT and ADDENDUM
I through V are hereinafter collectively referred to as the "ORIGINAL
AGREEMENT."
WHEREAS, LICENSOR has developed an enhancement to the Program which is
sold as the following three (3) separate products (collectively referred to as
the "Report Generator"):
a. The "Full Report Generator" which is an optional module for the
end-user which can both create and run reports;
b. The "Dealer Run-Time Master Version" which is a special version of
the Full Report Generator, sold only to and used exclusively by approved
dealers, which can both create and run reports for the Full Report
Generator as well as for the Run-Time Only Version; and
c. The "Run-Time Only Version" which is an optional module for the
end-user which can only run reports created by the Dealer Run-Time
Master Version; and
WHEREAS, LICENSOR has stabilized support of the EMC Option; and
WHEREAS, LICENSOR has performed the duties required of LICENSEE in the
ORIGINAL AGREEMENT in that LICENSOR has negotiated and serviced various Large
Contractual Sales without the assistance of LICENSEE; and
WHEREAS, LICENSEE desires to acquire the right to distribute the Report
Generator, to more fully utilize the EMC support, and to allow LICENSOR to
consummate and service Large Contractual Sales under the terms and conditions
of this ADDENDUM.
NOW THEREFORE, in consideration of the promises and premises contained
herein, LICENSEE and LICENSOR agree as follows:
1. AMENDMENT. This ADDENDUM amends the ORIGINAL AGREEMENT, revoking
portions in whole and in part, and creating additional
1
<PAGE> 44
covenants, and, wherever discrepancies, modifications or revocations appear,
the agreements contained in this ADDENDUM shall prevail, any language in the
ORIGINAL AGREEMENT to the contrary notwithstanding. In all other respects the
terms and conditions set forth in the ORIGINAL AGREEMENT shall continue in full
force and effect.
2. LICENSE. Subject to the terms and conditions contained in the
ORIGINAL AGREEMENT and this ADDENDUM, LICENSOR hereby grants to LICENSEE, and
LICENSEE hereby accepts, an exclusive, worldwide license to use, reproduce and
distribute copies of the Report Generator, including the Manuals and other
marketing materials and brochures related thereto. The LICENSEE covenants and
agrees not to sell or serialize any Run-Time Only versions of the Report
Generator unless and until the dealer purchases and executes THE MEDICAL
MANAGER REPORT GENERATOR RUN-TIME ONLY LICENSE AGREEMENT set forth in Exhibit
"A" hereto.
3. TERM. This ADDENDUM shall, in all its terms, commence as of the
EFFECTIVE DATE hereof and shall continue through the term set forth in the
ORIGINAL AGREEMENT unless otherwise terminated as provided in the ORIGINAL
AGREEMENT.
4. ROYALTY PAYMENTS. Each month during the term of this Agreement,
LICENSEE agrees to pay LICENSOR royalty payments for the Full Report Generator
equal to the percentages paid by LICENSEE for the Program under the ORIGINAL
AGREEMENT. LICENSEE agrees to pay LICENSOR fifty percent (50%) of the
wholesale price of the Run-Time Only Version (current price: $250.00), and
fifty percent (50%) of the Dealer fee for the Dealer Run-Time Master Version
(current price: $5,000.00). LICENSEE further agrees to pay LICENSOR fifty
percent (50%) of the current wholesale price for the EMC Modules, rather than
the 90% specified in Section 4 of ADDENDUM IV.
6. EXCEPTIONS TO EXCLUSIVITY. In addition to the exceptions to
exclusivity set forth in the ORIGINAL AGREEMENT, including those exceptions set
forth in Section 5 of ADDENDUM III and Section 7 of ADDENDUM IV, LICENSEE
hereby grants to LICENSOR the right:
a. To enter into unrestricted licensing agreements with Empire Blue
Cross and Blue Shield of New York, Blue Cross and Blue Shield of New
Jersey, National Medical Care, Inc. of Waltham, Massachusetts, and their
subsidiaries or assigns, to sell and distribute under a private label
all current and future versions and options of the PROGRAM, together
with related manuals and program documentation; provided that LICENSOR
pays LICENSEE twenty-five percent (25%) of the sale price of each
Program sold (the "LCS Royalty"), which sale price shall not include
payments for LICENSOR's services such as training, program
modifications, reimbursement for travel expenses or rights to the source
code; and
2
<PAGE> 45
b. To enter into other licensing agreements for any Large Contractual
Sales which, similar to the sales to Blue Cross and Blue Shield of New
York, Blue Cross and Blue Shield of New Jersey, National Medical Care,
Inc. of Waltham, are negotiated and supported by LICENSOR; provided that
LICENSOR pays LICENSEE the LCS Royalty set forth above.
c. Except for sales to Empire Blue Cross and Blue Shield of New York as
set forth in ADDENDUM III, LICENSOR agrees to pay ten percent (10%) of
the LCS Royalty to LICENSEE'S salespersons to be distributed to
LICENSEE'S sales staff to promote sales of the LICENSOR'S products.
IN WITNESS WHEREOF, the parties have executed this ADDENDUM by their
duly authorized representatives as of the date and year set forth below.
Systems Plus, Inc. Personalized Programming, Inc.
By: /s/ RICHARD W. MEHRLICH By: /s/ MICHAEL A. SINGER
--------------------------------- -------------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 8/24/87 Date: 8/19/87
------------------------------- -----------------------------
3
<PAGE> 46
Exhibit A
THE MEDICAL MANAGER REPORT GENERATOR
RUN-TIME ONLY LICENSE AGREEMENT
The undersigned dealer is hereby granted a license to install Run-Time
Only versions of the MEDICAL MANAGER Report Generator. The Dealer will be
provided with the ability to create reports on their specially serialized
Run-Time Master system and then to install these reports on end-user systems
which have been purchased and been serialized for the Run-Time Only Option.
The reports which the dealer creates shall remain the property of the
dealer, as long as they are not based upon reports created by Personalized
Programming, Inc. or other dealers or end-users.
The dealer covenants and agrees that dealer will not permit, allow, or
tolerate installation of any Run-Time Master on the end-user's system thus
limiting full report generation ability to the purchase of a serialized Report
Generator for that site.
It is understood by both parties that Personalized Programming, Inc.
will suffer considerable financial, copyright, and trademark damages by breach
of this agreement which are difficult to determine, and the undersigned dealer
therefore agrees to pay Personalized Programming, Inc. the amount of Fifty
Thousand Dollars ($50,000.00) per violation as liquidated damages in the event
the dealer breaches the terms and conditions of this agreement.
Dealer Name: ___________________________________________________________________
Address: _______________________________________________________________________
City, State, Zip: ______________________________________________________________
Signed on the Date of: ______________________
Personalized Programming, Inc. Dealer
BY: ____________________________________ BY: __________________________________
FBKAG04
XTGG380/4
<PAGE> 47
SEVENTH ADDENDUM TO MASTER LICENSE AGREEMENT
THIS ADDENDUM, made and entered into this 2nd day of January, 1989, supplements
and amends the Master License Agreement between Personalized Programming, Inc.,
a Florida corporation ("Licensor"), and Systems Plus, Inc. a California
corporation ("Licensee"), dated November 15, 1982, and amended November 19,
1982, August 3, 1984, April 1, 1985, October 1, 1985, September 5, 1986, and
August 1, 1987, (hereinafter collectively referred to as the "Original
Agreement").
WHEREAS, Licensor has developed a series of enhancement to the Program, known
as the UB-82 insurance billing option, (the "UB-82 Option"); and
WHEREAS, Licensee desires to acquire the right to distribute the UB-82 Option.
NOW THEREFORE, Licensee and Licensor further agree as follows:
1. Amendment: This Addendum modifies and amends the Original Agreement,
revoking portions in whole and in part, and creating additional covenants, and,
wherever discrepancies, modifications or revocations appear, the agreements
contained in this Addendum shall prevail, any language in the Original
Agreement to the contrary notwithstanding. In all other respects the terms and
conditions set forth in the Original Agreement shall continue in full force and
effect.
2. License: Licensor hereby extends the license granted in the Original
Agreement to include the UB-82 Option. Due to the complexity of the UB-82
Option, Licensee shall receive verbal approval from Licensor prior to granting
each end-user license for the UB-82 Option.
3. Royalty: For each end user license sold by Licensee, Licensor shall
receive a royalty in the amount of fifty percent (50%) of the UB-82 Option
license fee charged by Licensee.
4. Exception to Exclusivity: Licensee's exclusive, worldwide license to
use reproduce and distribute copies of the Program, the Manual and marketing
materials, as amended, is hereby modified so to the extent that said license
shall no longer be worldwide, but shall extend only to the United States of
America, subject to the other limitations set forth in the various amendments
to the Original Agreement.
IN WITNESS WHEREOF, the parties have executed this Addendum by their duly
authorized representatives as of the date and year set forth below.
SYSTEMS PLUS INC. PERSONALIZED PROGRAMMING, INC.
By: [SIG] By: [SIG]
--------------------------------- ---------------------------------
Richard W. Mehrlich, President Michael A. Singer, President
Date: 12/22/88 Date: 12/14/88
--------------- ---------------
<PAGE> 48
[Personalized Programming, Inc. LOGO]
Rt. 3, Box 90 - Alachua, FL 32615
(904) 462-2148
January 12, 1989
Mr. Richard W. Mehrlich,
President
Systems Plus, Inc.
500 Clyde Ave.
Mountain View, CA 94303
Re: The Medical Manager Student Edition
Dear Rick:
As you know, Richard has been working on a Student Edition of the
Operator's Guide for use by community colleges around the country. As the
enclosed letter indicates, Addison-Wesley Publishing Company has expressed
interest in acquiring the rights to publish this work as a text book.
If things develop with Addison-Wesley, Personalized Programming will
assign them the publishing rights to the book, and Systems Plus will be the
sole provider of software to colleges which use it. Also, Systems Plus dealers
will necessarily play an integral role in the success of this program and could
benefit greatly from the positive influence which the course would have on their
community.
The Master License Agreement between Personalized Programming and
Systems Plus covers "the Manual and other marketing materials and brochures
pertinent thereto." While this does not include collateral projects, we need to
make sure that you agree that the Student Edition is not part of the program
license before we get too far with our discussions with Addison-Wesley.
If you agree that the Student Edition is not covered under the Master
License Agreement, and that Personalized Programming can assign Addison-Wesley
the publishing rights to this book, please sign in the space provided and return
this letter to me. If you have any problems with this, please give Mickey or me
a call.
Warm regards,
/s/ RICK
Frederick B. Karl, Jr.
General Counsel
Acceptance
/s/ Richard W. Mehrlich
--------------------------
Richard W. Mehrlich, President
FBK: cw
Authors of The Medical Manager
<PAGE> 49
Eighth Addendum to Master License Agreement
THIS ADDENDUM, made and entered into this 14th day of December, 1992,
supplements and amends the Master License Agreement between PERSONALIZED
PROGRAMMING, INC. ("Licensor") and SYSTEMS PLUS, INC. ("Licensee") dated
November 15, 1982, and amended November 19, 1982, August 3, 1984, April 1, 1985,
October 1, 1985, September 6, 1986, August 1, 1987, and December 22, 1988,
(hereinafter collectively referred to as the "Original Agreement").
WHEREAS, Licensor has created the HHC Medical Manager,[TM] a new software
program designed to serve the home health care market; and
WHEREAS, the development costs incurred by Licensor to create the HHC Medical
Manager[TM] were born entirely by Licensor, but were offset by a Large
Contractual Sale by Licensor to National Medical Care ("NMC"); and
WHEREAS, Licensee desires to acquire the right to distribute the HHC Medical
Manager.[TM]
NOW THEREFORE, Licensor and Licensee further agree as follows:
1. AMENDMENT: This Addendum modifies and amends the Original Agreement, revoking
portions in whole and in part, and creating additional covenants, and, whenever
discrepancies, modifications or revocations appear, the agreements contained in
this Addendum shall prevail, any language in the Original Agreement to the
contrary notwithstanding. In all other respects the terms and conditions set
forth in the Original Agreement shall continue in full force and effect.
2. LICENSE: Licensor hereby extends the license granted in the Original
Agreement to include the HHC Medical Manager.[TM]
3. DEVELOPMENT COSTS: As consideration for the license extended in paragraph 2
above, and to compensate Licensor for the costs of development of the HHC
Medical Manager,[TM] the parties agree as follows, to be effective as of the end
of Licensor's last LCS Royalty reporting period:
(a) All sales by Licensor to NMC shall not be included in the LCS royalty
payment to Licensee; and
(b) Licensor shall retain that portion of all LCS royalty payments which are
necessary to offset any loss in projected royalty revenue from Licensee as
follows:
Page 1 of 2
<PAGE> 50
(i) Based upon past sales figures of THE MEDICAL MANAGER(R) and
optional modules, and the anticipated sales of the HHC Medical
Manager,(TM) the minimum projected royalty payments to Licensor
from Licensee shall be three hundred and fifty thousand dollars
($350,000.00) per month, or $2.1 million for any six (6) month
LCS reporting period (hereinafter the "Projected Royalty").
(ii) At the end of each LCS reporting period, Licensor shall
calculate the difference between the Projected Royalty and the
actual royalty revenue received during that period. If the
actual royalty is less than the Projected Royalty, Licensor
shall deduct the difference between the actual royalty and the
Projected Royalty from the LCS payment for that reporting
period. The additional 10% salespersons bonus set forth in
paragraph 6c of the Sixth Addendum shall be based upon the
adjusted LCS payment.
4. ROYALTY: For each end user license sold by or through Licensee, Licensee
agrees to pay Licensor a royalty in the amount of fifty percent (50%) of the
HHC Medical Manager(TM) wholesale license fee charged by Licensee, under the
same terms and conditions as the other royalty payments contained in the
Original Agreement. In the event the HHC Medical Manager(TM) is licensed as a
single unit with The Medical Manager,(R) and not as a separate module, then the
license fee for the HHC Medical Manager(TM) shall be calculated by substracting
the proportionate license fee for The Medical Manager,(R) including any optional
modules, from the total license fee, and multiplying the remainder by 50%. In
the event the component parts of the HHC Medical Manager,(TM) such as the
Contract Billing system or the Inventory system, are licensed as separate
modules, then the royalty for such modules shall also be fifty percent (50%).
IN WITNESS WHEREOF, the parties have executed this Addendum by their duly
authorized representatives as of the date and year set forth below.
SYSTEMS PLUS, INC. PERSONALIZED PROGRAMMING, INC.
By: [SIG] By: [SIG]
-------------------------------- ---------------------------------
Date: 1/19/93 Date: 1/21/92
------------------------------ -------------------------------
Page 2 of 2
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of Medical Manager Corporation
<TABLE>
<CAPTION>
Company Name Jurisdiction
- ------------ ------------
<S> <C>
NMS Acquisition I Corp. Delaware
SMI Acquisition I Corp. Delaware
RTI Acquisition I Corp. Delaware
SPI Acquisition I Corp. Delaware
SPDI Acquisition I Corp. Delaware
PPI Acquisition I Corp. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated August 23, 1996 on our audits of the financial statements of
Personalized Programming, Inc., dated August 28, 1996 on our audits of Systems
Plus, Inc. and Systems Plus Distribution, Inc., dated August 28, 1996 on our
audits of RTI Business Systems, Inc., dated August 30, 1996 on our audits of
Systems Management, Inc., dated September 1, 1996 on our audits of Medical
Manager Division of Medix, Inc., dated September 10, 1996 on our audits of
National Medical Systems, Inc. and dated September 10, 1996 on our audit of GBP
with Excellence, Inc. We also consent to the reference to our firm under the
caption "Experts".
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 30, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT TO BE NAMED AS A DIRECTOR
OF
MEDICAL MANAGER CORPORATION
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 to be filed by Medical Manager Corporation (the "Company")
with the Securities and Exchange Commission, as a director of the Company.
/s/ Michael A. Singer
--------------------------------
Michael A. Singer
<PAGE> 1
EXHIBIT 23.4
CONSENT TO BE NAMED AS A DIRECTOR
OF
MEDICAL MANAGER CORPORATION
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 to be filed by Medical Manager Corporation (the
"Company") with the Securities and Exchange Commission, as a director of the
Company.
/s/ Richard W. Mehrlich
-----------------------
Richard W. Mehrlich
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PRO FORMA
COMBINED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1
REGISTRATION STATEMENT FILED AS OF SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
