<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
REGISTRATION NO. 333-21611
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXIMUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
VIRGINIA 8322 54-1000588
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(703) 734-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID V. MASTRAN
CHIEF EXECUTIVE OFFICER
MAXIMUS, INC.
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(703) 734-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LYNNETTE C. FALLON, ESQ. ROBERT F. WALL, ESQ.
PALMER & DODGE LLP WINSTON & STRAWN
ONE BEACON STREET 35 WEST WACKER DRIVE
BOSTON, MASSACHUSETTS 02108-3190 CHICAGO, ILLINOIS 60601-9703
(617) 573-0100 (312) 558-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
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 SECTION 8(a), MAY
DETERMINE.
================================================================================
<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 MARCH 28, 1997
PROSPECTUS
, 1997
4,400,000 SHARES
[MAXIMUS LOGO]
COMMON STOCK
Of the 4,400,000 shares of Common Stock offered hereby, 2,700,000 are being
sold by MAXIMUS, Inc. ("MAXIMUS" or the "Company") and 1,700,000 are being sold
by the Selling Shareholders. See "Principal and Selling Shareholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $13.00 and $15.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Company is applying to list the shares of Common Stock on the New York
Stock Exchange and has received clearance to file an Original Listing
Application.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------------
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>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Per Share............. $ $ $ $
Total(3).............. $ $ $ $
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $870,000, which will be paid by the
Company.
(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 660,000 additional shares of Common Stock at the
Price to the Public, less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions, Proceeds
to the Company and Proceeds to the Selling Shareholders will be $ ,
$ , $ and $ , respectively. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Shareholders pursuant to the Underwriters' over-allotment option, if
exercised. See "Underwriting" and "Principal and Selling Shareholders."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
<PAGE> 3
'[Diagram: Organizational Chart depicting the Company's operating divisions.]
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised; (ii) has been adjusted to give effect to a 10-for-1 split of the
shares of the Company's Common Stock, no par value per share (the "Common
Stock"), in December 1995; and (iii) has been adjusted to give effect to an
11-for-1 split of the shares of the Company's Common Stock in February 1997.
THE COMPANY
MAXIMUS, Inc. ("MAXIMUS" or the "Company") is a leading provider of program
management and consulting services to government health and human services
agencies in the United States. Since 1975, the Company has been at the forefront
of innovation in "Helping Government Serve the People(TM)." The Company's
services are designed to make government operations more efficient and cost
effective while improving the quality of the services provided to program
beneficiaries. The Company applies an entrepreneurial, private sector approach
incorporating advanced technology in large scale projects in almost every state
in the nation. The Company's leading position in the emerging private sector
health and human services industry is reflected by its continued success in
being awarded competitively bid contracts by government health and human
services agencies and a corresponding growth in its annual revenues from
approximately $19 million in fiscal 1990 to over $100 million in fiscal 1996.
Federal, state and local government agencies in the United States spend
over $200 billion annually on the health and human services programs for which
the Company markets its services, including welfare, child care, child support
enforcement, food stamps, Social Security Disability Insurance, Supplemental
Security Income and Medicaid. These entitlement programs cost an estimated $21.0
billion in annual administrative costs. Public pressure to reduce costs and
increase the efficiency and effectiveness of government-provided services has
led to intense scrutiny of government spending, including the costs of
administering health and human services programs. There has been a recent surge
in initiatives and legislation to reform federal, state and local welfare and
health services systems, the most significant of which is the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (the "Welfare
Reform Act"), a comprehensive bipartisan welfare reform plan that legislated
dramatic changes in the nation's welfare system. As a result of these
initiatives, states have significantly more incentive to seek efficient and
cost-effective ways to administer their health and human services programs and
reduce welfare caseloads. The Company believes that these fundamental changes in
the nation's entitlement programs will generate significant business
opportunities for companies similar to MAXIMUS that are positioned to assist
health and human services agencies in operating their programs more
cost-effectively.
MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.
The Company believes that it possesses several business strengths that
provide a competitive advantage, including: (i) Vertical Market Focus resulting
in a thorough understanding of the regulations and operations of government
health and human services programs; (ii) Proven Track Record established by more
than 20 years of providing successful government program management and
consulting services; (iii) Wide Range of Services that meets the increasing
demands of government clients for integrated vendor offerings; (iv) Proprietary
Case Management Software Program, known as MAXSTAR, that reduces project
implementation time and cost; and (v) Experienced Team of Professionals who
thoroughly understand the marketing, assessment and delivery of services to
government health and human services agencies.
3
<PAGE> 5
The Company's goal is to become the nation's leading provider of program
management and consulting services to government health and human services
agencies. To achieve this goal, the Company intends to: (i) capitalize on the
reform of government entitlement programs; (ii) aggressively pursue new business
opportunities; (iii) recruit experienced professionals possessing the skills,
innovation and relationships necessary to provide high quality program
management and consulting services; and (iv) pursue strategic acquisitions to
provide fast, cost-effective increases in service capacity to maintain the
Company's position as a market leader. There can be no assurance that the
Company will be successful in implementing any or all of its strategies or in
achieving its goal.
MAXIMUS was incorporated in Virginia in September 1975. The Company's
principal executive offices are located at 1356 Beverly Road, McLean, Virginia
22101. The Company's World Wide Web address is http://www.maxinc.com. The
Company's Web site is not part of this Prospectus. The Company's telephone
number is (703) 734-4200.
RISK FACTORS
Investment in the shares of Common Stock offered hereby involves certain
risks that should be considered by prospective purchasers of the Common Stock.
The principal risk factors associated with an investment in the shares of the
Company's Common Stock include: (i) the Company's reliance on government
clients; (ii) risks associated with government contracts; (iii) potential
financial impacts of project costs and expenses and contract management
challenges; and (iv) potential legislative change. These and other risk factors
to be considered by prospective investors are described in greater detail
elsewhere in this Prospectus. See "Risk Factors" beginning on page 6.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,700,000 shares
Common Stock offered by the Selling
Shareholders................................... 1,700,000 shares
Common Stock to be outstanding after the
offering....................................... 13,809,945 shares(1)
Use of proceeds.................................. Payment of undistributed S corporation
earnings, general corporate purposes and
working capital, including: (i) expanding
existing operations such as opening new
offices, acquiring related businesses and
expanding the Company's international
operations; and (ii) investing in systems
infrastructure and new technologies. See
"Use of Proceeds."
</TABLE>
- ------------------------------
(1) Excludes: (i) 1,000,000 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's 1997 Equity Incentive Plan,
pursuant to which options to purchase 403,975 shares were outstanding as of
the date of this Prospectus; (ii) 100,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1997
Director Stock Option Plan, none of which had been granted as of the date of
this Prospectus; and (iii) 500,000 shares of Common Stock issuable under the
Company's 1997 Employee Stock Purchase Plan, none of which had been issued
as of the date of this Prospectus. See "Management -- 1997 Director Stock
Option Plan" and " -- Stock Plans."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)..... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 4,102 $ 8,029
Consulting Group................... 9,400 12,522 15,138 20,698 25,902 5,152 6,704
SSA Contract(2).................... -- -- 2,943 14,314 56,530 7,446 22,511
------- ------- ------- ------- -------- ------- -------
Total revenues................... 33,149 30,593 29,860 51,963 103,113 16,700 37,244
Gross profit......................... 14,554 15,205 8,144 15,892 24,684 4,673 7,710
Income from operations............... 4,897 5,027 1,165 6,814 11,580 1,931 3,671
Net income(3)........................ 5,121 4,993 1,250 6,859 11,619 1,944 3,698
Pro forma net income(4)..................................................... 7,106 2,253
Pro forma net income per share(4)........................................... $ 0.59 $ 0.19
Shares used in computing pro forma net income per share(5).................. 12,105 12,140
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
ACTUAL PRO FORMA(6) AS ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments............ $ 5,171 $ 5,171 $ 35,955
Working capital................................................. 26,355 8,152 42,436
Total assets.................................................... 43,856 43,856 74,640
Redeemable common stock......................................... 18,790 -- --
Total shareholders' equity...................................... 10,862 6,865 41,149
</TABLE>
- ------------------------------
(1) In fiscal years 1992 and 1993, the Company's Government Operations Group had
revenues of $11.4 million and $10.4 million, respectively, related to a
significant contract that expired in July 1993. No further revenues were
received under this contract after its expiration.
(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues will be received after February 28, 1997. See "Risk
Factors -- Legislative Change," "-- Variability of Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) For all periods shown, the Company elected to be treated as an S corporation
and, as a result, the income of the Company has been taxed for federal and
most state purposes directly to the Company's shareholders rather than to
the Company.
(4) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation for the periods presented. Pro
forma net income does not reflect two significant charges that the Company
will record in the quarter in which the offering is consummated: (i) a
charge for income tax expense representing the cumulative deferred tax
liability (estimated to be $5.3 million as of December 31, 1996) resulting
from the termination of the Company's S corporation status; and (ii) a
compensation charge, estimated at $5.1 million, related to the grant to
employees on January 31, 1997 of options for an aggregate of 403,975 shares
of Common Stock. The estimated compensation expense represents the
difference between the assumed initial public offering price of $14.00 per
share and the option exercise price of $1.46 per share. The option exercise
price is based on the book value of the Common Stock at September 30, 1996,
and was established pursuant to pre-existing compensation arrangements with
certain of the Company's key employees. See "Management -- Executive
Compensation," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Financial Statements.
(5) Assumes 12,105,000 and 12,140,000 shares were issued and outstanding during
the year ended September 30, 1996 and the three months ended December 31,
1996, respectively. Such amounts consist of 11,418,000 and 11,453,000
weighted average shares outstanding for the respective periods, the shares
issuable upon the exercise of options granted in January 1997, and the
shares necessary to replace equity to be distributed as a result of the S
Corporation Dividend. See "S Corporation Dividend," "Management -- Executive
Compensation" and Note 3 of Notes to Financial Statements.
(6) Reflects the S Corporation Dividend to be paid to the shareholders, a
reclassification of redeemable common stock to reflect elimination of the
Company's obligation to purchase its Common Stock from shareholders and the
net deferred tax liability that would have been recorded by the Company if
its S corporation status was terminated at that date. See "S Corporation
Dividend," "Capitalization" and Note 3 of Notes to Financial Statements.
(7) Adjusted to give effect to the sale by the Company of 2,700,000 shares of
Common Stock offered by the Company (at an assumed initial public offering
price of $14.00 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses) and the application of the net
proceeds therefrom to fund the estimated $3.5 million of net offering
proceeds that will be used to pay the portion of the S Corporation Dividend
not funded by available cash. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should consider carefully the following factors in connection with an
investment in the shares of Common Stock offered hereby.
RELIANCE ON GOVERNMENT CLIENTS
Substantially all of the Company's clients are federal, state or local
government authorities. Effective marketing of the Company's services to
government clients requires the ability to respond to government requests for
proposals ("RFPs"). To succeed in the RFP process, the Company must estimate its
cost structure for servicing the proposed contract, the time required to
establish operations and the likely terms of the proposals submitted by
competitors. The Company must assemble and submit a large volume of information
on a rigid timetable set forth in the RFP. The Company's ability to successfully
respond to the RFP process in the future will have an important impact on the
Company's business, financial condition and results of operations. No assurance
can be given that the Company will be awarded contracts through the RFP process.
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING
Contracts awarded to the Company typically contain provisions that permit
the government client to terminate the contract on short notice, with or without
cause. The expiration of large contracts presents additional management
challenges. Many contracts contain base periods of one or more years as well as
one or more option periods that may cover more than half of the potential
contract duration. Government agencies generally have the right not to exercise
option periods and the failure to exercise such option periods could impact the
profitability of certain of the Company's contracts. While the Company has
experienced a limited number of early terminations since inception, the
unexpected termination of one or more of the Company's more significant
contracts could result in severe revenue shortfalls which, without corresponding
reductions in expenses, could adversely affect the business, financial condition
and results of operations of the Company. There can be no assurance that such
government authorities will not terminate any or all of the Company's contracts
to administer and manage health and human services programs.
In order to establish and maintain relationships with members of government
agencies, the Company occasionally engages marketing consultants, including
lobbyists. In the event of a significant political change, such consultants may
lose their ability to effectively assist the Company. In addition, the
implementation of term limits on certain elected officials will require the
Company to confront political change on a regular basis. If the Company fails to
manage its relationships effectively with political consultants, its business,
financial condition and results of operations could materially and adversely be
affected. No assurance can be given that the Company will be successful in
managing such relationships.
To avoid experiencing higher than anticipated demands for federal funds,
federal government officials on occasion advise state and local authorities not
to engage private consultants to advise on maximizing federal revenues. There
can be no assurance that state and local officials will not be influenced by
federal government officials and, therefore, not engage the Company for such
services. To the extent that state and local officials determine not to seek the
Company's services, the business, financial condition and results of operations
of the Company could be adversely affected.
Government contracts generally are subject to audits and investigations by
government agencies, including audits by the Defense Contract Audit Agency
("DCAA"). These audits and investigations involve a review of the government
contractor's performance of its contracts as well as its pricing practices, cost
structure and compliance with applicable laws, regulations and standards. A
substantial portion of payments to the Company from U.S. Government agencies is
subject to adjustment upon audit by the DCAA. Audits through 1993 have been
completed with no material adjustments and the Company believes that adjustments
resulting from audits of subsequent years will not have a material adverse
effect on the Company's business, financial condition and results of operations.
If any costs are improperly allocated to a contract, such costs are not
reimbursable and, if already reimbursed, will be required to be refunded to the
government. Furthermore, if improper or illegal activities are discovered in the
course of any audits or investigations, the contractor may
6
<PAGE> 8
be subject to various civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeitures of profits, suspension of
payments, fines and suspension or disqualification from doing business with the
government. If the Company becomes subject to penalties or sanctions, such
penalties or sanctions could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS
Upon the receipt of a contract for the management of a health and human
services program, the Company's Government Operations Group may incur
significant start-up expenses prior to the receipt of any payments under such
contract. Such expenses include the costs of leasing office space, purchasing
necessary office equipment and hiring sufficient personnel. As a result, for
large contracts, the Company may be required to make significant investments
prior to the receipt of related contract payments.
Approximately 23% (51% after excluding a significant contract with the
Social Security Administration) of the Company's total revenues for the year
ended September 30, 1996 resulted from fixed-price contracts pursuant to which
the Company received its fee for meeting specified objectives or upon the
achievement of specified units of work, such as the placement of welfare
recipients into jobs, the collection of child support payments or the completion
of managed care enrollment transfers. The Company's ability to earn a profit on
these contracts is dependent upon accurate estimates of the costs involved as
well as the probability of meeting the specified objectives or realizing the
expected units of work within a certain period of time. In addition, the Company
recognizes revenues on fixed price contracts based on costs incurred. The
Company periodically reviews such contracts and adjusts revenues to reflect
current expectations. Such adjustments will affect the timing and amount of
revenue recognized and could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's failure
to accurately estimate the factors on which contract pricing is based could
result in the Company reporting a decrease in revenues or incurring losses on
such contracts and could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's inability or failure to satisfy its contractual obligations
in a manner consistent with the terms of any contract could have a material
adverse effect on the Company's financial condition because the Company is often
required to indemnify clients for its failure to meet performance standards.
Certain of the Company's contracts have liquidated damages provisions and
financial penalties related to performance failures. In addition, in order for
the Company's Government Operations Group to bid for certain contracts, the
Company has been and will continue to be required to secure its indemnification
obligations by obtaining a performance bond from an insurer, posting a cash
performance bond or obtaining a letter of credit from a suitable financial
institution. In the event that a government entity makes a claim against such
performance bond or letter of credit, the premiums demanded by the insurers for
such bonds could increase, thereby limiting the Company's ability to bid for
contracts in the future. In addition, the Company's failure to meet a client's
expectations in the performance of its contractual obligations could have a
material adverse effect on the Company's reputation, thereby adversely affecting
its business, financial condition and results of operations.
When contracts between the Company's Government Operations Group and a
state or local government expire or otherwise terminate, unless the Company can
successfully enter into a new contract using the services of employees formerly
engaged in servicing the terminated contract or otherwise re-assign such
employees, the Company will need to terminate the employment of such employees.
The termination of large Government Operations Group contracts and the
subsequent re-assignment or termination of employees places significant demands
on the Company's management and its administrative resources. If the Company is
unable to manage these challenges, the Company's business could materially and
adversely be affected.
LEGISLATIVE CHANGE
The market for the Company's services is largely dependent on federal and
state legislative programs, any of which may be modified or terminated by acts
of the legislative or executive branches of federal and state government. There
can be no assurance that such legislative change will not occur or that the
Company will be able to anticipate and respond in a timely manner to any such
legislative change. The Company's failure to
7
<PAGE> 9
manage effectively its business in light of anticipated or unanticipated
legislative change could have a material adverse effect on the Company's
business, operating results and financial condition.
The Welfare Reform Act is expected to be a catalyst for sweeping changes in
the administration and management of the welfare system in the United States. As
part of its growth strategy, the Company plans to aggressively pursue the
opportunities created by this legislation by seeking new contracts to administer
and manage health and human services programs of state and local government
agencies. However, opponents of welfare reform continue to criticize the
advances made by the current administration and continued progress in the
welfare reform area is uncertain. The repeal of the Welfare Reform Act, in whole
or in part, could have a material adverse effect on the future business,
financial condition and results of operations of the Company. There can be no
assurance that additional reforms will be proposed or enacted, or that
previously enacted reforms will not be challenged, repealed or otherwise
invalidated.
The adverse impact that legislative changes can have on the Company was
recently evidenced by the termination of a significant contract with the federal
Social Security Administration. This contract related to the referral and
treatment monitoring of social security or supplemental income beneficiaries
with drug or alcohol-related disabilities (the "SSA Contract"). In its fiscal
year ended September 30, 1996, the Company received revenues of $56.5 million
from the SSA Contract, representing approximately 55% of the Company's total
revenues for such fiscal year. In October 1996, the President signed into law an
amendment to the Social Security Act of 1935, effective January 1, 1997, that
eliminated social security and supplemental income benefits based solely on drug
and alcohol disabilities. As a result of this amendment, the SSA Contract was
terminated and no further revenues will be received thereunder after February
28, 1997.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results occur from
quarter to quarter as a result of a number of factors, including the progress of
contracts, levels of revenues earned on contracts (including any adjustments in
expectations on revenue recognition on fixed price contracts), the commencement,
completion or termination of contracts during any particular quarter, the
schedules of government agencies for awarding contracts, the term of each
contract that the Company has been awarded and general economic conditions.
Because a significant portion of the Company's expenses are relatively fixed,
successful contract performance and variation in the volume of activity as well
as in the number of contracts commenced or completed during any quarter may
cause significant variations in operating results from quarter to quarter.
Furthermore, the Company has on occasion experienced a pattern in its results of
operations in which it incurs greater operating expenses during the start-up and
early stages of significant contracts. In addition, the Company's SSA Contract
contributed $56.5 million, $14.3 million and $2.9 million to the Company's
revenues in fiscal 1996, 1995 and 1994, respectively. The termination of the SSA
Contract will significantly reduce the Company's revenue base as compared to
previous quarters. No assurance can be given that the Company will be able to
generate additional revenues in future periods in amounts sufficient to replace
the revenues received under the SSA Contract and as a result, the Company may
experience materially lower revenues as compared to prior periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result, the Company will record a one-time income statement charge to
operations estimated at $5.3 million based on the deferred tax liabilities as of
December 31, 1996. In connection with this offering, on January 31, 1997,
certain key employees of the Company surrendered rights to purchase shares of
Common Stock of the Company in exchange for options to purchase shares of Common
Stock at an exercise price of $1.46 per share. Upon completion of this offering,
the Company will recognize a non-cash compensation charge against income equal
to the difference between the initial public offering price and the option
exercise price for all outstanding options. At an assumed initial public
offering price of $14.00 per share, the charge against income is estimated to be
$5.1 million. The option exercise price is based on the book value of the Common
Stock at September 30, 1996 and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss
8
<PAGE> 10
in the period in which this offering is completed, which is anticipated to be
the quarter ended June 30, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Management -- Executive
Compensation."
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts, abilities,
business generation and project execution capabilities of certain of its
executive officers and senior managers. While the Company has executive
employment agreements with each of David V. Mastran, President and Chief
Executive Officer of the Company, Raymond B. Ruddy, Chairman of the Board of
Directors and President of the Consulting Group, Russell A. Beliveau, President
of the Government Operations Group, Ilene R. Baylinson, President of the
Disability Services Division, Susan D. Pepin, President of the Systems Planning
and Integration Division and Lynn P. Davenport, President of the Human Services
Division, such agreements are terminable under certain conditions. Other than
these six agreements with executive officers, the Company does not have
employment agreements with any other senior employees. The loss of the services
of any of these key executives could have a material adverse effect upon the
Company's business, financial condition and results of operations, including its
ability to secure and complete engagements. The Company maintains key-man life
insurance policies on David V. Mastran and Raymond B. Ruddy in the amounts of
$10,700,000 and $7,250,000, respectively, with proceeds payable to the Company.
See "Management."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business involves the delivery of professional services and
is labor-intensive. When the Company's Government Operations Group is awarded a
contract by a government agency, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. In addition, the resulting large increases in the number of the
Company's employees create demand for increased administrative personnel at the
Company's headquarters. The Company's success in both the Government Operations
Group and the Consulting Group depends in large part upon its ability to
attract, develop, motivate and retain experienced and innovative executive
officers, senior managers who have successfully managed or designed health and
human services programs in the public sector and information technology
professionals who have designed or implemented complex information technology
projects. Such innovative, experienced and technically proficient individuals
are in great demand and are likely to remain a limited resource for the
foreseeable future. There can be no assurance that the Company will be able to
continue to attract and retain desirable executive officers and senior managers
in the future. The inability to hire sufficient personnel on a timely basis or
the loss of a significant number of executive officers and senior managers could
have a material adverse effect on the Company's business, financial condition
and results of operations, including its ability to obtain and successfully
complete service contracts. See "Business -- Human Resources."
CHALLENGES RESULTING FROM GROWTH
The Company's continued growth has placed significant demands on the
Company's management as well as its administrative, operational and financial
resources. The Company's ability to manage its growth will require the Company
to continue to implement new and to improve existing operational, financial and
management information systems and to continue to expand, motivate and manage
its workforce. In addition, the Company's growth will depend in large part on
its ability to manage large-scale health and human services programs while
continuing to ensure quality service and reasonable profits. If the Company is
unable to manage effectively any of these factors, the quality of the Company's
services, its financial condition and results of operations could be materially
and adversely affected. No assurance can be given that the Company will continue
to experience growth or that the Company will be successful in managing its
growth, if any.
COMPETITORS; EFFECTS OF COMPETITION
The market for certain program management and consulting services to state
and local health and human services agencies is becoming more competitive and is
subject to rapid change while the market for certain
9
<PAGE> 11
other services is not yet competitive. The Company's Government Operations Group
competes for program management contracts with local non-profit organizations
such as the United Way and Goodwill Industries, government services divisions of
large organizations such as Andersen Consulting, Lockheed Martin Corp. and
Electronic Data Systems, Inc., managed care enrollment companies such as
Foundation Health Corporation and specialized service providers such as America
Works, Inc., Policy Studies Incorporated and GC Services, Inc. The Company's
Consulting Group competes with the consulting divisions of the "Big 6"
accounting firms as well as Electronic Data Systems, Inc. Many of these
companies are national and international in scope and have greater financial,
technical, marketing and personnel resources than the Company. The significant
financial resources of certain competitors could lead to severe price cutting in
an effort to secure market share, which could adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will compete successfully against its existing
competitors or against new competitors, if any. See "Business -- Competition."
In addition to competition from existing competitors, the Company may
experience future competition from its former employees. Although the Company
has entered into non-competition agreements with certain senior level employees,
there can be no assurance that such contracts will be enforceable or that
departing employees not subject to non-competition agreements will not seek to
exploit their personal relationships with government officials by competing
against the Company. Any such competition by former employees could have a
material adverse effect on the Company.
OPPOSITION FROM GOVERNMENT UNIONS
The Company's success depends in part on its ability to obtain contracts to
profitably administer and manage health and human services programs that
traditionally have been administered and managed by government employees. Many
of these government employees are members of labor unions which have
considerable financial resources and established lobbying networks that are
effective in applying political pressure to legislators and other government
officials who seek to contract with private companies to administer and manage
government programs. Successful efforts to oppose private management of
government programs by these unions may slow welfare reform and ultimately
result in fewer opportunities for the Company to provide services to government
agencies, thereby adversely affecting the business, financial condition and
results of operations of the Company. There can be no assurance that these
unions will not succeed in whole or in part in their efforts to oppose the
outsourcing of government programs.
ADVERSE PUBLICITY
The Company has received and expects to continue to receive media attention
as a result of its contracts with state and local government authorities. In
particular, the management of health and human services programs by the
Company's Government Operations Group and the establishment of revenue
maximization programs by the Company's Consulting Group have been the subject of
highly controversial media coverage. Negative coverage of the types of program
management services provided by the Company could influence government officials
and slow the pace of welfare reform, thereby reducing the Company's growth
prospects. In addition to media attention arising out of the types of services
provided by the Company, the Company is also vulnerable to media attention as a
result of the activities of political consultants engaged by the Company, even
when such activities are unrelated to the Company. Such an event occurred in
connection with a marketing representative hired by the Company to assist in
responding to an RFP promulgated by the State of West Virginia. After learning
that the marketing representative was also a state employee, the Company
voluntarily withdrew from the bidding. Certain media coverage relating to this
incident was inaccurate and incorrectly suggested wrongdoing by the Company. The
Company has become aware that certain of its competitors have sought to exploit
such suggestions in connection with other competitive-bidding situations. There
can be no assurance that the Company will not receive adverse media attention as
the result of activities of individuals not under the Company's control. In
addition, there can be no assurance that media attention focused on the Company
will be accurate or that the Company will be able to anticipate and respond in a
timely manner to all media contacts. Inaccurate or misleading media coverage or
the Company's failures to manage such coverage could have a material adverse
effect on the Company's reputation, thereby adversely affecting its business,
financial condition and results of operations.
10
<PAGE> 12
RISKS RELATED TO POSSIBLE ACQUISITIONS
A part of the Company's growth strategy is to expand its operations through
the acquisition of additional businesses. The Company has no prior history of
making acquisitions and there can be no assurance that the Company will be able
to identify, acquire or profitably manage additional businesses or successfully
integrate any acquired businesses into the Company without incurring substantial
expenses, delays or other operational or financial problems. Furthermore,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key personnel, unanticipated events or
circumstances, legal liabilities and amortization of acquired intangible assets,
some or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Client dissatisfaction
or performance problems at a single acquired firm could have a material adverse
effect on the reputation of the Company as a whole. In addition, there can be no
assurance that acquired businesses, if any, will achieve anticipated revenues
and earnings. The failure of the Company to manage its acquisition strategy
successfully could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Growth
Strategy."
UNCERTAINTIES RELATED TO INTERNATIONAL OPERATIONS
While the Company's current international operations are paid in U.S.
dollars by the World Bank and the U.S. Agency for International Development, as
the Company expands its operations into developing countries it may become
subject to a number of risks. International revenues are subject to a number of
risks including currency exchange rate fluctuations, collection of receivables
and enforcement of contract terms through a foreign country's legal system.
Foreign countries could impose additional withholding taxes or otherwise tax the
Company's foreign income or impose tariffs. There can be no assurance that any
of these factors will not have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business -- Services -- Consulting Group."
LITIGATION
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company and other
parties as third party defendants in an action by the State of Hawaii against
Network Six. In 1991, the Company's Consulting Group was engaged by the State of
Hawaii to provide assistance in planning for and monitoring the development and
implementation by Hawaii of a statewide automated child support system. In 1993,
Hawaii contracted with Network Six to provide systems development and
implementation services for this project. In 1996 the state terminated the
Network Six contract for cause and filed an action against Network Six. Network
Six counterclaimed against Hawaii that the state breached its obligations under
the contract with Network Six. In the Third Party Complaint, Network Six alleges
that the Company is liable to Network Six on grounds that: (i) Network Six was
an intended third party beneficiary under the contract between the Company and
Hawaii; (ii) the Company engaged in bad faith conduct and tortiously interfered
with the contract and relationship between Network Six and Hawaii; (iii) the
Company negligently breached duties to Network Six; and (iv) the Company aided
and abetted Hawaii in Hawaii's breach of contract. Network Six's complaint seeks
damages, including punitive damages, from the Company in an amount to be proven
at trial. The Company believes Network Six may have filed or may in the future
file actions in other jurisdictions asserting similar claims against the
Company. The Company believes that Network Six was not an intended third party
beneficiary under its contract with Hawaii and that Network Six's claims are
without merit. The Company does not believe this action will have a material
adverse effect on the Company's business and intends to vigorously defend this
action. However, given the early stage of this litigation, no assurance may be
given that the Company will be successful in its defense.
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of this offering. See "Use of Proceeds."
11
<PAGE> 13
CONTROL BY PRINCIPAL SHAREHOLDERS
After completion of this offering, the Company's executive officers will
own beneficially 68.4% of the Company's outstanding shares of Common Stock.
Certain executive officers who will hold approximately 66.9% of the outstanding
shares of Common Stock after giving effect to this offering have agreed with the
Company not to dispose of such shares for a period of four years following the
closing of this offering subject to certain exceptions. In addition, each of Dr.
Mastran and Mr. Ruddy, who will hold together approximately 62.4 % of the
outstanding shares of Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls
20% of the outstanding Common Stock. Mr. Ruddy has also agreed to vote his
shares of Common Stock in a manner consistent with instructions received from
Dr. Mastran during the four year period commencing on the closing of this
offering. As a result, these officers will continue to be able to control the
outcome of matters requiring a shareholder vote, including the election of the
members of the Board of Directors, thereby controlling the affairs and
management of the Company. Such control could adversely affect the market price
of the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Shareholders" and "Management -- Agreements with
Executives."
BENEFITS OF OFFERING TO SELLING SHAREHOLDERS
The Selling Shareholders will receive substantial proceeds and certain
other benefits from their participation in this offering. This offering will
establish a public market for the Common Stock and provide significantly
increased liquidity to the Selling Shareholders for the shares of Common Stock
they will own after this offering. At an assumed initial public offering price
of $14.00 per share, after deducting underwriting discounts and commissions, the
aggregate proceeds (before deduction of estimated income taxes) as a result of
the offering by the Selling Shareholders will be approximately $22.1 million
(excluding the S Corporation Dividend). Upon completion of this offering, the
Selling Shareholders will own an aggregate of 68.4% of the outstanding Common
Stock. See "Use of Proceeds," "Dilution" and "Principal and Selling
Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock will be determined by negotiations among management of the Company and the
representatives of the Underwriters (the "Representatives"). See "Underwriting"
for factors to be considered in determining the initial public offering price
per share. Although the Company is applying to list the Common Stock on the New
York Stock Exchange, there can be no assurance that an active trading market
will develop or be sustained after this offering. The market price of the Common
Stock may fluctuate substantially due to a variety of factors, including
quarterly fluctuations in results of operations, the failure to be awarded a
significant contract on which it has bid, the termination by a government client
of a material contract, announcements of new services by competitors, changes in
earnings estimates by securities analysts, changes in accounting principles,
sales of Common Stock by existing holders, negative publicity, loss of key
personnel and other factors. In addition, the stock market is subject to extreme
price and volume fluctuations. This volatility has often had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation often has been instituted against such a
company. Any such litigation initiated against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution of $11.09 in the pro forma net tangible book
value per share of Common Stock. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
12
<PAGE> 14
DIVIDEND POLICY; ABSENCE OF DIVIDENDS
Other than the S Corporation Dividend (see "S Corporation Dividend") and
past dividends to cover S corporation taxes payable by shareholders, the Company
has rarely paid cash dividends on its capital stock and does not anticipate
paying cash dividends in the foreseeable future. The Company currently intends
to retain all earnings for the development of its business. See "Dividend
Policy."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") and Amended and Restated By-Laws (the "Restated By-Laws"), both to be
effected immediately upon the close of this offering, and Virginia law include
provisions that may be deemed to have antitakeover effects and may delay, defer
or prevent a takeover attempt that shareholders might consider to be in their
best interests. Directors of the Company are divided into three classes and are
elected to serve staggered three-year terms, the existence of which could render
more difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest or otherwise. See "Management -- Board of Directors."
The ability of the shareholders of the Company to take any action, or to consent
to the taking of any action, in each case in writing without a meeting, is
specifically denied. See "Description of Capital Stock -- Anti-Takeover
Provisions of the Articles of Incorporation." In addition, Virginia law contains
provisions that impose certain limitations and special voting requirements on
affiliated transactions and deny voting rights, unless granted by shareholder
vote, with respect to shares acquired in control share acquisitions. See
"Description of Capital Stock -- Anti-Takeover Provisions of Virginia Law."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
13,809,945 shares of Common Stock outstanding, of which the 4,400,000 shares
sold pursuant to this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except those shares acquired by affiliates of the Company.
Holders of the remaining shares will be eligible to sell such shares pursuant to
Rule 144 under the Securities Act ("Rule 144") at prescribed times and subject
to the manner of sale, volume, notice and information restrictions of Rule 144.
In addition, 403,975 shares of Common Stock are issuable upon the exercise of
outstanding stock options (none of which are currently exercisable and all of
which will become exercisable on the closing of this offering), which shares may
be registered by the Company under the Securities Act and become freely tradable
without restriction. The Company and all of its shareholders (holding in the
aggregate 9,733,895 shares of Common Stock upon the closing of this offering,
including the 403,975 shares of Common Stock issuable upon exercise of
outstanding stock options that become exercisable upon the closing of this
offering), have agreed not to offer, sell, contract to sell or otherwise dispose
of, directly or indirectly, any shares of Common Stock, or any securities
convertible into or exchangeable or exercisable for shares of Common Stock,
until 180 days after the date of this Prospectus, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation. Certain executive officers
of the Company, holding an aggregate of 9,414,545 shares of Common Stock
(including 266,750 shares of Common Stock issuable upon the exercise of
outstanding stock options that become exercisable upon the closing of this
offering), will have entered into Executive Employment, Non-Compete,
Confidentiality and Stock Restriction Agreements pursuant to which each such
executive will have agreed with the Company subject to certain exceptions not to
sell or otherwise dispose of, directly or indirectly, any shares of Common Stock
for a period of four years from the closing of this offering. See "Management --
Agreements with Executives." Because these agreements will be between the
Company and each executive officer and may be waived by the Company at any time,
investors should not rely on these agreements. Sales of substantial amounts of
such shares in the public market or the availability of such shares for future
sale could adversely affect the market price of the shares of Common Stock and
the Company's ability to raise additional capital at a price favorable to the
Company. See "Shares Eligible for Future Sale" and "Underwriting."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered by the Company, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be $34,284,000,
assuming an initial public offering price of $14.00 per share. The Company
expects to use a portion of the net proceeds from this offering for the partial
payment of undistributed S corporation earnings not funded by available cash,
estimated at $3.5 million and the balance of the net proceeds for general
corporate purposes, including working capital. While the Company has no specific
plans for the balance of the net proceeds, it anticipates that these funds will
be used for: (i) expanding existing operations, which may include opening new
offices, acquiring related businesses and expanding the Company's international
operations; and (ii) investing in systems infrastructure and new technologies.
The Company has no present commitments, agreements or understandings and is not
presently conducting negotiations with respect to any acquisitions. The
Company's management will have broad discretion to allocate proceeds from this
offering to uses that it believes are appropriate. Pending such uses, the net
proceeds of this offering will be invested in short-term, investment grade,
interest-bearing securities. The principal purposes of this offering are to
obtain additional working capital, create a public market for the Common Stock,
provide liquidity to the Company's shareholders and facilitate future access by
the Company to public equity markets. See "Risk Factors -- Significant
Unallocated Net Proceeds," "S Corporation Dividend" and "Business -- Growth
Strategy."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
S CORPORATION DIVIDEND
Since 1987, the Company has been a corporation subject to taxation under
subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
substantially all of the Company's net income has been attributed, for income
tax purposes, directly to the Company's shareholders rather than to the Company.
The Company's S corporation status will terminate in connection with this
offering and the Company will make a final distribution to its existing
shareholders of undistributed S Corporation earnings, as explained below.
The Company has declared an S corporation dividend to its existing
shareholders in an aggregate amount representing all undistributed earnings of
the Company taxed or taxable to its shareholders through the closing of this
offering payable upon such closing (the "S Corporation Dividend"). The S
Corporation Dividend is estimated to be approximately $17.5 million, of which it
is estimated that $14.0 million will be funded from available cash and $3.5
million will be funded with a portion of the proceeds from this offering.
Purchasers of Common Stock in this offering will not receive any portion of the
S Corporation Dividend.
Following termination of its S corporation status, the Company will be
subject to income taxation as a C corporation. The termination of the Company's
S corporation status will result in the Company recording a liability for
deferred income taxes on its balance sheet and a one-time income statement
charge of the same amount. Based on differences between income for tax and
financial reporting through December 31, 1996, the one-time income statement
charge is estimated to be $5.3 million. The deferred tax liability will be
recorded in accordance with Statement of Financial Accounting Standards No. 109.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of Notes to Financial Statements.
DIVIDEND POLICY
Following the declaration and payment of the S Corporation Dividend, the
Company anticipates that it will retain all of its earnings for development of
the Company's business and does not anticipate paying any cash dividends in the
foreseeable future. Future cash dividends, if any, will be paid at the
discretion of the Company's Board of Directors and will depend, among other
things, upon the Company's future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth, as of December 31, 1996: (i) the actual
total capitalization of the Company; (ii) the pro forma total capitalization of
the Company after giving effect to the S Corporation Dividend (see "S
Corporation Dividend"), the recognition of a net deferred tax liability upon
termination of the Company's S corporation status estimated to be $5.3 million,
and reclassification of redeemable Common Stock to shareholders' equity as a
result of elimination of the Company's obligation to purchase its Common Stock
from shareholders; and (iii) the pro forma total capitalization as adjusted for
the sale of shares of Common Stock by the Company (at an assumed initial public
offering price of $14.00 per share) and the application of the estimated net
proceeds therefrom to fund the estimated $3.5 million of net offering proceeds
that will be used to pay the portion of the S Corporation Dividend not funded by
available cash. See "Use of Proceeds." The following table should be read in
conjunction with the Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents and short term investments..... $ 5,171 $ 5,171 $ 35,955
======= ====== ======
Redeemable common stock.................................. $18,790 $ -- $--
Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 11,453,145 shares issued and
outstanding, actual and pro forma; 14,153,145 shares
issued and outstanding as adjusted.................. -- 11,965 46,249
Retained earnings (deficit)............................ 10,862 (5,100) (5,100)
------- ------ ------
Total shareholders' equity.......................... 10,862 6,865 41,149
------- ------ ------
Total capitalization.............................. $29,652 $ 6,865 $ 41,149
======= ====== ======
</TABLE>
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996 was $6,865,000 or $0.60 per share. Pro forma net tangible book value per
share represents the total tangible assets of the Company, less total
liabilities, divided by the aggregate number of shares of Common Stock
outstanding, after giving effect to: (i) the S Corporation Dividend (see "S
Corporation Dividend"); (ii) the recording of deferred income taxes upon
termination of the Company's S corporation status; and (iii) the
reclassification of redeemable common stock to shareholders' equity, as a result
of elimination of the Company's obligation to purchase its Common Stock from
shareholders. After giving effect to the sale by the Company of 2,700,000 shares
of Common Stock offered hereby (at an assumed initial public offering price of
$14.00 per share) and the application of the net proceeds therefrom, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been $41,149,000 or $2.91 per share. This represents an immediate increase in
the pro forma net tangible book value of $2.31 per share to existing
shareholders and an immediate dilution of $11.09 per share to purchasers of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $14.00
Pro forma net tangible book value per share as of December 31,
1996............................................................ $ 0.60
Increase per share attributable to new investors................... 2.31
-----
Pro forma net tangible book value per share after this offering...... 2.91
------
Dilution in pro forma net tangible book value per share to new
investors.......................................................... $11.09
======
</TABLE>
The following table sets forth, as of December 31, 1996, the differences
between existing shareholders and new investors in this offering with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (assuming an initial
public offering price of $14.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)................ 11,453,145 80.9% $ 1,618,746 4.1% $ 0.14
New investors(1)........................ 2,700,000 19.1 37,800,000 95.9 14.00
---------- ----- ----------- -----
Total......................... 14,153,145 100.0% $39,418,746 100.0%
========== ===== =========== =====
</TABLE>
- ------------------------------
(1) After giving effect to the purchase by the Company of 343,200 shares in
January 1997, sales by the Selling Shareholders in this offering will reduce
the number of shares held by existing shareholders of the Company to
9,409,945 or 68.1% of the total number of shares outstanding after this
offering (8,749,945 shares or 63.4% if the Underwriters' over-allotment
option is exercised in full) and will increase the number of shares held by
new investors to 4,400,000 shares or 31.9% of the total number of shares of
Common Stock outstanding after this offering (5,060,000 shares or 36.6% if
the Underwriters' over-allotment option is exercised in full). See
"Principal and Selling Shareholders."
16
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data presented below as of September 30, 1995 and
1996, and for each of the three years in the period ended September 30, 1996 are
derived from the Company's Financial Statements and related Notes thereto which
have been audited by Ernst & Young LLP, independent auditors. The selected
financial data presented below as of September 30, 1992, 1993 and 1994, and for
each of the years ended September 30, 1992 and 1993 are derived from the
Company's financial statements, not included in this Prospectus, which have been
audited by the Company's predecessor accountants. The selected financial data as
of December 31, 1996 and for the interim three-month periods ended December 31,
1995 and 1996 are unaudited but, in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results of the interim periods. The results of operations
for the interim period ended December 31, 1996, are not necessarily indicative
of the results to be expected for any other interim period or for the full year.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1)...... $23,749 $18,071 $11,779 $16,951 $ 20,681 $ 4,102 $ 8,029
Consulting Group.................... 9,400 12,522 15,138 20,698 25,902 5,152 6,704
SSA Contract(2)..................... -- -- 2,943 14,314 56,530 7,446 22,511
------- ------- ------- ------- -------- ------- -------
Total revenues................. 33,149 30,593 29,860 51,963 103,113 16,700 37,244
Cost of revenues...................... 18,595 15,388 21,716 36,071 78,429 12,027 29,534
------- ------- ------- ------- -------- ------- -------
Gross profit.......................... 14,554 15,205 8,144 15,892 24,684 4,673 7,710
Selling, general and administrative
expenses............................ 9,657 10,178 6,979 9,078 13,104 2,742 4,039
------- ------- ------- ------- -------- ------- -------
Income from operations................ 4,897 5,027 1,165 6,814 11,580 1,931 3,671
Interest and other income............. 376 80 80 169 264 53 84
------- ------- ------- ------- -------- ------- -------
Income before income taxes............ 5,273 5,107 1,245 6,983 11,844 1,984 3,755
Provision (benefit) for income
taxes............................... 152 114 (5) 124 225 40 57
------- ------- ------- ------- -------- ------- -------
Net income(3)......................... $ 5,121 $ 4,993 $ 1,250 $ 6,859 $ 11,619 $ 1,944 $ 3,698
======= ======= ======= ======= ======== ======= =======
PRO FORMA STATEMENT OF INCOME DATA:(4)
Historical income before income taxes.............................................. $ 11,844 $ 3,755
Pro forma income tax expense....................................................... 4,738 1,502
-------- -------
Pro forma net income............................................................... $ 7,106 $ 2,253
======== =======
Pro forma net income per share..................................................... $ 0.59 $ 0.19
======== =======
Shares used in computing pro forma net
income per share(5).............................................................. 12,105 12,140
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------------
1992 1993 1994 1995 1996 AS OF DECEMBER 31,
-----------------------
1996 1996
ACTUAL PRO FORMA(6)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments............................ $ 1,849 $ 1,093 $ 326 $ 2,502 $ 3,333 $ 5,171 $ 5,171
Working capital.......................... 6,158 6,818 6,855 13,184 22,700 26,355 8,152
Total assets............................. 17,091 12,745 15,049 22,670 35,493 43,856 43,856
Redeemable common stock.................. 6,759 6,971 6,889 10,578 16,757 18,790 --
Total shareholders' equity............... 1,907 2,484 2,921 5,706 9,197 10,862 6,865
</TABLE>
- ------------------------------
(1) In fiscal years 1992 and 1993, the Company's Government Operations Group had
revenues of $11.4 million and $10.4 million, respectively, related to a
significant contract that expired in July 1993. No further revenues were
received under this contract after its expiration.
(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues will be received after February 28, 1997. See "Risk
Factors -- Legislative Change," "-- Variability of Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) For all periods shown, the Company elected to be treated as an S corporation
and, as a result, the income of the Company has been taxed for federal and
most state purposes directly to the Company's shareholders rather than to
the Company.
17
<PAGE> 19
(4) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation for the periods presented. Pro
forma net income does not reflect two significant charges that the Company
will record in the quarter in which the offering is consummated: (i) a
charge for income tax expense representing the cumulative deferred tax
liability (estimated to be $5.3 million as of December 31, 1996) resulting
from the termination of the Company's S corporation status; and (ii) a
compensation charge, estimated at $5.1 million, related to the grant to
employees on January 31, 1997 of options for an aggregate of 403,975 shares
of Common Stock. The estimated compensation expense represents the
difference between the assumed initial public offering price of $14.00 per
share and the option exercise price of $1.46 per share. The option exercise
price is based on the book value of the Common Stock at September 30, 1996,
and was established pursuant to pre-existing compensation arrangements with
certain of the Company's key employees. See "Management -- Executive
Compensation," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of Notes to Financial Statements.
(5) Assumes 12,105,000 and 12,140,000 shares were issued and outstanding during
the year ended September 30, 1996 and the three months ended December 31,
1996, respectively. Such amounts consist of 11,418,000 and 11,453,000
weighted average shares outstanding for the respective periods, the shares
issuable upon the exercise of options granted in January 1997, and the
shares necessary to replace equity to be distributed as a result of the S
Corporation Dividend. See "S Corporation Dividend," "Management -- Executive
Compensation" and Note 3 of Notes to Financial Statements.
(6) Reflects the S Corporation Dividend to be paid to the shareholders, a
reclassification of redeemable common stock to reflect elimination of the
Company's obligation to purchase its Common Stock from shareholders and the
net deferred tax liability that would have been recorded by the Company if
its S corporation status was terminated at that date. See "S Corporation
Dividend," "Capitalization" and Note 3 of Notes to Financial Statements.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MAXIMUS is a leading provider of program management and consulting services
to government health and human services agencies in the United States. Founded
in 1975, the Company has been profitable every year since inception. The Company
conducts its operations through two groups, the Government Operations Group and
the Consulting Group. The Government Operations Group administers and manages
government health and human services programs, including welfare-to-work and job
readiness, child support enforcement, managed care enrollment and disability
services. The Consulting Group provides health and human services planning,
information technology consulting, strategic program evaluation, program
improvement, communications planning and revenue maximization services.
The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1996, revenues from these contract types were approximately
62%, 23%, 11% and 4%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to potential cost overruns or
inaccurate revenue estimates. As discussed further below, the SSA Contract was
terminated in December 1996 as a result of legislative action. Excluding the SSA
Contract, fiscal 1996 revenues from the above contract types were approximately
15%, 51%, 25% and 9%, respectively, of total revenues.
In October 1996, President Clinton signed into law an amendment to the
Social Security Act of 1935, effective January 1, 1997, that eliminated Social
Security Income and Supplemental Security Disability Insurance benefits based
solely on drug and alcohol disabilities. As a result of this legislative act,
the Social Security Administration terminated the SSA Contract effective at the
end of February 1997. All services to be provided to the Social Security
Administration will be completed in the second quarter of the Company's 1997
fiscal year. The SSA Contract contributed $56.5 million, $14.3 million and $2.9
million to the Company's revenues in fiscal years 1996, 1995 and 1994,
respectively. The termination of the SSA Contract will significantly reduce the
Company's revenue base as compared to prior periods. No assurance can be given
that the Company will be able to generate additional revenues in future periods
in amounts sufficient to replace the revenues received under the SSA Contract
and, as a result, the Company may experience materially lower revenues as
compared to prior periods. The Company has experienced a limited number of other
early terminations since inception. See "Risk Factors -- Variability of
Quarterly Operating Results."
The Government Operations Group's contracts generally contain base periods
of one or more years as well as one or more option periods that may cover more
than half of the potential contract duration. As of September 30, 1996, the
Company's average Government Operations contract duration was 3 1/2 years. The
Company's Consulting Group is typically engaged for periods in excess of 24
months. Indicative of the long-term nature of the Company's engagements,
approximately 84% of the Company's fiscal 1996 revenues were in backlog as of
September 30, 1995.
The Company's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. The Company's ability to accurately
predict personnel requirements, salaries and other costs as well as to
effectively manage a project or achieve certain levels of performance can have a
significant impact on the service costs related to the Company's fixed price and
performance-based contracts. Service cost variability has little impact on cost-
plus arrangements because allowable costs are reimbursed by the client. The
profitability of the Consulting Group's contracts is largely dependent upon the
utilization rates of its consultants.
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
19
<PAGE> 21
reproduction, communications and equipment depreciation. Selling, general and
administrative expenses as a percentage of revenues have decreased in recent
years as these costs have been absorbed by a larger revenue base.
From October 1, 1987 to the date of this offering, the Company elected to
be treated as an S corporation for federal income tax purposes. For all periods
prior to October 1, 1996, the Company's income was taxed directly to its
shareholders on the cash basis and for the period from October 1, 1996 through
the date of this offering, the Company plans to have its income taxed directly
to its shareholders on the accrual basis. Upon completion of this offering, the
Company's S corporation status will terminate and the Company will be subject to
income tax on the accrual basis as a C corporation.
During the quarter in which this offering is completed, the Company will
recognize two significant charges against income. The completion of this
offering will result in the termination of the Company's S corporation status.
As a result the Company will record a one-time income statement charge to
operations estimated at $5.3 million based on the deferred tax liabilities as of
December 31, 1996. In connection with this offering, on January 31, 1997,
certain key employees of the Company surrendered rights to purchase shares of
Common Stock of the Company in exchange for options to purchase shares of Common
Stock at an exercise price of $1.46 per share. Upon completion of this offering,
the Company will recognize a non-cash compensation charge against income equal
to the difference between the initial public offering price and the option
exercise price for all outstanding options. At an assumed initial public
offering price of $14.00 per share, the charge against income is estimated to be
$5.1 million. The option exercise price is based on the book value of the Common
Stock at September 30, 1996, and was established pursuant to pre-existing
compensation arrangements with these employees. As a result of these charges,
the Company will report a significant net loss in the period in which this
offering is completed, which is anticipated to be the quarter ended June 30,
1997. See "Management -- Executive Compensation."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
YEARS ENDED SEPTEMBER 30, 31,
------------------------- -----------------
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues:
Government Operations Group........... 39.4% 32.6% 20.1% 24.6% 21.6%
Consulting Group...................... 50.7 39.8 25.1 30.8 18.0
SSA Contract.......................... 9.9 27.6 54.8 44.6 60.4
----- ----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Gross Profit:
Government Operations Group........... 5.2 22.7 25.5 22.6 18.4
Consulting Group...................... 46.9 48.0 46.9 50.9 46.3
SSA Contract.......................... 14.8 14.8 12.9 15.0 13.9
Total gross profit................. 27.3 30.6 23.9 28.0 20.7
Selling, general and administrative
expenses.............................. 23.4 17.5 12.7 16.4 10.8
----- ----- ----- ----- -----
Income from operations.................. 3.9 13.1 11.2 11.6 9.9
Interest and other income............... 0.3 0.3 0.3 0.3 0.2
----- ----- ----- ----- -----
Income before income taxes.............. 4.2 13.4 11.5 11.9 10.1
Provision for income taxes.............. 0.0 0.2 0.2 0.2 0.2
----- ----- ----- ----- -----
Net income.............................. 4.2% 13.2% 11.3% 11.7% 9.9%
===== ===== ===== ===== =====
</TABLE>
20
<PAGE> 22
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Revenues. Total contract revenues increased 123.0% to $37.2 million for
the three months ended December 31, 1996 as compared to $16.7 million for the
same period in 1995. Government Operations Group revenues increased 164.5% to
$30.5 million for the three months ended December 31, 1996 from $11.5 million
for the same period in 1995 due to an increase in the number of projects and an
increase in revenues from the SSA Contract. For the three months ended December
31, 1996, revenues from the SSA Contract were $22.5 million as compared to $7.4
million in the same period in 1995. Excluding the SSA Contract, Government
Operations Group revenues increased 95.7% to $8.0 million in the three months
ended December 31, 1996 from $4.1 million in same period in 1995. Consulting
Group revenues increased 30.1% to $6.7 million for the three months ended
December 31, 1996 from $5.2 million in the same period in 1995 due to an
increase in the number of contracts.
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 65.0% to $7.7 million for the three
months ended December 31, 1996 as compared to $4.7 million for the same period
in 1995. Government Operations Group gross profit increased 124.9% to $4.6
million for the three months ended December 31, 1996 from $2.0 million for the
three months ended December 31, 1995. As a percentage of revenues, gross profit
decreased to 20.7% in the three months ended December 31, 1996 from 28.0% in the
same period in 1995, primarily due to the increased revenue contribution of the
SSA Contract, which had a lower gross profit margin. Excluding the SSA Contract,
as a percentage of revenues, Government Operations Group gross profit decreased
to 18.4% in the three months ended December 31, 1996 from 22.6% in the same
period in 1995 due to the incurrence of approximately $0.5 million of
pass-through costs which generated no gross margin for the three months ended
December 31, 1996, and the recognition of $0.2 million of above-normal profit
due to the Company exceeding expectations, on a performance-based contract for
the three months ended on December 31, 1995. Consulting Group gross profit
increased 18.2% to $3.1 million for the three months ended December 31, 1996
from $2.6 million for the same period in 1995 due to higher revenues. As a
percentage of revenues, Consulting Group gross profit decreased to 46.3% for the
three months ended December 31, 1996 from 50.9% in the same period in 1995
primarily due to the recognition of above normal profit due to the Company
exceeding expectations on several performance-based contracts in the three
months ended December 31, 1995.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 47.3% to $4.0 million for the three months
ended December 31, 1996 as compared to $2.7 million in the same period in 1995.
Increased numbers of both professional and administrative employees resulted in
an increase in salary and benefit expense for the three months ended December
31, 1996. Training costs and professional fees also increased for the three
months ended December 31, 1996. As a percentage of revenues, selling, general
and administrative expenses decreased to 10.8% for the three months ended
December 31, 1996 from 16.4% for the same period in 1995 as the Company was able
to support its revenue growth without a proportionate increase in associated
costs.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues. Total revenues increased 98.4% to $103.1 million in fiscal 1996
from $52.0 million in fiscal 1995. Government Operations Group revenues
increased 147.0% to $77.2 million in fiscal 1996 from $31.3 million in fiscal
1995. This growth was due to an increase in the number of projects and an
increase in revenues from the SSA Contract, which contributed $56.5 million to
fiscal 1996 revenues as compared to $14.3 million to fiscal 1995 revenues.
Excluding the SSA Contract, Government Operations Group revenues increased 22.0%
to $20.7 million in fiscal 1996 from $17.0 million in fiscal 1995. Consulting
Group revenues increased 25.1% to $25.9 million in fiscal 1996 from $20.7
million in fiscal 1995 primarily due to an increase in revenues from revenue
maximization contracts. The Consulting Group's nine revenue maximization
contracts in fiscal 1996 contributed $5.1 million to fiscal 1996 revenues as
compared to two revenue maximization contracts which contributed $2.2 million to
fiscal 1995 revenues.
Gross Profit. Total gross profit increased 55.3% to $24.7 million in
fiscal 1996 from $15.9 million in fiscal 1995. Government Operations Group gross
profit increased 110.6% to $12.5 million in fiscal 1996 from
21
<PAGE> 23
$6.0 million in fiscal 1995. As a percentage of revenues, Government Operations
Group gross profit decreased to 16.2% in fiscal 1996 as compared to 19.0% in
fiscal 1995, primarily due to the increased revenue contribution of the SSA
Contract, which had a lower gross margin. Excluding the SSA Contract, as a
percentage of revenues, Government Operations Group gross profit increased to
25.5% for fiscal 1996 from 22.7% for fiscal 1995. Consulting Group gross profit
increased 22.2% to $12.1 million in fiscal 1996 from $9.9 million in fiscal 1995
as a result of higher revenues. As a percentage of revenues, Consulting Group
gross profit decreased to 46.9% in fiscal 1996 from 48.0% in fiscal 1995, which
represents normal variability of gross profit from year to year.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 44.3% to $13.1 million in fiscal 1996 from
$9.1 million in fiscal 1995. This increase in costs was due to increases in both
professional and administrative personnel necessary to support the Company's
growth. The total number of employees increased to 754 at September 30, 1996
from 439 at September 30, 1995. Additionally, marketing and proposal preparation
expenditures increased as the Company pursued further revenue growth. As a
percentage of revenues, selling, general and administrative expenses decreased
to 12.7% in fiscal 1996 from 17.5% in fiscal 1995 due to the Company's ability
to support its growth without a proportionate increase in associated costs.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues. Total revenues increased 74.0% to $52.0 million in fiscal 1995
from $29.9 million in fiscal 1994. Government Operations Group revenues
increased 112.4% to $31.3 million in fiscal 1995 from $14.7 million in fiscal
1994 due to an increase in the number of projects and an increase in revenue
from the SSA Contract, which commenced in February 1994. The SSA Contract
contributed $14.3 million to fiscal 1995 revenues as compared to $2.9 million to
fiscal 1994 revenues. Excluding the SSA Contract, Government Operations Group
revenues increased 43.9% to $17.0 million in fiscal 1995 from $11.8 million in
fiscal 1994. Consulting Group revenues increased 36.7% to $20.7 million in
fiscal 1995 from $15.1 million in fiscal 1994 due to an increase in the number
of contracts and revenues resulting from revenue maximization contracts, which
the Company commenced performing in fiscal 1994. Revenues attributable to
revenue maximization contracts grew to $2.2 million in fiscal 1995 from $0.3
million in fiscal 1994.
Gross Profit. Total gross profit increased 95.1% to $15.9 million in
fiscal 1995 from $8.1 million in fiscal 1994. Government Operations Group gross
profit increased 468.5% to $6.0 million in fiscal 1995 from $1.0 million in
fiscal 1994. As a percentage of revenues, Government Operations Group gross
profit increased to 19.0% in fiscal 1995 from 7.1% in fiscal 1994. This increase
in gross margin resulted primarily from nonrecurring losses on two of its
contracts in fiscal 1994, whereas the Company realized above normal profit on
one of its contracts in fiscal 1995. Consulting Group gross profit increased
40.0% to $9.9 million in fiscal 1995 from $7.1 million in fiscal 1994 due to
higher revenues. As a percentage of revenues, Consulting Group gross profit
increased to 48.0% in fiscal 1995 from 46.9% in fiscal 1994 which represents
normal variability of gross profit from period to period.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 30.1% to $9.1 million in fiscal 1995 from $7.0
million in fiscal 1994. This increase in costs was due to increased professional
and administrative personnel necessary to support the growth of the Company. The
number of Consulting Group professionals increased 46% during the year ended
September 30, 1995 and administrative personnel increased 30% over the same
period. As a percent of revenues, selling, general and administrative expenses
decreased to 17.5% for fiscal 1995 from 23.4% for fiscal 1994 due to the ability
of the Company to support its growth without a proportionate increase in
associated costs.
22
<PAGE> 24
QUARTERLY RESULTS
Set forth below are selected income statement data for the nine fiscal
quarters ended December 31, 1996. This information is derived from unaudited
quarterly financial statements which include, in the opinion of management, all
adjustments necessary for a fair presentation of the information for such
periods. This information should be read in conjunction with the Financial
Statements and related Notes thereto contained elsewhere in this Prospectus.
Results of operations for any fiscal quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Government Operations
Group.................. $ 4,303 $ 4,715 $ 3,964 $ 3,969 $ 4,102 $ 4,947 $ 4,896 $ 6,736 $ 8,029
Consulting Group......... 4,742 5,030 5,446 5,481 5,152 7,333 5,832 7,585 6,704
SSA Contract............. 2,290 2,724 3,787 5,512 7,446 10,606 17,170 21,308 22,511
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 11,335 12,469 13,197 14,962 16,700 22,886 27,898 35,629 37,244
Cost of revenues........... 8,124 8,385 9,064 10,498 12,027 16,962 21,577 27,863 29,534
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 3,211 4,084 4,133 4,464 4,673 5,924 6,321 7,766 7,710
Selling, general and
administrative
expenses................. 1,762 2,176 2,446 2,694 2,689 3,075 3,219 4,121 4,039
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 1,449 1,908 1,687 1,770 1,984 2,849 3,102 3,645 3,671
Interest and other
income................... 34 36 46 53 53 46 63 102 84
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................... 1,483 1,944 1,733 1,823 2,037 2,895 3,165 3,747 3,755
Provision for income
taxes.................... 26 35 31 32 39 55 60 71 57
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. $ 1,457 $ 1,909 $ 1,702 $ 1,791 $ 1,998 $ 2,840 $ 3,105 $ 3,676 $ 3,698
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the progress of contracts, revenues earned on contracts, the commencement and
completion of contracts during any particular quarter, the schedule of the
government agencies for awarding contracts, the term of each contract that the
Company has been awarded and general economic conditions. Because a significant
portion of the Company's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commenced or completed during any quarter may cause significant
variations in operating results from quarter to quarter. Furthermore, the
Company has on occasion experienced a pattern in its results of operations
pursuant to which it incurs greater operating expenses during the start-up and
early stages of significant contracts. In addition, the termination of the SSA
Contract will significantly reduce the Company's revenue base as compared to
previous quarters. No assurances can be given that quarterly results will not
fluctuate, causing a material adverse effect on the Company's operating results
and financial condition. See "Risk Factors -- Variability of Quarterly Operating
Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations. The Company's cash flows from operations were $1.8 million, $3.1
million, $2.9 million and $0.3 million for the three months ended December 31,
1996 and for the years ended September 30, 1996, 1995, and 1994, respectively.
Because the Company elected to be treated as an S corporation for tax purposes,
the Company's net cash provided by operations reflects only certain state taxes.
The timing of receipt of contract payments can vary and, combined with the
requirement to provide start-up funding for new projects, cash flows fluctuate
from period to period.
Of the $1.3 million of cash flow used for investing activities for the year
ended September 30, 1996, $1.0 million was used to purchase short-term municipal
bonds, which can be readily converted to cash if needed. The Company has no
material commitments for capital expenditures and, as a services company, does
not anticipate making any significant capital expenditures over the next two
years.
23
<PAGE> 25
Cash flows from financing activities consisted solely of stock sales to
employees, purchases from departing employees and S corporation distributions,
which were made to fund the payment of income taxes by the shareholders. The
Company does not anticipate the future payment of dividends, other than the S
Corporation Dividend.
The Company has a $10.0 million revolving credit facility (the "Credit
Facility") with a bank, which may be used for borrowing and the issuance of
letters of credit. Outstanding letters of credit totalled $1.2 million at
December 31, 1996. The Credit Facility bears interest at a rate equal to LIBOR
(approximately 5.4% at February 3, 1997) plus 2.0%. The Credit Facility contains
certain restrictive covenants and financial ratio requirements, including a
minimum net worth requirement of $10.5 million. The Company has not used the
Credit Facility to finance its working capital needs and, at December 31, 1996,
the Company had $8.8 million available under the Credit Facility.
The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs over the next 12 months, which may include
start-up costs associated with new contract awards, obtaining additional office
space, establishing new offices, expansion of international operations,
investment in upgraded systems infrastructure or acquisitions of other
businesses, technologies, product rights or distribution rights. In addition,
the Company's stronger financial condition should facilitate its ability to
compete for certain larger contracts from which it is currently restricted.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued in October 1995. The Company will be
required to adopt the new standard for its fiscal year ending September 30,
1997. This standard establishes the fair-value-based method (the "FAS 123
Method") rather than the intrinsic value based method as the preferred
accounting methodology for stock-based compensation arrangements. Entities are
allowed to: (i) continue to use the intrinsic value based methodology in their
basic financial statements and provide in the footnotes pro forma net income and
earnings per share information as if the FAS 123 Method had been adopted; or
(ii) adopt the FAS 123 Method. The Company anticipates providing the required
disclosures in the Notes to the Financial Statements.
24
<PAGE> 26
BUSINESS
OVERVIEW
MAXIMUS is a leading provider of program management and consulting services
to government health and human services agencies in the United States. Since
1975, the Company has been at the forefront of innovation in "Helping Government
Serve the People(TM)." The Company's services are designed to make government
operations more efficient and cost effective while improving the quality of the
services provided to program beneficiaries. The Company applies an
entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. The Company's leading
position in the emerging private sector health and human services industry is
reflected by its continued success in being awarded competitively bid contracts
by government health and human services agencies and a corresponding growth in
annual revenues from approximately $19 million in fiscal 1990 to over $100
million in fiscal 1996.
MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.
MARKET OPPORTUNITY
The Company believes that providing program management and consulting
services to government agencies in the health and human services sector
represents a significant market opportunity for the Company. Federal, state and
local government agencies in the United States spend over $200 billion annually
on the
health and human services programs for which the Company markets its services,
including welfare, child care, child support enforcement, food stamps, Social
Security Disability Insurance, Supplemental Security Income and Medicaid. These
programs cost an estimated $21.0 billion in annual administrative costs. The
following chart sets forth currently available data from U.S. government
publications for programs served by the Company:
<TABLE>
<CAPTION>
ESTIMATED NUMBER ESTIMATED ANNUAL
PROGRAM OF BENEFICIARIES SERVED ADMINISTRATIVE EXPENDITURES
<S> <C> <C>
Social Security Disability Insurance... 5.9 million $ 1.1 billion
Supplemental Security Income........... 6.5 million 2.0 billion
Food Stamps............................ 28.0 million 3.7 billion
Medicaid............................... 35.1 million 7.7 billion
Temporary Assistance to Needy
Families............................. 13.6 million 3.5 billion
Child Support Enforcement.............. 9.9 million 3.0 billion
</TABLE>
There has been a recent surge in legislation and initiatives to reform
federal, state and local welfare and health and human services systems. The most
significant of these legislative reforms is the Welfare Reform Act, which
restructures the benefits available to welfare recipients, eliminates
unconditional welfare entitlement and, most importantly, restructures the
funding mechanisms that exist between federal and state governments. Under the
Welfare Reform Act, states will receive block grant funding from the federal
government and will no longer be able to seek reimbursement in the form of
matching federal government funds for expenditures in excess of block grants.
Accordingly, states will bear the financial risk for the operation of their
welfare programs. A number of state governments are taking action to respond to
the changes created by welfare reform. For example, the State of Wisconsin
recently awarded a performance-based contract to the Company to manage the
welfare-to-work program in part of Milwaukee. In addition, in Essex County
(Newark), New Jersey, authorities are currently preparing an RFP for the
administration of the county's welfare programs, which currently cost
approximately $52 million per year to administer.
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The Company believes that political pressures, combined with the financial
constraints imposed by the Welfare Reform Act, will accelerate the rate at which
state and local health and human services agencies seek new solutions to reduce
costs and improve the effectiveness of entitlement programs. The Company
believes that government agencies are increasingly turning to companies similar
to MAXIMUS to administer programs more effectively. Government outsourcing
ranges from the engagement of sophisticated private consulting firms working
with government to improve the delivery of human services to the complete
outsourcing of government health and human services programs. The Company
believes that many government agencies have concluded that private companies,
similar to MAXIMUS, offer cost savings and increased efficiency due to their
ability to: (i) accept contracts where compensation is based on performance;
(ii) attract and compensate experienced, high level management personnel; (iii)
rapidly procure and utilize advanced technology; (iv) vary the number of
personnel on a project to match fluctuating work loads; (v) increase
productivity by providing employees with financial incentives and performance
awards and more readily terminating non-productive employees; (vi) provide
employees with ongoing training and career development assistance; and (vii)
maintain a professional work environment that is more conducive to employee
productivity.
STRENGTHS AND DIFFERENTIATIONS
MAXIMUS has been a pioneer in offering state and local government agencies
a private sector alternative to the internal administration of government health
and human services programs and has been innovative in developing new businesses
and market opportunities for the Company's services. The Company believes that
the following business strengths and differentiating characteristics position it
to capitalize on the significant market opportunities presented by the
environment of changing health and human services program regulation and
evolving technologies.
Vertical Market Focus. The Company believes that it is the largest company
dedicated exclusively to providing program management and consulting services to
government health and human services agencies. The Company has accumulated a
detailed knowledge base and understanding of the regulation and operation of
health and human services programs that allows it to apply proven methodologies,
skills and solutions to new projects in a cost-effective and timely fashion. The
Company believes that its exclusive focus, size and broad range of health and
human services program expertise differentiate it from both small firms and non-
profit organizations with limited resources and skill sets as well as from large
consulting firms that serve multiple industries but lack the focus necessary to
understand the complex nature of serving government agencies.
Proven Track Record. Since 1975, MAXIMUS has successfully applied its
entrepreneurial private sector approach to assisting government health and human
services agencies. Over the last five years, MAXIMUS has successfully completed
approximately 100 program management and consulting services projects for state
and local health and human services agencies serving millions of beneficiaries
in nearly every state. The Company believes that the successful execution of
these projects has earned MAXIMUS a reputation for providing efficient and
cost-effective services to government agencies while improving the quality of
services provided to program beneficiaries. This reputation has contributed
significantly to its ability to compete successfully for new contracts.
Wide Range of Services. Many of the Company's clients require their
vendors to provide a broad array of service offerings, something many of the
Company's competitors cannot provide. Engagements often require creative
solutions that must be drawn from diverse areas of expertise. The Company's
expertise in a wide range of services enable it to better pursue such
opportunities and to offer itself as a single-source provider of program
management, consulting and information technology services to government
agencies.
Proprietary Case Management Software Program. MAXIMUS has developed a
proprietary automated case management software program called the MAXSTAR Human
Services Application Builder. MAXSTAR is a software platform that allows the
Company to reduce project implementation time and cost. Because government
agencies are required to manage vast amounts of data and large numbers of cases
without
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access to advanced technology and experienced professionals, the Company
believes that MAXSTAR, together with the Company's information technology
professionals, is a key element of its success.
Experienced Team of Professionals. MAXIMUS has assembled an experienced
management team of former government executives, state agency officials,
information technology specialists and other professionals with backgrounds in
the public health and human services industry. The Company's employees
understand the problems and challenges faced in the marketing, assessment and
delivery of government agency services. Furthermore, since state and local
government administrators are subject to changing legislative and political
mandates, MAXIMUS has developed strong relationships with experienced political
consultants who inform and advise the Company with respect to strategic
marketing and legislative initiatives.
GROWTH STRATEGY
The Company's goal is to be the leading provider of administrative and
consulting services to government health and human services programs. The
Company's strategy to achieve this goal includes the following:
Capitalize on Government Reform. The Company believes that it is
well-positioned to benefit from the expected increase in demand for new program
management and consulting services that will arise in an environment
characterized by changing regulation and evolving technology. The Company
believes that fiscal pressures will compel state governments to rationalize
program operations and upgrade existing technology to operate more
cost-efficient and productive programs. To achieve these efficiencies, MAXIMUS
believes that many government agencies will turn to outside experts for help.
Aggressively Pursue New Business Opportunities. Throughout its 21-year
history, the Company has been a leader in developing innovative solutions to
meet the evolving needs of state and local health and human services agencies.
The Company plans to expand its revenue base by: (i) marketing new and
innovative program management solutions to the Company's extensive client base;
(ii) expanding the Company's client base by marketing the Company's experience
and established methodologies and systems; (iii) investing in early
identification of government bid opportunities; and (iv) submitting competitive
bids that leverage the Company's proven solutions for past projects.
Recruit Highly Skilled Professionals. The Company continually strives to
recruit top government management and information technology professionals with
the experience, skills and innovation necessary to design and implement
solutions to complex problems presented by resource-constrained government
agencies. The Company also seeks to attract middle-level consultants with a
proven track record in the health and human services field and a network of
political contacts to leverage the Company's existing management infrastructure,
client relationships and areas of expertise.
Pursue Strategic Acquisitions. Given the highly fragmented structure of
the government services and consulting marketplace, MAXIMUS believes that
numerous acquisition opportunities exist. Acquisitions can provide the Company
with a rapid, cost-effective method to grow its number of consultants, broaden
its client base, establish or expand its presence in a geographic region or
obtain additional skill sets.
There can be no assurance that the Company will be successful in
implementing any or all of its growth strategies or in achieving its goal, all
of which are subject to various risks, including legislative change,
requirements for significant up-front financial investment, continued ability to
attract and retain qualified employees and risks related to acquisitions. See
"Risk Factors."
SERVICES
The Company's services are designed to make government operations more
efficient and cost effective while improving the quality of the services
government agencies provide to program beneficiaries. The Company organizes its
operations into two groups: (i) the Government Operations Group, specializing in
the management of government health and human services operations; and (ii) the
Consulting Group, providing health and human services planning, information
technology consulting, strategic program evaluation, program improvement and
revenue maximization services.
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GOVERNMENT OPERATIONS GROUP
The Company's Government Operations Group is comprised of four divisions
specializing in the administration and management of government health and human
services programs.
Welfare Reform Division. The Company manages welfare-to-work programs by
providing a wide range of services, including eligibility determination,
emergency assistance, job referral and placement, transition services such as
child care and transportation, community work training services, job readiness
preparation, case management services and selected educational and training
services. The Company's typical welfare-to-work contract involves the engagement
of the Company for a period of three to five years. The Company has served
approximately 212,000 welfare recipients at 28 locations in six states. In 1996,
for example, Fairfax County, Virginia awarded the Company a one year, $2 million
contract to place welfare recipients into unsubsidized employment. To date, the
Company has achieved a placement rate in excess of 90% on this contract.
Child Support Enforcement Division. The Company provides a full range of
child support enforcement ("CSE") services, including: (i) outreach to and
interview of parents of children entitled to child support; (ii) establishing
paternity and obtaining, enforcing, reviewing and modifying child support
orders; and (iii) payment processing. The Company operates statewide client
service units, updates case arrearage and demographic data for new CSE automated
systems and provides training to CSE workers. The Company believes that it has
one of the largest CSE staffs in the private sector with over 350 professionals.
The Company has been performing these services since 1976, which the Company
believes is longer than any other private sector firm in the United States. The
Company is currently engaged in the management of CSE programs in 13 locations
in seven states providing full child support services for approximately 150,000
cases and specialized services for an additional 95,000 cases. For example, the
Company currently is providing services under a five year, $12 million,
full-service CSE program management contract in Nashville, Tennessee.
Disability Services Division. The Company provides a host of
disability-related services geared toward case management, client assessment,
treatment and vocational rehabilitation referral, client monitoring and
innovative return-to-work strategies. MAXIMUS became the first company to
operate a national case management and monitoring program for disability
beneficiaries in 1995 when it won a contract with the Social Security
Administration to provide referral and monitoring services to beneficiaries with
drug or alcohol disabilities. The SSA Contract was the largest ever awarded by
the SSA with potential revenues of $350 million. Under the SSA Contract, the
Company has successfully referred approximately 100,000 disabled beneficiaries
into treatment as a first step to re-entering the work force. The Company
believes the skills and tools it employed in the SSA Contract will be invaluable
in pursuing other large scale program management contracts. One example is the
1996 five-year, $4.6 million contract awarded to the Company by the State of New
Jersey to develop and implement a program to identify and locate family members
responsible for paying the institutional care costs of their disabled relatives.
Managed Care Enrollment Services Division. MAXIMUS has obtained
significant experience in managing certain aspects of Medicaid programs through
projects in 20 states. In these projects, MAXIMUS provides recipient outreach,
education and enrollment services; an automated information system customized
for the state; data collection and reporting; outreach to community-based
organizations and advocacy groups; design and development of program materials;
collection of enrollment premiums for uninsured participants; encounter data
reporting to health plans; and care coordination for Early and Periodic
Screening, Diagnosis and Treatment services. MAXIMUS currently operates the
California Options Project, a three year managed care enrollment contract
awarded to the Company in 1996. This project is one of the largest Medicaid
managed care enrollment programs in the country with over two million program
beneficiaries. The Company has also recently been awarded a significant managed
care enrollment contract with the State of New York.
CONSULTING GROUP
The Company's Consulting Group is organized into four operational
divisions: the Human Services Division, the Information Technology Division, the
Systems Planning and Integration Division and the International Division.
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Human Services Division. The Company provides consulting and technical
support to the federal government as well as to state and local government
agencies in the financing, delivery and management of a range of human services
programs in the areas of revenue maximization, program evaluations and program
improvement. Revenue maximization involves seeking to increase federal financial
participation in state health and human services programs. The Company collects
a contingency fee based on the amount of additional federal revenues recovered.
Since it began offering revenue maximization services, the Company has succeeded
in obtaining approximately $150 million in additional federal revenues and is
currently engaged in projects that the Company estimates will yield more than
$150 million in additional federal revenues. The Company is also frequently
engaged to conduct evaluations and provide improvement recommendations for
government programs. Program evaluation consulting contracts are frequently
long-term, multi-year research projects involving the collection of extensive
data using automated data merges as well as surveys and case record reviews.
Since 1994, the Company has completed 50 revenue maximization, program
evaluation and program improvement projects in over 25 states and localities and
has recorded approximately $16 million in revenues from these types of projects.
Since 1993, the State of Wisconsin has awarded to the Company a series of
program evaluation engagements for the Department of Health and Social Services
valued at $6 million.
Information Technology Division. The Company provides computer system
management services to state and local government agencies administering health
and human services and criminal justice programs. MAXIMUS provides assistance in
designing and/or implementing emerging technologies involving Internet/Intranet,
imaging, telephony, automated kiosks and touch screen technology. The Company
provides assistance in assessing and evaluating the extent of Year 2000 problems
and in strategic planning to resolve compliance issues. The Company believes
that welfare reform legislation will increase the need for new and re-engineered
systems applications, thus increasing the demand for the Company's services.
This division also supports the technical electronic data processing needs of
the Company's other divisions. Since 1991, the Company has provided information
technology systems and design services for 41 projects in 17 states. For
example, the Company is currently engaged in a six month, $900,000 contract to
provide Year 2000 planning to the Office of Policy and Management of the State
of Connecticut.
Systems Planning and Integration Division. The Company provides a range of
systems consulting support services to state and local government health and
human services agencies and criminal justice systems. This division focuses on
integrating different systems and provides objective, third party strategic
planning, procurement and project management support. Since 1990, the State of
Michigan has awarded to the Company various contracts valued at more than $7
million in the aggregate to monitor and assess Family Assistance Management
Information Systems, CSE systems and Medicaid Management Information Systems.
International Division. The Company provides healthcare consulting and
systems services to assist foreign government agencies and healthcare
organizations responsible for the delivery of treatment services to large
populations. The Company automates and restructures clinical information systems
for large outpatient providers, hospital information systems, managed care
information systems, beneficiary management systems and treatment network
management systems for managing large networks of health treatment facilities.
In addition, MAXIMUS consults with foreign government agencies in developing
healthcare policy reforms, treatment quality improvements and productivity
enhancements. The Company's healthcare systems software, developed in
ORACLE7(R), is a platform-independent and multi-language software package. The
Company has developed an Arabic language version of this software for use in the
Middle East. Currently, the division is engaged in a major automation project
for the United States Agency for International Development in Egypt. The
objective of the five-year, $22 million contract is to install a national
healthcare system database in 18 hospitals and 200 clinics throughout Egypt,
allowing the Egyptian Health Insurance Organization to better manage its
facilities.
BACKLOG
The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts. Using the best available information,
the Company estimates backlog on a quarterly basis with
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respect to all executed contracts. The backlog estimate includes revenues
expected under the current terms of executed contracts, revenues from contracts
in which the scope and duration of the services required are not definite but
estimable and does not assume any contract renewals or extensions.
Changes in the backlog calculation from quarter to quarter result from: (i)
additional revenues from the execution of new contracts or extension or renewal
of existing contracts; (ii) reduction in revenues from fulfilling contracts
during the most recent quarter; (iii) reduction in revenues from the early
termination of contracts; and (iv) adjustments to estimates of previously
included contracts.
At March 27, 1997 and March 31, 1996, the Company's backlog for services
pursuant to its contracts with federal, state and local health and human
services agencies was approximately $194.5 million and $114.2 million,
respectively. At March 27, 1997 and March 31, 1996, the Company's backlog,
excluding the SSA Contract, was approximately $194.5 million and $44.8 million,
respectively. The backlog for services at March 27, 1997 included $96.0 million
pursuant to four contracts which have been awarded to the Company but have not
yet been signed. The Company anticipates that these contracts will be signed
during the quarter ending June 30, 1997.
MARKETING AND SALES
The Company's Government Operations Group obtains program management
contracts from state and local authorities by responding to RFPs issued by such
authorities. Whenever possible, prior to the issuance of an RFP, senior
executives in the Government Operations Group work with senior government
representatives, such as the governor, members of the governor's staff and the
heads of health and human services agencies to encourage them to outsource
certain health and human services functions. To identify opportunities to work
with government officials at early stages and to optimize the government's
receptivity to the Company's proposal to provide program management services,
the Company establishes and maintains relationships with elected officials,
political appointees and government employees. The Company occasionally engages
marketing consultants, including lobbyists to establish and maintain
relationships with these client representatives. The Company's consultants and
lobbyists provide introductions to government personnel and provide information
to the Company regarding the status of legislative and executive
decision-making.
Following the issuance of an RFP the Government Operations Group
participates in formal discussions, if any, between the contracting government
agency and the group of potential service providers seeking to modify the RFP
and prepare the proposal. Upon the award of a government operations contract,
the Company's representatives then negotiate the contract with representatives
of the contracting government authority until all terms are agreed.
The Consulting Group generates leads for consulting contracts by employing
lobbyists, maintaining relationships with government personnel in charge of
health and human services operations and communicating directly with current and
prospective clients. The Consulting Group participates in professional
associations of government administrators and industry seminars featuring
presentations by MAXIMUS personnel. Senior executives from the Consulting Group
develop leads through on-site presentations to the decision-makers. In most
cases, consulting contracts, like program management contracts, are obtained
after responding to a formal RFP. The Consulting Group's efforts in generating a
lead prior to the RFP can facilitate the Company's insight in responding to a
particular RFP. A portion of the Consulting Group's new business arises from
prior client engagements, in which case the Company may be the sole source of
services. In addition, clients frequently expand the scope of engagements during
delivery to include follow-on activities.
COMPETITION
The market for providing program management and consulting services to
state and local health and human services agencies is competitive and subject to
rapid change. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large companies such
as Lockheed Martin Corp. and Electronic Data Systems, Inc., managed care
enrollment companies such as Foundation Health Corporation and specialized
service providers such as Andersen Consulting, America Works, Inc., Policy
Studies Incorporated and GC Services, Inc. The Company's Consulting Group
competes with the consulting divisions of the "Big 6" accounting firms as well
as Electronic Data Systems, Inc. Many of these companies
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are national and international in scope and have greater financial, technical,
marketing and personnel resources than the Company. The Company anticipates that
it will face increased competition in the future as new companies enter the
market. The Company believes that its experience, reputation, industry focus and
broad range of services will enable it to compete effectively in its
marketplace. See "Risk Factors -- Intense Competition."
GOVERNMENT REGULATION
The market for the Company's services exists under a United States federal
regulatory framework of social programs which are largely implemented at the
state or local level. The following summarizes this framework:
WELFARE PROGRAMS. Under Title IV-A of the federal Social Security Act, the
federal government provides financial assistance to underprivileged families
under several programs generally known as "Welfare," which have included Aid to
Families with Dependent Children ("AFDC"), Job Opportunities and Basic Skills
Training ("JOBS") and the Food Stamp Program. Under the AFDC program, cash
welfare payments are provided to needy children who have been deprived of
parental support or care and certain others in the household of the child. State
governments are required to define "need," set their own benefit levels,
establish (within federal limitations) income and resource limits and administer
the program or supervise its administration. Beginning in October 1990, the
federal government required each state to implement a JOBS program, which is
designed to help needy families with children to avoid long-term Welfare
dependency by providing education, training, job placement and other supportive
services including child care. The Food Stamp Program is designed to improve the
nutrition of low-income households and is also administered by state welfare
agencies under the supervision of the United States Department of Agriculture.
Benefits are generally provided in the form of food stamp coupons and are funded
by the federal government, which reimburses part of the cost of establishing an
automated system and part of the cost of operating an automated food stamp
program.
Under the recently enacted Welfare Reform Act, AFDC and JOBS have been
combined into a single program, known as "Temporary Assistance to Needy
Families" or "TANF." Under TANF the federal government will make "block grants"
of funds to the states, to be administered at the state level in programs that
include certain mandatory work, education and job-related activities, including
job training and job search for the purposes of: (i) providing needy families
with time-limited assistance in order to end their dependency on government
benefits and achieve self-sufficiency; (ii) preventing and reducing
out-of-wedlock pregnancies, especially teenage pregnancies; and (iii)
encouraging the formation and maintenance of two-parent families. While the
federal act provides general requirements, states must determine how these
requirements will be met.
CHILD SUPPORT ENFORCEMENT. The federal Child Support Enforcement ("CSE")
program, authorized under Title IV-D of the Social Security Act, was established
in 1975 in response to the increasing failure of many parents to provide
financial support to their children. The purpose of the CSE program is to help
strengthen families and reduce Welfare dependency by placing the responsibility
for supporting children on the parents rather than on the government. State
governments are generally required to locate absent parents, establish paternity
if necessary, obtain judicial support orders and collect the support payments
required by those orders. Child Support Enforcement has been the subject of
close scrutiny in recent years and is an area of health and human services where
government has sought significant private sector involvement including full
service program management efforts.
The Child Support Enforcement Amendments of 1984 mandated that state CSE
information systems, in order to receive matching federal funding, must meet
certain federal functional requirements covering case initiation, case
management, database linkage, financial management, enforcement, security,
privacy and reporting. The Family Support Act of 1988, effective October 1992,
mandated enhanced functional requirements for state CSE systems, including the
implementation of automated systems able to interface electronically with other
state systems such as Welfare, driver and vehicle registration and Medicaid
systems.
SOCIAL SECURITY DISABILITY INSURANCE AND SUPPLEMENTAL SOCIAL SECURITY
INCOME. Titles II and XVI of the federal Social Security Act provide for the
administration and distribution of financial assistance to
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disabled individuals whose impairments make them unemployable. These benefits
fall into two categories: (i) Social Security Disability Insurance (Title II)
provides financial benefits to individuals who have contributed to Social
Security during a prior period of employment; and (ii) Supplemental Security
Income or SSI (Title XVI) provides financial benefits to individuals who meet
all the disability criteria used to determine eligibility under Title II, but
who have not made a sufficient contribution to Social Security. Recently, there
has been political pressure on the Social Security Administration (the "SSA") to
review the caseload of Title II and Title XVI beneficiaries to ensure that each
individual's disability still exists and that the extent of such disability
remains sufficient to preclude employment. In addition, the SSA has been under
pressure to increase and improve vocational rehabilitation efforts focused on
returning disabled beneficiaries to work and self-sufficiency.
MEDICAID AND MEDICARE. Medicaid and Medicare were implemented under Title
XIX and XVIII of the Social Security Act. Medicaid is a federal-state matching
entitlement program, that provides reimbursement for the cost of medical care to
low-income individuals who are aged, blind, disabled or AFDC beneficiaries, and
to certain pregnant woman and children. Within broad federal guidelines, each
state designs and administers its own program. Eligibility and claims processing
systems are automated by each state to handle this program, which is typically
the largest line item in a state budget. Federal assistance is also available on
a waiver basis for managed care experimental medical treatment for Medicaid
recipients and similar populations. Medicare is a federal entitlement program
providing reimbursement of a portion of the cost of medical care provided to the
elderly.
HUMAN RESOURCES
As of March 27, 1997, the Company had 1,094 employees, consisting of 906
employees in the Government Operations Group, 106 employees in the Consulting
Group and 82 administrative employees. The Company's success depends in large
part on attracting, retaining and motivating talented, innovative and
experienced professionals at all levels. In connection with its hiring efforts,
the Company employs a full-time human resources coordinator, retains several
executive search firms and relies on personal and business contacts to recruit
senior level employees for senior management positions in the Government
Operations Group and the Consulting Group and for senior administrative
positions. When the Company's Government Operations Group is awarded a contract
by state or local government, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. To meet such needs, the Company engages intensive short-term hiring
efforts at the project's location. See "Risk Factors -- Reliance on Key
Executives" and "-- Attraction and Retention of Employees."
The Company's hiring focus is to identify candidates who are well suited by
background and temperament to serve the Company's government clients. The
Company's Government Operations employees are largely drawn from government
employment positions, while the Consulting Group employees are largely selected
from other consulting organizations and government agencies.
MAXIMUS offers employees an internal training program designed to enhance
professional skills and knowledge. Offered twice a year, the three-day program
includes human resources topics such as cultural sensitivity, sexual harassment
and wrongful termination; marketing, proposal writing and public relations;
project administration topics, such as contract negotiations, project
management, deliverable preparation and client management; and technology
updates. In addition, MAXIMUS offers partial tuition reimbursement for employees
pursuing relevant degree programs and fully reimburses employees for relevant
training seminars and short courses.
The Company promotes loyalty and continuity of its employees by offering
packages of base and incentive compensation and benefits that it believes are
significantly more attractive than those offered by the government or other
government consulting firms in general. In addition, to attract and retain
employees, the Company has established several employee benefit plans. See
"Management -- Stock Plans" and "-- 401(k) Plan."
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LEGAL PROCEEDINGS
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company, and
other parties, as third party defendants in an action by the State of Hawaii
against Network Six. In 1991, the Company's Consulting Group was engaged by the
State of Hawaii to provide assistance in planning for and monitoring the
development and implementation by Hawaii of a statewide automated child support
system. In 1993, Hawaii contracted with Network Six to provide systems
development and implementation services for this project. In 1996 the state
terminated the Network Six contract for cause and filed an action against
Network Six. Network Six counterclaimed against Hawaii that the state breached
its obligations under the contract with Network Six. In the Third Party
Complaint, Network Six alleges that the Company is liable to Network Six on
grounds that: (i) Network Six was an intended third party beneficiary under the
contract between the Company and Hawaii; (ii) the Company engaged in bad faith
conduct and tortiously interfered with the contract and relationship between
Network Six and Hawaii; (iii) the Company negligently breached duties to Network
Six; and (iv) the Company aided and abetted Hawaii in Hawaii's breach of
contract. Network Six's complaint seeks damages, including punitive damages,
from the Company in an amount to be proven at trial. The Company believes
Network Six may have filed or may in the future file actions in other
jurisdictions asserting similar claims against the Company. The Company believes
that Network Six was not an intended third party beneficiary under its contract
with Hawaii and that Network Six's claims are without merit. The Company does
not believe this action will have a material adverse effect on the Company's
business, and it intends to rigorously defend this action. However, given the
early stage of this litigation, no assurance may be given that the Company will
be successful in its defense.
The Company is not a party to any material legal proceedings, except as set
forth above.
FACILITIES
The Company is headquartered in McLean, Virginia, in a 21,000 square foot
office building which is owned by the Company. The Company leases office space
for other management and administrative functions in connection with the
performance of its contracts in various states and foreign countries. On
December 31, 1996, the Company conducted operations from twenty leased office
facilities totalling 300,000 square feet. See Note 6 of Notes to Financial
Statements. The lease terms vary from month-to-month to three-year leases and
are at market rates. The Company believes that additional space will be required
as the business expands and believes that it will be able to obtain such space
as needed.
33
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees and their
respective ages and positions as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David V. Mastran(1)................ 54 President, Chief Executive Officer and Director
Raymond B. Ruddy(1)................ 53 Chairman of the Board of Directors, Vice President of
the Company and President of Consulting Group
Russell A. Beliveau(2)............. 49 President of Government Operations Group and Director
F. Arthur Nerret................... 49 Treasurer and Chief Financial Officer
Donna J. Muldoon................... 54 Vice President of Administrative Services, Secretary
and Director
Susan D. Pepin(2).................. 42 President of Systems Planning and Integration Division
and Director
Lynn P. Davenport.................. 49 President of Human Services Division and Director
Robert J. Muzzio................... 62 Executive Vice President and Director
Ilene R. Baylinson................. 40 President of Disability Services Division
Edward F. Hilz..................... 51 Chief Information Officer
David A. Hogan..................... 48 President of Child Support Division
John P. Lau, Sr.................... 53 President of International Division
Holly A. Payne..................... 44 President of Welfare Reform Division
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
David V. Mastran has served as President and Chief Executive Officer since
he founded the Company in 1975. Dr. Mastran received his Sc. D. in Operations
Research from George Washington University in 1973, his M.S. in Industrial
Engineering from Stanford University in 1966 and his B.S. from the United States
Military Academy at West Point in 1965.
Raymond B. Ruddy has served as the Chairman of the Board of Directors since
1985 and President of the Company's Consulting Group since 1986. From 1969 until
he joined the Company, Mr. Ruddy served in various capacities with Touche Ross &
Co., including, Associate National Director of Consulting from 1982 until 1984
and Director of Management Consulting (Boston, Massachusetts office) from 1978
until 1983. Mr. Ruddy received his M.B.A. from the Wharton School of Business of
the University of Pennsylvania and his B.S. in Economics from Holy Cross
College.
Russell A. Beliveau has served as the President of the Company's Government
Operations Group since 1995. Mr. Beliveau has more than 20 years experience in
the Health and Human Services Industry during which he has worked in both
government and private sector positions at the senior executive level. Mr.
Beliveau's past positions include Vice President of Operations at Foundation
Health Corporation of Sacramento, California from 1988 through 1994 and Deputy
Associate Commissioner (Medicaid) for the Massachusetts Department of Public
Welfare from 1983 until 1988. Mr. Beliveau received his M.B.A. in Business
Administration and Management Information Systems from Boston College in 1980
and his B.A. in Psychology from Bridgewater State College in 1974.
F. Arthur Nerret has served as Treasurer and Chief Financial Officer of the
Company since 1994 and serves as Trustee of the Company's 401(k) Plan. He has
over 24 years of accounting experience as a CPA. From 1981 until he joined the
Company, Mr. Nerret held a variety of positions at Frank E. Basil, Inc. in
Washington, D.C. including Vice President, Finance from 1991 to 1994 and
Director of Finance from 1989 until 1991. Mr. Nerret received his B.S. in
Accounting from the University of Maryland in 1970.
34
<PAGE> 36
Donna J. Muldoon has served as the Vice President of the Company's
Administrative Services Division since 1989 and has served in various
administrative capacities since 1978. Before joining the Company, Ms. Muldoon
was an Administrative/Top Secret Control Officer with the Department of the Air
Force, Logistic Plans and Programs, from 1973 until joining the Company.
Susan D. Pepin has served as the President of the Company's Systems
Planning and Integration Division since 1994 and has been with the Company since
1988. She has over 14 years experience in technical management and consulting
with a focus on health and human services management information systems. Before
joining the Company, Ms. Pepin served as Director of eligibility systems for the
Massachusetts Department of Public Welfare from 1984 until 1987 and a Project
Leader for Wang Laboratories, Inc. from 1979 until 1984. Ms. Pepin received her
B.S. in Home Economics with a concentration in Consumer Studies and a minor in
Business from the University of New Hampshire in 1976.
Lynn P. Davenport has served as the President of the Company's Human
Services Division since he joined the Company in 1991 after 17 years of health
and human services experience in the areas of administration, productivity
improvement, management consulting, revenue maximization and management
information systems. Prior to joining the Company, Mr Davenport was employed by
Deloitte & Touche, and its predecessor, Touche Ross & Co., in Boston,
Massachusetts, where he became a partner in 1987. Mr. Davenport received his
M.P.A. in Public Administration from New York University in 1971 and his B.A. in
Political Science and Economics from Hartwick College in 1969.
Robert J. Muzzio has served in various positions with the Company since
1979, including Executive Vice President since 1987, and has more than 30 years
of experience as a health care administrator, health systems researcher, and
personnel and manpower analyst. Prior to joining the Company, Mr. Muzzio held
many public and private sector positions in the health care industry, including
Life Support Coordinator for the Morrison Knudsen Saudi Arabia Consortium in
1978 and 1979 and Director of the Personnel Policies Division of the Office of
the Surgeon General, Department of the Army, from 1976 until 1978. Mr. Muzzio
received his M.A. in Health Care Administration from Baylor University in 1967
and his B.A. in Public Health from San Jose State College in 1956.
Ilene R. Baylinson has served as the President of the Company's Disability
Services Division since 1995 and as Chief Operating Officer from 1991 to 1995.
She has more than 17 years of experience in health and human services program
administration. After obtaining her B.A. from John Hopkins University in 1978,
Ms. Baylinson worked in a variety of positions for Koba Associates, Inc. of
Washington, D.C., including Senior Vice President for Corporate Management,
Marketing and Operations from 1989 until her departure and Corporate Vice
President/Director, Law and Justice Division from 1985 through 1991.
Edward F. Hilz has served as the Company's Chief Information Officer since
1992 and has over 18 years of experience in the areas of research and
development, telecommunications, health, marketing, finance and data center
management. From 1987 until joining the Company, Mr. Hilz served as Chief
Operating Officer of Nationwide Remittance Centers of McLean, Virginia.
Previously, Mr. Hilz had worked in a variety of capacities for Martin Marietta
Data Systems, Inc. since 1980. Mr. Hilz received a B.S. in Business
Administration and Computer Sciences from the University of Baltimore in 1969.
David A. Hogan has served as the President of the Company's Child Support
Division since 1994 and served as a Vice President of the division from 1993
until 1994. Prior to joining the Company, Mr. Hogan spent 23 years working in
numerous positions for the Washington State Department of Social and Health
Services including five years as the State's Child Support Director. Mr. Hogan
also served one year as the President of the National Child Support Directors
Association. Mr. Hogan received his J.D. from the University of Puget Sound in
1976 and his B.A. from Western Washington University in 1970.
John P. Lau, Sr. has served as the President of the Company's International
Division since 1993 and served as President of the Company's Advanced Systems
Division from 1989 until 1993. From 1961 until 1988, Mr. Lau worked in a variety
of government and private health care systems organizations in technical,
managerial and executive positions. Most recently, Mr. Lau was a Vice President
of Modern Psychiatric Systems in Rockville, Maryland in 1988 and 1989 and served
from 1968 through 1988 as Consultant to the
35
<PAGE> 37
President of Creative SocioMedics Corporation. Mr. Lau received his M.S. in
Physics from Fairleigh Dickinson University in 1968 and his B.S. in Physics from
St. Peter's College, Jersey City, New Jersey in 1965.
Holly A. Payne has served in various executive capacities at the Company
since 1987 and as President of the Company's Welfare Reform Division since 1995.
Ms. Payne has over 21 years of human services programs experience. From 1983
until she joined the Company, Ms. Payne was a Program Manager at Electronic Data
Systems Corporation in Bethesda, Maryland and from 1978 until 1983 she worked in
several capacities for the Departments of Social Services in Prince William and
Fairfax Counties in Virginia. Ms. Payne received her M.S.W. from West Virginia
University in 1978 and her B.S. in Family Services from Northern Illinois
University in 1975.
BOARD OF DIRECTORS
The Company's Amended and Restated Articles of Incorporation, to be filed
concurrently with the closing of this offering, provide for a classified board
of directors consisting of three classes, with each class being as nearly equal
in number of directors as possible. The Board of Directors currently consists of
seven members. The Company expects to increase the size of the Board of
Directors within 90 days after the closing of this offering and to fill the
newly created seats on the Board of Directors with at least two independent
directors.
The term of one class of Directors expires, and their successors are
elected for a term of three years, at each annual meeting of the Company's
shareholders. The Company has designated two Class I directors (Donna J. Muldoon
and Robert Muzzio), two Class II directors (Russell A. Beliveau and Susan D.
Pepin) and three Class III directors (David V. Mastran, Raymond B. Ruddy and
Lynn P. Davenport). These Class I, Class II and Class III directors will serve
until the annual meetings of shareholders to be held in 1998, 1999 and 2000,
respectively, and until their respective successors are duly elected and
qualified, or until their earlier resignation or removal. The Amended and
Restated Articles of Incorporation provide that directors may be removed only
for cause by a majority of shareholders. There are no family relationships among
any of the directors or executive officers.
Each of Raymond B. Ruddy and David V. Mastran, who will together hold 62.4%
of the outstanding Common Stock of the Company after giving effect to this
offering, has agreed to vote his shares in favor of the election of the other to
the Board of Directors, as long as each of such shareholders owns or controls at
least 20% of the Company's outstanding Common Stock. See "Agreements with
Executives."
BOARD COMMITTEES
The Company's Board of Directors has standing Audit and Compensation
Committees but does not have a Nominating Committee. The selection of nominees
for the Board of Directors may be made either by the entire Board of Directors
or, subject to certain notice provisions contained in the Company's Bylaws, by
any shareholder entitled to vote for the election of directors.
The Audit Committee, consisting of Mr. Beliveau and Ms. Pepin was formed in
January 1997 and has not held any meetings. The primary function of the Audit
Committee is to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fees charged by the
Company's independent accountants and other matters relating to internal control
systems. The Company intends to appoint two independent directors to the Audit
Committee.
The Compensation Committee determines the compensation to be paid to all
executive officers of the Company, including the Chief Executive Officer. The
Compensation Committee also administers the Company's 1997 Equity Incentive
Plan, including the grant of stock options and other awards under the Equity
Plan. The Compensation Committee, consisting of Dr. Mastran and Mr. Ruddy, was
also formed in January, 1997 and has not held any meetings. The Company intends
to appoint two independent directors to the Compensation Committee or to a
separate committee that will administer executive officer compensation.
36
<PAGE> 38
1997 DIRECTOR STOCK OPTION PLAN
All of the directors who are not employees of the Company or of any
subsidiary of the Company (the "Eligible Directors") are currently eligible to
participate in the Company's 1997 Director Stock Option Plan (the "Director
Plan"). Upon the closing of the Company's initial public offering and upon any
subsequent election or re-election of an Eligible Director, such director is
automatically granted an option to purchase 2,000 shares of Common Stock for
each year of the term of office for which such director has been elected (the
"Options"). The Options become exercisable with respect to 2,000 shares on the
date of grant, and if such Option is for more than 2,000 shares, such Option
shall become exercisable as to 2,000 shares on the next, or each of the next two
annual meetings of shareholders of the Company, as the case may be. The Options
have a term of ten years and an exercise price payable in cash or shares of
Common Stock. The exercise price for Options granted under the Director Plan is
equal to the closing price for the Common Stock on the business day immediately
preceding the date of grant, as reported on the New York Stock Exchange.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid with respect to services rendered in the fiscal year ended September 30,
1996 to the Company's Chief Executive Officer and four most highly compensated
executive officers of the Company, whose total salary for such fiscal year
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) COMPENSATION(3)
<S> <C> <C> <C>
David V. Mastran....................................... $311,538 $190,039 --
President and Chief Executive Officer
Raymond B. Ruddy....................................... 300,000 177,165 $ 12,000
Chairman of the Board, Vice President of the Company,
President of Consulting Services
Ilene R. Baylinson..................................... 181,731 200,175(4) 6,375
President of Disability Services Division
Lynn P. Davenport...................................... 212,884 246,067(4) 6,063
President of Human Services Division
Susan D. Pepin......................................... 184,358 212,883(4) 7,374
President of Systems Planning and Integration
Division
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total amount of annual salary and bonus for the
executive officer for the year ended September 30, 1996.
(2) Bonuses earned for the year ended September 30, 1996 were paid on September
30, 1996 for Mr. Ruddy and Ms. Baylinson, on October 21, 1996 for Dr.
Mastran, and on December 19, 1996 for Mr. Davenport and Ms. Pepin.
(3) The figures in this column represent the amount contributed by the Company
to the employee under the Company's 401(k) Plan.
(4) Excludes rights to purchase shares of Common Stock at the price of $1.46 per
share granted to Ms. Baylinson, Mr. Davenport and Ms. Pepin as part of their
compensation for the year ended September 30, 1996. Such purchase rights
applied to 34,650, 110,000 and 110,000 shares for Ms. Baylinson, Mr.
Davenport and Ms. Pepin, respectively. These executives surrendered their
purchase rights in exchange for options granted on January 31, 1997 under
the 1997 Equity Incentive Plan exercisable for the same number of shares at
an exercise price of $1.46 per share.
37
<PAGE> 39
STOCK PLANS
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"Equity Plan") authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options for the purchase of an aggregate of
1,000,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to employees of the Company and, in the case of
non-qualified stock options, to consultants of the Company or any Affiliate (as
defined in the Equity Plan) capable of contributing to the Company's
performance. Grants of options under the Equity Plan and all questions of
interpretations with respect to the Equity Plan are determined by the Board of
Directors of the Company. The Board of Directors has appointed the Compensation
Committee to administer the Equity Plan. As of the date of this Prospectus,
options to purchase 403,975 shares had been granted under the Equity Plan.
1997 Employee Stock Purchase Plan. The Company has also adopted an
employee stock purchase plan (the "Purchase Plan") under which employees may
purchase shares of Common Stock at a discount from fair market value. There are
500,000 shares of Common Stock reserved for issuance under the Purchase Plan. To
date, no shares of Common Stock have been issued under the Purchase Plan. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Rights to purchase Common Stock under
the Purchase Plan are granted at the discretion of the Compensation Committee,
which determines the frequency and duration of individual offerings under the
Plan and the dates on which stock may be purchased. Eligible employees
participate voluntarily and may withdraw from any offering at any time before
stock is purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The Purchase Plan
terminates on January 31, 2007. No shares have been or will be issued under the
Purchase Plan until after the closing of this offering.
401(K) PLAN
The Company has a 401(k) savings and retirement plan (the "401(k) Plan")
which covers substantially all employees of the Company. The 401(k) Plan allows
participants to agree to certain salary deferrals which the Company allocates to
the participants' plan account. These amounts may not exceed statutorily
mandated annual limits set forth in the Internal Revenue Code of 1986, as
amended. During the Company's most recent fiscal year, the Company matched
employee contributions to the 401(k) Plan dollar-for-dollar for the first four
percent of the employee's gross salary contributed to the plan per calendar
year.
AGREEMENTS WITH EXECUTIVES
Before the closing of this offering, the Company will have entered into
Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreements with Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms. Pepin
and Mr. Davenport (each, an "Executive Agreement") pursuant to which each
individual will agree to serve as an officer of the Company. Pursuant to the
terms of the Executive Agreements, the officer will be entitled to a base salary
and a year end bonus consistent with the Company's past practices. The initial
base salary for each of Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport will be $350,000, $350,000, $237,500, $182,000, $220,000
and $250,000, respectively. The term of the employment obligation under each
Executive Agreement will be four years subject to the right of the Company to
terminate each officer if the officer breaches any material duty or obligation
to the Company or engages in certain other proscribed conduct. Each Executive
Agreement also will provide that the officer will not compete with the Company
for four years and will maintain the Company's trade secrets in strict
confidence. In addition, the Executive Agreements will restrict the ability of
each officer to sell or transfer shares of Common Stock of the Company held by
such officer during a four year period following this offering and will grant to
the officer certain piggyback registration rights with respect to such shares.
See "Shares Eligible for Future Sale."
38
<PAGE> 40
In the Executive Agreements with each of Raymond B. Ruddy and David V.
Mastran, such executives will agree to vote their shares in favor of the
election of the other to the Board of Directors, as long as each of such
executives owns or controls at least 20% of the outstanding Common Stock. In
addition, Mr. Ruddy will agree in his Executive Agreement to vote his shares of
Common Stock in a manner consistent with instructions received from Dr. Mastran
during the four year period commencing on the closing of this offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was not in existence prior to January 1997.
Accordingly, Dr. Mastran and Messrs. Ruddy and Beliveau consulted one another
regarding executive officer compensation matters, with Dr. Mastran retaining
sole responsibility for any and all final decisions.
CERTAIN TRANSACTIONS
In January 1995, the Company loaned to Russell A. Beliveau, President of
Government Operations Group and a Director of the Company, the aggregate
principal amount of $64,860, evidenced by an interest bearing promissory note.
The note was repaid in full in September 1996.
In May 1995, the Company entered into a Stock Purchase Agreement with
Raymond B. Ruddy, under which the parties agreed that the Company will purchase
up to 2,878,040 of Mr. Ruddy's shares of Common Stock over a four year period,
subject to various conditions including an election by Mr. Ruddy after each
fiscal year end to demand such sale. This agreement will terminate upon
completion of this offering.
In March, 1996, the Company loaned to Lynn P. Davenport, President of Human
Services Division, the aggregate principal amount of $85,000, evidenced by an
interest bearing promissory note. The note was repaid in full in January 1997.
39
<PAGE> 41
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock immediately prior to this offering, and as adjusted to
reflect the sale of the shares offered hereby, by: (i) each person known by the
Company to own beneficially five percent or more of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers; (iv) each Selling Shareholder; and (v) all directors and
executive officers of the Company as a group. The Company believes that each
person named below has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such holder, subject to
community property laws where applicable. Unless otherwise indicated, each of
the Company's shareholders has an address in care of the Company's principal
executive offices.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO BENEFICIAL OWNERSHIP
OFFERING(1)(2) NUMBER AFTER OFFERING(1)
---------------------- OF SHARES ---------------------
NUMBER OF BEING NUMBER OF
NAME SHARES PERCENT OFFERED(2) SHARES PERCENT
<S> <C> <C> <C> <C> <C>
David V. Mastran...................... 6,050,000 54.5% 911,276 5,138,724 37.2%
Raymond B. Ruddy...................... 4,088,370 36.8 609,377 3,478,993 25.2
Russell A. Beliveau................... 253,000 2.3 36,879 216,121 1.6
F. Arthur Nerret...................... 4,125 * 0 4,125 *
Ilene R. Baylinson.................... 48,400 * 7,056 41,344 *
Lynn P. Davenport..................... 343,200 3.1 50,027 293,173 2.1
Donna J. Muldoon...................... 116,325 1.0 16,957 99,368 *
Susan D. Pepin........................ 288,200 2.6 42,010 246,190 1.8
Robert J. Muzzio...................... 143,550 1.3 20,925 122,625 *
All Directors and Executive Officers
as a group (9 persons).............. 11,335,170 99.6 1,694,507 9,640,663 68.4
William F. Dinneen.................... 6,050 * 882 5,168 *
David A. Hogan........................ 11,000 * 1,604 9,396 *
Philip A. Richardson.................. 15,675 * 2,285 13,390 *
Robert L. Sarno....................... 4,950 * 722 4,228 *
</TABLE>
- ------------------------------
* Less than 1%
(1) Applicable percentage of ownership prior to this offering is based upon
11,109,945 shares of Common Stock outstanding. For ownership after
completion of this offering, applicable percentage ownership is based on
13,809,945 shares of Common Stock outstanding and assumes no exercise of the
Underwriters' over-allotment option. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares shown as
beneficially owned. Number of shares of Common Stock deemed beneficially
owned by any person includes outstanding shares of Common Stock held by such
person and any shares of Common Stock issuable upon exercise of stock
options held by such person exercisable within 60 days. Upon the closing of
this offering, each of the following Selling Shareholders will beneficially
own fully exercisable options to purchase that number of shares of Common
Stock set forth after his or her respective name: Ms. Baylinson, 34,650; Mr.
Beliveau, 12,100; Mr. Davenport, 110,000; Mr. Dinneen, 2,750; Mr. Hogan,
6,050; Ms. Muldoon, 3,575; Mr. Muzzio, 3,575; Ms. Pepin, 110,000; Mr.
Richardson, 8,880; and Mr. Sarno, 2,200. All directors and executive
officers as a group are deemed to beneficially own an aggregate of 275,825
shares of Common Stock issuable upon the exercise of options which will be
fully exercisable within 60 days.
(2) If the over-allotment option is exercised in full, each of the following
Selling Shareholders will sell that number of additional shares of Common
Stock set forth after his or her respective name equal to an aggregate of
660,000 shares of Common Stock: Ms. Baylinson, 2,773; Mr. Beliveau, 14,494;
Mr. Davenport, 19,661; Mr. Dinneen, 347; Mr. Hogan, 631; Dr. Mastran,
353,293; Ms. Muldoon, 6,664; Mr. Muzzio, 8,224; Ms. Pepin, 16,510; Mr.
Richardson, 898; Mr. Ruddy, 236,221; and Mr. Sarno, 284.
40
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of the Company's Common
Stock. Such summary is subject to, and qualified in its entirety by, applicable
law and the provisions of the Company's Amended and Restated Articles of
Incorporation (the "Restated Articles") and the Company's Amended and Restated
By-Laws (the "Restated By-Laws"), each to be effective immediately prior to the
closing of this offering and both of which are included as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information." The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, no par value per share, of which 11,109,945 shares were
outstanding immediately prior to this offering.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. Upon the liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to receive
ratably the net assets of the Company available for distribution after the
payment of all debts and other liabilities of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may adversely be
affected by, the rights of holders of shares of any series of Preferred Stock
that the Company may authorize, designate and issue in the future.
Prior to this offering the outstanding Common Stock was held of record by
21 shareholders. After giving effect to the issuance of the shares of Common
Stock offered by the Company (assuming no exercise of the Underwriters'
overallotment option), there will be 13,809,945 shares of Common Stock
outstanding, plus an additional 403,975 shares of Common Stock issuable upon
exercise of options exercisable upon the closing of the offering.
LIMITATION OF LIABILITY
The Restated Articles limit the liability of the Company's directors and
officers to the maximum extent permitted by Virginia law. Thus, the directors
and officers of the Company shall not be personally liable to the Company or its
shareholders for any breach of any duty based upon any act or omission, except
for an act or omission; (i) resulting from such person's willful misconduct; or
(ii) in knowing violation of criminal law or any federal or state securities
law.
ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS
The Restated Articles prohibit the Company's shareholders from taking any
action, or consenting to any action, by unanimous written consent without a
meeting. The Company's Restated Articles also provide that the directors of the
Company shall be classified into three classes, with staggered three-year terms.
See "Management -- Board of Directors." Any director may be removed only for
cause upon the affirmative vote of at least a majority of the shares entitled to
vote for the election of directors.
The Company's Restated By-Laws provide that for nominations for the Board
of Directors or for other business to be properly brought by a shareholder
before a meeting of shareholders, the shareholder must first have given timely
notice thereof in writing to the Chairman of the Board, if any, the President or
the Secretary of the Company. To be timely, a notice must be delivered to or
mailed and received not less than 45 days before the meeting of the
shareholders; provided, however, that if less than 60 days notice or prior
public disclosure of the date of the meeting is given to shareholders, notice by
the shareholder, to be timely, must be received no later than the close of
business on the 15th day following the day on which such notice or public
disclosure of the meeting date was made. The notice must contain, among other
things, certain information
41
<PAGE> 43
about the shareholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting. The Company's Restated By-Laws also provide that
special meetings of shareholders may be called only by the President or a
majority of the Board of Directors of the Company. These provisions could have
the effect of delaying, until the next annual shareholders meeting, holder
actions that are favored by the holders of a majority of the outstanding voting
securities of the Company.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
ANTI-TAKEOVER PROVISIONS OF VIRGINIA LAW
Restrictions on Affiliated Transactions. The Virginia Stock Corporation
Act (the "VSCA") requires the approval of certain material transactions (an
"Affiliated Transaction") between a Virginia corporation and any beneficial
holder of more than 10% of any class of its outstanding voting shares (an
"Interested Shareholder") by the other holders of voting shares. Affiliated
Transactions include any merger, share exchange or material disposition of
corporate assets not in the ordinary course of business involving an Interested
Shareholder, any dissolution of the corporation proposed by or on behalf of an
Interested Shareholder, or any reclassification, including reverse stock splits,
recapitalizations or mergers of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Shareholder by more than 5%.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. On February 2, 1997, the Company, by action
of its shareholders, adopted such an amendment to its Articles of Incorporation.
The amendment will become effective eighteen months after the date of its
adoption. Any subsequent amendment eliminating the election not to be governed
by this statute would not restrict an Affiliated Transaction between the Company
and an Interested Shareholder existing at the time of such subsequent amendment.
Voting Restrictions Arising from Control Share Acquisitions. The VSCA also
contains provisions governing "Control Share Acquisitions." These provide that
shares of a Virginia public issuer acquired in a transaction that would cause
the voting strength of the acquiring person and its associates to meet or exceed
any of three thresholds (20%, 33 1/3% or 50%) have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or any
officer or employee-director of the Virginia public issuer. An acquiring person
may require the Virginia public issuer to hold a special meeting of shareholders
to consider the matter within 50 days of the request. The Company has "opted
out" of the Control Share Acquisitions provisions.
Fiduciary Duty of Directors. The provisions of the VSCA governing
Affiliated Transactions and those governing Control Share Acquisitions
explicitly provide a statutory standard of care for directors, which applies to
all aspects of a Board's actions in responding to a tender offer. Specifically,
the VSCA states that a director shall discharge his duties as a director in
accordance with his good faith business judgment of the best interests of the
corporation, and, in determining the best interests of the corporation, a
director may consider the possibility that those interests may best be served by
the continued independence of the corporation.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
42
<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 13,809,945 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options, warrants or other
rights to purchase Common Stock. Of these shares, the 4,400,000 shares sold in
this offering will be freely tradable, without restriction or further
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include directors, executive officers and
holders of 10% or more of the outstanding Common Stock.
The remaining 9,409,945 outstanding shares of Common Stock are owned by
existing shareholders. In addition, a total of 403,975 shares of Common Stock
are issuable upon exercise of outstanding stock options exercisable upon the
closing of this offering. All such shares, and any shares issued upon exercise
of such options are deemed "Restricted Shares" under Rule 144. These may not be
resold, except pursuant to an effective registration statement or an applicable
exemption from registration. Upon expiration of the 180 day lock-up agreements
described below, all such shares will be eligible for sale under Rules 144 and
701.
In general, under Rule 144, giving effect to amendments that will become
effective on April 29, 1997, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned Restricted Shares for at
least one year from the later of the date such Restricted Shares were acquired
from the Company and (if applicable) the date they were acquired from an
affiliate, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume in the public market during
the four calendar weeks preceding such sale. Since the Restricted Shares were
acquired in connection with the shareholder's employment pursuant to an
exemption from registration under Rule 701 of the Securities Act, but for the
lock-up agreements discussed below, such Restricted Shares would be eligible for
sale under Rule 144 commencing 90 days after the effective date of this offering
regardless of when such Restricted Shares were acquired. Except in the case of
Restricted Shares held by persons other than affiliates for more than two years,
sales under Rule 144 are also subject to certain requirements as to the manner
of sale. In addition, sales of Restricted Shares and any other shares of Common
Stock held by affiliates under Rule 144 are subject to notice of sale, the
availability of public information concerning the Company and volume
limitations.
The Company's directors and executive officers and its existing
shareholders have agreed that they will not, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation offer to sell, sell,
contract to sell, grant any options to sell or otherwise dispose of or require
the Company to file with the Commission a registration statement under the Act
to register any shares of Common Stock during the 180-day period following the
effective date of the Registration Statement. In addition, pursuant to the
Executive Agreements, Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms. Baylinson, Ms.
Pepin and Mr. Davenport have agreed for the four year period commencing at the
closing of this offering not to offer, sell, assign, grant a participation in,
pledge or otherwise transfer any of their respective shares of Common Stock of
the Company without the prior written consent of the Company other than: (i) to
certain permitted transferees; (ii) as may be required by applicable federal or
state law or regulation; or (iii) pursuant to a registration of such shares.
Because these agreements will be between the Company and each executive officer
and may be waived by the Company at any time, investors should not rely on the
stock restrictions contained therein.
At the completion of this offering, Dr. Mastran, Mr. Ruddy, Mr. Beliveau,
Ms. Baylinson, Ms. Pepin and Mr. Davenport (the "Rightsholders"), will be
entitled to certain piggyback rights with respect to registration under the
Securities Act, for resale to the public, of an aggregate of 9,414,545 shares of
Common Stock (including 266,750 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable upon the closing of this offering)
(collectively, the "Registrable Shares") under the terms of each Rightsholder's
Executive Agreement with the Company. If the Company proposes to register shares
of Common Stock in an underwritten offering under the Securities Act, the
Rightsholders will be entitled to include Registrable Shares in such
registration, subject to certain conditions and limitations, which include the
right of the managing underwriter of any such offering to exclude Registrable
Shares from such registration;
43
<PAGE> 45
provided, however, that the Registrable Shares shall not be reduced to less than
an amount equal to 25% of the total number of shares to be registered.
The Company plans to file registration statements under the Securities Act
to register 1,000,000, 100,000 and 500,000 shares of Common Stock issuable under
the Equity Plan, the Director Plan and the Stock Purchase Plan, respectively.
Upon registration, such shares are eligible for immediate resale upon exercise,
subject, in the case of affiliates, to the volume and notice requirements of
Rule 144.
No prediction can be made as to the effect, if any, that sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. No assurance can be given,
however, that sales of substantial amounts of Common Stock in the public market
will not have an adverse impact on the market price for the Common Stock. See
"Risk Factors -- Shares Eligible for Future Sale."
44
<PAGE> 46
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. are acting as
Representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed severally to sell to each of the Underwriters, the
number of shares of Common Stock (the "Shares") set forth opposite their
respective names at the initial public offering price per share less the
underwriting discounts and commissions set forth on the cover of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Lehman Brothers Inc.......................................................
----------
-
Total........................................................... 4,400,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by their counsel and to certain other conditions. If any of the Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, the
Underwriters are obligated to purchase all Shares (other than those covered by
the over-allotment option described below).
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Shares to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession not in excess of $ per
Share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per Share to certain other dealers. After this offering,
the offering price and other selling terms may be changed by the Underwriters.
Pursuant to the Underwriting Agreement, certain Selling Shareholders have
granted to the Underwriters an option, exercisable not later than 30 calendar
days from the date of the Underwriting Agreement, to purchase up to an aggregate
660,000 of additional Shares at the initial offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions,
solely to cover over-allotments.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of the option shares as the number of Shares to be purchased by it
shown in the above table bears to the total number of Shares shown in the above
table, and the Selling Shareholders will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Shares. If purchased, the Underwriters will sell such additional 660,000 shares
on the same terms as those on which the Shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors, executive officers, shareholders and
optionholders who will own in the aggregate 9,813,920 shares of Common Stock
after this offering, including 403,975 shares of Common Stock issuable upon
exercise of outstanding stock options exercisable upon the closing of this
offering
45
<PAGE> 47
(assuming no exercise of the Underwriters' over-allotment option), each have
agreed that during the 180-day period after the date of this Prospectus they
will not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, sell, offer to sell, contract to sell, grant any options
to purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, other than the
Shares, except that the Company may issue shares upon the exercise of stock
options granted prior to the execution of the Underwriting Agreement, and may
grant additional options under the Equity Plan, provided that, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, such
options shall not be exercisable during such period.
In connection with this offering, the Underwriters have advised the Company
that, pursuant to Regulation M under the Exchange Act, certain persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may overallot this offering, creating a syndicate short position.
In addition, the Underwriters may bid for and purchase shares of Common Stock in
the open market to cover syndicate short positions or to stabilize the price of
the Common Stock. Finally, the underwriting syndicate may reclaim selling
concessions from syndicate members in this offering, if the syndicate
repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters have advised the Company that such
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any discretionary
accounts without prior specific written approval of the client.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuations of companies in related
businesses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Winston & Strawn, Chicago, Illinois.
EXPERTS
The financial statements of the Company as of September 30, 1995 and 1996
and for each of the three years in the period ended September 30, 1996 included
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed therewith. This Prospectus contains
accurate summaries of the material terms
46
<PAGE> 48
of certain contracts or other documents filed as exhibits to the Registration
Statement. Such summaries are qualified in all respects by reference to the
copies of such contracts or other documents filed as exhibits to the
Registration Statement. A copy of the Registration Statement may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information can also be reviewed through the
Commission's Web site on the Internet (http://www.sec.gov).
"Helping Government Serve the People" and MAXSTAR are trademarks of the
Company. All other trademarks and registered trademarks used in this Prospectus
are the property of their respective owners.
47
<PAGE> 49
MAXIMUS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors........................................................ F-2
Financial Statements
Balance Sheets as of September 30, 1995 and 1996 and December 31, 1996
(unaudited)...................................................................... F-3
Statements of Income for the years ended September 30, 1994, 1995 and 1996 and the
three months ended December 31, 1995 and 1996 (unaudited)........................ F-4
Statements of Changes in Redeemable Common Stock and Retained Earnings for the years
ended September 30, 1994, 1995 and 1996 and the three months ended December 31,
1996 (unaudited)................................................................. F-5
Statements of Cash Flows for the years ended September 30, 1994, 1995 and 1996 and
the three months ended December 31, 1995 and 1996 (unaudited).................... F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
MAXIMUS, Inc.
We have audited the accompanying balance sheets of MAXIMUS, Inc. as of
September 30, 1995 and 1996, and the related statements of income, changes in
redeemable common stock and retained earnings, and cash flows for each of the
three years in the period ended September 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 MAXIMUS, Inc. at September
30, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Washington, D.C.
February 7, 1997
F-2
<PAGE> 51
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
----------------- DECEMBER 31, DECEMBER 31,
1995 1996 1996 1996
(UNAUDITED --
(UNAUDITED) NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,502 $ 2,326 $ 4,164 $ 4,164
Short-term investments................................. -- 1,007 1,007 1,007
Accounts receivable, net............................... 15,941 25,352 29,937 29,937
Costs and estimated earnings in excess of billings..... 776 2,949 4,847 4,847
Prepaid expenses and other current assets.............. 354 605 604 604
------- ------- ------- -------
Total current assets..................................... 19,573 32,239 40,559 40,559
Property and equipment at cost:
Land................................................... 662 662 662 662
Building and improvements.............................. 1,627 1,676 1,679 1,679
Office furniture and equipment......................... 913 1,206 1,212 1,212
Leasehold improvements................................. 188 188 188 188
------- ------- ------- -------
3,390 3,732 3,741 3,741
Less: Accumulated depreciation and amortization........ (810) (1,096) (1,166) (1,166)
------- ------- ------- -------
Total property and equipment, net........................ 2,580 2,636 2,575 2,575
Other assets............................................. 517 618 722 722
------- ------- ------- -------
Total assets............................................. $22,670 $35,493 $ 43,856 $ 43,856
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,200 $ 2,043 $ 4,415 $ 4,415
Accrued compensation and benefits...................... 793 1,912 2,829 2,829
Billings in excess of costs and estimated earnings..... 3,118 5,208 6,527 6,527
Income taxes payable................................... 41 19 46 46
Deferred income taxes.................................. 237 357 387 1,090
Dividend payable....................................... -- -- -- 17,500
------- ------- ------------ ------------
Total current liabilities................................ 6,389 9,539 14,204 32,407
Deferred income taxes.................................... -- -- -- 4,584
Commitments and contingencies (Notes 6, 9 and 10)
Redeemable common stock:
No par value; 30,000,000 shares authorized; 11,210,870,
11,453,145, 11,453,145 shares issued and
outstanding, at redemption amount................... 10,575 16,757 18,790 --
Shareholders' equity:
Common stock, no par value; 30,000,000 shares
authorized; 11,453,145 pro forma shares issued and
outstanding, at stated amount....................... -- -- -- 11,965
Retained earnings (deficit)............................ 5,706 9,197 10,862 (5,100)
------- ------- ------------ ------------
Total shareholders' equity............................... 5,706 9,197 10,862 6,865
------- ------- ------------ ------------
Total liabilities and shareholders' equity............... $22,670 $35,493 $ 43,856 $ 43,856
======= ======= ========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 52
MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- -------------------------
1994 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $29,860 $51,963 $103,113 $16,700 $37,244
Cost of revenues............................ 21,716 36,071 78,429 12,027 29,534
------- ------- -------- ------- -------
Gross profit................................ 8,144 15,892 24,684 4,673 7,710
Selling, general and administrative
expenses.................................. 6,979 9,078 13,104 2,742 4,039
------- ------- -------- ------- -------
Income from operations...................... 1,165 6,814 11,580 1,931 3,671
Interest and other income................... 80 169 264 53 84
------- ------- -------- ------- -------
Income before income taxes.................. 1,245 6,983 11,844 1,984 3,755
Provision (benefit) for income taxes........ (5) 124 225 40 57
------- ------- -------- ------- -------
Net income.................................. $ 1,250 $ 6,859 $ 11,619 $ 1,944 $ 3,698
======= ======= ======== ======= =======
Pro forma data (Unaudited -- Note 3)
Historical income before income taxes..... $ 11,844 $ 3,755
Pro forma income tax expense.............. 4,738 1,502
-------- -------
Pro forma net income...................... $ 7,106 $ 2,253
======== =======
Pro forma net income per share............ $ 0.59 $ 0.19
======== =======
Shares used in computing pro forma net
income per share....................... 12,105 12,140
</TABLE>
See notes to financial statements.
F-4
<PAGE> 53
MAXIMUS, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK
AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE
COMMON RETAINED
STOCK EARNINGS
<S> <C> <C>
Balance at September 30, 1993.......................................... $ 6,971 $ 2,484
Purchase of redeemable common stock from employees................... (293) --
Issuance of redeemable common stock to employees..................... 148 --
Net income........................................................... -- 1,250
Adjustment to redemption value of redeemable common stock............ 63 (63)
S Corporation distributions.......................................... -- (750)
------- -------
Balance at September 30, 1994.......................................... 6,889 2,921
Purchase of redeemable common stock from employees................... (548) --
Issuance of redeemable common stock to employees..................... 277 --
Net income........................................................... -- 6,859
Adjustment to redemption value of redeemable common stock............ 3,957 (3,957)
S Corporation distributions.......................................... -- (117)
------- -------
Balance at September 30, 1995.......................................... 10,575 5,706
Issuance of redeemable common stock to employees..................... 229 --
Net income........................................................... -- 11,619
Adjustment to redemption value of redeemable common stock............ 5,953 (5,953)
S Corporation distributions.......................................... -- (2,175)
------- -------
Balance at September 30, 1996.......................................... 16,757 9,197
Net income (unaudited)............................................... -- 3,698
Adjustment to redemption value of redeemable common stock
(unaudited)....................................................... 2,033 (2,033)
------- -------
Balance at December 31, 1996 (unaudited)............................... $ 18,790 $ 10,862
======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 54
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------- -------------------------
1994 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 1,250 $ 6,859 $11,619 $ 1,944 $ 3,698
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 172 168 307 51 70
Other................................... 11 -- (22) -- --
Changes in assets and liabilities:
Accounts receivable, net................ (3,162) (6,646) (9,411) (1,454) (4,585)
Costs and estimated earnings in excess
of billings........................... 195 1,587 (2,173) (1,379) (1,898)
Prepaid expenses and other current
assets................................ (166) 245 (251) (68) 1
Other assets............................ (189) (124) (101) (27) (104)
Accounts payable........................ (271) 1,680 (157) 455 2,372
Accrued compensation and benefits....... 109 161 1,119 1,194 917
Billings in excess of costs and
estimated earnings.................... 2,405 (1,154) 2,090 771 1,319
Income taxes payable.................... (23) 41 (22) (34) 27
Deferred income taxes................... (20) 62 120 74 30
------- ------- ------- ------- -------
Net cash provided by operating activities.... 311 2,879 3,118 1,527 1,847
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (317) (180) (348) (60) (9)
Purchase of short-term investments......... -- -- (1,000) -- --
------- ------- ------- ------- -------
Net cash used in investing activities........ (317) (180) (1,348) (60) (9)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
S Corporation distributions................ (750) (117) (2,175) (104) --
Redeemable common stock purchased.......... (24) (548) -- -- --
Redeemable common stock issued............. 148 277 229 114 --
Payment of note for purchase of redeemable
common stock............................ (135) (134) -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. (761) (522) (1,946) 10 --
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (767) 2,177 (176) 1,477 1,838
Cash and cash equivalents, beginning of
year....................................... 1,092 325 2,502 2,502 2,326
------- ------- ------- ------- -------
Cash and cash equivalents, end of year....... $ 325 $ 2,502 $ 2,326 $ 3,979 $ 4,164
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 55
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
MAXIMUS, Inc. (the "Company") provides a wide range of program management
and consulting services to federal, state and local government health and human
services agencies. The Company conducts its operations through two groups. The
Government Operations Group administers and manages government health and human
services programs, including welfare-to-work and job readiness, child support
enforcement, managed care enrollment and disability services. The Consulting
Group provides health and human services planning, information technology
consulting, strategic program evaluation, program improvement, communications
planning and assistance in identifying and collecting previously unclaimed
federal welfare revenues.
The Company operates predominantly in the United States. Revenues from
foreign-based projects were less than 10% for the year ended September 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the Company's more significant accounting
policies.
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 amounts reported in the financial statements and
accompanying notes, in particular, estimates used in the earnings recognition
process. Actual results could differ from those estimates.
Revenue Recognition
The Company generates revenues under various arrangements, generally
long-term contracts under which revenues are based on costs incurred plus a
negotiated fee, a fixed price or various performance-based criteria. Revenues
for cost-plus contracts are recorded as costs are incurred and include a pro
rata amount of the negotiated fee. Revenues on long-term fixed price and
performance-based contracts are recognized as costs are incurred. The timing of
billing to clients varies based on individual contracts and often differs from
the period of revenue recognition. These differences are included in costs and
estimated earnings in excess of billings and billings in excess of costs and
estimated earnings.
Management reviews the financial status of its contracts periodically and
adjusts revenues to reflect the current expectations on realization of costs and
estimated earnings in excess of billings. Provisions for estimated losses on
incomplete contracts are provided in full in the period in which such losses
become known. The Company has various fixed price and performance-based
contracts that may generate profit in excess of the Company's expectations. The
Company recognizes additional revenue and profit in these situations after
management concludes that substantially all of the contractual risks have been
eliminated, which generally is at task or contract completion.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
F-7
<PAGE> 56
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Short-Term Investments
Short-term investments consist of interest bearing investments with
maturities of less than one year but greater than three months when purchased.
These investments are readily convertible to cash and are stated at fair value.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method based on estimated useful lives of 32 years for the
Company's building and between three and ten years for office furniture and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the life of the improvement or the
remaining term of the lease.
Income Taxes
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
cumulative effect of the change in accounting principle was not material and is
included in the provision for income taxes for the year ended September 30,
1994. Under SFAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis of assets and
liabilities using enacted rates expected to be in effect during the year in
which the differences reverse.
The Company and its shareholders have elected to be treated as an S
corporation under the Internal Revenue Code. Under the provisions of the tax
code, the Company's shareholders include their pro rata share of the Company's
income in their personal income tax returns. Accordingly, the Company was not
subject to federal and most state income taxes during the periods presented. The
Company currently anticipates completing an initial public offering of its
common stock in 1997 (the "IPO"), which will result in the termination of the
Company's S corporation status.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1995 and 1996.
Interim Financial Information
The financial statements as of December 31, 1996 and for the three months
ended December 31, 1995 and 1996 are unaudited and have been prepared on the
same basis as the audited financial statements included herein. In the opinion
of management, the unaudited financial statements include all adjustments,
consisting only of normal recurring items, necessary to present fairly the
periods indicated. Results of operations for the interim period ended December
31, 1996 are not necessarily indicative of the results for the full fiscal year.
3. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Balance Sheet
The pro forma balance sheet of the Company as of December 31, 1996 reflects
the declaration of a dividend payable to the shareholders, a reclassification of
redeemable common stock to reflect elimination of the Company's obligation to
purchase its common shares from the shareholders, and the net deferred tax
liability which would have been recorded by the Company if its S corporation
status was terminated at that date.
F-8
<PAGE> 57
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company will pay a dividend to its shareholders in connection with the
IPO. The dividend (estimated at $17,500) will be paid in part from available
cash and in part from proceeds of the offering.
Upon completion of the IPO, the Company's obligation to purchase common
shares from its shareholders will terminate. Accordingly, amounts classified as
redeemable common stock will be reclassified into shareholders' equity.
The pro forma net deferred tax liability represents the tax effect of the
cumulative differences between the financial reporting and income tax basis of
certain assets and liabilities as of December 31, 1996. The actual net deferred
tax liability recorded will be adjusted to reflect the effect of the Company's
operations for the period through the date immediately preceding the termination
of its S corporation status.
The Company's income currently taxable to its shareholders as an S
corporation has been determined under a cash basis of accounting through
September 30, 1996. In the year the Company completes the IPO, it will be
required to begin reporting its taxable income on an accrual basis. The
cumulative deferred tax obligation for the difference between cash and accrual
income will be settled over four years. The Company plans to elect the accrual
basis of accounting beginning October 1, 1996, and accordingly, one-fourth of
the taxable income related to the cash versus accrual accounting difference will
be allocated to the Company's shareholders. The significant items comprising the
Company's pro forma net deferred tax liability as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
PRO FORMA DEFERRED TAX ASSETS-CURRENT:
Liabilities for costs deductible in future periods........................ $ 410
Billings in excess of costs and estimated earnings........................ 2,731
------
Total pro forma deferred tax assets......................................... 3,141
PRO FORMA DEFERRED TAX LIABILITIES-CURRENT:
Cash versus accrual accounting............................................ 2,292
Costs and estimated earnings in excess of billings........................ 1,939
------
Total pro forma deferred tax liabilities.................................... 4,231
------
Pro forma net deferred tax liability-current................................ 1,090
PRO FORMA DEFERRED TAX LIABILITY-NON-CURRENT:
Cash versus accrual accounting............................................ 4,584
------
Total pro forma net deferred tax liability.................................. $5,674
======
</TABLE>
The pro forma retained earnings (deficit) of $5,100 results from the charge
to compensation expense related to stock options granted to employees. See
further discussion below under "Pro Forma Statements of Income."
Pro Forma Statements of Income
Upon the closing of the IPO, the Company will terminate its status as an S
corporation and will be subject to federal and state income taxes thereafter.
Accordingly, the unaudited pro forma data shown on the statements of income
includes an adjustment to reflect income tax expense as if the Company had been
a C corporation at an estimated combined effective income tax rate of 40%.
In the period the IPO is completed the Company will recognize two
significant charges against income. As described above, completion of the IPO
will result in the termination of the Company's S corporation status, and the
Company will recognize the cumulative deferred tax liability at that time by a
charge against income. Based on the pro forma deferred tax liability as of
December 31, 1996, the one-time income statement charge would be approximately
$5,300.
F-9
<PAGE> 58
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 9, in January 1997 the Company issued options to
employees to acquire the Company's common stock at a formula price based on book
value. Upon completion of the IPO, the Company will recognize a charge against
income for the difference between the IPO price and the formula price for all
options outstanding. Assuming an IPO price of $14.00 per share, the charge to
compensation expense would be approximately $5,100, net of the related income
tax benefit, if any.
Pro Forma Net Income Per Share
The pro forma net income per share presented in the accompanying statements
of income have been computed giving effect to the assumed issuance, as of the
beginning of the pro forma periods presented, of the number of shares of Common
Stock necessary to: (i) replace equity to be distributed as a result of the S
corporation dividend to the extent such amount exceeds earnings since January 1,
1996; and (ii) give effect to options issued in January 1997 to purchase Common
Stock of the Company.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following components:
<TABLE>
<CAPTION>
BALANCE SHEET CAPTION
--------------------------------------
COSTS AND BILLINGS IN
ESTIMATED EXCESS OF COSTS
EARNINGS IN AND ESTIMATED
EXCESS OF BILLINGS EARNINGS
<S> <C> <C>
September 30, 1995:
Costs and estimated earnings........................ $ 29,702 $48,661
Billings............................................ 28,926 51,779
------- -------
$ 776 $ 3,118
======= =======
September 30, 1996:
Costs and estimated earnings........................ $ 89,893 $60,489
Billings............................................ 86,944 65,697
------- -------
$ 2,949 $ 5,208
======= =======
</TABLE>
Costs and estimated earnings in excess of billings relate primarily to
performance-based contracts which provide for billings based on attainment of
results specified in the contract and differences between actual and provisional
billing rates on cost-based contracts.
5. CREDIT FACILITIES
The Company has a $10 million revolving line of credit with a bank for
borrowings and letters of credit. Borrowings under this line bear interest at
LIBOR plus 2% and are secured by the Company's accounts receivable. Borrowings
are limited to 90 percent of eligible accounts receivable. At September 30, 1995
and 1996, the Company had letters of credit outstanding amounting to $2,139 and
$1,210, respectively. There were no outstanding borrowings under the line of
credit facility. The Company is required to meet certain conditions on net worth
and to maintain certain financial ratios. The credit facility is renewable in
March 1997.
6. LEASES
The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. Terms of these leases provide for certain minimum payments as well
as increases in lease payments based upon the operating cost of the facility and
the consumer price
F-10
<PAGE> 59
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
index. Rent expense for the years ended September 30, 1994, 1995 and 1996 was
$602, $1,150 and $2,282, respectively.
Minimum future payments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
<S> <C>
1997................................................................ $3,021
1998................................................................ 2,826
1999................................................................ 1,558
2000................................................................ 801
2001................................................................ 565
Thereafter.......................................................... 138
------
$8,909
======
</TABLE>
7. EMPLOYEE 401(K) PLAN
The Company has a 401(k) plan for the benefit of all employees who meet
certain eligibility requirements. In the year ended September 30, 1996, the
Company implemented a program to match employee contributions. The plan also
allows management to make discretionary contributions. The Company made no
contributions to the plan during the years ended September 30, 1994 and 1995.
During the year ended September 30, 1996, the Company contributed $574 to the
plan.
8. INCOME TAXES
The tax provision (benefit) consists of the following state taxes for those
states in which the Company, rather than the shareholders, is liable for income
taxes:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
----------------------
1994 1995 1996
<S> <C> <C> <C>
Current tax expense........................................... $ 15 $ 62 $105
Deferred tax expense (benefit)................................ (20) 62 120
---- ---- ----
$ (5) $124 $225
==== ==== ====
</TABLE>
No federal income taxes have been recorded due to the Company's S
corporation status. Upon the closing of the IPO, the Company will terminate its
status as an S corporation and will be subject to federal and state income taxes
thereafter. In the period the IPO is completed, the Company will recognize the
cumulative deferred tax liability by a charge against income. Based on the pro
forma deferred tax liability as of December 31, 1996, the one-time income
statement charge would be approximately $5,300. See Note 3. Deferred tax
liabilities resulting from temporary differences at September 30, 1995 and 1996
are primarily related to use of the cash basis of accounting for income taxes
reported in certain states and differences related to revenue recognition. Cash
paid for income taxes during the years ended September 30, 1994, 1995 and 1996
was $67, $9 and $110, respectively.
9. SHAREHOLDERS' EQUITY
Redeemable Common Stock
The Shareholders' Agreement, dated January 1996, obligates the Company to
purchase all shares offered for sale by the Company's shareholders at a formula
price based on the book value of the Company. In addition, shareholders are
obligated to sell and the Company is obligated to purchase at the formula price
all of the shares owned by the shareholders upon the shareholder's death,
disability or termination of employment. Accordingly, the redemption obligation
is reflected as redeemable common stock in the
F-11
<PAGE> 60
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accompanying balance sheets. The Company has insurance polices totaling
approximately $18,000 on the lives of its two major shareholders that may be
used to fund this obligation.
During 1994, the Company purchased shares of redeemable common stock at the
formula price in exchange for a note payable of $269,000. The note was paid in
full during 1994 and 1995.
Agreement with Major Shareholder
In May 1995, the Company entered into a Stock Purchase Agreement with one
of its shareholders. Under this agreement, the parties agreed that the Company
will purchase up to 2,878,040 of its shares owned by the shareholder over a four
year period, subject to various conditions including an election by the
shareholder after each fiscal year end to demand such sale. Under this
agreement, sales will be transacted at the formula price referred to above. This
agreement will terminate upon completion of the IPO.
Employee Stock Purchases and Options
The Company entered into agreements at various times with certain employees
that provided for the employee to purchase common stock of the Company at the
formula price. During the years ended September 30, 1994, 1995 and 1996 the
Company sold 126,500, 231,000 and 242,275 shares, respectively, under these
arrangements.
In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at the formula price.
These options are exercisable at completion of the IPO. The options terminate on
June 30, 1997 in the event the IPO has not been completed by that date. If the
IPO is completed, the options will have a term of 10 years. These options were
granted in exchange for stock purchase rights awarded pursuant to certain
pre-existing compensation arrangements with certain of the Company's key
employees. The Company does not expect the compensation cost related to these
options to be significant to operating results for the quarter ending March 31,
1997. In the period the IPO is completed, the Company will recognize a charge
against income for the difference between the IPO price and the formula price
for all options outstanding. Assuming an IPO price of $14.00 per share, the
charge to compensation expense would be approximately $5,100, net of the related
income tax benefit, if any.
Stock Split
In December 1995, the Company effected a 10 for 1 stock split. On February
3, 1997, the Company's shareholders approved an amendment to the Company's
articles of incorporation to increase the number of authorized shares to
30,000,000, to eliminate the par value of common stock and to effect an 11 for 1
split of the common stock. Amounts for all periods have been adjusted to reflect
the effects of these changes.
10. COMMITMENTS AND CONTINGENCIES
Litigation
On February 3, 1997, the Company was named as a third party defendant by
Network Six, Inc. ("Network Six") in a legal action brought by the State of
Hawaii against Network Six. Network Six alleges that the Company is liable to
Network Six on various grounds. The Company believes Network Six's claims are
without merit and intends to vigorously defend this action. The Company believes
this action will not have a material adverse effect on its financial condition
or results of operations and has not accrued for any loss related to this claim.
The Company also is involved in various other legal proceedings in the
ordinary course of its business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were disposed of
unfavorably.
F-12
<PAGE> 61
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DCAA Audits
A substantial portion of payments to the Company from U.S. Government
agencies is subject to adjustments upon audit by the Defense Contract Audit
Agency (DCAA). Audits through 1993 have been completed with no material
adjustments. In the opinion of management, the audits of subsequent years are
not expected to have a material adverse effect on the Company's financial
position or results of operations.
11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts. To date,
these financial instruments have been derived from contract revenues earned
primarily from federal, state and local agencies located in the United States.
At September 30, 1995 and 1996, $8,260 and $14,815, respectively, of the
Company's accounts receivable were due from the U.S. Government. Revenues under
contracts with various agencies of the United States Government were $7,480,
$17,851 and $61,317 for the years ended September 30, 1994, 1995 and 1996,
respectively. Of these amounts, $2,943, $14,314 and $56,530 for the years ended
September 30, 1994, 1995 and 1996, respectively, were revenues of the government
operations segment. As a result of legislation that eliminated certain Social
Security Administration program benefits, a contract with the U.S. Government
that contributed $56.5 million of contract revenues for the year ended September
30, 1996 was terminated by the United States Government and is expected to
conclude in February 1997.
F-13
<PAGE> 62
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENTS
The following table provides certain financial information for each
business segment:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Revenues:
Government Operations.............................. $14,723 $31,265 $ 77,211
Consulting......................................... 15,137 20,698 25,902
------- ------- --------
$29,860 $51,963 $103,113
======= ======= ========
Income(loss) from operations:
Government Operations.............................. $(1,878) $ 1,636 $ 4,936
Consulting......................................... 3,043 5,178 6,644
------- ------- --------
$ 1,165 $ 6,814 $ 11,580
======= ======= ========
Identifiable assets:
Government Operations.............................. $ 5,642 $ 8,962 $ 19,369
Consulting......................................... 6,488 8,416 9,910
Corporate.......................................... 3,417 5,292 6,214
------- ------- --------
$15,547 $22,670 $ 35,493
======= ======= ========
Capital expenditures:
Government Operations.............................. $ 203 $ 2 $ 4
Consulting......................................... 14 19 73
Corporate.......................................... 100 159 271
------- ------- --------
$ 317 $ 180 $ 348
======= ======= ========
Depreciation and amortization:
Government Operations.............................. $ 15 $ 5 $ 99
Consulting......................................... 17 17 27
Corporate.......................................... 140 146 181
------- ------- --------
$ 172 $ 168 $ 307
======= ======= ========
</TABLE>
F-14
<PAGE> 63
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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 THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANYTIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
S Corporation Dividend................ 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 25
Management............................ 34
Certain Transactions.................. 39
Principal and Selling Shareholders.... 40
Description of Capital Stock.......... 41
Shares Eligible for Future Sale....... 43
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
4,400,000 SHARES
[MAXIMUS LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
, 1997
======================================================
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 24,546
New York Stock Exchange Listing fee....................................... 120,000
NASD filing fee and expenses.............................................. 8,600
Blue Sky fees and expenses................................................ 15,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 150,000
Printing and engraving expenses........................................... 150,000
Transfer Agent and Registrar fees......................................... 10,000
Miscellaneous expenses.................................................... 191,854
--------
TOTAL........................................................... $870,000
========
</TABLE>
All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Articles of Incorporation provide that the
Registrant's directors and officers shall be indemnified to the full extent
required or permitted by the VSCA, including the advance of expenses, and that
other employees and agents shall be indemnified to such extent as shall be
authorized by the Board of Directors or the Bylaws of the Registrant and as
shall be permitted by law.
Sections 13.1-697 and 13.1-702 of the VSCA permit the Registrant to
indemnify an individual made party to a proceeding because he was a director,
officer, employee or agent of the Registrant against liability incurred in the
proceeding if (1) he conducted himself in good faith, (2) he believed, in the
case of conduct in his official capacity, that such conduct was in the
Registrant's best interests, or, in all other cases, that such conduct was at
least not opposed to the Registrant's best interests, and (3) he had no
reasonable cause to believe, in the case of a criminal proceeding, that his
conduct was unlawful; provided, however, no indemnification shall be permitted
(1) in connection with a proceeding by or in the right of the Registrant in
which the individual is adjudged liable to the Registrant, or (2) in connection
with any other proceeding charging improper personal benefit to such individual
in which the individual is adjudged liable on the basis that personal benefit
was improperly received by such individual. Under sections 13.1-698 and 13.1-702
of the VSCA, unless limited by its Articles of Incorporation, the Registrant
shall indemnify a director or officer who entirely prevails in the defense of
any proceeding to which he was a party because he is or was a director or
officer against reasonable expenses incurred.
The Registrant carries Directors' and Officers' insurance which covers its
directors and officers against certain liabilities they may incur when acting in
their capacity as directors or officers of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Issuances of Common Stock.
Since February 1, 1994, the Registrant has issued and sold the unregistered
securities described below. In each case, the number of shares issued and sold
reflects a 10-for-1 stock split effected in December 1995 and an 11-for-1 stock
split effected February 3, 1997.
On October 1, 1994 the Registrant sold 110,000 shares of Common Stock to
Gene DeLucia for an aggregate purchase price of $64,860.
II-1
<PAGE> 65
In October 1994, the Registrant sold 77,000 shares of Common Stock to Susan
D. Pepin for a purchase price of $45,402.
In January 1995 and October 1995, the Registrant sold 110,000 and 11,000
shares of Common Stock to Russell A. Beliveau for purchase prices of $64,860 and
$10,376, respectively.
In January 1996, the Registrant sold an aggregate of 121,275 shares of
Common Stock to certain of the Registrant's employees for an aggregate purchase
price of $114,438.
(b) Grants and Exercises of Stock Options.
In January 1997, pursuant to the Registrant's 1997 Equity Incentive Plan
(the "Plan"), the Registrant granted to certain employees options to purchase an
aggregate of 403,975 shares of Common Stock at an exercise price per share of
$1.46 exercisable on the closing of the initial public offering. The options
expire (i) on June 30, 1997, in the event that the initial public offering has
not closed on or prior to that date, or (ii) the earlier of (x) the termination
of each respective option holder's employment with the Registrant or (y) ten
years from the date of issuance. All of such options are outstanding and none
have been exercised, and 596,025 shares of Common Stock remain available for
future grant under the Plan.
No underwriter was engaged in connection with the foregoing sales of
securities. Sales of Common Stock to employees have been made in reliance upon
the exemption for the registration requirements afforded by Section 4(2) of the
Securities Act and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such individuals.
The Registrant has reason to believe that all of the foregoing purchasers were
familiar with or had access to information concerning the operations and
financial condition of the Registrant, and all of those individuals acquired
shares for investment and not with a view to the distribution thereof. At the
time of issuance, all of the foregoing shares of Common Stock were deemed to be
restricted securities for the purposes of the Securities Act, and the
certificates representing such securities bore legends to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant as amended through February 10, 1997.
3.2 Form of Amended and Restated Articles of Incorporation of Registrant, as proposed
to be amended and restated.
3.3 By-laws of the Registrant.
3.4 Form of Amended and Restated By-laws of Registrant, as proposed to be amended and
restated.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Palmer & Dodge LLP with respect to the legality of the securities being
registered.
10.1 1997 Equity Incentive Plan.
10.2 1997 Director Stock Option Plan.
10.3 1997 Employee Stock Purchase Plan.
+10.4 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and David V. Mastran to be executed at the closing
of the offering.
+10.5 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Raymond B. Ruddy to be executed at the closing
of the offering.
+10.6 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Rusell A. Beliveau to be executed at the closing
of the offering.
</TABLE>
II-2
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<C> <S>
+10.7 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Susan D. Pepin to be executed at the closing of
the offering.
+10.8 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Ilene R. Baylinson to be executed at the closing
of the offering.
+10.9 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Lynn P. Davenport to be executed at the closing
of the offering.
10.10 Form of Indemnification Agreement by and between the Registrant and each of the
directors of the Registrant.
10.11 Letter Agreement dated June 29, 1995, as amended by the Letter Amendment dated
April 10, 1996, between the Registrant and Crestar Bank with respect to a $10
million line of credit, and the Letter Amendment dated February 10, 1997.
+10.12 California Options Project Contract, dated October 1, 1996, by and between the
Registrant and the Department of Health Services of the State of California.
11 Statement re Computation of Pro Forma Net Income Per Share.
+23.1 Consent of Ernst & Young LLP, independent auditors.
*23.2 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed herewith.
All other exhibits previously filed.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
(a) 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 under "Item
14 -- Indemnification of Directors and Officers" above, 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
Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) to 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 underwriter to permit prompt delivery to
each purchaser;
(2) that, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h)
II-3
<PAGE> 67
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(3) that, for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
city of McLean, Commonwealth of Virginia, on the 27th day of March, 1997.
MAXIMUS, INC.
By: /s/ F. ARTHUR NERRET
------------------------------------
F. Arthur Nerret
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
DAVID V. MASTRAN* President, Chief Executive March 27, 1997
- ---------------------------------------- Officer and Director (Principal
David V. Mastran Executive Officer)
RAYMOND B. RUDDY* Chairman of the Board of March 27, 1997
- ---------------------------------------- Directors
Raymond B. Ruddy
/s/ F. ARTHUR NERRET Chief Financial Officer March 27, 1997
- ---------------------------------------- (Principal Financial and
F. Arthur Nerret Accounting Officer)
RUSSELL A. BELIVEAU* Director March 27, 1997
- ----------------------------------------
Russell A. Beliveau
LYNN P. DAVENPORT* Director March 27, 1997
- ----------------------------------------
Lynn P. Davenport
ROBERT J. MUZZIO* Director March 27, 1997
- ----------------------------------------
Robert J. Muzzio
DONNA J. MULDOON* Director March 27, 1997
- ----------------------------------------
Donna J. Muldoon
SUSAN D. PEPIN* Director March 27, 1997
- ----------------------------------------
Susan D. Pepin
</TABLE>
* By: /s/ F. ARTHUR NERRET
-------------------------------
F. Arthur Nerret
Attorney-in-fact
II-5
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant as amended through February 10, 1997.
3.2 Form of Amended and Restated Articles of Incorporation of Registrant, as proposed
to be amended and restated.
3.3 By-laws of the Registrant.
3.4 Form of Amended and Restated By-laws of Registrant, as proposed to be amended and
restated.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Palmer & Dodge LLP with respect to the legality of the securities being
registered.
10.1 1997 Equity Incentive Plan.
10.2 1997 Director Stock Option Plan.
10.3 1997 Employee Stock Purchase Plan.
+10.4 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and David V. Mastran to be executed at the closing
of the offering.
+10.5 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Raymond B. Ruddy to be executed at the closing
of the offering.
+10.6 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Rusell A. Beliveau to be executed at the closing
of the offering.
+10.7 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Susan D. Pepin to be executed at the closing of
the offering.
+10.8 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Ilene R. Baylinson to be executed at the closing
of the offering.
+10.9 Executive Employment, Non-Compete, Confidentiality and Stock Restriction Agreement
by and between the Registrant and Lynn P. Davenport to be executed at the closing
of the offering.
10.10 Form of Indemnification Agreement by and between the Registrant and each of the
directors of the Registrant.
10.11 Letter Agreement dated June 29, 1995, as amended by the Letter Amendment dated
April 10, 1996, between the Registrant and Crestar Bank with respect to a $10
million line of credit, and the Letter Amendment dated February 10, 1997.
+10.12 California Options Project Contract, dated October 1, 1996, by and between the
Registrant and the Department of Health Services of the State of California.
11 Statement re Computation of Pro Forma Net Income Per Share.
+23.1 Consent of Ernst & Young LLP, independent auditors.
*23.2 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
24 Powers of Attorney (included on the signature pages attached hereto).
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed herewith.
All other exhibits previously filed.
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Mastran]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between David V. Mastran (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President and Chief
Executive Officer of the Corporation. The Executive shall provide day to day
management of the Corporation and shall perform such other services and duties
as are appropriate to such office. During the term of this Agreement, the
Executive shall be a full time employee of the Corporation and shall devote such
time and attention to the discharge of his duties as President and Chief
Executive Officer as may be necessary and appropriate to accomplish and complete
such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $350,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during his
employment with the Corporation, and thereafter for a period of two years
after the termination of such employment, the Executive will not engage in any
unethical behavior which may adversely affect the Corporation. For the purpose
of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive to
divert any existing contracts or subcontracts from the Corporation to any other
firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive, to
adversely influence clients of the Corporation or organizations with which the
Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive to
divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
- 2 -
<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his or services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. Business Opportunities: Conflicts of Interest: Other
----------------------------------------------------
Employment and Activities of the Executive.
- ------------------------------------------
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
- 3 -
<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
- 4 -
<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing
Shares or interests therein transferred as provided in this Section 4.3 shall
bear the legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not in
compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
- 5 -
<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
4.7. ELECTION OF RUDDY AS A DIRECTOR. The Executive agrees to vote his
shares of Common Stock of the Corporation (and any other shares of the capital
stock of the Company over which he exercises voting control) and take such other
actions as are necessary to elect Raymond B. Ruddy as a Director of the
Corporation and thereafter continue Mr. Ruddy in office as a Director of the
Corporation, provided, however, that in the event that either Mr. Ruddy or the
Executive holds less than 20% of the outstanding Common Stock of the Company,
the Executive's obligation under this Section 4.7 shall terminate.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek to
create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event the
Corporation determines to file a registration pursuant to Section 5.1(a), the
Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION OFFERING.
If, at any time prior to the Expiration Date, the Corporation shall file a
registration statement to register shares of Common Stock for its own account in
an underwritten offering with the Commission while any Registrable Shares are
outstanding, the Corporation shall give all the Holders at least 45 days prior
written notice of the filing of such registration statement. Subject to 5.2(b)
below, if requested by any Holder in writing within 30 days after receipt of any
such notice, the
- 6 -
<PAGE> 7
Corporation shall register or qualify all or, at each Holder's option, any
portion of the Registrable Shares of any Holders who shall have made such
request, concurrently with the registration of such other securities, all to the
extent requisite to permit the public offering and sale of the Registrable
Shares through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable.
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate
- 7 -
<PAGE> 8
in a registration hereunder shall be conditioned upon the inclusion of such
Holder's Registrable Shares in such underwriting. If a Holder disapproves of the
terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to the Corporation and the underwriter delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best
- 8 -
<PAGE> 9
efforts to keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Registrable
Shares to sell such securities under Rule 144.
6. Indemnity.
---------
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and
against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 6, without
limitation, attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Registrable Shares, filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Corporation with respect
to such Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or
- 9 -
<PAGE> 10
additional to those available to the Corporation, in any of which events such
fees and expenses shall be borne by the Corporation, and the Corporation shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party or Parties. Anything in this Section 5 to the contrary
notwithstanding, the Corporation shall not be liable for any settlement of any
such claim or action effected without its written consent, which shall not be
unreasonably withheld. The Corporation shall not, without the prior written
consent of each Indemnified Party that is not released as described in this
sentence, settle or compromise any action, or permit a default or consent to the
entry of judgment in or otherwise seek to terminate any pending or threatened
action, in respect of which indemnity may be sought hereunder (whether or not
any Indemnified Party is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Party from all liability in respect of such action. The Corporation agrees
promptly to notify the Holders of the commencement of any litigation or
proceedings against the Corporation or any of its officers or directors in
connection with the sale of any Registrable Shares or any preliminary
prospectus, prospectus, registration statement or amendment or supplement
thereto, or any application relating to any sale of any Registrable Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution, if
(i) an Indemnified Party makes a claim for indemnification pursuant to Section
6.1 or 6.2 but it is found in a final judicial determination, not subject to
further appeal, that such indemnification may not be enforced in such case, even
though this Agreement expressly provides for indemnification in such case, or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
Exchange Act or otherwise, then the Corporation (including for this purpose any
contribution made by or on behalf
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<PAGE> 11
of any director of the Corporation, any officer of the Corporation who signed
any such registration statement, any controlling person of the Corporation, and
its or their respective counsel), as one entity, and the Holders of the
Registrable Shares included in such registration in the aggregate (including for
this purpose any contribution by or on behalf of an Indemnified Party), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Corporation
and such Holders in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission, shall
be determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Corporation
or by such Holders, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Corporation and the Holder agree
that it would be unjust and inequitable if the respective obligations of the
Corporation and the Holders for the contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages and
expenses (even if the Holder and the other indemnified parties were treated as
one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations, referred to in this Section 6.3. In no
case shall any Holder be responsible for a portion of the contribution
obligation imposed on all Holders in excess of its pro rata share based on the
number of Registrable Shares of by it and included in such registration as
compared to the number of Registrable Shares owned by all Holders and included
in such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 6.3, each person, if any, who controls any Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such Holder or
control person shall have the same rights to contribution as such Holder or
control person and each person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Corporation who shall have signed any such registration
statement, each director of the Corporation and its or their respective counsel
shall have the same right to contribution as the Corporation, subject in each
case to the provisions of this Section 6.3. Anything in this Section 6.3 to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 6.3 is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
David V. Mastran
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns and the obligations of the Executive under Section 4.7
shall also inure to the benefit of Raymond B. Ruddy. This Agreement may not be
assigned by either party without the consent of the other except that the
Corporation may assign this Agreement in connection with the merger,
consolidation or sale of all or substantially all of its business or assets.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding commenced in such court by the
Corporation. The Section headings are included
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<PAGE> 14
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties, and no
alteration or addition may be made to the provisions in Section 4.7 without the
consent of Raymond B. Ruddy.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any
gender shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
---------------------------------------
David V. Mastran
MAXIMUS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and David V. Mastran (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Ruddy]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Raymond B. Ruddy (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the Chairman of the Board
of Directors, Vice President, Consulting of the Corporation and President of
Consulting Group of the Corporation. The Executive shall provide day to day
management of the Corporation as Chairman of the Board of Directors, Vice
President, Consulting of the Corporation and President of Consulting Group and
shall perform such other services and duties as are appropriate to such office
or Chief Operating Officer of the Corporation. During the term of this
Agreement, the Executive shall be a full time employee of the Corporation and
shall devote such time and attention to the discharge of his duties as Chairman
of the Board of Directors, Vice President, Consulting of the Corporation and
President of Consulting Group as may be necessary and appropriate to accomplish
and complete such duties.
1.2. COMPENSATION.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $350,000 and regular year-end bonus
consistent with the Corporation's past practices; provided however that the
Executive's aggregate compensation shall not be less than that paid to the Chief
Executive Officer of the Corporation.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices and as are provided by the Corporation to its Chief Executive Officer.
<PAGE> 2
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical or
mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the event of
Executive's breach of any material duty or obligation hereunder, or intentional
or grossly negligent conduct that is materially injurious to the Corporation, as
reasonably determined by the Corporation's Board of Directors, or willful
failure to follow the reasonable directions of the Corporation's Board of
Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
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<PAGE> 3
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
(4) any attempt, successful or unsuccessful, by the Executive
to offer his services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the
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<PAGE> 4
Executive's immediate family, including any lending relationship or the
guarantying of any obligations of such person or business entity by the
Executive or member of his immediate family.
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
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<PAGE> 5
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
EXHIBIT A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
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<PAGE> 6
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the Executive shall be entitled to inspect and copy such records
and documents to the extent provided by the Stock Corporation Act of the
Commonwealth of Virginia and any other applicable law.
4.7. ELECTION OF MASTRAN AS A DIRECTOR. The Executive agrees to vote
his shares of Common Stock of the Corporation (and any other shares of the
capital stock of the Company over which he exercises voting control) and take
such other actions as are necessary to elect David V. Mastran as a Director of
the Corporation and thereafter continue Dr. Mastran in office as a Director of
the Corporation, provided, however, that in the event that either Dr. Mastran or
the Executive holds less than 20% of the outstanding Common Stock of the
Company, the Executive's obligation under this Section 4.7 shall terminate.
4.8. VOTING AGREEMENT. Until September 30, 2001, the Executive
agrees to vote his shares of the Corporation Common Stock (and any other shares
of the capital stock of the Corporation over which he exercises voting control)
and take such other actions as are necessary, in connection with any action of
the stockholders of the Corporation in a manner consistent with any instructions
received by the Executive from David Mastran. The Executive shall make
reasonable efforts prior to any stockholder action to obtain such instructions
from David Mastran and if such instructions are not obtained prior to the date
of a stockholder action, the Executive shall abstain from voting his shares in
such action.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
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<PAGE> 7
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
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<PAGE> 8
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request;
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<PAGE> 9
PROVIDED, HOWEVER, that the Corporation shall not be required to qualify to do
business in any state by reason of this Section 5.5 in which it is not otherwise
required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and
against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 6, without
limitation, attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), as and when incurred, arising out of, based upon,
or in connection with any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, preliminary prospectus
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, relating to the sale of any of the Registrable
Shares, filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be
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<PAGE> 10
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Corporation with respect to such
Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, as the case may be. The foregoing agreement to
indemnify shall be in addition to any liability the Corporation may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without the prior written consent of each Indemnified Party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any Indemnified Party is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Party from all liability in respect of
such action. The Corporation agrees promptly to notify the Holders of the
commencement of any litigation or proceedings against the Corporation or any of
its officers or directors in connection with the sale of any Registrable Shares
or any preliminary prospectus, prospectus, registration statement or amendment
or supplement thereto, or any application relating to any sale of any
Registrable Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the
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<PAGE> 11
Holder, each other person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Corporation to the Holders in Section 6.1, but only with respect to
statements or omissions, if any, made in any registration statement, preliminary
prospectus or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Corporation with respect to such Holder by
or on behalf of such Holder expressly for inclusion in any such registration
statement, preliminary prospectus or final prospectus, or any amendment or
supplement thereto, as the case may be. If any action shall be brought against
the Corporation or any other person so indemnified based on any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Corporation and such Holders in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Corporation or by such
Holders, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement, omission or
alleged omission. The Corporation and the Holder agree that it would be unjust
and inequitable if the respective obligations of the Corporation and the Holders
for the contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses (even if the Holder
and the other indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not reflect the equitable
considerations, referred to in this Section 6.3. In no case shall any Holder be
responsible for a portion of the contribution obligation imposed on all Holders
in excess of its PRO RATA share based on
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<PAGE> 12
the number of Registrable Shares of by it and included in such registration as
compared to the number of Registrable Shares owned by all Holders and included
in such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 6.3, each person, if any, who controls any Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such Holder or
control person shall have the same rights to contribution as such Holder or
control person and each person, if any, who controls the Corporation within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Corporation who shall have signed any such registration
statement, each director of the Corporation and its or their respective counsel
shall have the same right to contribution as the Corporation, subject in each
case to the provisions of this Section 6.3. Anything in this Section 6.3 to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 6.3 is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Raymond B. Ruddy
26 Rolling Lane
Dover, MA 02030
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal
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<PAGE> 13
Express (or a comparable overnight delivery service), or (iv) the third business
day after the date on which it is deposited in the United States mail. Either
party may change its address by notifying the other party of the new address in
any manner permitted by this paragraph. Rejection or other refusal to accept or
the inability to deliver because of a changed address of which no notice was
given shall not affect the date of such notice, election or demand sent in
accordance with the foregoing provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided the obligations of the Executive under Sections
4.7 and 4.8 shall also inure to the benefit of David V. Mastran provided this
Agreement may not be assigned by either party without the consent of the other
except that the Corporation may assign this Agreement in connection with the
merger, consolidation or sale of all or substantially all of its business or
assets. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and other legal
representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A
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<PAGE> 14
waiver or consent given by the Corporation on any occasion if effective only in
that instance and will not be construed as a bar to or waiver of any right on
any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding commenced in such court by the
Corporation. The Section headings are included solely for convenience and shall
in no event affect or be used in connection with, the interpretation of this
Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties, an d no
alteration or addition may be made to the provisions of Section 4.7 without the
consent of David V. Mastran.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
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<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
-----------------------------------------
Raymond B. Ruddy
MAXIMUS, INC.
By:
--------------------------------------
Name:
Title:
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<PAGE> 16
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Raymond B. Ruddy (the
"Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Beliveau]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Russell A. Beliveau (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the Vice President,
Government Operation/President of Government Operations Group of the
Corporation. The Executive shall provide day to day management of the
Corporation's Government Operations Group and shall perform such other services
and duties as are appropriate to such office. During the term of this Agreement,
the Executive shall be a full time employee of the Corporation and shall devote
such time and attention to the discharge of his duties as Vice President,
Government Operations/President of Government Operations Group as may be
necessary and appropriate to accomplish and complete such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $237,500 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
<PAGE> 2
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. Confidentiality.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. Stock Restrictions.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and against
any and all loss, liability, charge, claim, damage and expense whatsoever
(which shall include, for all purposes of this Section 6, without limitation,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Registrable Shares,
filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Corporation with respect to such Holder by or on
behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, as the case may be. The foregoing agreement to indemnify shall be in
addition to any liability the Corporation may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Russell A. Beliveau
MAXIMUS, INC.
1485 River Park Drive, #200
Sacramento, CA 95815
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------
Russell A. Beliveau
MAXIMUS, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Russell A. Beliveau (the
"Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Pepin]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Susan D. Pepin (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Systems
Planning and Integration Division of the Corporation. The Executive shall
provide day to day management of the Corporation's Systems Planning and
Integration Division and shall perform such other services and duties as are
appropriate to such office. During the term of this Agreement, the Executive
shall be a full time employee of the Corporation and shall devote such time and
attention to the discharge of her duties as the President of Systems Planning
and Integration Division as may be necessary and appropriate to accomplish and
complete such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of her obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $220,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. Non-Competition.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the
Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
------------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; PROVIDED, HOWEVER, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and against
any and all loss, liability, charge, claim, damage and expense whatsoever
(which shall include, for all purposes of this Section 6, without limitation,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Registrable Shares,
filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Corporation with respect to such Holder by or on
behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, as the case may be. The foregoing agreement to indemnify shall be in
addition to any liability the Corporation may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
PRO RATA share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
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<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Susan D. Pepin
MAXIMUS, Inc.
36 Washington Street, #320
Wellesley, MA 02181-1904
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------
Susan D. Pepin
MAXIMUS, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Susan D. Pepin (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Baylinson]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Ilene R. Baylinson (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Health
and Disability Services Division of the Corporation. The Executive shall provide
day to day management of the Corporation's Health and Disability Services
Division and shall perform such other services and duties as are appropriate to
such office. During the term of this Agreement, the Executive shall be a full
time employee of the Corporation and shall devote such time and attention to the
discharge of her duties as the President of Health and Disability Services
Division as may be necessary and appropriate to accomplish and complete such
duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of her obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $182,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
<PAGE> 2
(a) by mutual written consent of the parties; or
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. Business Opportunities: Conflicts of Interest: Other Employment
---------------------------------------------------------------
and Activities of the Executive.
- -------------------------------
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
- 3 -
<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
EXHIBIT A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of EXHIBIT A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
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<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; PROVIDED, HOWEVER, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
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<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and against
any and all loss, liability, charge, claim, damage and expense whatsoever
(which shall include, for all purposes of this Section 6, without limitation,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Registrable Shares,
filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Corporation with respect to such Holder by or on
behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, as the case may be. The foregoing agreement to indemnify shall be in
addition to any liability the Corporation may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
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<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
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<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
- 11 -
<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provid ed for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Ilene R. Baylinson
MAXIMUS, Inc.
8150 Lessburg Pike, #1250
Vienna, VA 22182
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
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<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
areements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
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<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
-------------------------------------------
Ilene R. Baylinson
MAXIMUS, INC.
By:
----------------------------------------
Name:
Title:
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<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Ilene R. Baylinson (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.9
EXECUTIVE EMPLOYMENT, NON-COMPETE, CONFIDENTIALITY AND
STOCK RESTRICTION AGREEMENT
[Davenport]
EMPLOYMENT AGREEMENT entered into this ___ day of ___________, 1997 by and
between Lynn P. Davenport (the "Executive") and MAXIMUS, Inc., a Virginia
corporation with a usual place of business in McLean, Virginia (the
"Corporation").
WHEREAS, Executive is a key employee of the Corporation and a holder of a
substantial number of shares of the issued and outstanding capital stock of the
Corporation, and
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment.
----------
1.1. DUTIES. The Corporation hereby employs the Executive, and the
Executive hereby accepts such employment, to serve as the President of Human
Services Division of the Corporation. The Executive shall provide day to day
management of the Corporation's Human Services Division and shall perform such
other services and duties as are appropriate to such office. During the term
of this Agreement, the Executive shall be a full time employee of the
Corporation and shall devote such time and attention to the discharge of his
duties as the President of Human Services Division as may be necessary and
appropriate to accomplish and complete such duties.
1.2. Compensation.
------------
(a) SALARY AND REGULAR YEAR-END BONUS. As compensation for
performance of his obligations hereunder, the Corporation shall pay the
Executive a salary of not less than $182,000 and regular year-end bonus
consistent with the Corporation's past practices.
(b) VACATION, INSURANCE, EXPENSES. The Executive shall be entitled
to such vacation benefits, health, disability and life insurance benefits and
expense reimbursements in a manner consistent with the Corporation's past
practices.
1.3. TERM; TERMINATION. The term of the employment agreement set
forth in this Section 1 shall be for a period commencing on the date hereof and
continuing until September 30, 2001, provided that this Agreement shall
terminate:
(a) by mutual written consent of the parties; or
<PAGE> 2
(b) upon Executive's death or inability, by reason of physical
or mental impairment, to perform substantially all of Executive's duties as
contemplated herein for a continuous period of 120 days or more; or
(c) by the Corporation for cause, which shall mean in the
event of Executive's breach of any material duty or obligation hereunder, or
intentional or grossly negligent conduct that is materially injurious to the
Corporation, as reasonably determined by the Corporation's Board of Directors,
or willful failure to follow the reasonable directions of the Corporation's
Board of Directors.
Upon any termination of employment under this Section 1.3, neither party
shall have any obligation to the other pursuant to this Section 1, but such
termination shall have no effect on the obligations of the parties under other
provisions of this Agreement.
2. NON-COMPETITION.
---------------
2.1. UNDERTAKING. The Executive agrees that while the Executive is
employed by the Corporation and thereafter, until _____________ [4 years after
the date hereof] (the "Expiration Date"), the Executive shall not, without the
Corporation's prior written consent, directly or indirectly, as a principal,
employee, consultant, partner, or stockholder of, or in any other capacity with,
any business enterprise (other than in the Executive's capacity as a holder of
not more than 1% of the combined voting power of the outstanding stock of a
publicly held company) (a) engage in direct or indirect competition with the
Corporation, (b) conduct a business of the type or character engaged in by the
Corporation at the time of termination or cessation of the Executive's
employment or (c) develop products or services competitive with those of the
Corporation.
2.2. PROHIBITED ACTIVITIES. (a) The Executive agrees that, during
his employment with the Corporation, and thereafter for a period of two
years after the termination of such employment, the Executive will not engage in
any unethical behavior which may adversely affect the Corporation. For the
purpose of this Section 2.2, "Unethical Behavior" is defined as:
(1) any attempt, successful or unsuccessful, by the Executive
to divert any existing contracts or subcontracts from the Corporation to any
other firm, whether or not affiliated with the Executive;
(2) any attempt, successful or unsuccessful by the Executive,
to adversely influence clients of the Corporation or organizations with which
the Corporation has a contract or a proposal pending as of the date of the
Executive's termination from the Corporation;
(3) any attempt, successful or unsuccessful, by the Executive
to divert any contracts or subcontracts which are pending as of the date of
Executive's termination from the Corporation to any other firm, whether or not
affiliated with the Executive;
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<PAGE> 3
(4) any attempt, successful or unsuccessful, by the Executive
to offer his services, or to influence any other employee of the Corporation
to offer their services, to any firm to compete against the Corporation in the
performance of services provided under existing contracts or follow-ons to
existing contracts or pending proposals with the Corporation's clients as of
the date of the Executive's termination; or
(5) any attempt, successful or unsuccessful, by the Executive
to employ or offer employment to, or cause any other person to employ or offer
employment to any other employee of the Corporation.
(b) The Executive agrees that, in addition to any other remedy
available to the Corporation, in the event of a breach by the Executive of the
terms of this Section 2.2 the Corporation may set off against any amounts due
the Executive, an amount equal to the gross revenues which such Executive, or
any entity with which the Executive is employed, affiliated or associated,
receives or is entitled to receive, from any existing clients (or potential
clients with whom a proposal is pending) of the Corporation during the two-year
period provided in this Section 2.2.
(c) The provisions of this Section 2.2 shall continue for a period
of two years after termination of the Executive's employment with the
Corporation, whether voluntary or involuntary, with or without cause. The
Executive shall notify any new employer, partner, association or any other firm
or corporation actually or potentially in competition with the Corporation with
whom the Executive shall become associated in any capacity whatsoever of the
provisions of this Section 2.2 and the Executive agrees that the Corporation may
give such notice to such firm, corporation or other person.
2.3. BUSINESS OPPORTUNITIES: CONFLICTS OF INTEREST: OTHER EMPLOYMENT
AND ACTIVITIES OF THE EXECUTIVE.
(a) The Executive agrees promptly to advise the Corporation of, and
provide the Corporation with an opportunity to seek, all business opportunities
that reasonably relate to the present business conducted by the Corporation.
(b) The Executive, in his capacity as an employee of the
Corporation, shall not engage in any business with any member of the Executive's
immediate family or with any person or business entity in which the Executive or
any member of the Executive's immediate family has any ownership interest or
financial interest, unless and until the Executive has first fully disclosed
such interest to the Board of Directors and received written consent from the
Board of Directors, signed by the Chairman of such board. As used herein, the
term "immediate family" means the Executive's spouse, natural or adopted
children, parents or siblings and the term "financial interest" means any
relationship with such person or business entity that may monetarily benefit the
Executive or member of the Executive's immediate family, including any lending
relationship or the guarantying of any obligations of such person or business
entity by the Executive or member of his immediate family.
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<PAGE> 4
(c) The parties hereto acknowledge and agree that the Executive may
engage in outside civic, political, social, educational and professional
activities and may serve on the boards of directors of other corporations;
provided, however, that such activities shall not have priority over or
adversely affect or conflict with the business of the Corporation or its
clients, or interfere with the mobility of the Executive to fulfill the
Executive's duties to the Corporation as a full-time employee and officer and
director of the Corporation, as conclusively determined by the Board of
Directors of the Corporation.
(d) The parties hereto agree that the Executive may, consistent with
this Section 1.3, receive and retain speaking fees, referral fees from business
opportunities not accepted by the Corporation, and fees from outside business
activities and opportunities of the Executive consented to by the Board of
Directors of the Corporation.
3. CONFIDENTIALITY.
---------------
3.1. NON-DISCLOSURE. The parties hereto agree that the Corporation's
books, records, files and all other information relating to the Corporation
(that is not otherwise available in the Public Domain), its business and its
clients are proprietary in nature and contain trade secrets and shall be held in
strict confidence by the parties hereto, and shall not, either during the term
of this Agreement or after the termination hereof, be intentionally disclosed,
directly or indirectly, to any third party, person, firm, corporation or other
entity, irrespective of whether such person or entity is a competitor of the
Corporation or is engaged in a business similar to that of the Corporation;
except in furtherance of the Corporation's business. The trade secrets or other
proprietary or confidential information referred to in the prior sentence
includes, without limitation, all proposals to clients or potential clients,
contracts, client or potential client lists, fee policies, financial
information. administration or marketing practices or procedures and all other
information regarding the business of the Corporation and its clients not
generally known to the public.
3.2. TRADE SECRETS. The parties hereto hereby acknowledge and agree
that all proprietary information referred to in this Section 2 shall be deemed
trade secrets of the Corporation and that each party hereto shall take such
steps, undertake such actions and refrain from taking such other actions, as
mandated by the provisions hereof and by the provisions of the laws of the
Commonwealth of Virginia.
4. STOCK RESTRICTIONS.
------------------
4.1. TRANSFERS. The Executive may not offer, sell, assign, grant a
participation in, pledge or otherwise transfer ("Transfer") any of the
Executive's shares of Common Stock of the Corporation (including shares acquired
after the date hereof) (the "Shares") except in compliance with the Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws.
In addition, until the Expiration Date, the Executive may not Transfer any of
the Executive's Shares without the prior written consent of the Corporation
after complying with Section 4.3 below, other than (i) subject to Section 4.4
below, to any Permitted Transferee (as defined in Section 4.4) or (ii) as may be
required by applicable federal or state law or regulation or (iii) pursuant to a
registration of such shares under Section 5 below.
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<PAGE> 5
4.2. RESTRICTIVE LEGEND. Until the Expiration Date, each certificate
representing Shares owned by the Executive shall include a legend in
substantially the following form:
UNTIL ________ __, 2001, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN AN EXECUTIVE
NON-COMPETE, CONFIDENTIALITY AND STOCK RESTRICTION AGREEMENT, DATED AS OF
________ __, 1997, A COPY OF WHICH MAY BE OBTAINED FROM MAXIMUS, INC.
4.3. REQUEST FOR CONSENT TO TRANSFER. The Executive may request
consent to transfer from the Corporation by providing written notice to the
Corporation of such holder's intention to effect such transfer, setting forth
the manner and circumstances of the proposed transfer in reasonable detail. In
the discretion of the Corporation, such consent may be conditioned upon the
delivery to the Corporation of an instrument substantially in the form of
Exhibit A hereto pursuant to which the transferee shall have agreed to be bound
by the terms of this Section 4. In such case, each certificate evidencing Shares
or interests therein transferred as provided in this Section 4.3 shall bear the
legend set forth in Section 4.2 hereof.
4.4. TRANSFERS TO PERMITTED TRANSFEREE. "Permitted Transferee" shall
mean (i) the spouse, ancestor, lineal descendants and other family members of
the Executive, and any trust for the benefit of the foregoing, (including
adopted descendants), (ii) any entities established principally for charitable
purposes to which the Executive Transfers any Shares by way of gift and (iii)
any person or entity to whom the Shares are Transferred by virtue of a pledge by
the Executive to secure a borrowing from such Permitted Transferee. The
Executive may transfer some or all of the Shares to a Permitted Transferee only
if the Corporation shall have received notice of such transfer and an instrument
substantially in the form of Exhibit A hereto pursuant to which the Permitted
Transferee shall have agreed to be bound by the terms of this Section 4. Each
certificate evidencing Shares or interests therein transferred as provided in
this Section 4.4 shall bear the legend set forth in Section 4.2 hereof.
4.5. IMPROPER TRANSFER. (a) Any attempt to Transfer any Shares not
in compliance with this Agreement shall be null and void and neither the
Corporation nor any transfer agent of the Corporation shall register, or
otherwise recognize in the Corporation's records, any such improper Transfer.
(b) The Executive shall not enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of the Corporation under this
Agreement, and any such transaction shall be null and void and, to the extent
that such transaction requires any action by the Corporation, it shall not be
registered or otherwise recognized in the Corporation's records or otherwise.
4.6. ACCESS TO RECORDS AND DOCUMENTS. At any time during which the
Executive is a stockholder and/or a member of the Board of Directors of the
Corporation, the
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<PAGE> 6
Executive shall be entitled to inspect and copy such records and documents to
the extent provided by the Stock Corporation Act of the Commonwealth of Virginia
and any other applicable law.
5. Registration Rights.
-------------------
5.1. Secondary Registration.
----------------------
(a) REGISTRATION FOR RESALE. The Corporation intends to seek
to create liquidity for the Shares held by the Executive prior to the Expiration
Date. In the sole discretion of the Corporation, the Corporation may file with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-8 or Form S-3 (or similar form) sufficient to permit the
public offering and sale of the Registrable Shares (as defined below) through
all securities exchanges and over-the-counter markets on which the Corporation's
Common Stock is then traded. For the purposes of this Agreement, "Registrable
Shares" shall mean outstanding Shares and Shares issuable upon exercise of
then-exercisable options held by the Executive and any other person holding
registration rights substantially the same as the rights set forth in this
Section 5, which Shares are not at that time the subject of an effective
registration statement filed with the Commission. For the purposes of this
Agreement, "Holders" shall mean all persons holding Registrable Shares
including Permitted Transferees.
(b) NOTICE OF FILING OF REGISTRATION STATEMENT. In the event
the Corporation determines to file a registration pursuant to Section 5.1(a),
the Corporation shall notify each Holder of the proposed filing and request that
each Holder notify the Corporation within 15 days thereafter of the number of
Registrable Shares such Holder wishes the Corporation to register on such
Holder's behalf. Each Holder shall, prior to the end of such 15 day period,
request in writing that the Corporation register the sale of all or part of such
Holder's Registrable Shares.
5.2. Piggyback Registration Rights.
-----------------------------
(a) OFFER TO INCLUDE REGISTRABLE SHARES IN CORPORATION
OFFERING. If, at any time prior to the Expiration Date, the Corporation shall
file a registration statement to register shares of Common Stock for its own
account in an underwritten offering with the Commission while any Registrable
Shares are outstanding, the Corporation shall give all the Holders at least 45
days prior written notice of the filing of such registration statement. Subject
to 5.2(b) below, if requested by any Holder in writing within 30 days after
receipt of any such notice, the Corporation shall register or qualify all or, at
each Holder's option, any portion of the Registrable Shares of any Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Registrable Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable.
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<PAGE> 7
(b) CUTBACK OF PARTICIPATION IN CORPORATION OFFERING.
Notwithstanding Section 5.2(a), if the managing underwriter of any such offering
shall advise the Corporation in writing that, in its opinion, the distribution
of all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the
Corporation would materially adversely affect the distribution of such
securities by the Corporation for its own account, then the number of
Registrable Shares held by such Holder to be included in such registration
statement shall be reduced to the extent advised by such managing underwriter,
provided that any such reduction shall be made pro rata among the Holders
electing to participate in such registration based on the aggregate number of
Registrable Shares held by each Holder electing to so participate, and provided
further that the total number of Registrable Shares included in any such
registration shall not be less than 25% of the total number of shares of Common
Stock included in the registration for the Corporation's account, the Holders
account and the account of any other person.
5.3. Underwriting.
------------
(a) UNDERWRITING IN SECONDARY REGISTRATION. If the Corporation
undertakes a registration under Section 5.1, any Holder wishing to distribute
the Registrable Shares which such Holder has requested to be registered in such
registration by means of an underwriting, such Holder shall so advise the
Corporation in such Holder's request to participate in such registration under
Section 5.1(b). The Holders of a majority of the Registrable Shares being
offered may select one or more underwriters for the registration under Section
5.1, which selection shall be approved by the Corporation, which approval shall
not be unreasonably withheld provided such underwriter(s) are experienced and
reputable. The Corporation shall, together with the Holders engaged in the
registration hereunder, enter into an underwriting agreement with the
representative of the underwriter or underwriters selected for such underwriting
in accordance with this Section 5.3(a).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION. In the event of an
underwritten registration pursuant to the provisions of Section 5.2, any Holder
who requests to have Registrable Shares included in such registration shall
enter into such custody agreements and powers of attorney as are reasonably
requested by the Corporation and any such underwriter, and, if requested, enter
into an underwriting agreement containing customary terms.
(c) RIGHT OF WITHDRAWAL FROM UNDERWRITING. In the event of an
underwritten offering under Section 5.3(a) or (b), the right of a Holder to
participate in a registration hereunder shall be conditioned upon the inclusion
of such Holder's Registrable Shares in such underwriting. If a Holder
disapproves of the terms of the underwriting, such Holder may elect to withdraw
therefrom by written notice to the Corporation and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
- 7 -
<PAGE> 8
5.4. EFFECTIVENESS AND EXPENSES. The Corporation will use its best
efforts through its officers, directors, auditors and counsel to cause any
Registration Statement filed pursuant to this Section 5 to become effective as
promptly as practicable. The Corporation shall be obligated to use its best
efforts to maintain the effectiveness of such Registration Statement only until
the earlier of (i) the Expiration Date, and (ii) the date on which no
Registrable Shares remain outstanding (the "Registration Termination Date"). The
Corporation shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Holders and underwriting discounts, if any,
payable in respect of the Registrable Shares sold by the Holders) in connection
with any such registration statement.
5.5. BLUE SKY REGISTRATIONS. In the event of a registration pursuant
to the provisions of this Section 5, the Corporation shall use its best efforts
to cause the Registrable Shares so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holders
may reasonably request; provided, however, that the Corporation shall not be
required to qualify to do business in any state by reason of this Section 5.5 in
which it is not otherwise required to qualify to do business.
5.6. CONTINUING EFFECTIVENESS. Until the Registration Termination
Date, the Corporation shall use its best efforts to keep effective any
registration or qualification contemplated by this Section 5 and shall from time
to time amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holders to complete the offer
and sale of the Registrable Shares covered thereby.
5.7. COPIES OF REGISTRATION STATEMENT AND RELATED DOCUMENTS. In the
event of a registration pursuant to the provisions of this Section 5, the
Corporation shall furnish to each Holder a copy of the Registration Statement
and of each amendment and supplement thereto (in each case, including all
exhibits), and a reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto (including
each preliminary prospectus), all of which shall conform to the requirements of
the Act, and the rules and regulations thereunder, and such other documents, as
any Holder may reasonably request to facilitate the disposition of the
Registrable Shares included in such registration.
5.8. RULE 144 ELIGIBILITY. The Corporation agrees that, following
the Expiration Date, until all the Registrable Shares have been sold under a
registration statement or pursuant to Rule 144 under the Act, the Corporation
shall use its best efforts to keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Registrable Shares to sell such securities under Rule 144.
6. Indemnity.
---------
- 8 -
<PAGE> 9
6.1. CORPORATION INDEMNIFICATION OF THE HOLDERS. Subject to the
conditions set forth below, the Corporation agrees to indemnify and hold
harmless each Holder, its officers, directors, partners, employees, agents and
counsel, if any, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, from and against
any and all loss, liability, charge, claim, damage and expense whatsoever
(which shall include, for all purposes of this Section 6, without limitation,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, relating to the sale of any of the Registrable Shares,
filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Corporation with respect to such Holder by or on
behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, as the case may be. The foregoing agreement to indemnify shall be in
addition to any liability the Corporation may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against any Holder or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons of
such person (an "Indemnified Party") in respect of which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph, such Indemnified
Party or Parties shall promptly notify the Corporation in writing of the
institution of such action (but the failure so to notify shall not relieve the
Corporation from any liability other than pursuant to this Section 6.1) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
parties) and payment of expenses. Such Indemnified Party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
parties unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party or Parties to have charge of the defense of such action
or such Indemnified Party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Corporation, in any of which events such fees and expenses shall be borne by
the Corporation, and the Corporation shall not have the right to direct the
defense of such action on behalf of the Indemnified Party or Parties. Anything
in this Section 5 to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Corporation shall
not, without
- 9 -
<PAGE> 10
the prior written consent of each Indemnified Party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any Indemnified Party is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Corporation agrees promptly to notify the Holders of the commencement of any
litigation or proceedings against the Corporation or any of its officers or
directors in connection with the sale of any Registrable Shares or any
preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
6.2. HOLDER INDEMNIFICATION OF THE CORPORATION. Each Holder
participating in any such registration shall indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall have signed the registration statement covering Registrable Shares
held by the Holder, each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Corporation to the Holders in Section 6.1, but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
such Holder by or on behalf of such Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, as the case may be. If any action shall be
brought against the Corporation or any other person so indemnified based on any
such registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against such Holder pursuant to this Section 6.2, such
Holder shall have the rights and duties given to the Corporation and the
Corporation and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 6.1.
6.3. CONTRIBUTION. To provide for just and equitable contribution,
if (i) an Indemnified Party makes a claim for indemnification pursuant to
Section 6.1 or 6.2 but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise, then the Corporation (including for this
purpose any contribution made by or on behalf of any director of the
Corporation, any officer of the Corporation who signed any such registration
statement, any controlling person of the Corporation, and its or their
respective counsel), as one entity, and the Holders of the Registrable Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an Indemnified Party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be
- 10 -
<PAGE> 11
subject, on the basis of relevant equitable considerations such as the relative
fault of the Corporation and such Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Corporation or by such Holders, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Corporation and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the Holders for the contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations,
referred to in this Section 6.3. In no case shall any Holder be responsible for
a portion of the contribution obligation imposed on all Holders in excess of its
pro rata share based on the number of Registrable Shares of by it and included
in such registration as compared to the number of Registrable Shares owned by
all Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.3, each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such Holder or control person shall have the same rights to
contribution as such Holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation and its or
their respective counsel shall have the same right to contribution as the
Corporation, subject in each case to the provisions of this Section 6.3.
Anything in this Section 6.3 to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 6.3 is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
- 11 -
<PAGE> 12
7. MISCELLANEOUS.
-------------
7.1. NOTICES. All notices, requests, demands or other communications
provided for in this Agreement shall be in writing and shall be delivered by
hand, sent prepaid by Federal Express (or a comparable overnight delivery
service) or sent by the United States mail, certified, postage prepaid, return
receipt request, to the following
If to the Corporation,
MAXIMUS, Inc.
1356 Beverly Road
McLean, Virginia 22201
Attention: David V. Mastran
If to the Executive,
Lynn P. Davenport
MAXIMUS, Inc.
36 Washington Street, #320
Wellesley, MA 02181-1904
Any notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (i) the date it is actually received, (ii) the business-day after
the day on which it is delivered by hand, (iii) the business day after the day
on which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (iv) the third business day after the date on which it is
deposited in the United States mail. Either party may change its address by
notifying the other party of the new address in any manner permitted by this
paragraph. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall not affect the
date of such notice, election or demand sent in accordance with the foregoing
provisions.
7.2. REMEDIES. The parties hereto further agree and acknowledge that
any violation by the Executive of the terms hereof may result in irreparable
injury and damage to the Executive, Corporation or its clients, as the case may
be, which will not adequately be compensable in monetary damages, that the
Corporation will have no adequate remedy at law therefor, and that the
Corporation may obtain such preliminary, temporary or permanent mandatory or
restraining injunctions, orders or decrees as may be necessary to protect it
against, or on account of, any breach of the provisions contained in this
Agreement.
- 12 -
<PAGE> 13
7.3. NO OBLIGATION OF CONTINUED EMPLOYMENT AFTER TERMINATION OF
SECTION 1. Except as set forth in Section 1 hereof, the Executive understands
that this Agreement does not constitute a contract of employment or create an
obligation on the part of the Corporation to continue the Executive's employment
with the Corporation.
7.4. BENEFIT; ASSIGNMENT. This Agreement shall bind and inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, provided this Agreement may not be assigned by either
party without the consent of the other except that the Corporation may assign
this Agreement in connection with the merger, consolidation or sale of all or
substantially all of its business or assets. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and other legal representatives and, to the extent that any
assignment hereof is permitted hereunder, their assignees.
7.5. ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements, written or oral, with respect to the subject matter of this
Agreement, including the Shareholder Agreement dated January 2, 1996.
7.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, and
all other provisions shall remain in full force and effect. If any of the
provisions of this Agreement is held to be excessively broad, it shall be
reformed and construed by limiting and reducing it so as to be enforceable to
the maximum extent permitted by law.
7.7. WAIVERS. No delay or omission by the Corporation in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Corporation on any occasion if effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
7.8. CAPTIONS. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be construed as a sealed
instrument and shall in all events and for all purposes be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction. Any action, suit or other legal proceeding which
the Executive may commence to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the
Commonwealth of Virginia (or, if appropriate, a federal court located within
Virginia), and the Executive hereby consent to the jurisdiction of such court
with respect to any action, suit or proceeding
- 13 -
<PAGE> 14
commenced in such court by the Corporation. The Section headings are included
solely for convenience and shall in no event affect or be used in connection
with, the interpretation of this Agreement.
THE EXECUTIVE HAS READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND THE
EXECUTIVE UNDERSTANDS, AND AGREES TO, EACH OF SUCH PROVISIONS. THE EXECUTIVE
UNDERSTANDS THAT THIS AGREEMENT MAY AFFECT THE EXECUTIVE'S RIGHT TO ACCEPT
EMPLOYMENT WITH OTHER COMPANIES SUBSEQUENT TO THE EXECUTIVE'S EMPLOYMENT WITH
THE CORPORATION.
7.10. AMENDMENTS. No alterations or additions to this Agreement
shall be binding unless in writing and signed by both the parties.
7.11. GENDERS. Whenever reasonably necessary, pronouns of any gender
shall be deemed synonymous, as shall singular and plural pronouns.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
----------------------------------------------
Lynn P. Davenport
MAXIMUS, INC.
By:
-------------------------------------------
Name:
Title:
- 14 -
<PAGE> 15
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
MAXIMUS, INC.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Reference is made to the Executive Non-Compete, Confidentiality and
Stock Restriction Agreement (the "Agreement") dated as of _____________ __, 1997
between MAXIMUS, Inc. (the "Company") and Lynn P. Davenport (the "Transferor").
The undersigned is the transferee of _________ shares of
_____________ Common Stock of the Corporation from the Transferor (the
"Shares").
In consideration of the representations, covenants and agreements
contained in the Agreement, the undersigned hereby confirms and agrees to be
bound by all of the provisions of Section 3 of the Agreement applicable to the
Transferor with respect to the Shares.
This letter shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia without regard to the conflicts of law
rules of such state.
Very truly yours,
--------------------------
<PAGE> 1
EXHIBIT 10.12
STATE OF CALIFORNIA
<TABLE>
<S> <C>
STANDARD AGREEMENT -- APPROVED BY THE --------------------------------------------------
ATTORNEY GENERAL CONTRACT NUMBER AM.NO.
96-26293 00
--------------------------------------------------
TAXPAYER'S FEDERAL EMPLOYER IDENTIFICATION NUMBER
541-000588
THIS AGREEMENT, made and entered into this 1st day of October, 1996, --------------------------------------------------
in the State of California, by and between State of California, through its duly
elected or appointed, qualified and acting
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
TITLE OF OFFICER ACTING FOR STATE AGENCY
Chief, Program Support Branch Department of Health Services , hereafter called the State, and
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME
MAXIMUS , hereafter called the Contractor.
- --------------------------------------------------------------------------------
</TABLE>
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(Set forth service to be rendered by Contractor, amount to be paid Contractor,
time for performance or completion, and attach plans and specifications, if
any.)
ARTICLE I - PREAMBLE
THIS CONTRACT IS ENTERED INTO UNDER THE PROVISIONS OF SECTION 14016.5 ET SEQ.,
WELFARE AND INSTITUTIONS CODE (W&I CODE) AND SB835, AN ACT TO AMEND SECTIONS
14016.5, 14088.05, 14088.22, 14089, 14301, 14304, AND 14408, AND TO ADD SECTIONS
14087.305, 14088.23, AND 14464 TO THE WELFARE AND INSTITUTIONS CODE, RELATING TO
MEDI-CAL.
-------------------------------
APPROVED
/s/ Gina Durante 10/9/96
---------------------------
Department of Finance
Budget Division
-------------------------------
CONTINUED ON 33 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto,
upon the date first above written.
================================================================================
STATE OF CALIFORNIA CONTRACTOR
- --------------------------------------------------------------------------------
AGENCY CONTRACTOR (If other than an
individual, state whether a
corporation, partnership, etc.)
Department of Health Services MAXIMUS
- --------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE) BY (AUTHORIZED SIGNATURE)
/s/ Pamela A. Harley /s/ David V. Mastran
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME AND TITLE OF PERSON SIGNING
Edward E. Stahlberg David V. Mastran, CEO
- --------------------------------------------------------------------------------
TITLE ADDRESS
Chief, Program Support Branch 1356 Beverly Road, McLean, VA 22101
================================================================================
<TABLE>
<S> <C> <C>
AMOUNT EMCUMBERED BY THIS PROGRAM/CATEGORY (CODE AND TITLE) FUND TITLE DEPARTMENT OF GENERAL SERVICES
DOCUMENT ------------------------------
Loc.Asst.Sect 14157 W & I Code Health Care DEposit USE ONLY
$48,200,000 ----------------------------------------------------------- FORM POLICY BUDGET
- --------------------------- (OPTIONAL USE) ------------------------------
PRIOR AMOUNT ENCUMBERED FOR Department of General Services
THIS CONTRACT Fed.Cat.No. 93778 4260-101-001 & 890
----------------------------------------------------------- APPROVED
$-0- ITEM CHAPTER STATUTE FISCAL YEAR
- --------------------------- 4260-601-912 162 1996 96/97
TOTAL AMOUNT ENCUMBERED TO ----------------------------------------------------------- OCT. 10, 1996
STATE OBJECT OF EXPENDITURE (CODE AND TITLE)
$48,200,000 N/A
- -----------------------------------------------------------------------------------------
I hereby certify upon my own personal knowledge that T.B.A. NO. B.R.NO.
budgeted funds are available for the period and BY /s/ Garry Ness
purpose of the expenditure stated above.
- -----------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
/s/ Roberta Purser 10/2/96 Ass't Chief Counsel
========================================================================================= ------------------------------
[ ] CONTRACTOR [ ] STATE AGENCY [ ] DEPT. OF GEN. SER. [ ] CONTROLLER [ ]
</TABLE>
<PAGE> 2
STATE OF CALIFORNIA
STANDARD AGREEMENT
1. The Contractor agrees to indemnify, defend and save harmless the State, its
officers, agents and employees from any and all claims and losses accruing
or resulting to any and all contractors, subcontractors, material men,
laborers and any other person, firm or corporation furnishing or supplying
work services, materials or supplies in connection with the performance of
this contract, and from any and all claims and losses accruing or resulting
to any person, firm or corporation who may be injured or damaged by the
Contractor in the performance of this contract.
2. The Contractor, and the agents and employees of Contractor, in the
performance of the agreement, shall act in an independent capacity and not
as officers or employees or agents of State of California.
3. The State may terminate this agreement and be relieved of the payment of
any consideration to Contractor should Contractor fail to perform the
covenants herein contained at the time and in the manner herein provided.
In the event of such termination the State may proceed with the work in any
manner deemed proper by the State. The cost to the State shall be deducted
from any sum due the Contractor under this agreement, and the balance, if
any, shall be paid the Contractor upon demand.
4. Without the written consent of the State, this agreement is not assignable
by Contractor either in whole or in part.
5. Time is of the essence in this agreement.
6. No alteration or variation of the terms of this contract shall be valid
unless made in writing and signed by the parties hereto, and no oral
understanding or agreement not incorporated herein, shall be binding on any
of the parties hereto.
7. The consideration to be paid Contractor, as provided herein, shall be in
compensation for all of Contractor's expenses incurred in the performance
hereof, including travel and per diem, unless otherwise expressly so
provided.
<PAGE> 3
Maximus 96-26293
TABLE OF CONTENTS
ARTICLE I PREAMBLE
ARTICLE II - GENERAL TERMS AND CONDITIONS Pg 2
A. GOVERNING AUTHORITIES Pg 2
B. FULFILLMENT OF OBLIGATIONS Pg 2
C. INDEMNIFICATION Pg 3
D. ASSIGNMENT Pg 3
E. INSPECTION RIGHTS Pg 3
F. COMPLIANCE WITH OBLIGATIONS Pg 4
G. DISCRIMINATION COMPLAINTS Pg 5
H. NONDISCRIMINATION CLAUSE AND COMPLIANCE Pg 5
I. AMERICANS WITH DISABILITIES ACT CERTIFICATION Pg 5
J. CONTRACTORS NATIONAL LABOR RELATIONS BOARD
CERTIFICATION Pg 8
K. MINORITY, WOMEN, AND DISABLED VETERAN BUSINESS
ENTERPRISE PARTICIPATION GOALS Pg 6
L. CERTIFICATION OF DRUG-FREE WORKPLACE Pg 6
M. CONSULTANT SERVICES Pg 7
N. NOTICES Pg 8
O. EVALUATION OF CONTRACTORS PERFORMANCE Pg 8
P. RESOLUTION OF DISPUTES Pg 9
Q. PUBLICATION REQUIREMENTS Pg 9
R. COPYRIGHT AND OWNERSHIP OF MATERIALS Pg 10
S. STATE TRADEMARKS AND SERVICE MARKS Pg 12
T. PATENTS Pg 13
U. LIABILITY INSURANCE Pg 15
V. INCORPORATION OF REQUEST FOR PROPOSAL Pg 16
W. INCORPORATION OF PROPOSAL OR BID Pg 16
X. INCORPORATION OF EXHIBITS Pg 16
Y. CHANGE ORDERS Pg 17
Z. HEALTH CARE OPTIONS Pg 17
AA. CONTRACTOR NAME CHANGE Pg 18
BB. NOVATION Pg 18
ARTICLE III - DUTIES OF CONTRACTOR Pg 19
A. RECORDS ESTABLISHMENT, ACCESS, AND RETENTION Pg 19
B. ACCOUNTING AND AUDITING REQUIREMENTS Pg 19
C. EQUIPMENT Pg 20
D. COMMUNICATION Pg 21
E. PURCHASE ORDERS AND SUBCONTRACTING PROVISIONS Pg 22
F. STANDARDS OF WORK Pg 23
G. PROGRESS REPORTS OR MEETINGS Pg 23
H. STATE APPROVAL OF SUBCONTRACTS Pg 23
I. CONFLICT OF INTEREST - CURRENT AND FORMER STATE
EMPLOYEES Pg 24
i
<PAGE> 4
Maximus 96-26293
ARTICLE IV - TERM AND TERMINATION Pg 26
A. TERM Pg 26
B. CONTRACT EXTENSION Pg 26
C. CANCELLATION AND AMENDMENT PROVISIONS Pg 26
D. DEPARTMENT TERMINATION Pg 27
ARTICLE V - PAYMENT PROVISIONS Pg 28
A. AMOUNTS PAYABLE Pg 28
B. COSTS REIMBURSABLE Pg 28
C. PAYMENT IN FULL Pg 31
D. CONTRACTOR PAYMENT AND EXPENDITURE PROVISIONS Pg 31
E. MISCELLANEOUS PAYMENT PROVISIONS Pg 33
F. CONTRACT CLOSE-OUT Pg 33
G. CONTRACTS IN EXCESS OF $200,000 Pg 34
H. CONTRACTS FUNDED IN WHOLE OR IN PART BY THE FEDERAL
GOVERNMENT Pg 34
ARTICLE VI - CONFIDENTIALITY Pg 35
EXHIBIT A - TAKEOVER REQUIREMENTS
EXHIBIT B - SCOPE OF WORK
EXHIBIT C - TURNOVER REQUIREMENTS
EXHIBIT D - DEPARTMENT RESPONSIBILITIES
EXHIBIT E - TRAVEL ALLOWANCES AND REIMBURSEMENTS
ii
<PAGE> 5
Maximus 96-26293
WHEREAS, it is the intention of the Department that the Contractor will:
Provide accurate, complete and current information to AFDC and MediCal
applicants and beneficiaries on managed care plans with available capacity,
provide services in the area where the person resides, and in the person's
primary language; and
Educate and inform AFDC and Medi-Cal beneficiaries of the options for obtaining
Medi-Cal services through either enrollment in managed care plans or
fee-for-service Medi-Cal with an emphasis on the benefits and limitations of
increased access to health care services through health care plans; and
Implement the HCO program in a timely and uniform manner in those counties which
will require an HCO program due to new or existing managed care plans in those
counties and future counties designated by the Department without interruption
to County Welfare Departments and/or services AFDC and Medi-Cal beneficiaries;
and,
Conduct all enrollment and disenrollment activities in any County, as
designated by the Department, in a timely and efficient manner; and
Develop and maintain a process to assign AFDC and Medi-Cal beneficiaries, who
have failed to make a timely managed care plan choice or are exempt from
assignment, into an available managed care plan which provides services in an
area where the beneficiary resides; and
Serve as a resource, educate and provide assistance to help enrollees understand
the methods available to resolve issues and problems with their health care
plan; and
WHEREAS, it is in the best interest of all parties to enter into this
contract;
NOW THEREFORE, the contract is entered as follows:
<PAGE> 6
Maximus 96-26293
Article II
ARTICLE II - GENERAL TERMS AND CONDITIONS
A. GOVERNING AUTHORITIES
This contract will be governed and construed in accordance with:
Chapter 7 and 8, Part 3, Division 9, Welfare and Institutions Code;
Division 3, Title 22, California Code of Regulations;
Title 42, Code of Federal Regulations (CFR);
Title 42, United States Code, Section 1396 et seq.;
Title 45, Code of Federal Regulations, Part 74;
Section 10344, (c)(2), Public Contract Code;
Section 3700, California Labor Code.
All other applicable laws and regulations, and any amendments of, additions
to, or deletions from those laws and regulations.
Any provision of this contract which is in conflict with the above laws,
regulations and federal Medicaid statutes is hereby amended to conform to
the provisions of those laws and regulations. The amendment of the contract
shall be effective on the effective date of the statutes or regulations
necessitating it, and shall be binding on the parties even though such
amendment may not have been reduced to writing and formally agreed upon and
executed by the parties. If, due to amendment in laws and regulations,
Contractor is unable or unwilling to comply with the provisions of the
amendment(s), the Contractor may terminate this contract. The termination
shall become effective on the last day of the second calendar month
following the month in which notice of termination was given.
B. FULFILLMENT OF OBLIGATIONS
No covenant, condition, duty, obligation, or undertaking contained or made
a part of this contract will be waived except by written agreement of the
parties hereto, and forbearance or indulgence in any other form or manner
by either party in any regard whosoever will not constitute a waiver of
covenant, condition, duty, obligation or undertaking to be kept, performed
or discharged by the party to which the same may apply; and, until
performance or satisfaction of all covenants, conditions, duties,
obligations, and undertakings is complete, the other
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party will have the right to invoke any remedy available under the
contract, or under law, notwithstanding such forbearance or indulgence.
C. INDEMNIFICATION
Contractor shall indemnify, defend and hold harmless the State of
California and its agencies, officers, agents and employees from and
against any and all claims and losses accruing or resulting from any and
all contractors, subcontractors, material persons, laborers and any other
person, firm or corporation furnishing or supplying work, services,
equipment, materials, or supplies in connection with the performance of
this agreement, and from any and all claims and losses accruing or
resulting from any person, firm or corporation who may be injured or
damaged by the Contractor in the performance of this agreement. Contractor
agrees to include the State in any consultant or subcontractor agreements
as a named indemnitee. Contractor further agrees to indemnify the State
against all loss incurred by the State as a result of Contractor's failure
to comply with terms and conditions of State of California, Department of
Health Services and other sponsors' administrative requirements including
but not limited to costs expended by Contractor which are determined by the
Federal and State Government to be ineligible for reimbursement.
Contractor, subcontractor, and the agents and employees of the Contractor,
in the performance of this agreement shall act in an independent capacity
and not as officers, employees or agents of the State of California.
D. ASSIGNMENT
Without the written consent of the State, this agreement is not assignable
by the Contractor, either in whole or in part; this agreement shall inure
to the benefit and bind the successors of each of the parties; this
agreement shall be governed by the laws of the State of California as to
interpretation and performance; and no alteration or variation of the terms
of this contract shall be valid unless made in writing and signed by the
parties hereto, and no oral understanding or agreement not incorporated
herein in writing shall be binding on any of the parties hereto. Time is of
the essence in this agreement.
E. INSPECTION RIGHTS
The Contractor will allow the Department, Health and Human Services (HHS),
the Comptroller General of the United States, Department of Justice (DOJ),
Bureau of Medi-Cal Fraud, Department
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of Corporations (DOC), and other authorized state agents or their duly
authorized representatives, to inspect or otherwise evaluate the quality,
appropriateness and timeliness of services performed under this contract,
and to inspect, evaluate and audit any and all books, records, and
facilities maintained by the Contractor and subcontractors, pertaining to
such services at any time during the normal business hours. Books and
records include, but are not limited to, all physical records originated or
prepared pursuant to the performance under this contract including working
papers, reports, financial records and books of account, subcontracts, and
any other documentation pertaining to services rendered. Upon request, at
any time during the period of this contract, the Contractor will furnish
any such records, or copy thereof, to the Department or HHS.
To assure compliance with the contract and for any other reasonable
purpose, the Department and its authorized representatives and designees
will have the right to premises access, with or without notice to the
Contractor. This will include the enrollment form processing facility,
presentation sites, or such other place where duties under the contract are
being performed.
Staff designated by the Department or the State Auditor will have access to
all security areas and the Contractor will provide, and will require any
and all of its subcontractors to provide, reasonable facilities,
cooperation and assistance to Department representative(s) in the
performance of their duties. Access will be undertaken in such a manner as
not to unduly delay the work of the Contractor and/or subcontractor(s).
F. COMPLIANCE WITH OBLIGATIONS
The Contractor is required to comply with all obligations under this
contract. The Department will issue a letter of non-compliance to the
Contractor for any violations, and impose any sanctions allowed by law. The
letter of non-compliance will include the violation, sanctions which may be
imposed, and corrective action required by the Contractor, including time
frames required for said corrective action. Failure to comply with
corrective actions within the specified time frames shall be deemed to be a
subsequent violation. Requests for Extensions of specified time frames must
be submitted in writing to the Departments Contract Manager for approval
prior to the expiration of the time frames.
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G. DISCRIMINATION COMPLAINTS
The Contractor agrees that copies of all grievances received by the
Contractor alleging discrimination against members of MediCal managed care
plans, Medi-Cal applicants or beneficiaries because of race, color, creed,
sex, religion, age, national origin, ancestry, marital status, sexual
orientation, or physical or mental handicap will be forwarded to the
Department for review and appropriate action.
H. NONDISCRIMINATION CLAUSE AND COMPLIANCE
During the performance of this agreement, Contractor and its subcontractors
shall not unlawfully discriminate, harass, or allow harassment, against any
employee, applicant for employment, or beneficiary because of sex, race,
color, ancestry, religious creed, national origin, disability (including
HIV and AIDS), medical condition (i e. cancer), age, marital status, denial
of family and medical care leave and denial of pregnancy disability leave.
Contractor and its subcontractors shall ensure that the evaluation and
treatment of their employees, applicants for employment, and beneficiaries
are free from discrimination and harassment. Contractor and its
subcontractors shall comply with the provisions of the Fair Employment and
Housing Act (Government Code, Section 12900 et seq.), and the applicable
regulations promulgated thereunder (California Code of Regulations, Title
2, Section 7285.0 et seq.). The applicable regulations of the Fair
Employment and Housing Commission implementing Government Code, Section
12990 (a-f), set forth in Chapter 5 of Division 4 of Title 2 of the
California Code of Regulations are incorporated into this agreement by
reference and made a part hereof as if set forth in full. Contractor and
its subcontractor shall give written notice of their obligations under this
clause to labor organizations with which they have a collective bargaining
or other agreement.
Contractor shall include the nondiscrimination and compliance provisions of
this clause in all subcontracts to perform work under this agreement.
I. AMERICANS WITH DISABILITIES ACT CERTIFICATION
The Contractor, by signing this agreement, agrees to fully comply with the
Americans with Disabilities Act (ADA) of 1990, (42 U.S.C. 12101 et seq.),
which prohibits discrimination on the basis of disability, as well as all
applicable regulations and guidelines issued pursuant to the ADA.
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J. CONTRACTORS NATIONAL LABOR RELATIONS BOARD CERTIFICATION
The Contractor, by signing this agreement, does swear under penalty of
perjury that no more than one final unappealable finding of contempt of
court by a federal court has been issued against the Contractor within the
immediate preceding two (2) year period because of the Contractor's failure
to comply with an order of the National Labor Relations Board (Public
Contracting Code Section 12096).
K. MINORITY, WOMEN, AND DISABLED VETERAN BUSINESS ENTERPRISE PARTICIPATION
GOALS
The Contractor will comply with applicable requirements of California law
relating to Minority/Women/Disabled Veteran Business Enterprises (M/W/DVBE)
commencing at Section 10115 of the Public Contract Code.
L. CERTIFICATION OF DRUG-FREE WORKPLACE
By signing this agreement, Contractor hereby certifies under penalty of
perjury under the laws of the State of California that the Contractor will
comply with the requirements of the Drug-Free Workplace Act of 1990
(Government Code, Section 8350 et seq.) and will provide a drug-free
workplace by taking the following actions:
1. Publishing a statement notifying employees that unlawful manufacture,
distribution, dispensation, possession, or use of a controlled
substance is prohibited and specifying actions to be taken against
employees for violations as required by Government Code, Section
8355(a);
2. Establishing a Drug-Free Awareness Program as required by Government
Code, Section 8355 (b), to inform employees about:
a. The dangers of drug abuse in the workplace;
b. The person's or organization's policy of maintaining a drug-free
workplace;
c. Any available counseling, rehabilitation and employee assistance
programs; and,
d. Penalties that may be imposed upon employees for drug abuse
violations; and
3. Providing, as required by Government Code, Section 8355(c),
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that every employee who performs work under this agreement:
a. will receive a copy of the Contractor's drug-free policy
statement; and
b. will agree to abide by the terms of the Contractor's statement as
a condition of employment under this agreement.
M. CONSULTANT SERVICES
Contractor shall be bound by the following provisions:
1. Contractor is hereby advised of his or her duties, obligations and
rights under Public Contract Code, Sections 10355 through 10382. In
the event of a dispute, the matter shall be settled by an arbitrator
mutually agreed upon by both parties.
2. Contractor's key personnel assigned to perform work under this
agreement and their level of responsibility shall be mutually
acceptable to the State and Contractor.
3. Contractor shall supply to the State one copy of a resume for each
employee, consultant, or employee of a subcontractor who will exercise
a major administrative, policy or consultative role on behalf of the
Contractor.
4. Contractor shall provide a series of progress reports in the manner
stipulated by the State.
5. Upon expiration or cancellation of this agreement, Contractor shall
submit to the State a comprehensive final report and, if required by
the State, schedule a final meeting with the State.
Failure to comply with these requirements may result in suspension of
payment under this agreement or cancellation of this agreement, or both,
and the Contractor may be ineligible for award of any future state
contracts if the State determines that the Contractor:
1. has made a false certification; or
2. violates the certification by failing to carry out the requirements as
noted above.
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N. NOTICES
All notices to be given under this contract will be in writing and will be
deemed to have been given when mailed to the Department or the Contractor:
State Department of Health Services Maximus
Medi-Cal Managed Care Division 1485 River Park Drive,
Health Care Options Unit Suite 200
714 P Street, Room 1340 Sacramento, CA 95815
P.O. Box 942732 Attn: Russ Beliveau
Sacramento, CA 94234-7320 or Jerry Coker
Attn: Contract Manager
O. EVALUATION OF CONTRACTORS PERFORMANCE
1. Contractor is hereby notified that its performance under this
agreement will be evaluated within sixty (60) days of the completion
date of this agreement. This evaluation will remain on file with the
Department of General Services. The evaluation will remain on file for
thirty-six (36) months. The evaluation will report:
a. Whether the contracted work or services were completed as
specified in the contract;
b. Whether the contracted work or services met the quality standards
specified in the contract;
c. Whether the contractor fulfilled all the requirements of the
contract, and, if not, in what ways the contractor did not
fulfill the contract;
d. Factors outside the control of the contractor that caused
difficulties in contractor performance;
e. Other information the State may require; and,
f. How the contract results and findings will be utilized to meet
State goals.
2. If the Contractor's performance was judged unsatisfactory in any of
the factors specified in Subsection 1, above, and was not mitigated by
circumstances specified in Subsection 1 4, above, the evaluation shall
be considered unsatisfactory for purposes of Subsections 3 and 4,
below.
3. Contractor is further advised that if the State prepares an
unsatisfactory evaluation under the provisions of Subsection
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2, above, the Contractor shall be notified and sent a copy of the
evaluation within fifteen (15) days of its preparation. The evaluation
shall be placed on file with the Department of General Services. The
Contractor shall have thirty (30) days to send statements to the State
and the Department of General Services defending its performance under
this agreement. These statements shall be filed with the evaluation in
the State's contract file and in the Department of General Service's
files.
4. Contractor evaluations shall remain on file with the State for
thirty-six (36) months.
P. RESOLUTION OF DISPUTES
If the Contractor disputes any action by the Contract Manager arising under
or out of the performance of this agreement, the Contractor shall notify
the Contract Manager of the dispute in writing and request a decision. The
Contract Manager shall issue a decision within thirty (30) days of the
Contractor's notice. If the Contractor disagrees with the Contract
Manager's decision, the Contractor shall submit an appeal to the Chief of
the MediCal Managed Care Division.
The decision of the Contract Manger shall be final and conclusive on the
dispute unless the decision is arbitrary, capricious, or grossly erroneous
or if any determination of fact is unsupported by substantial evidence. The
decision of the Division Chief shall be in writing following an opportunity
for contractor to present documentary evidence and written arguments in
support of the matter.
Q. PUBLICATION REQUIREMENTS
1. Any publication resulting from this project, whether copyrighted or
not, must include an acknowledgement of support by the Department of
Health Services and the State, including a statement similar to "A
partnership program with the Department of Health Services" and
indicating the appropriate agreement number. Except for scientific
articles and papers appearing in scientific journals, materials must
also contain the following disclaimer:
"ANY OPINIONS, FINDINGS, CONCLUSIONS, OR RECOMMENDATIONS EXPRESSED IN
THIS PUBLICATION ARE THOSE OF THE AUTHOR(S) AND DO NOT NECESSARILY
REFLECT THE VIEWS OF THE DEPARTMENT OF HEALTH SERVICES OR THE STATE OF
CALIFORNIA."
2. The State reserves a royalty fee, non-exclusive and
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irrevocable license to reproduce, publish or otherwise use and to
authorize others to use, for State purposes:
a. the copyright in any work developed under this agreement or
subcontract; and
b. any rights of copyright to which a grantee or contractor
purchases ownership with State support.
3. Grantees shall comply with this section and provisions of OMB-Circular
A-110, paragraph 8b, and 13 CFR Part 143.34, to take all necessary and
prudent steps required to protect the federal government's, and the
State of California's license when conveying rights to publishers.
R. COPYRIGHT AND OWNERSHIP OF MATERIALS
1. The term "Work" as used in this Section, Section Q, PUBLICATION
REQUIREMENTS, and Section S, STATE TRADEMARKS AND SERVICE MARKS, means
all writing and printed material including the medium by which it is
recorded or reproduced, photographs, art work, pictorial
reproductions, drawings or other graphic representations and works of
a similar nature, sound recordings, films, tapes, original computer
programs (including executable computer programs and supporting data
in any form) and any other materials or products conceptualized,
developed and/or delivered in the course of or under this agreement.
The "Work" does not include those materials licensed pursuant to
Subsection 3, below.
2. Ownership
---------
In connection with any and all copyrightable or trademarked Work
developed or created by Contractor or its employees or subcontractors
in the course of performing and creating the Work, it is understood
and agreed that such Work shall be produced as work made for hire when
the Work is within the scope of the definition of work made for hire
in the United States Copyright Act. As such, the copyrights in such
Work shall belong to the State and no further action shall be
necessary to perfect the State's rights in them. In addition,
Contractor shall place or cause to be placed the following legend on
all Work, inserting the year of the Work's creation in the blank
space:
"Copyright @ 199_ by the State of California. All
rights reserved."
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3. Licenses
--------
For Work(s) requiring the use of copyrighted materials, contractor
shall furnish the names and addresses of all copyright holder(s) or
their agent(s), if any, and the terms of any license(s) or usage
granted, at the time of delivery of the Work. No licensed materials
will be used without prior written permission of the State.
4. Assignment
----------
If for any reason, the State is not deemed to be the owner of all
right, title and interest in the Work, then Grantee hereby assigns all
such rights to the State, and Grantee shall cause or require its
personnel and subcontractors to assign to Grantee or State, at the
time of creation of the Work, all such rights they may have in the
Work, all without any requirement for further consideration Grantee
shall take such further actions, including the execution and delivery
of instruments of conveyance, as may be appropriate to give full and
proper effect to such assignments.
5. Warranties
----------
Contractor represents and warrants that:
a. It is free to enter into and fully perform this agreement;
b. It has secured or will secure all rights and licenses necessary
for the production of the Work;
c. Neither the Work nor any of the materials, contained therein, nor
the exercise by the Contractor of the rights granted in this
agreement, will infringe upon or violate the rights or interests
of any person or entity;
d. Neither the Work nor any part of it will;
(1) violate the right of privacy of any person, firm, or
corporation;
(2) constitute a libel or slander against any person, firm or
corporation; or
(3) infringe upon the copyright, literacy, dramatic, statutory
or common law rights of any person, firm or corporation.
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e. It has not granted and shall not grant to any person or
entity any right that would or might derogate, encumber or
interfere with any of the rights granted to the State in
this agreement.
6. Indemnity
---------
Contractor agrees to indemnify, defend and hold harmless the State and
its licensees and assignees, and their officers, directors, employees,
agents, representatives, successors, from and against all claims,
actions, damages, losses, costs and expenses, including reasonable
attorneys fees; which any of them may sustain because of the use of
the Work and any other materials furnished by Contractor under this
agreement, or because of the breach of any of the representations or
warranties made in this agreement.
7. Notwithstanding the foregoing, any and all licenses granted by the
Contractor to the State pursuant to this section shall only be granted
to the extent that Contractor now has, or prior to the completion of
this agreement, may acquire the right to grant such a license. The
State hereby accepts any and all such licenses granted hereunder. The
State acknowledges that reuse of licensed materials, or use in a
different creative work or format will require renegotiations of use
fees and compensation by the State to the copyright holders. The State
agrees not to use any copyrighted materials outside the scope of the
license as mutually agreed by the State and the Contractor.
S. STATE TRADEMARKS AND SERVICE MARKS
1. Certain trademarks and service marks ("Golden California" and "The
California's" and other logo(s)), as set forth in Exhibit X, State
Trademarks and Service Marks, are the exclusive property of the State
of California, and may not be used alone or in combination with other
words, phrases, logos or marks, without advance written permission
from the State. Form and content of all advertising and promotional
materials, including magazines, require advance written permission of
the State. The trademarks and service marks, "Golden California" and
"The California's", shall be set apart from other text in some
fashion, such as larger type, quotation marks, different colors,
distinctive lettering, as approved in writing by the State. All
trademarks and service marks shall bear the statutory
trademark/service mark notice
2. If any State trademarks and service marks are used in the
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Work, the form and content of the Work must be approved by the State
prior to printing. In such case the State shall review all preprinting
proofs, such as blue lines and color keys, prior to printing. The
Contract Manager shall designate one person responsible for reviewing
all such preprinting proofs on behalf of the State.
T. PATENTS
1. The following definition applies to this section: "Subject Invention"
means any invention conceived and first actually reduced to practice
by Contractor in the course of or under the State funded portion of
this agreement (that portion of this agreement for which the
Contractor has invoiced the State and received reimbursement) and
includes any art, method, process, machine, manufacture, design or
composition of matter, or any new and useful improvement thereof, or
any variety of plants or animals, patentable under the patent laws of
the United States of America.
2. Right of Parties
----------------
a. Patent rights for Subject Inventions will be the property of the
Contractor, subject to the State retaining a royalty-free,
non-exclusive, nontransferable, irrevocable license to use or
have practiced for or on behalf of the State of California,
Subject Invention(s) for governmental purposes. The State does
not have the right to sub-license pursuant to any license
obtained pursuant to this agreement Contractor must obtain
agreements to effectuate this clause with all persons or entities
obtaining ownership interest in the patented Subject
Invention(s). Previously documented (whether patented or
unpatented under the patent laws of the United States of America
or any foreign country) inventions and background patents are
exempt from this provision.
b. To the extent permitted by law or overriding obligations of
Contractor, the Contractor agrees to grant the State a
royalty-free, non-exclusive, irrevocable, nontransferable license
to produce, translate, publish, use and dispose of, for or on
behalf of the State of California all copyrightable material
first produced or composed in the performance under the State
funded portion of this agreement. The license described in this
paragraph is limited to governmental purposes, and the State is
precluded from sub-licensing under any license obtained pursuant
to
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this agreement.
3. Disclosure Reporting
--------------------
Except as otherwise provided in Subsection 7.a, below, the Contractor
shall submit a written report to the Contract Manager on each Subject
Invention, specifying the patent(s) applied for, patent(s) issued, and
patent application(s) abandoned by or issued to the Contractor, and/or
to any of the participants.
4. Except in a patent application, the Contractor shall include in any
materials describing the patent mention of the State's role in the
project which resulted in the patent.
5. Reports
-------
The State reserves the right to use and reproduce all reports and data
produced and delivered pursuant to Subsection 6 and all other
reporting and monitoring requirements of this agreement, and reserves
the right to authorize others to use or reproduce such materials. All
reports are to be delivered to the Contract Manager. The State will
withhold from disclosure to the public information disclosing any
Subject Invention for a reasonable time in order for a patent
application to be filed. Furthermore, the State shall not release
copies of any document which is part of an application for a patent
filed with the United States Patent and Trademark Office or with any
foreign patent office.
6. Reporting After Expiration or Cancellation of This Agreement
------------------------------------------------------------
During the period of this agreement and for five (5) years following
the expiration or cancellation of this agreement, Contractor shall
submit an annual written report to the Contract Manager disclosing
the:
a. number of patents applied for on Subject Inventions;
b. number of patents issued on Subject Inventions;
c. number of patents abandoned on Subject Inventions; and
d. commercialization of Subject Inventions and patents. Where a
United States patent has been issued covering a Subject
Invention, a copy of the United States patent shall be provided
with the annual written report. Upon the fifth (5) anniversary
date of the
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cancellation of this agreement, Contractor shall submit a written
report to the Grant Manager summarizing all of the significant
events itemized above that were not previously reported and shall
summarize the Contractor's plans for commercializing all of the
Subject Invention(s) and patent(s) for the next five (5) years.
7. Flow-Through Rights
-------------------
a. The Contractor shall include this section, suitably modified to
identify the parties, in all subcontracts, regardless of tier,
for experimental, developmental, or research work. All such
subcontracts, regardless of tier, shall indicate that the
subcontractor shall be responsible for fulfilling the reporting
requirements to the State.
b. In all subcontracts, at any tier, where paragraph a above
applies, State, subcontractor, and Contractor agree that the
mutual obligations of the parties created by this section
(Section T, Patents) constitute an agreement between the
subcontractor and the State with respect to those matters covered
by this Section.
U. LIABILITY INSURANCE
1. Contractor shall furnish to the State a certificate of insurance
stating that there is Comprehensive General Liability Insurance (CGL)
presently in effect for the Contractor with a Combined Single Limit
(CSL) of not less than five hundred thousand dollars ($500,000) per
occurrence for bodily injury and property liability combined.
2. The Certificate of Insurance will provide:
a. that the insurer will not cancel the insured's coverage without
thirty (30) days' prior written notice to the State;
b. that the State, its officers, agents, employees, and servants are
included as additional insureds but only insofar as the
operations under this contract are concerned; and,
c. that the State will not be responsible for any premiums or
assessments on the policy.
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3. The Certificate of Insurance shall meet such additional standards as
may be determined by the State, either independently or in
consultation with the Department of General Services (DGS), Office of
Insurance and Risk Management (OIRM), as essential for protection of
the State.
4. The insurance will be issued by an insurance company acceptable to the
DGS, OIRM or be provided through partial or total self-insurance
acceptable to the DGS.
5. Contractor agrees that the CGL insurance herein provided for shall be
in effect at all times during the term of this agreement. Contractor
agrees to provide at least thirty (30) days' notice prior to said
expiration date, a new certificate of insurance evidencing insurance
coverage as provided for herein for not less than the remainder of the
term of this contract, or for a period of not less than one year.
6. New Certificates of Insurance are subject to the approval of the DGS
and Contractor agrees that no work or services shall be performed
prior to the giving of such approval. In the event Contractor fails to
keep in effect at all times insurance coverage as herein provided, the
State may, in addition to any other remedies it may have, cancel this
contract upon the occurrence of such event.
V. INCORPORATION OF REQUEST FOR PROPOSAL
The Request for Proposal is not attached hereto, but is expressly
incorporated by reference into this agreement. In the event of conflict or
inconsistency between the terms of this agreement and the Request For
Proposal, this agreement shall be controlling.
W. INCORPORATION OF PROPOSAL OR BID
The Contractor's proposal or bid is not attached hereto, but is expressly
incorporated by reference into this agreement. In the event of conflict or
inconsistency between the terms of this agreement and the Contractor's
proposal or bid, this agreement shall be controlling.
X. INCORPORATION OF EXHIBITS
Exhibits A through E are attached to this agreement and are expressly
incorporated hereto and made a part of this agreement by reference. The
exhibits consist of the following and are as presented in the RFP:
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1. Exhibit-A Takeover Requirements, consisting of 11 pages.
2. Exhibit-B Scope of Work, consisting of 29 pages.
3. Exhibit-C Turnover Requirements, consisting of 4 pages.
4. Exhibit-D Department Responsibilities, consisting of 2 pages.
5. Exhibit-E Travel Allowances and Reimbursements, consisting of 2
pages.
Y. CHANGE ORDERS
The Contractor will make changes requested by the Department. In the case
of mandated changes in policy, regulations, statutes, or judicial
interpretation, the Department may direct the Contractor to immediately
begin implementation of any change by issuing a Change Order. If the
Department issues a Change Order, the Contractor will be obligated to
implement the required changes while the parties negotiate in good faith
relevant to any reimbursement, if applicable.
The Department may, at any time, within the general scope of the contract,
by written notice, issue Change Orders to the Contract. This process will
make use of the following documents:
Medi-Cal Managed Care Division (MMCD) Policy Letters - These documents will
be utilized to notify the Contractor of clarifications made to the Health
Care Options program. These documents will include instructions to the
Contractor regarding implementation. These documents will also be used to
initiate various ongoing changes required to the Contractor throughout the
contract, the performance of which falls within the contract's agreed upon
reimbursement.
Change Orders may also be used by the Department to amend the Contractor's
responsibilities.
Z. HEALTH CARE OPTIONS
The parties recognize that during the life of the contract, the Health Care
Options program will be a dynamic program requiring numerous changes to its
operations and that the scope and complexity of changes will vary widely
over the life of the Contract. The parties agree that the development of a
system which has the capability to implement such changes in an orderly and
timely manner is of considerable importance.
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1. All obligations under this contract or Contract extension will be
terminated after turnover requirements are completed.
2. With respect to any report, invoice, record, paper, document, books of
account, or other contract required data submitted, pursuant to the
requirements of this contract, the Contractor's representative or his
designee will certify under penalty of perjury, that the report,
invoice, record, paper, document, books of account or other contract
required data is current, accurate, complete and in full compliance
with legal and contractual requirements to the best of that
individual's knowledge and belief, unless the requirement for such
certification is expressly waived by the Department in writing.
AA. CONTRACTOR NAME CHANGE
Contractor shall provide a written notice to the State at least 30 days
prior to any changes to the Contractor's current legal name.
BB. NOVATION
If the Contractor proposes any novation of this agreement, the State shall
act upon the proposal within 60 days after receipt of the written proposal.
The State may review and consider the proposal, consult and negotiate with
the Contractor, and accept or reject all or part of the proposal.
Acceptance or rejection may be made orally within the 60-day period, and
confirmed in writing within five days.
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Article III
ARTICLE III - DUTIES OF CONTRACTOR
A. RECORDS ESTABLISHMENT, ACCESS, AND RETENTION
1. The Contractor shall maintain such books and records necessary to
disclose how the Contractor discharged its obligations under the
contract. The books and records will disclose the quantity of services
provided under this contract, the quality of those services, the
manner and amount of payment made for those services, the manner in
which the Contractor administered its daily business, and the cost
thereof.
Such books and records shall include, but are not limited to: all
physical records originated or prepared pursuant to the performance
under this contract, including working papers; reports submitted to
the Department; Financial records; and other documentation pertaining
to the services rendered.
These books and records will be maintained for a minimum of five years
from the termination date of this contract, or, in the event the
Contractor has been duly notified that the Department, DHHS, or the
Comptroller General of the United States, or their duly authorized
representatives, have commenced an audit or investigation of the
contract, until such time as the matter under audit or investigation
has been resolved, whichever is later.
2. Contractor shall keep all books and records, accounts and documents
pertaining to this agreement separate from other activities not
related to this agreement. Said records shall be maintained in
California.
B. ACCOUNTING AND AUDITING REQUIREMENTS
1. The Contractor's financial records and books of account shall be
maintained on the accrual basis, in accordance with Generally Accepted
Accounting Principles, which fully disclose the disposition of all
Medi-Cal program funds received.
2. Upon inspection, Contractor shall promptly implement any corrective
measures recommended by the State or Bureau of State Audits regarding
the requirements of this section. Contractor shall be given a
reasonable amount of time to implement said corrective measures.
Failure of Contractor to implement recommended corrective measures
shall result in immediate cancellation of this agreement.
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3. Should an audit by the State or its authorized representatives, result
in disallowance of funds previously reimbursed to Contractor,
Contractor shall reimburse all disallowed funds to the State within
Sixty (60) days of receipt of the demand for reimbursement by the
State. Failure to reimburse the State will result in possible
litigation, with the prevailing party entitled to reasonable
attorney's fees and costs.
C. EQUIPMENT
1. Except as approved by the Department, Contractor shall not use State
funds allocated under this agreement to purchase furniture and
equipment. As used in this Section, "furniture and equipment" means an
article of nonexpendable, tangible personal property having a useful
life of at least one (1) year and a unit acquisition cost of at least
five thousand dollars ($5,000). Purchase of equipment shall comply
with the requirements of Article III, Section E, Purchase Orders and
Subcontracting Provisions.
2. A property identification tag must be placed on all equipment
purchased in whole or in part with State funds within thirty (30) days
of cost reimbursement for such equipment. The property identification
tag, as provided by the Contract Manager, identifies the item as the
property of the State of California, Department of Health Services,
and includes an identification number.
3. Within ninety (90) days of expiration or termination of this
agreement, contractor shall provide the State with an equipment
inventory list which identifies the type of equipment purchased in
whole or in part with State funds, the unit acquisition cost and the
property tag identification number.
4. Contractor is responsible for loss or damage to furniture or equipment
purchased with State funds. Contractor is obligated to keep the
furniture or equipment in good condition, subject to reasonable wear
and tear, and to make all necessary repairs and adjustment, without
qualification, while the furniture or equipment is in the care,
custody and control of the Contractor. The State reserves the right to
be given full and adequate access to the furniture or equipment
purchased with State funds at reasonable times.
5. Lost or stolen property must be reported to the Contract Manager. The
report shall contain a description of the loss or theft, plans to
prevent a reoccurrence, and, in the case
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Article III
of theft, a copy of the police report.
6. The State shall retain an ownership interest in furniture or equipment
purchased in whole or in part with State funds. In the event of
expiration or cancellation of this agreement, such furniture or
equipment shall be delivered to the State, unless:
a. this agreement is renewed and the State agrees to the continued
use of the furniture and/or equipment by the Contractor.
b. the State releases its ownership interest in the furniture and
equipment in accordance with State policy.
7. The Contractor is hereby notified that this process is discretionary
and is subject to both State regulations concerning surplus property
and signatory approvals by the Contract Manager and the Department of
Health Services Chief of Administrative Services.
D. COMMUNICATION
1. The designated individual of the State, shall be the Contract Manager
for this agreement. This person shall have overall responsibility to
administer, evaluate and follow-up the work of the Contractor or
consultant during the term of this agreement.
2. All official communication and invoices from the Contractor to the
State, except as provided for in the section on Resolution of
Disputes, shall be directed to the attention of the individual in
subsection 1, above, or other designated individuals of the State at
the following address:
Department of Health Services
Medi-Cal Managed Care Division
Health Care Options Unit
714 P Street, Room 1340
Sacramento, CA 95814
3. All official communications from the State to the Contractor shall be
directed to the attention of RUSS BELIVEAU or JERRY COKER, or other
individual designated by the Contractor, at the following address:
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Article III
MAXIMUS
1485 RIVER PARK DRIVE, SUITE 200
SACRAMENTO, CA 95815
(916) 567-6610
E. PURCHASE ORDERS AND SUBCONTRACTING PROVISIONS
1. Contractor is encouraged to take advantage of vendor discounts
whenever possible and to utilize the services of small, minority,
woman and disabled veteran-owned businesses when subcontracting for
goods or services.
2. Contractor is the responsible authority, without recourse to the
State, regarding the settlement and satisfaction of all contractual
issues arising out of procurements entered into in support of this
agreement.
3. The Contractor is entitled to make use of its own staff and such
subcontractors as are mutually acceptable to the Contractor and the
State. All agreements between the Contractor and the subcontractor are
subject to approval by the Contract Manager.
4. Contractor must obtain prior written approval from the State for any
purchase order or subcontract over five thousand dollars ($5,000) to
be paid for with State funds. Contractor shall include in its request
for authorization, a copy of any subcontract and/or purchase order and
all particulars necessary for the evaluation:
a. the necessity of cost incurred;
b. of the reasonableness of the cost; and
c. that Contractor has either:
(1) obtained three (3) competitive bids;
(2) selected the subcontractor based upon the Contractor's
contracting procedures used for awarding federally-funded
subcontracts; or
(3) has justified why three bids were not obtained.
5. All agreements with subcontractors shall contain all of the following
provisions as are found in this contract:
a. General Provisions
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Article III
b. Nondiscrimination Clause Compliance
6. Agreements with subcontractors which involve the expenditure of State
funds in excess of ten thousand dollars ($10,000) shall contain all of
the provisions found in this contract under Record Establishment,
Access and Retention Under Article III, Section A.
7. Agreements with subcontractors, which include consultant services,
shall contain all of the provisions of Article II, Section M,
Consultant Services.
8. Printing and other reproduction work of more than an incidental amount
must be arranged through the State Printer unless the State has
obtained an exemption. Written approval must be obtained from the
Contract Manager prior to undertaking such work.
F. STANDARDS OF WORK
The Contractor agrees that the performance of work and services pursuant to
the requirements of this contract shall conform to high professional
standards.
G. PROGRESS REPORTS OR MEETINGS
1. Contractor shall submit progress reports or attend meetings with state
personnel at least once a month to allow the State to determine if
Contractor is on the right track, whether the project is on schedule,
provide communication to interim findings, and afford occasions for
airing difficulties or special problems encountered so that remedies
can be developed quickly.
2. At the conclusion of this contract, Contractor shall hold a final
meeting with the State during which Contractor shall present its
findings, conclusions, and recommendations. If required by this
contract, Contractor shall submit a comprehensive final report.
H. STATE APPROVAL OF SUBCONTRACTS
The Contractor shall submit any subcontracts to the State for approval
prior to implementation. Upon termination of any subcontract, the state
shall be notified immediately.
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Article III
I. CONFLICT OF INTEREST - CURRENT AND FORMER STATE EMPLOYEES
A. Current State Officers and Employees
------------------------------------
1. Contractor shall not utilize in the performance of this contract
any state officer or employee in the state civil service or other
appointed state official unless the employment, activity, or
enterprise is required as a condition of the officer or
employee's regular state employment. Employee in the state civil
service is defined to be any person legally holding a permanent
or intermittent position in the state civil service.
2. If any state officer or employee is utilized or employed in the
performance of this contract, Contractor shall first obtain
written verification from the State that the employment,
activity, or enterprise is required as a condition of the
officer's, employee's, or official's regular state employment and
shall keep said verification on file for three years after the
termination of this contract.
3. Contractor may not accept occasional work from any currently
employed state officer, employee, or official.
4. If Contractor accepts volunteer work from any currently employed
state officer, employee, or official, Contractor may not
reimburse, or otherwise pay or compensate, such person for
expenses incurred, including, without limitation, travel
expenses, per diem, or the like, in connection with volunteer
work on behalf of the Contractor.
5. Contractor shall not employ any state officers, employees, or
officials who are on paid or unpaid leave of absence from their
regular state employment.
6. Contractor or anyone having a financial interest in this contract
may not become a state officer, employee, or official during the
term of this contract. Contractor shall notify each of its
employees, and any other person having a financial interest in
this contract that it is unlawful under Public Contract Code,
Section 10410, for such person to become a state officer,
employee, or official during the term of this contract unless any
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Article III
relationship with the Contractor giving rise to a financial
interest, as an employee or otherwise, is first terminated.
7. Occasional or one-time reimbursement of a state employee's travel
expenses is not acceptable.
B. Former State Officers and Employees
-----------------------------------
1. Contractor shall not utilize in the performance of this contract
any formerly employed person of any state agency or department
that was employed under the state civil service, or otherwise
appointed to serve in the state government, if that person was
engaged in any negotiations, transactions, planning, arrangement,
or any part of the decision-making process relevant to the
contract while employed in any capacity by any state agency or
department. This prohibition shall apply for a two-year period
beginning on the date the person left state employment.
2. Contractor shall not utilize within 12 months from the date of
separation of services, a former employee of the contracting
state agency or department if that former employee was employed
in a policy making position in the same general subject area as
the proposed contract within the 12-month period prior to the
employee leaving state service.
C. Failure to Comply with Subparts "A" or "B"
------------------------------------------
If Contractor violates any provision of subparts A or B above, such action
by Contractor shall render this contract void, UNLESS the violation is
TECHNICAL OR NONSUBSTANTIVE.
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Article IV
ARTICLE IV - TERM AND TERMINATION
A. TERM
The contract will become effective October 1, 1996 and will continue in
full force and effect through September 30, 1999 subject to the provisions
of Article V, Section A, because the State has currently appropriated and
available for encumbrance only funds to cover costs through June 30, 1997.
B. CONTRACT EXTENSION
DHS will have the exclusive option to extend the term of this contract
during the last twelve (12) months of the contract, as determined by the
original termination date or by a new termination date if an extension
option has been exercised. DHS may invoke up to two (2) separate extensions
of one (1) year each. The Contractor will be given at least nine (9)
months' prior written notice of DHS' decision on whether or not it will
exercise this option to extend the contract.
The Contractor will notify DHS of its intent to accept or reject the
extension within five (5) State working days of its receipt of the notice
from DHS.
C. CANCELLATION AND AMENDMENT PROVISIONS
1. No oral understanding or variation of terms of this agreement is valid
unless that understanding or variation has been made in writing and
signed by all parties.
2. The Department may terminate performance of work under this contract
in writing, in whole or in part, for any reason, whenever the
Department determines that termination is in the best interest of the
State, or full funding is not available for all of the project work
outlined in Exhibit B, Scope of Work.
Notification will be given at least sixty (60) days prior to the
effective date of termination, except in cases where the Director
determines the health and welfare of beneficiaries is jeopardized by
continuation of the contract, in which case the contract will be
immediately terminated. Notification will state the effective date of,
and the reason for, the termination.
Should the Department terminate the performance of work under this
contract, payment will be made to the Contractor for any and all work
completed under the terms of this
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Article IV
contract, and approved by the Department, including withholds, up to
and including the date of termination.
Upon receipt of notice of termination for convenience, the Contractor
will be paid termination costs in accordance with 48 Code of Federal
Regulations (CFR) Section 31.205-42.
3. The Contractor may Default from this contract at any time for good
cause as determined by the Department, by giving written notice to the
Director of the Department. Such notice will be given at least sixty
(60) days prior to the effective date of the default. Notification
will state the effective date of, and the reason for the default. The
Contractor will be responsible for all closing costs associated with
default. Grounds under which a Contractor may default from the
contract are limited to the inability to negotiate reimbursement for
expanded duties as required by the Department and not identified in
the contract.
D. DEPARTMENT TERMINATION
Pursuant to Article IV, Section B, Cancellation and Amendment Provisions,
the Department has the option to void the contract under the 60 day
cancellation clause or to amend this contract to reflect any reduction of
funds.
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Article V
ARTICLE V - PAYMENT PROVISIONS
A. AMOUNTS PAYABLE
The maximum amount payable for the 1996-97 Fiscal Year ending June 30, 1997
will not exceed...................$48,200,000. Any requirement for
performance by DHS and the Contractor for the period subsequent to June 30,
1997 will be dependent upon the availability of future appropriations by
the Legislature for the purposes of this contract. If funds become
available for the purposes of this contract from future appropriations by
the Legislature, the maximum amount payable under this contract in the
1997-98 Fiscal Year ending June 30, 1998, will not exceed $30,720,000. If
funds become available for the purposes of this contract from future
appropriations by the Legislature, the maximum amount payable under this
contract for the 1998-99 Fiscal Year ending June 30, 1999, will not exceed
$30,720,000. The maximum amount payable under this Lee contract will not
exceed $109,640,000.
B. COSTS REIMBURSABLE
Certain costs incurred by the Contractor in performing responsibilities
under this contract will be cost reimbursed by the Department. They are as
follows:
1. Postage
-------
The Department will reimburse only the actual charges paid for U.S.
Postal rates, common carrier rates and parcel services which includes
folding, stuffing, and posting utilized to mail documents to
beneficiaries, the Department, or to the Federal government and in any
other mailings required by Exhibit B or by the Department upon
request. All other costs associated with postage are excluded. The
exception to this is for zip sorting, the direct costs paid to an
outside mail sorting service, if approved by the Contract manager, in
order to obtain pre-sorting postage services to reduce costs on cost
reimbursable items.
2. Printing
--------
Allowable printing costs refer to those direct costs incurred for the
printing of: Enrollment/Disenrollment forms, informational packets,
Department approved handouts, Department approved plan comparison
charts, envelopes used for mailing and submission of letters and
forms, manuals for the State and Health Care Financing Administration
(HCFA); the printing of beneficiary notices, and additional
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Article V
documentation requested by the Department. Reimbursement of printing
costs associated with the production of these forms and documents will
be made by the Department.
The Department will cost reimburse the Contractor for the personnel
time needed to edit the informational packets and manuals as requested
by the Department.
The costs incurred except that cost reimbursable purchases and
subcontracts associated with allowable printing costs will be
reimbursed as provided in Section B.
3. Special Training Sessions
-------------------------
At the direction of the Contract Manager, the Contractor will be
required to conduct special training sessions as discussed in Exhibit
B, Section D.2. The Department will reimburse the Contractor for the
direct cost of training. Travel will be reimbursed at the State rate.
4. Data Center Access
------------------
The implementation of the Health Care Options (HCO) access to Medi-Cal
Eligibility Data System (MEDS) will require the Contractor to
establish an agreement with the Health and Welfare Data Center (HWDC)
for computer access to records contained in MEDs and possibly Fiscal
Intermediary Access to Medi-Cal Eligibility (FAME). The Department
will reimburse only the actual charges incurred by the Contractor for
access to these records, as billed by HWDC, including
telecommunication line charges to utilize MEDS or other eligibility
system. No other costs will be reimbursed.
5. Expenses Related to Expansion Activities
----------------------------------------
The reimbursement of costs incurred in carrying out expansion
activities shall be negotiated in good faith by the parties. These
costs may include, but are not limited to, additional facilities,
equipment, staff, supplies and systems.
6. Office Equipment and Furniture
------------------------------
The Department will reimburse those costs incurred by the Contractor
for equipment, and furniture necessary to perform HCO presentations,
at County and other governmental/non- governmental sites. Such
equipment and furniture will be purchased only after attempts have
been made to acquire the necessary equipment and furniture through
other means, and
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Article V
only after receiving prior Department approval and in accordance with
Article III, Section C, Equipment.
7. Facilities
----------
If space is not available at County sites, the Department may
determine that it is necessary to conduct HCO presentations at
non-governmental locations. In that case, the Department will assist
the Contractor in identifying appropriate facilities, and reimburse
any lease or rental payments. The facilities identified above do not
include the Contractor's processing facilities or any other facility
not directly acquired for conducting HCO presentations. All facilities
and lease/rental agreements must be approved by the Department.
It is the intention of the Department to have Departmental staff
located at the Contractor's processing facility. The anticipated
number of staff will be 1-3 persons. Contractor will make available,
space and equipment for Department staff use at the processing
facility. All equipment and furniture for Department staff will be
cost reimbursed with the exception of space.
8. Ad Hoc Reports
--------------
The Department will reimburse the Contractor for time spent
researching and preparing any Ad Hoc Reports requested by the
Department. This does not include monthly reports required under the
Scope of Work, Exhibit B.
9. Travel
------
Travel expenditures necessary to maintain staffing at fixed and
outreach sites, as directed by the Department, will be the
responsibility of the Department, and will be cost reimbursed at the
State rate following guidelines set forth in Exhibit E. Travel
expenditures will be submitted in accordance with staffing and travel
plans provided to and approved by the Contract Manager.
10. Special Projects and Requests
-----------------------------
The Department will reimburse the Contractor for time and expenses
incurred completing any special projects requested by the Department,
and not included in the scope of work as described in Exhibit B.
11. Restrictions on Reimbursable Purchases and Subcontracts
-------------------------------------------------------
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Article V
Payment to the Contractor for subcontracts or purchases of cost
reimbursable items or services will be at actual cost to the
Contractor. Such actual cost will consist of the amount charged to the
Contractor for the subcontract or purchase. If the lease or purchase
is from a related entity, payment will be made at the product price.
For only printing, the Contractor will also be paid the other direct
costs associated with subcontracts or purchases.
Under no circumstances will the Department reimburse indirect costs
associated with a subcontractor or purchase of reimbursable items,
services or equipment. This prohibition includes attempts to charge
the Department for overhead and general and administrative expenses as
a percentage of a third party's charges to the Contractor.
C. PAYMENT IN FULL
The payments discussed in this Article constitute payment in full by the
Department for all direct and indirect costs incurred under this contract.
D. CONTRACTOR PAYMENT AND EXPENDITURE PROVISIONS
1. In no event shall the Contractor request reimbursement from the State
for obligations entered into or for costs incurred prior to the
commencement date, or the date of final approval, whichever occurs
later, or after the expiration or cancellation of this agreement.
2. Contractor will submit all invoices after completion of required work.
Invoices will be submitted in arrears by the tenth (1Oth) working day
of the month following the month of service. The invoice shall be in
triplicate and shall be consistent with the amounts in Article VI,
Section C. Requests for reimbursement shall be substantiated by copies
of vendor invoices, time sheets and any other related source
documents. The Contract Manager may require the submittal of any and
all supporting documentation prior to approving invoices for payment.
Each invoice shall contain at least:
a. the contract number and project title;
b. the time period which the invoiced costs were incurred;
c. a statement to the effect that all costs invoiced are eligible
expenses under this agreement and are supported by proper
documentation.
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Article V
d. the signature of an authorized representative of the Contractor.
At the request of the Contract Manager, invoices shall be county
specific.
3. In preparing monthly invoices for services provided under this
contract, the Contractor will bill the state as follows:
a. For Enrollment/Disenrollment transactions as described in the
RFP, $1.70 for each transaction when the total volume per month
is 0 to 150,000; $0.00 for each transaction over 150,000 and
under 170,001; $0.37 for each transaction over 170,000.
b. For Beneficiary Direct Assistance as described in the RFP, $0.84
per minute for total monthly minutes under 130,000; $0.00 per
minute for each monthly minute over 130,000 and under 160,001;
$0.70 for each monthly minute over 160,000.
c. For each Enrollment Service Representative as described in the
RFP, $5,500.00 per FTE per month when the number of FTE's is less
than 36; $3,700.00 for each monthly FTE which exceeds 35 but is
less than 61; $3,800.00 for each monthly FTE which exceeds 60.
4. The State agrees to make payment as promptly as fiscal procedures
permit, upon receipt of the invoices, subject to approval of the
Contract Manager, and contingent upon satisfactory completion of the
terms of this agreement. The Contract Manager is designated in Article
III, Section D, Communication.
5. "Satisfactory Completion" as used in this agreement, means that
Contractor has completed all terms, conditions and performance of this
agreement for the elapsed portion of the agreement, including but not
limited to:
a. Exhibit A - Takeover Requirements
Exhibit B - Scope of Work, and
Exhibit C - Turnover Requirements; and
b. submittal to the Contract Manager of:
(1) all reports required in this contract; and
(2) invoice(s), with required documentation.
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Article V
6. The invoice containing the final costs to be paid by the State shall
be identified as the "final invoice". The final invoice shall be
delivered to the State not more than thirty (30) calendar days after
the expiration or cancellation of this agreement.
7. The Department will withhold 10% of each invoice until the
satisfactory completion of this contract.
8. All payments received under this agreement shall be used solely for
the purpose of providing goods or services under this agreement. The
State shall have final determination of allowable and reimbursable
costs under this agreement. The State may require documentation
substantiating expenses as deemed appropriate by the Contract Manager.
E. MISCELLANEOUS PAYMENT PROVISIONS
1. Travel, subsistence and per diem rates shall not exceed those amounts
paid to State employees as specified in Exhibit F, Travel Allowances
and reimbursements. No reimbursement for travel outside the State of
California shall be allowed without prior written approval by the
Contract Manager.
2. Funds budgeted under this contract may not be used for entertainment
expenses, or for professional dues for the Contractor's staff or
officials.
3. Contractor shall not use State funds allocated under this agreement to
pay for the purchase, construction, renovation, alteration,
improvement, or repair of capital assets, such as real estate and
vehicles.
F. CONTRACT CLOSE-OUT
1. This agreement requires the Contractor to submit to the State
invoices, reports, close-out information and other information at
specified times during the term and following expiration or
cancellation of the agreement. Failure to complete any of these
requirements to the satisfaction of the State is a violation of this
agreement and, as in any violation, the State may take appropriate
action, including the withholding of payment of invoices pursuant to
this Section.
2. If Contractor fails to provide the information specified by this
Section within sixty (60) calendar days after the expiration or
cancellation of this agreement, the State, in
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Article V
addition to any other available action to remedy, may deny any unpaid
invoice(s) and the Contractor shall forfeit reimbursement of any costs
incurred and not reimbursed.
G. CONTRACTS IN EXCESS OF $200,000
The Contractor shall give priority consideration in filling vacancies in
positions funded by the agreement to qualified recipients of aid under
Welfare and Institutions Code, Chapter 2, commencing with Section 11200 in
accordance with Welfare and Institutions Code, Article 3.9, commencing with
Section 11349 (Public Contract Code, Section 10353).
H. CONTRACTS FUNDED IN WHOLE OR IN PART BY THE FEDERAL GOVERNMENT
1. It is mutually understood between the parties that this contract may
have been written before ascertaining the availability of
congressional appropriation of funds, for the mutual benefit of both
parties, in order to avoid program and fiscal delays which would occur
if the contract were executed after that determination was made.
2. This contract is valid and enforceable only if sufficient funds are
made available to the State by the United States Government for the
Fiscal Year 1996-97 for the purpose of this program. In addition, this
contract is subject to any additional restrictions, limitations, or
conditions enacted by Congress or any statute enacted by the Congress
which may affect the provisions, terms or funding of this contract in
any manner.
3. It is mutually agreed that if the Congress does not appropriate
sufficient funds for the program, this contract will be amended to
reflect any reduction in funds.
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Article VI
ARTICLE VI - CONFIDENTIALITY
A. Notwithstanding any other provisions of this Contract, names of persons
receiving public social services are confidential and are to be protected
from unauthorized disclosure in accordance with Title 42, CFR, Section
431.300 et seq., and Section 14000.2, Welfare and Institutions Code, and
regulations adopted thereunder. For purposes of this contract, all
information, records, data and date elements collected and maintained for
the operation of the contract and pertaining to Members shall be protected
by the Contractor from unauthorized disclosure.
B. With respect to any identifiable information concerning a Beneficiary under
this contract that is obtained by the Contractor or its subcontractors, the
Contractor (a) shall not use any such information for any purpose other
than carrying out the express terms of this contract, (b) shall promptly
transmit to the Department all requests for disclosure of such information,
(c) shall not disclose except as otherwise specifically permitted by this
contract any such information to any party other than the Department
without the Department's prior written authorization specifying that the
information is releasable under Title 42, CFR, Section 431.300, Welfare and
Institutions Code Section 14100.2, and regulations adopted thereunder, and
(d) shall, at the expiration or cancellation of this contract, return all
information to the Department or maintain such information according to
written procedures sent to the Contractor by the Department for this
purpose.
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EXHIBIT A - TAKEOVER REQUIREMENTS
The Contractor is required to take over the operation of the current HCO Program
according to the requirements of this HCO Request for Proposal (RFP).
A. Takeover Consideration
The Department requires an orderly Takeover that is as transparent as
possible to County Welfare Directors (CWDs), Aid to Families With Dependent
Children (AFDC) and Medi-Cal applicants and beneficiaries, and Medi-Cal
managed care plans in each of the counties designated by the Department.
The Contractor will take all actions required to prepare for operations,
including the identification and rapid resolution of Takeover problems.
Major considerations during Takeover include:
1. The Contractor will have primary responsibility for all technical
processes and products required for the HCO Program implementation.
2. The Contractor will incorporate the appropriate activities and tasks
needed to complete the Proposer Initiated Innovations which have been
approved by the Department.
3. The Contractor will develop and submit to the Department, for written
approval, all policies, procedures, and manuals by the date identified
on the Takeover Phase Schedule.
4. The Contractor will complete all Takeover tasks and activities within
the timeframes established by the Department as specified on the
Takeover Phase Schedule.
5. The Contractor will submit to the Department's HCO Contract Manager, a
Takeover Manual which includes all sections and subsections as
described in this Takeover Section.
B. Takeover Phase Schedule
Following is the Takeover Phase Schedule. The purpose of the Takeover Phase
Schedule is to list the timeframes from the HCO Contract effective date for
the Contractor for major deliverables and milestones. Compliance with this
schedule is mandatory. The Contractor may submit deliverables earlier or
later than the scheduled date if approved, in writing, by the Department.
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Milestone Due Date
- --------- --------
Submit Takeover Manual 1 Day
Assemble Interim Management Team 1 Day
Designate Contract Representative 1 Day
Submit Facilities Section 1 Day
Occupy Temporary Facility - Sacramento 1 Day
Takeover Task Plan 1 Week
Takeover Timeline 1 Week
First Weekly Progress Report Due 1 Week
Submit Names & Resumes of Interim Mgmt Team 2 Weeks
Submit Direct Assistance Section 2 Weeks
Submit MEDS Section 3 Weeks
Submit Names & Resumes of Operations Team 4 Weeks
Organizational & Personnel Acquisition Plan 4 Weeks
Operations Training Plan 4 Weeks
Submit Equipment Section 4 Weeks
Department Defines Size of Toll-Free System 4 Weeks
Submit Training Plan to Department 4 Weeks
Submit Forms to State for Approval 4 Weeks
Submit Enrollment/Disenrollment Section 4 Weeks
Implement Security & Confidentiality Reqs. 4 Weeks
Occupy Permanent Facility - Sacramento 4 Weeks
Begin Process Testing 4 Weeks
Assemble Operations Management Team 6 Weeks
Prepared to Begin Direct Assistance Requirement 6 Weeks
Submit Security & Confidentiality Section 8 Weeks
Submit Records Retention Section 8 Weeks
Personnel Hired 8 Weeks
Implement Enrollment/Disenrollment Req. 8 Weeks
Prepared to Start Toll-Free Telephone Services 8 Weeks
Printing and Reproduction Due Date 8 Weeks
Policy and Procedure Section 8 Weeks
Conduct Training to New Staff 8 Weeks
Able to Submit Forms for Reproduction 8 Weeks
Submit Report Distribution List 8 Weeks
Scheduled Walk Through Date 10 Weeks
Able to Submit Proof of Forms 10 Weeks
Update Organization Chart 10 Weeks
Implement Records Retention Requirements 12 Weeks
Takeover Completion 12 Weeks
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C. Takeover Timeline
The Contractor will submit a Takeover Timeline along with the Takeover Task
Plan within one week from the HCO Contract effective date. The Takeover
Timeline will include each Takeover deliverable and milestones included in
the Takeover Task Plan. It will depict the estimated start date and the
deliverable due date for each task.
D. Contractor Transition
The Contractor will prepare and submit to the Department a Takeover Manual
within one day of the Contract effective day. The Takeover manual will
document the progress of the Contractor during the Takeover period.
Throughout the Takeover period deliverables and revisions to existing
sections and subsections will be submitted to the Department for insertion
into the Takeover Manual. This manual will include a section or subsection
for all deliverables and activities as required in the Takeover Section of
this RFP. The Takeover Manual will be submitted in a standard size 3-ring
binder. All updates and deliverables will be submitted to the Department
with replacement page instructions for each attached deliverable to be
inserted in the Takeover Manual. The Contractor is not limited to a maximum
number of binders for the Takeover Manual.
E. Contractor Responsibilities
This sub-section provides the outline of the tasks the Contractor is
required to complete during Takeover. Each of these tasks will result in
milestones and deliverables to the Department and will be included in the
Contractor's Takeover Task Plan.
F. Takeover Task Plant
The objective of the Takeover Task Plan is to specify, in detail, the
Contractor's activities for the duration of the Takeover period. This
includes, but is not limited to, the Contractor's tasks and activities
required to implement the requirements of this RFP and assume the former
Contractor responsibilities (if applicable). This Task Plan will describe
the Contractor's overall plan for undertaking and completing each task and
activity associated with the Takeover phase, as listed on the Takeover
Phase Schedule. The Contractor will submit the Takeover Task Plan Manual to
the Department. The Takeover Task Plan shall be submitted in an organized
format, to be developed by the Contractor and evaluated by the Department
on a pass or fail basis as part of the evaluation phase of this
procurement.
The Takeover Task Plan will include, at a minimum, the following
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items:
1. Milestone/task name;
2. Task description;
3. Deliverable due date;
4. Contractor's primary staff assigned to task;
5. Estimated start date;
6. Estimated hours for Task Completion;
7. Takeover Time Table.
G. Weekly Progress Reporting
Weekly Takeover Status (WTS) Report will include all deliverables and
tasks, the status of all deliverables and tasks and State approval dates,
and will be used by the Contractor and the Department in gauging or
measuring the Contractor's progress during the Takeover Phase, especially
as compared to the Takeover Plan.
The WTS Report will be furnished to the Department weekly and will be
current through Friday of each week. The Contractor will deliver the Weekly
Takeover Status Report to the State by the close of business each Thursday
of the following week. The first WTS Report is due to the Department within
one week from the HCO Contract effective date.
If required by the HCO Contract Manager, the WTS Report will be submitted
not only on hard copy, but also on electronic or magnetic medium in the
format prescribed by the Contract Manager. Two copies, in each specified
medium, will be furnished to the Department. The WTS Report shall be
submitted in an organized format, to be developed by the Contractor and
approved by the Department.
The WTS report will, at a minimum, contain the following information:
1. Task Number. This will be the Task Number the Contractor has assigned
the deliverable or activity.
2. Description. Brief description of the task.
3. Scheduled Due Date. This will be the scheduled due date as originally
provided in the Takeover Task Plan.
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4. Date Delivered. Actual date deliverable was delivered to the
Department for review and approval.
5. Days Late/Early. The number of days the deliverable was delivered
either late (- days) or early (+ days).
6. State Review and Approval Date. The date a letter approving,
disapproving or pending the deliverable is received from the
Department.
7. Status. Approved, disapproved or pending.
8. Date Approved, Disapproved, Pending. The date the Department either
approved, disapproved, or left pending the Deliverable.
9. Final Approval Date. The date the deliverable was approved by the
Department.
10. Resubmission Due Date. If disapproved or left pending, this field will
reflect the new due date set as ten (10) State working days from the
date of the disapproval or left pending status, as dated by the
Department.
11. Date Resubmitted.
12. Days Late/Early. Same definition as item E. above, but relative to
item J. above (the new due date).
13. State Review and Approval Date.
14. Resubmission Status.
15. Date Approved, Disapproved, or Left Pending. The date the Department
approved, disapproved, or left pending the Resubmitted deliverable.
16. Days Late/Early.
17. Remarks. Free-form comment space.
18. Activity Summary. This item will identify those items needing
discussion, action, or which are of concern, as indicated in the
remarks column, for the next Weekly Takeover Status Report.
H. Assemble Management Team
1. The Contractor will assemble an Interim Management Team as part of
Takeover. The Interim Management Team will be
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employed by the Contractor at the beginning of Takeover. By two weeks
from the HCO Contract effective date, the Contractor will submit the
names, resumes, positions, reporting relationships, and functional
responsibilities of the Interim Management Team. The Contractor must
attest to the Department, in writing, that all required functions for
Takeover will be accomplished under the auspices of this Interim
Management Team.
No later than four weeks from the HCO Contract effective date, the
Contractor will submit to the Department for review and approval the
composition, names and resumes of the permanent Management Team for
Operations. The Management Team for Operations will meet all
requirements of Section 18 of the RFP- Contract Requirements,
including qualifications, and will be in place no later than six weeks
from the HCO Contract effective date.
Should the Contractor wish to propose alternatives to the structure of
the permanent Management Team for Operations, any such proposal will
be delivered to the Department at least 60 days prior to such
alteration's anticipated implementation, and approved by the
Department, in writing, at least 30 days prior to implementation.
2. One individual will be designated by the Contractor as the Takeover
Manager. Responsibilities of this person will include ongoing
management of the Takeover period. This manager will be fully
qualified to oversee all Takeover activities.
I. Training
The Contractor will develop materials and courses to provide training. This
training will include an overview of the HCO Contract requirements and will
be provided to both Contractor and State staff. The Contractor will develop
any needed training to ensure successful Takeover, as well as develop and
internally distribute, staff training materials as needed. The Contractor
will schedule and execute all training scheduled for the Takeover Phase in
such a manner as to fully support Takeover tasks and activities and to
ensure full preparedness for the performance of all Contractor
responsibilities, including, but not limited to, those specified in the
Exhibit B - Scope of Work.
1. The Contractor will deliver to the Department for review and approval,
within four weeks from the HCO Contract effective date, an Operations
Training Plan. The Operations Training Section of the Takeover Manual
will include course outlines and schedules for both the Takeover Phase
and all on-going
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courses in the major operational areas to take place during the
Operations Phase of the HCO Contract. The Contractor will provide a
schedule and location of all refresher and on-going training courses.
J. Takeover Organization and Personnel Acquisition
The Contractor will update and submit the Organizational and Personnel
Acquisition Plan Section within four weeks from the HCO Contract effective
date.
K. Personnel Acquisition
The Personnel Acquisition sub-section will describe the method of
recruitment and selection of staff required to prepare the Contractor for
full and on-going operation of the HCO Program. In addition to a narrative
discussion, the Personnel Acquisition sub-section of the Manual will
include the following information:
1. A chart showing the number of staff to be hired or transferred from
previous Contractor by month and classification (hired is defined in
this Section as staff having reported to work);
2. An explanation, including specific actions to be taken, of how the
Contractor will assure the Department that sufficiently experienced
and trained personnel are available to support all Operations
functions without interruption of services to the beneficiaries.
3. A description of alternative actions or contingency plans if the
Contractor is unable to recruit sufficient numbers of adequately
trained staff for each functional, operational area on a timely basis
or if the Contractor's original operational staffing estimates are too
low;
a. A plan for hiring or transferring all specialized
trained/experienced staff, as prescribed in the HCQ Contract.
L. Organizational Structure
The Organizational Structure sub-section of the Contractor's Organization
and Personnel Acquisition Plan Section will provide a complete and detailed
description of the organizational structure to be used by the Contractor.
Additionally, the Organizational Structure sub-section will include the
following:
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1. Organization charts and descriptions showing the location of the HCO
Program in the Contractor's firm, and organization charts and
descriptions for all HCO operational areas. The functional
responsibilities of each organizational unit, the delegation of
responsibilities to each HCO Program organizational unit, organization
decision-making relationships, and unit staffing by classification
will be provided, in addition to those items specified above, for a
comprehensive identification of overall staffing for HCO Program
Operations.
2. Complete job descriptions (specifications) for all classifications
used for senior Managements including job title, functional
responsibilities, and experience requirements.
M. Schedule Execution and Reporting
1. The personnel function is to be established and all hiring completed
to meet all duties and responsibilities as prescribed in the HCO
Program Contract within eight weeks from the HCO Contract effective
date and as reflected in the Contractor's updated Organization and
Personnel Acquisition Section of the Takeover Phase Manual.
2. The Contractor will include the status of hiring and other Takeover
milestones and deliverables as issues reported in the Weekly Takeover
Status Report, or when requested by the Contract Manager.
3. The Contractor will provide to the Department, when and if the
Contractor proposes organizational structure changes during the
Takeover Phase, updates to the Organizational Structure Section of its
Organization and Staffing Manual for Operations. These updates will be
provided to the Department five (5) days prior to such proposed
change(s).
N. Facilities Acquisition and Installation
O. New Facilities
The Contractor will deliver the Facilities Section to the Department within
one day from the HCO Contract effective date, showing the planned usage of
space for the Contractor's operation of the HCO Program, and provision of
space for all equipment.
The Facility Section will include narrative descriptions, supporting
documentation, and an installation schedule for the HCO Program Contract.
The Manual will provide information that includes, but is not limited to:
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1. The extent to which the Contractor's site(s) is/are currently under
lease or ownership or planned to be leased or bought. If the site(s)
is/are currently under lease or ownership, the Contractor will, at a
minimum, provide a guaranteed option on the facility(ies) including
the name, address and telephone number of the leasing or selling agent
for contact by the Department. The Contractor will describe facilities
it currently has in Sacramento for use in the HCO Program Contract and
what facility space, and for what functions, it must obtain and/or
finalize development.
2. A description of the modifications which must be made to the
Sacramento facility(ies), a schedule for completing those
modifications, and the actions taken by the Contractor to ensure that
this schedule is met.
3. Certification that the Contractor has verified that electrical,
telecommunications, and phone services(s) can be provided by the
Contractor facility(ies).
4. Allocated space by function.
5. Accessibility to on-site operations.
6. Access to telephone, and electrical power necessary to be utilized by
the Contractor.
7. Available parking, including State visitor and Disabled Parking
spaces.
P. Permanent Facilities Installation
The Contractor will obtain a permanent facility within a 25-mile radius of
the State Capitol Building to operate the HCO Program, as specified in RFP
Section 12.0, E, Proposer Qualifications. The permanent facility will be
completely operable within four weeks from the HCO Contract effective date.
Until this facility is installed, HCO Takeover activities, including
testing and staff training, will take place within 25 miles of the State
Capitol unless arrangements have been made with the HCO Contract Manager.
All Departmental liaison and planning activities will take place in
Sacramento, unless otherwise agreed to by the Contractor and HCO Contract
Manager.
Q. Existing Sites
The Contractor will include in the Facilities Section the Takeover process
of existing HCO Program sites utilized by the
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former Contractor (if applicable) and/or County Welfare Departments.
The Contractor will include in the Facilities Section a description of all
existing sites and scheduled dates of Takeover (For the locations of
existing sites, see Exhibit 9). These activities will be included in the
Weekly Takeover Work Schedule.
R. Equipment Acquisition and Installation
The Contractor will develop and deliver the Equipment Section of the
Takeover Manual within four weeks from the HCO Contract effective date.
This section will describe the on-site and off-site equipment configuration
required to support the HCO Contract. The manual will describe, but is not
limited to, all processing and telecommunication equipment, and any other
equipment necessary to support the HCO Program. The manual, at a minimum,
will describe:
1. A schematic showing all equipment and communications networks.
2. All equipment, including quantity, model number, and capacity to
support the HCO Program.
S. MEDS
The Contractor will develop and deliver the MEDS Section of the Takeover
Manual within three weeks from the HCO Contract effective date. The MEDS
Section will detail the process to be used to install, and process MEDS
information as provided by the Department. This includes, but is not
limited to, receiving MEDS download tapes and providing MEDS updates in a
format prescribed by the Department, in order to process enrollment and
disenrollment transactions.
T. Toll-Free Telephone Services
The Contractor will include in the Takeover Manual a section which details
the process for implementing the Direct Assistance requirements within two
weeks from the HCO Contract effective date. The Contractor will be prepared
to implement the Customer Assistance toll-free telephone service
capabilities, as directed by the Department, within eight weeks from the
HCO Contract effective date. The Direct Assistance telephone capabilities
include, but are not limited to, toll-free telephone number(s), adequate
number of customer service representatives to respond to conversion and
ongoing operational requirements, language capabilities, timely complaint
resolution, providing specified information to beneficiaries and
applicants, and procedures for
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responding to beneficiary and applicant inquiries.
U. Translation Services
The Contractor will include in the Direct Assistance Section of the
Takeover Manual the process for ensuring that translation services, in
those languages as specified by the Department, are available by the Direct
Assistance implementation date.
V. Printing and Publications
As directed by the Department, the Contractor will perform or arrange to
have performed the requested printing and reproduction within eight weeks
from the HCO Contract effective date. W. Forms
The Contractor will ensure that all forms and documents are in the format,
language, and literacy level specified and approved by the Department. The
Contractor will not submit any forms or documents developed by the
Contractor for printing or reproduction until the final format has been
reviewed and approved by the Department.
X. Policy and Procedures Development
The Contractor will develop and submit to the Department a Policy and
Procedures Section of the Takeover Manual. The Procedure Section will
contain the detailed processes and procedures for all duties, tasks, and
functions described in this RFP. These sub-sections are to be delivered to
the Department within eight weeks from the HCO Contract effective date.
This will include, but is not limited to, the following sub-sections:
1. Scheduling Presentations
2. Security and Confidentiality
3. Monitoring 4. County Performance
5. Assignments
6. Disenrollments
7. Records Retention
8. Communication
9. Direct Assistance
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10. Customer Assistance
11. Problem Resolution
12. Ombudsman
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Maximus Exhibit B
EXHIBIT B SCOPE OF WORK
The Contractor will conduct a program for providing accurate, complete and
current information to persons applying to establish eligibility for AFDC or
Medi-Cal and for existing Medi-Cal beneficiaries, as directed by the Department,
regarding their options for obtaining Medi-Cal services through enrollment in
health care plans or FFS MediCal. The Contractor must provide information on
health care plans that provide services in the geographic areas where the person
resides. Information provided will include whether the health plan has available
capacity and can accommodate the person's primary language. Please refer to
Section 3.7, "Primary Languages For Eligible Beneficiaries By County", for
language needs.
The Contractor will emphasize the benefits and limitations of increased access
to health care services through health care plans and encourage enrollment and
provide enrollment assistance in those plans.
The Contractor will be responsible for enrolling and disenrolling beneficiaries
into and out of managed care plans.
The Contractor will implement the HCO program in a timely and uniform manner in
those counties which will require an HCO program due to new or existing managed
care plans operating in those counties, and any future counties as designated by
the Department. Please see Section 1.3, "HCO Expansion Activities", Section 1.6,
"Existing MediCal Managed Care Arrangements", and 1.7, "Special Project
Activities" of the RFP for a list of the counties requiring an HCO program at
this time.
The Department will provide the Contractor with data files via a direct data
communications link connected to the State's Host computer. The Contractor must
have the capability to transmit and retrieve data files through this mechanism
in a format to be determined by the Department. The Contractor must also have
the capability to evaluate the data received by the Department and identify
changes in a recipients qualifications for managed care plan enrollment, and
take appropriate action. At a minimum, the Department will provide the
Contractor with the following files to assist in processing enrollment and
disenrollment transactions:
HCO New Eligibles File - Daily files which contain new eligibles who have
been designated as potential candidates for managed care enrollment in a
HCO county. This file contains information required for the Contractor to
determine a Medi-Cal recipient's eligibility for participation in a managed
care plan. This file can also be used to transmit enrollment and/or
disenrollment
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transactions to the State Host computer.
HCO Transaction Error Log - Daily files which provide the Contractor with
the status of each enrollment or disenrollment transaction applied to the
MEDS record of a Medi-Cal recipient or managed care plan enrollee in a HCO
county. This file contains information required for the Contractor to
identify and correct errors, and generate appropriate recipient
confirmation mailings.
Quarterly Reconciliation File - A quarterly file which will provide the
Contractor with the current eligibility status of each Medi-Cal recipient
who meets the enrollment criteria in an HCO county. This file contains
information that will allow the Contractor to synchronize its recipient
eligibility files with MEDS.
Changes in policy may constitute the creation of new files or changes to
existing files. The Contractor will be required to modify procedures in an
efficient and timely manner, to accommodate these changes.
The Contractor must also be willing to implement a Dental Managed Care program
with similar scope of work requirements as described in this section and be
willing to enter into good faith negotiations for reimbursement of this work.
In implementing the HCO program, the Contractor is required, at a minimum, to do
the following:
A. Preparation For HCO Presentations
1. The Contractor will make all arrangements necessary to implement the
HCO program. These arrangements will include, but will not be limited
to:
a. Work with the Department in the coordination of a space and
facilities plan, in a County and/or other approved public or
non-public facilities, for group HCO presentations to applicants
and beneficiaries in the mandatory aid codes adapted to each CWDs
intake application and redetermination operation.
b. Schedule group or individual HCO presentations at regular
intervals and at various locations to allow the
applicants/beneficiaries access during the eligibility
determination process.
c. In cooperation with the Department, develop necessary forms and
procedures for the CWDs referral to and documentation of,
applicants and beneficiaries
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attendance at the HCO presentations.
1. The Contractor will submit all proposed procedures and
written materials for use at the HCO presentations, to the
Department for review and approval at least 60 working days
prior to their proposed implementation and distribution,
unless otherwise directed by the Department.
d. Identify and monitor those applicants and beneficiaries who are
required to attend the HCO presentations.
e. Coordinate access to MEDS terminals for the Contractor's
management and other approved personnel.
f. Develop written procedures for researching County MEDS input
conflicts and communicate the results of the research to the
appropriate County staff for correction.
g. Furnish desks, chairs, and access to telephone outlets for
telephones, facsimile equipment and computer modems for use by
Contractor's personnel, in County or other approved public or
non-public facilities where HCO presentations will occur. (The
equipment stated here is only a suggestion). Space size and
availability may vary at County sites where presentations will
occur.
h. Furnish all necessary resources for effective presentations which
include, but are not limited to, office supplies, audio-visual
equipment and visual aids.
i. Hire and train staff, monitor and record staff performance.
2. The Contractor will establish and maintain a system of communication
between Contractor, Contractor's staff, County personnel, Medi-Cal
managed care plans and the Department to assure timely receipt of
eligibility information from MEDS to identify eligible beneficiaries,
timely referral of applicants/beneficiaries to HCO presentations,
timely processing of enrollments/disenrollments, timely updating of
MEDS, a smooth transition to the selected managed care plan from FFS
Medi-Cal and the negotiation of space in County offices. The
Department will assume lead responsibilities for this function.
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B. HCO Presentation
1. The Contractor must provide presentations according to the Departments
specifications.
The HCO presentation will include, but will not be limited to:
a. Information designed to help beneficiaries/applicants understand
how to complete a enrollment form and to assist
applicants/beneficiaries with completion of a enrollment form.
See Exhibit 8, Enrollment Forms.
b. Alternatives for beneficiaries/applicants to receive Medi-Cal
benefits, with an emphasis on the managed care method.
c. A description of the services covered under the Medi- Cal
program.
d. A description of all available managed care plans in areas where
applicants/beneficiaries reside.
e. The zip codes served by each managed care plan in each County.
f. Information in response to managed care plan related questions
which arise during the HCO presentation from
applicants/beneficiaries.
g. Distribution of Department approved health care plan- related
marketing materials (e.g., brochures, pamphlets, etc.) received
from the plans.
h. A description of the beneficiaries enrollment/disenrollment
rights.
2. The Contractor will document the attendance of all applicants and
beneficiaries at the HCO presentation.
3. The Contractor, as directed by the Department, will provide at a
minimum, linguistic services to a population group of mandatory
Medi-Cal eligibles residing in the proposed service area who indicate
their primary language as other than English and who meet a numeric
threshold of 3,000, or a population group of mandatory Medi-Cal
eligibles residing in the proposed service area who indicate their
primary language as other than English and who meet the concentration
standards of 1,000 in a single zip code or 1,500 in two contiguous zip
codes.
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4. The Contractor will ensure non or limited-English speaking applicants
and beneficiaries understand their options and rights. These measures
will include, but not be limited to:
a. Staffing:
1. The Contractor will assess, identify and report the
linguistic capability of interpreters or bilingual employed
staff.
2. Employ or contract with translators or interpreters who are
fluent in English and other languages to meet the linguistic
needs of applicants and beneficiaries.
3. Personnel with a knowledge of the ethnic, cultural, social
and economic compositions of each County's
applicant/beneficiary population. Please refer to Section
3.6, "Ethnic Grouping of Eligible Beneficiaries By County".
4. Consider employing or contracting with qualified, former
AFDC recipients or Medi-Cal beneficiaries, individuals who
possess Medi-Cal eligibility background/experience and
community based organizations.
b. Produce written materials and/or media (e.g., videos/tapes) which
will be made available to assist non-English and limited-English
speaking beneficiaries as specified in Exhibit B and as directed
by the Department.
c. Produce enrollment/disenrollment forms to assist
limited/non-English speaking beneficiaries as specified in
Exhibit B and as directed by the Department.
"See Section 3.7 of the RFP, "Primary Languages of Eligible
Beneficiaries By County".
5. The Contractor will assign personnel to conduct HCO presentations, at
each site, to inform applicants/beneficiaries of their options of
receiving MediCal benefits according to standards developed by the
Department.
Contractor's Staff must provide presentations according to County
intake schedules, policies and procedures and/or arrangements agreed
to between the Contractor and the
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County. The Contractor will consider space and geographic limitations
to determine the most cost effective methods to provide presentations
to the maximum number of beneficiaries. Contractor will monitor
default assignment rates for acceptable levels as determined by the
Department.
6. The Contractor will ensure that back-up personnel is provided in the
event of employee absence to ensure that there is no disruption in HCO
presentations.
7. The Contractor must consistently and effectively conduct HCO
presentations. This may include, but is not limited to:
a. Following the HCO Script.
b. Electronic audio and visual communication mediums.
c. Other enhancements to the HCO presentation.
8. The Contractor will develop and implement a method for evaluating
applicant/beneficiary satisfaction with HCO presentations.
C. Outreach
The Contractor will identify and submit to the Department for approval,
additional locations for presentations, such as community centers,
community meetings, health fairs, Women, Infants and Children (WIC)
nutrition sites, churches and festivals. Further, the Contractor will
schedule HCO presentations outside the normal business hours, 8:00 a.m. to
5:00 p.m., Monday through Friday, as approved by the Department.
The Contractor will submit to the Department for prior approval, a schedule
of all outreach presentations. This schedule will be provided on a biweekly
basis, or as determined by the Department. At a minimum, this schedule will
include:
1. The name of the Enrollment Service Representative (ESR) giving the
presentation.
2. The organization or event served by the presentation, as well as the
location.
3. The date and time of the presentation.
4. Anticipated number of beneficiaries attending.
In addition, the Contractor will provide the Department with a follow-up
report which will be include in the monthly progress
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report.
D. Training
1. The Contractor will develop and conduct initial and ongoing training
programs for the HCO Contractor's staff and monitor staff performance
on a continual basis. The training program will be comprehensive and
ensure that Contractor staff is able to diligently perform the scope
of work in this RFP. Training will include, but will not be limited
to:
a. An overview of the Medi-Cal program;
b. Managed Care and HCO legislation;
c. The development of managed care plans in California;
d. Mock training sessions with critiques;
e. Instruction on the completion of the HCO enrollment forms;
f. MEDS inquiry, access and updates;
g. Review of script and informing materials;
h. A review of plans and services available in each County;
i. How to access services in plans/plan grievance processes;
j. Security and confidentiality policies;
k. Cultural and linguistic sensitivity;
l. Customer relations;
m. State enrollment and disenrollment process.
2. The Contractor will develop, and conduct as requested, an HCO
education program for:
a. County Welfare Department staff;
b. Department staff;
c. Consumer advocate groups;
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d. Lawsuit representatives;
e. Medical plan staff;
f. Local officials;
g. Other parties and organizations impacted by the HCO program and
legislation.
E. Enrollment Form Processing
The Contractor will assume responsibility for enrollments in any county, as
designated by the Department.
1. The Contractor will enroll eligible beneficiaries into selected
managed care plans. The enrollment function may include, but is not
limited to:
a. Transmitting enrollment records to the Department in a format
prescribed by the State through methodology proposed by the
Contractor and approved by the Department, utilization of the
"Choice" licensed software available to the Contractor, an/or by
online action thru MEDS.
b. Use MEDS and any other Medi-Cal eligibility verification system
as made available by the Department in the future, to make
corrections to the beneficiary's enrollment information.
c. Complete enrollments within one (1) business day of receiving
notification of eligibility for on-line enrollments or within two
(2) business days for batch enrollments. Batch enrollments are
enrollment forms which are compiled by Contractors staff at
presentation locations and forwarded to the Contractors
processing facilities on a daily basis.
d. Review the HCO enrollment form for accuracy and completeness to
ensure a timely enrollment in the applicant's/beneficiary's
managed care plan of choice.
e. Should the Department determine that enrollment forms currently
submitted to the Department directly by managed care plans are to
be submitted to the Contractor for processing, the Contractor
will assist the managed care plans to ensure enrollment forms are
completed correctly and provide managed care plans with lists of
enrollments successfully processed.
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f. Resolve enrollment problems to ensure enrollment in the selected
managed care plan within the mandated timeframe.
g. Provide lists on a weekly basis, directly to the managed care
plans of those applicants and beneficiaries who have completed an
enrollment form, selected a medical plan and are eligible, or who
are eligible and have been defaulted to a plan through the HCO
program.
2. The Contractor will enroll eligible beneficiaries into selected
managed care plans through the following procedure:
a. Enrollment form is received and sorted.
b. Enrollment form is reviewed. If the form is complete, Contractor
must confirm recipients eligibility for enrollment in health plan
of choice, then process enrollment. If the form is incomplete,
the form is returned to the beneficiary one (1) business day
after processing of the incomplete form, with a letter
identifying areas which are incomplete, and requesting the
beneficiary to complete the enrollment form. The form in reviewed
again upon return, and if complete, enrollment will be processed.
c. Confirmation letter, identifying plan name and effective date of
enrollment is sent to the beneficiary one (1) business day after
enrollment transaction is accepted.
d. If an enrollment form is not completed and returned by the
beneficiary within the established timeframe, a "Notice of Intent
to Assign" letter is sent to remind the beneficiary to complete
and return the enrollment form.
e. If an enrollment form is not received from the beneficiary
following the reminder, the beneficiary is automatically assigned
to a managed care plan. (See Assignment, Sections)
f. When a beneficiary is automatically assigned to a medical plan, a
"Notice of Assignment" letter is sent to the beneficiary.
3. The Contractor may receive documentation or calls from
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beneficiaries indicating they qualify to remain Fee-For- Service as a
result of a medical exemption. Contractor will allow beneficiary to
remain FFS through the exemption period. The Contractor will monitor
these beneficiaries and upon termination of the exemption period,
contact the beneficiary and request an enrollment form be completed.
The Department will publish a list of medical conditions which qualify
the beneficiary for medical exemptions, and will furnish this list to
the Contractor. It will be the Contractors responsibility to track
these beneficiaries and begin the informing process once the exemption
period has expired.
F. Disenrollment Form Processing
The Contractor will assume responsibility for disenrollment in any County
as directed by the Department.
1. The Contractor will disenroll eligible beneficiaries from managed care
plans. This function may include, but is not limited to:
a. Transmitting disenrollment records to the Department in a format
prescribed by the State, through methodology proposed by the
Contractor, utilizing the "Choice" licensed software available to
the Contractor from the Department, and/or by online action thru
MEDS.
b. Use MEDS and any other Medi-Cal eligibility verification system
as made available by the Department or County for corrections to
the beneficiary's disenrollment form information.
c. Complete disenrollment transactions within one (1) business day
of receiving disenrollment forms for on-line disenrollments, or
within two (2) business days for batch disenrollments. Batch
disenrollments are disenrollment forms which are compiled by
Contractors staff at presentation locations and forwarded to the
Contractors processing facilities on a daily basis.
d. Review the HCO enrollment/disenrollment form for accuracy and
completeness to ensure a timely disenrollment from the
beneficiaries' managed care plan.
e. Assist the beneficiary to correct disenrollment form errors.
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f. Resolve disenrollment problems to ensure a timely disenrollment
from the managed care plan.
g. Provide lists on an as requested basis, directly to the managed
care plans of those beneficiaries who have completed a
disenrollment request to be disenrolled from a managed care plan
through the HCO program.
h. Retroactively disenroll beneficiaries who meet the necessary
criteria, as determined by the Department.
i. Should the Department determine that enrollment/disenrollment
forms currently submitted to the Department by managed care plans
are to be submitted to the Contractor for processing, the
Contractor will assist the managed care plans to ensure the
enrollment/disenrollment forms are completed correctly and
provide the plans with a list of disenrollments successfully
processed.
2. The Contractor will disenroll eligible beneficiaries from selected
managed care plans through the following procedure:
a. Disenrollment forms received and sorted.
b. Disenrollment form reviewed for accuracy of information. If form
is complete, Contractor processes disenrollment. If form is
incomplete or incorrect, the form is returned to the beneficiary
within one (1) business day of processing disenrollment request,
with a letter of request to complete the disenrollment form,
specifying the areas which are incomplete or incorrect. The form
is reviewed again upon return, and if complete, disenrollment is
processed.
If enrollment in a MCP is mandatory and if the beneficiary is
disenrolled because the beneficiary has a medical condition which
qualifies the beneficiary to be exempt from enrollment, the
Contractor will verify that a signed exemption form has been
submitted with the disenrollment form.
c. If enrollment is mandatory, the Contractor will ensure the
beneficiary re-enrolls in a MCP by verifying the beneficiary's
selection of a new MCP on the enrollment/disenrollment form.
d. A letter is mailed to the beneficiary, confirming the
disenrollment request.
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e. In GMC, the beneficiary must select a new MCP unless the
beneficiary has a medical condition which qualifies him/her to be
exempt from enrollment. One (1) business day after enrollment
transaction is accepted, a letter is mailed to the beneficiary,
confirming the choice of the new MCP, identifying plan name and
effective date of enrollment.
3. The Contractor will monitor beneficiaries who wish to remain
Fee-For-Service because of a medical condition, and begin the
enrollment process once the exemption period has expired.
The Department will publish a list of medical conditions which qualify
the beneficiary for medical exemptions, and will furnish this list to
the Contractor. It will be the Contractors responsibility to track
these beneficiaries and begin the informing process once the exemption
period has expired.
4. In FFS MCN, the Contractor will be responsible for processing
disenrollments for beneficiaries who submit an exemption form,
self-certifying they are not required to participate in the FFS MCN
program due to a medical condition which qualifies him/her to be
exempt from enrollment.
5. The Contractor will retroactively disenroll beneficiaries which meet
specific criteria as determined by the Department. Retroactive
disenrollments require direct modification to MEDS.
Geographic Managed Care
G. Informing Beneficiaries
When new AFDC beneficiaries appear on MEDS and are eligible for Medi-Cal
benefits, MEDS information tapes will be transmitted to the Contractor
(seven days per week). If the AFDC beneficiary who appears on the MEDS tape
does not have a Medi-Cal enrollment form already on file, the Contractor
will mail an enrollment packet to the beneficiary, unless the beneficiary
is identified as homeless by specific? County P.O. Box addresses on the
MEDS information tapes.
The enrollment packet will be developed by the Department. The Contractor
may be required to develop or edit materials at the discretion and with the
approval of the Department.
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1. The enrollment packet consists of a cover letter, an
information/instruction booklet, a list of assistance telephone
numbers and addresses, a list of plan primary care providers,
plan-paid advertising, plan comparison chart, instructions regarding
plan access problems, an enrollment form and postage paid envelope.
This information will be provided in both English and any additional
primary language indicated on the MEDS form. Once AFDC beneficiaries
receive the enrollment package from the Contractor, they have 30 days
to return the enrollment form specifying their choice for how they
will receive their Medi-Cal benefits. The materials also will advise
them of the availability of a face-to-face presentation and provide
the Contractor's toll-free number to get more information in various
languages.
2. If a beneficiary returns the enrollment form but does not provide all
the needed information, the HCO Contractor will send out a letter one
(1) business day after processing the incomplete form, requesting the
missing information.
3. If the enrollment packet is returned to the HCO Contractor
undelivered, the file will be flagged and no further action is taken
until the Contractor receives a new address notification.
4. If a beneficiary does not respond within ten (10) business days and
the letter has not been returned, a "Notice of Intent to Assign" will
be sent by the HCO Contractor to the beneficiary within one (1)
business day. The "Notice of Intent to Assign" will, at a minimum,
include the following information:
a. Beneficiary's name and address.
b. Name and telephone number of the managed care plan to be
assigned.
c. Reason for intention to assign to a managed care plan.
d. Effective date of assignment.
e. Instructions concerning forms to be completed to prevent
assignment and time frames for completing those forms.
f. Toll-free telephone number and address where the beneficiary can
obtain additional information and complete the enrollment form.
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5. If the beneficiary has not completed an enrollment form within 30 days
from the date that the enrollment packet was mailed; or the
beneficiary attended a face-to-face presentation (whichever occurs
first), the HCO Contractor will assign the beneficiary to a plan and
send a "Notice of Assignment" on the thirty-first (31st) day, which
will include the following information:
a. The effective date of assignment to a plan.
b. The process to use if the assignment is not appropriate or if the
beneficiary wishes to disenroll from the assigned plan.
c. Plan to which beneficiary has been assigned.
d. Toll-free telephone number and address where beneficiary can
receive additional information or assistance.
H. Assignment
The Contractor will develop and maintain procedures for determining which
AFDC applicants have failed to make a choice of Managed Care Plan (MCP)
within the specified period or are exempt from assignment (i.e., have an
existing relationship with a primary care provider certified by that
provider). The Contractor will assign these AFDC applicants to an available
MCP which provides services in the geographic area where the applicant
resides. This assignment system must include, but will not be limited to:
1. Assigning applicants into MCP's, except in those instances where the
applicant meets the criteria exempting the applicant from mandatory
assignment.
2. A method for monitoring/tracking applicant selection in order to
identify applicants that have not selected a MCP within the required
30 days from the day that the enrollment packet was mailed, or, the
beneficiary attended a face- to-face presentation, before assigning
the MCP, if a choice has not been made.
3. Assigning applicants to the various types of managed care models, or
pilot projects.
4. Assigning beneficiaries to the same MCP as other members of the family
group, to the extent possible.
5. Assigning applicants into a MCP in which they are eligible
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to be enrolled. This includes:
a. A MCP which has capacity to accept new patients;
b. A MCP which is within a ten mile radius of where the applicant
resides;
c. A MCP which provides services to those persons in the aid code of
the applicant.
d. A MCP which has language capability to meet the beneficiary's
needs.
Two Plan Model Phase-In
I. Informing Beneficiaries
During the phase-in of the Two-Plan Model, the Department will require the
Contractor to use the HCO process for enrollment of AFDC beneficiaries into
the Local Initiative Plan (LI) and the mainstream plan (MP) when one of the
two plans becomes operational. The process will target AFDC applicants and
beneficiaries in the aid codes identified for mandatory enrollment in the
fully operational Two-Plan Model waiver. During the phase-in period,
participating beneficiaries always have the option of choosing FFS, even if
they are assigned to an MCP because they did not make a choice. When the
Department determines the LI or MP is ready to begin operation, the County
Department of Social Services and the Contractor will be notified. The
County eligibility worker will provide each applicant with a document
explaining what is required and where they need to go for a presentation.
If the AFDC applicant does not attend the Contractor presentation or does
not mail in the Medi-Cal enrollment form, the Contractor will mail the same
enrollment packet to the applicant when the applicant is determined to be
eligible for Medi-Cal. If the beneficiary is identified as homeless by
specific County P.O. Box addresses on the MEDS information tapes, the
Contractor will not mail the enrollment package.
The enrollment packet will be developed by the Department. The Contractor
may be required to develop or edit materials at the discretion and with the
approval of the Department.
1. The enrollment packet will advise them they may attend a face-to-face
presentation or call the Contractor's toll-free number to get more
information. During the phase-in period, beneficiaries will be offered
a choice of enrolling in the
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operational LI or MP, enrolling in an existing HMO or enrolling in a
PCCM plan, or certifying to an existing relationship with a named FFS
provider.
2. If a beneficiary sends in the form, but does not provide all needed
information, the Contractor will send a letter one (1) business day
after the incomplete form has been entered, to that beneficiary
identifying what is still needed.
3. If the enrollment packet is returned to the Contractor undelivered,
the file is flagged and no further action will be taken until the
Contractor receives a new address notification.
4. If a beneficiary does not respond, but the mail was delivered ten (10)
calendar days later, a "Notice of Intent to Assign" will be sent by
the HCO Contractor to the beneficiary. The "Notice of Intent to
Assign" will, at a minimum, include the following information:
a. Beneficiary's name and address.
b. Reason for intention to assign to a managed care plan.
c. Effective date of assignment.
d. Instructions concerning forms to be completed to prevent
assignment and time frames for completing those forms.
e. Toll-free telephone number and address where the beneficiary can
obtain additional information and complete the enrollment form.
5. If the beneficiary has not completed an enrollment form within thirty
(30) calendar days from the date of referral, or date the enrollment
packet is mailed, the Contractor will send a "Notice of Assignment" on
the thirty-first (31st) day which will include the following
information:
a. The effective date of assignment to the managed care plan.
b. The process to use if the assignment is not appropriate or if the
beneficiary wishes to disenroll from the assigned plan.
c. The plan to which beneficiary has been assigned.
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d. Toll-free telephone number and address where beneficiary can
receive additional information or assistance.
J. Assignment
Beneficiaries in mandatory aid codes who attend a presentation or are
mailed notification and do not respond within thirty (30) calendar days,
will be notified in writing one (1) business day after accepted enrollment
transaction, by the HCO Contractor, of their assignment to either the
operational LI or MP and the effective date of that assignment. They also
will be advised by the HCO Contractor, of the process to use if they wish
to disenroll from their assigned plan and enroll in other available plans
(if applicable) or FFS.
Enrollment packets will include a cover letter, an
information/instruction booklet, a list of assistance telephone
numbers and addresses, an enrollment form, plan paid advertising, plan
comparison chart, instructions regarding plan access problems, a list
of plan primary care providers and a postage paid envelope. In
addition to English, materials will also be sent in any primary
language designated on MEDS. The information will identify the
locations of the Contractor where beneficiaries may attend a
presentation explaining the material. If they are unable to attend a
presentation, the material will instruct them to use the toll-free
telephone number to obtain additional information and assistance.
1. If a beneficiary sends in the enrollment form, but does not provide
all needed information, the Contractor will send a letter one (1)
business day after processing incomplete form, identifying what is
still needed.
2. If the mailed enrollment packet is returned to the Contractor
undelivered, the file will be flagged and no further action will be
taken until the Contractor receives a new address notification.
3. If a beneficiary does not respond, but the mail was not returned, ten
(10) business days later, a "Notice of Intent to Assign" will be sent
by the Contractor to the beneficiary within one (1) business day. The
"Notice of Intent to Assign" will, at a minimum, include the following
information:
a. Beneficiaries name and address.
b. Name and telephone number of the managed care plan to
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be assigned.
c. Reason for intention to assign beneficiary to a managed care plan
by default.
d. Effective date of assignment.
e. Instructions concerning forms to be completed to prevent
assignment and time frames for completing those forms.
f. Toll-free telephone number and address where the beneficiary can
obtain additional information and complete the enrollment form.
4. If the beneficiary has not completed an enrollment form within thirty
(30) calendar days from the date of referral, enrollment packet mail
date, or face-to-face presentation, the Contractor will, on the
thirty-first (31st) day, send him/her a "Notice of Assignment" which
will include the following:
a. The effective date of the assignment to the plan.
b. The process to use if the assignment is not appropriate or if
they wish to disenroll from the assigned plan.
c. Plan to which beneficiary has been assigned.
5. Toll-free telephone number where beneficiary can receive additional
assistance. Whether beneficiaries are assigned to a plan or choose a
plan, they are required to receive written notification from the
Contractor of acceptance in a plan. The Contractor's toll-free number
will be included in this letter.
Two Plan Model Full Implementation
K. Informing Beneficiaries
Once the Two-Plan Model is fully operational (i.e., both the LI and the MP
contracts are executed and approved by the Health Care Financing
Administration) in a County, the Department will require the Contractor to
use the HCO process to inform applicants and beneficiaries in the mandatory
aid codes regarding their health care options.
1. Prior to full operation of the Two-Plan Model in a County, the
Department will notify AFDC beneficiaries in mandatory
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aid codes of the transition to full implementation of the waiver. This
notice will also inform beneficiaries of the forthcoming enrollment
packet which will explain their health care options.
a. The notice sent to beneficiaries in mandatory aid codes currently
on FFS will advise them that they must make a choice between the
LI and the MP. If they do not make a choice, they will be
assigned to one of the two plans. FFS no longer will be an
option.
b. The notice sent to beneficiaries in mandatory aid codes currently
enrolled in MCP's other than the LI or MP will advise them that
their MCP will no longer provide services for AFDC beneficiaries
and they must choose between the LI and the MP. If they do not
make a choice, they will be assigned to one of the two plans.
c. The notice sent to beneficiaries in mandatory aid codes currently
enrolled in the LI or MP, or in health plans subcontracting with
the LI or MP, will advise them of the availability of the other
plan. They may choose to disenroll from their existing plan and
enroll in the newly operational plan; however, if they do
nothing, they will remain with their current plan.
2. Prior to full operation, the Contractor will begin mailing out
enrollment packets to AFDC beneficiaries, unless the beneficiary is
identified as homeless by specific County P.O. Box addresses on the
MEDS information tapes. The Contractor will control the issuance of
the mailers with the goal of minimizing confusion to beneficiaries.
The Contractor enrollment package mail-out schedule will take into
consideration the size of AFDC population, whether the LI or MP was
operational during the phase-in period, and the size and number of
MCP's in the County.
The enrollment packet will be developed by the Department. The
Contractor may be required to develop or edit materials at the
discretion, and with the approval, of the Department.
Enrollment packets will include a cover letter, an
information/instruction booklet, a list of assistance telephone
numbers and addresses, an enrollment form, plan paid advertising, plan
comparison chart, instructions regarding plan access problems, a list
of plan primary care providers and a postage paid envelope. In
addition to English, materials will also be sent in any primary
language designated on MEDS. The information will identify the
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locations of the Contractor where beneficiaries may attend a
presentation explaining the material. If they are unable to attend a
presentation, the material will instruct them to use the toll-free
telephone number to obtain additional information and assistance.
a. If a beneficiary sends in the enrollment form, but does not
provide all needed information, the Contractor will send a letter
one (1) day after processing incomplete form, identifying what is
still needed.
b. If the mailed enrollment packet is returned to the Contractor
undelivered, the file will be flagged and no further action will
be taken until the Contractor receives a new address
notification.
c. If a beneficiary does not respond, but the mail was not returned,
ten (10) calendar days later, a "Notice of Intent to Assign" will
be sent by the Contractor to the beneficiary. The "Notice of
Intent to Assign" will, at a minimum, include the following
information:
1. Beneficiaries name and address.
2. Name and telephone number of the managed care plan to be
assigned.
3. Reason for intention to assign beneficiary to a managed care
plan by default.
4. Effective date of assignment.
5. Instructions concerning forms to be completed to prevent
assignment and time frames for completing those forms.
6. Toll-free telephone number and address where the beneficiary
can obtain additional information and complete the
enrollment form.
d. If the beneficiary has not completed an enrollment form within
thirty (30) calendar days from the date of referral, enrollment
packet mail date, or face-to-face presentation, the Contractor
will, on the thirty-first (31st) day, send him/her a "Notice of
Assignment" which will include the following:
1. The effective date of the assignment to the plan.
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2. The process to use if the assignment is not appropriate or
if they wish to disenroll from the assigned plan.
3. Plan to which beneficiary has been assigned.
4. Toll-free telephone number where beneficiary can receive
additional assistance.
Whether beneficiaries are assigned to a plan or choose a plan, they
are required to receive written notification from the Contractor of
acceptance in a plan. The Contractor's toll-free number will be
included in this letter.
L. Assignment
Beneficiaries in mandatory aid codes who attend a HCO presentation or are
mailed notification and do not respond within 30 calendar days, will be
notified on the 31st day by the Contractor in writing of their assignment
to either the LI or MP and the effective date of that assignment. They also
will be advised of the process to use if they wish to disenroll from their
assigned plan and enroll in the other available plan.
When a beneficiary is assigned to a plan, a weighted assignment method will
be used to determine the plan to which assignment will be made. The
following initial beneficiary considerations apply:
1. A beneficiary will only be assigned to an MCP with a primary care
service site in the same ZIP Code as the beneficiary's residence.
2. A beneficiary will be assigned to the same MCP as other members of the
same family group, to the extent possible.
3. Assigning applicants into a MCP in which they are eligible to be
enrolled. This includes
a. A MCP which has capacity to accept new patients;
b. A MCP which provides services to those persons in the aid code of
the applicant.
c. A MCP which has language capability to meet the beneficiary's
needs.
Once the above conditions are met, the LI will be given preference in the
assignment process over the MP. Provided the LI has capacity, all assignments
will be given to the LI until the LI reaches its minimum
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enrollment level, which is established by the Department to provide protection
to the disproportionate share hospital payments in that County. Once the LI has
reached its minimum enrollment level, assignments will be rotated equitably
between the LI and the MP.
The minimum enrollment levels for each County's Local Initiative are described
in the Data and Information Library.
M. Customer Assistance
The Contractor will provide assistance to beneficiaries in using their
health care plan membership, and will assure that this assistance is
readily accessible to beneficiaries. This assistance will emphasize their
rights and responsibilities as health care plan enrollees. The Contractor
will contact involved health care plans, as necessary, and gather all
materials/forms needed to assist beneficiaries. Assistance will include,
but not be limited to:
1. Explaining how health care plans operate and how to use the resources
of the plans. This will include giving them information regarding
completion of applications, and information about the health care plan
grievance process and the appeal process for those who have been
assigned to a health plan.
2. Referring beneficiaries to the appropriate health care plan's
organizational units or staff to resolve enrollment problems.
3. Providing information, as supplied through the Department by health
care plans, to beneficiaries on public transportation available to and
from health care plan service sites.
4. Maintaining toll-free 800 numbers available Monday through Friday,
(excluding holidays) between the hours of 8:00 a.m. and 5:00 p.m.
Pacific Standard Time, for beneficiary questions, inquiries, problems
or concerns. (The rights to use the sequential combinations of numbers
that make up the toll free 1-800 numbers will become/remain property
of the Department.)
The minimum standards for the Call Center are:
a. All calls must be answered within three (3) rings (a call pick-up
system that places the call in queue may be used).
b. No more than one call per operator should be in queue at any
time.
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c. Telephone calls should be of sufficient length to assure adequate
information is gained from and/or imparted to the recipient.
d. The average hold time should be 60 seconds.
e. The average abandon rate should be 5%.
f. The average referral to voice mail should be 2%. This does not
include referrals resulting from ACD options.
g. All voice mail calls should be returned within 24 hours.
h. The average number of blocked calls (i.e., calls receiving a busy
signal) should be no more than 5%.
5. Ensuring accessibility of an interpreter for services to non or
limited English speaking beneficiaries as well as maintaining a TDD
line for the hearing impaired. Contractor will consider cost effective
methodologies for providing translation services, including hiring
bilingual customer service representatives in proportion to
beneficiary language needs. The Department will approve methodologies
utilized by the Contractor.
6. Maintaining sufficient informed staff to respond promptly to
applicant/beneficiary inquiries and/or questions.
7. Documenting the nature of all complaints and attempt to resolve them
within two (2) working days of the Contractor's receipt of the
complaint.
8. Referring issues which are beyond the scope of the Contractor's duties
to the Ombudsman Unit within one (1) working day of receipt from the
beneficiary.
N. Problems Resolution
1. The Contractor will provide assistance to beneficiaries in enrolling
into and using their health care plan. The Contractor will identify
all cases in which an enrollment transaction has not been completed at
least 45 days after the filing of the beneficiary's enrollment form
and for which the Contractor has received no notification from the
Department of any new MED'S eligibility status.
The Contractor will:
a. Investigate each case to determine the cause for
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delay, using County and/or Department resources made available to
them.
b. Inform the County of those enrollment forms and the reasons for
delay, in order to allow the County to correct any MEDS errors.
c. Inform the Department, on a monthly basis, of the number of
errors reported to the County and the elapsed time between the
report to the County and the correction of the problem.
2. The Contractor will report to the County and the Department, MEDS
input errors that prevent beneficiary enrollment into a health care
plan.
3. When a beneficiary calls the Contractor with a problem, the Contractor
may need to forward the beneficiaries problem to the Departments
Ombudsman Unit for resolution. The Contractor will:
a. Investigate the beneficiary's inquiry and determine the nature of
the problem.
b. If the inquiry can be addressed by the HCP through the grievance
or appeal process, refer beneficiary to the HCP.
c. If the problem can be corrected, the appropriate records will be
modified by the Contractor and submitted to the Department.
d. The Contractor will call the beneficiary within 24 hours to
advise him/her of the results of the investigation.
1. The beneficiary will receive follow-up written confirmation
of the results of the investigation.
2. The Department will receive a written Incident Report from
the Contractor.
3. The Plan will receive a phone call from the Contractor.
O. Ombudsman
In the event that referrals to the plan are not successful, or the
complaints cannot be resolved by the Contractor, the Contractor will record
the complaint. The Contractor will advise
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the beneficiary of the date which they can be expected receive a call or an
answer. The Contractor will include this date on a transmittal, and fax it
to the Departments Ombudsman Unit. The Ombudsman Unit will work with the
plan to resolve the complaint within the specified time frame, and fax the
resolved complaint or an extended due date to the Contractor for
communication to the beneficiary. If necessary, the Contractor will provide
all necessary translation services and communication links between the
beneficiary and the Ombudsman unit, as requested by the Department.
P. Monthly Progress Reports
The Contractor will submit monthly progress reports to the Department. The
reports will be prepared to meet the following requirements:
1. The reports are to be submitted in hard copy and as indicated in B
below with all statistical tables in a MS DOS, Lotus 123 WK1
compatible spreadsheet format. All narrative will be submitted in the
American Standard Code II (ASCII) or in WordPerfect 6.0 format.
2. The format for submission of this report will be 3.5" high density,
double sided 1.4MB diskettes or 3.5" double density, double sided
720KB diskettes.
3. Reports will be filed by the tenth working day of the month following
the report month.
4. The Monthly Progress Reports will include, but not be limited to, the
following:
a. Table of Contents
b. Monthly Report Summary
1. Call Center, including total incoming calls; average talk
time; average wait time; abandon rate; voice mail rate;
total provider calls; total outbound calls; total number of
calls.
2. Enrollment Processing, including number of beneficiaries
choosing FFS; Health care plans (by plan); dental plans;
referrals to presentations in counties which use a referral
process; total transactions; assignment.
3. Number of Wetters sent by type.
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4. Number of Disenrollments.
5. Number of Exemptions by each certifying physician.
6. HCO Counseling, including number of presentations; number of
cases; persons represented.
c. HCO Status Reports by County.
Intercounty reports will compare County performance in HCO
presentations, enrollments and disenrollments. Counties will be
summarized by site(s) and overall County total.
1. Total applications completed by case number and number of
persons; total applications granted by case number and number of
persons.
2. Total redetermination by case number and number of persons.
3. A daily and total count of the number of cases referred to HCO
presentations in counties which utilize a referral process and
referral forms.
4. A daily and total count of the number of cases and persons
represented in those cases who actually attended the HCO
presentation.
5. Daily and total summaries of the number of presentations made at
each location and total length of each presentation.
6. A breakdown of the number of persons and percentage who chose
Fee-For-Service. This number is to be separated by new eligibles
and redeterminations.
7. A breakdown of the number of persons and percentage who chose
specific health care plans. This number is to be separated by new
eligibles and redeterminations.
8. Health care plan selection and/or assignment including name of
plan.
9. Total County enrollment.
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10. Total County disenrollment, including name of plan and reason for
disenrollment, including language/ethnicity.
11. Total County default assignments by beneficiaries' language,
ethnicity and zip code
d. Narrative Report, including an overview of current and future
activities, any pertinent information not included in statistical
information and an explanation of variations in the statistical
information.
e. A description of any problems encountered and a proposed corrective
action plan to resolve problems within the scope of the Contractor's
responsibilities. The Department will retain the authority to approve,
deny or amend corrective action plans.
f. Any other reports and information as determined and requested by the
Department such as specialized research reports.
Sample monthly reports are available in the Data and Information Library.
Q. Reports To Managed Care Plans
1. The Contractor will submit lists, on a weekly basis, directly to the
managed care plans regarding those beneficiaries who have been
enrolled in the managed care plan and the PCP selected by the
beneficiary (if applicable) through the HCO program.
2. The reports will include specific information, i.e., beneficiary name,
Social Security Number, address, etc.
3. A copy of the weekly report to the MCPs will be sent to the
Department.
R. Ad Hoc Reports
The Contractor will provide any ad hoc reports as requested, and within the
timeframe designated by, the Department. These reports do not include those
described in Exhibit B, and will be reimbursed as discussed in Section
18.18.8.H of the RFP. The volume of reports varies on a monthly basis.
S. Security and Confidentiality
This section describes the requirement for the Security and
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Confidentiality Plan and Procedures which will be developed and submitted
to the Department and implemented by the Contractor by the contract
effective date.
1. The Contractor will comply with the provisions of the RFP security and
confidentiality requirements from the effective date of the contract
through the end of the contract.
2. The Contractor will permit Department and authorized State and federal
representatives to access any HCO facility, equipment and related
materials covered by the contract. Such access will be at the
discretion of the Contract Manager.
3. The Contractor will provide any security and confidentiality
procedures or related documentation to the Department within one (1)
State workday after receipt of a request from the Contract Manager or
his/her designee. All procedures required in this Section will be
developed and formally submitted to the Contract Manager for review
and written approval prior to implementation.
4. The Contractor will establish a security and confidentiality training
program as part of the Security and Confidentiality Plan and
Procedures specifically designed for all levels of Contractor staff.
All persons having responsibility for the handling or processing of,
or the exposure to, confidential data will participate. Such training
will occur within two (2) weeks of the Department's approval of the
training program. Once fully established and presented, an annual
orientation program will be maintained to ensure a continual awareness
of security and confidentiality requirements. Additionally, new
employees will receive security and confidentiality training within
one (1) week of their start date before they are given exposure to the
confidential data. Included in the training will be fire and safety
training. The training will cover a full range of security and
confidentiality concerns, including, but not limited to:
a. Definition of confidential data and examples of the various
types.
b. Federal and State law pertaining to confidential data.
c. The staffs' ongoing responsibility to ensure that unauthorized
disclosure does not occur, with practical and realistic examples
as to how such disclosure can occur and what can be done by all
staff to minimize or preclude the occurrence of unauthorized
disclosure.
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d. The training must deal with both manual and automated processes
and the procedures which have been devised to protect these
processes.
5. The Contractor will see that the contents of this Section are included
in the standard language of any subcontract entered into to perform
work arising from or related to this contract.
6. Upon request from the Contract Manager, the Contractor will submit
documentation acceptable to the Department to demonstrate compliance
with security and confidentiality requirements and will certify, in
writing, that all RFP requirements of this Section have been and will
continue to be met throughout the life of the contract.
7. The Contractor will develop, implement and maintain a Department
approved Security Plan and Procedures which provide adequate physical
and system security for the HCO Program.
All Contractor facilities associated with this contract will be
addressed in the Security Plan. Facilities will include, but are not
limited to, the equipment room; software and data libraries;
supervisor area; job entry area; enrollment and disenrollment form
processing area: mail room; computer terminals; Customer Service
telephone room; junction boxes; and HCO presentation sites. It will
also include transportation and data holding resources used by the
Contractor throughout the term of the contract and the facilities
which handle both enrollment and disenrollment information.
8. All Contractor facilities will be secured so that only authorized
persons, including persons designated by the Contract Manager, are
permitted entry into the facility and that such persons are restricted
to areas where they are permitted access. Access control requirements
will include, but not be limited to:
a. Contractor staff will be familiar with and adhere to the written
security policy.
b. Facility entry and control points will be guarded or locked at
all times. Control points should be established for each of the
following: entrances to the processing facility where both
enrollments and disenrollments are processed; service entrances;
loading platforms; garage entrances;
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96-26293
equipment/facilities; and secondary entrances.
c. The Contractor's processing facility will be a secured building,
providing segregated areas which contain confidential
information. There will be no access to unauthorized personnel in
these segregated areas.
d. The Contractor will have available and furnish to the Department
as a part of the Security and Confidentiality Plan and
Procedures, a current list of all authorized staff and their
levels of access. Upon change of duty or termination of
Contractor staff from work under or arising from this contract,
access authority for that staff member will be removed.
e. The entry and exit of visitors and messengers will be logged by
visitor name, agency represented, date and time of arrival and
departure, and name of individual to whom visit is made.
Identification credentials of all visitors will be checked.
Visitors will be badged and escorted to their destination by a
Contractor employee.
f. Passwords will be required to access MEDS and "Choice" system, if
utilized.
g. Procedures for the handling, packaging and transportation of
confidential information or resources will be developed,
submitted to and approved by the Department, and will ensure
against unauthorized access.
h. The equipment room/facilities will be locked at all times.
i. During non-working hours, the facility will be protected against
intrusion with an appropriate surveillance alarm extended to a
staffed monitoring center.
j. The Contractor will establish and maintain internal security
procedures and put safeguards in place to protect against
possible collusion between Contractor employees and providers or
others.
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Maximus Exhibit C
EXHIBIT C TURNOVER REQUIREMENTS
The objective of the turnover period is to ensure an orderly transfer of the
Health Care Options contract from the Contractor to the successor Contractor at
the end of the contract, or upon termination of the Contract. Turnover
activities will begin as early as six (6) months prior to the end of the
Contract. If the Department exercises its option to extend this Contract all
Turnover activities will be delayed for a commensurate period of time.
Given the uncertainties associated with the turnover period that will occur at
the end of this Contract, the Contractor will be flexible to changing
requirements.
A. Turnover Support Services
Turnover support services will begin 6 months prior to the end of the
contract period. The purpose of these services will be to assist the
Department in the Contract procurement process and provide support in the
transfer of records and operations .
All information provided by the Contractor will be accompanied by a letter,
signed by the responsible authority, attesting to the accuracy, currency
and completeness of the material(s) supplied.
Three months prior to the end of the Contract, the Contractor will provide
an updated and detailed description of the methodology that will be
utilized by the Contractor to ensure the complete review, certification,
and acceptance of all Contractor's documentation provided to the Department
for transfer to the successor Contractor.
The Contractor will supply any other information or data deemed necessary
by the Department to effect a smooth turnover to a successor Contractor.
B. Turnover Work Plan
The objective of the Turnover Work Plan is to identify requirements
necessary to complete the Contract expiration/termination process, transfer
the Health Care Options process from the current Contractor to the
successor Contractor at the end of this contract and describe in detail,
the Contractor's proposed activities for the duration of the Contract.
Turnover activities will begin 6 months prior to the end of the Contract.
If the Department exercises its option to extend this Contract, all
Turnover activities will be delayed for a commensurate period of time. The
Turnover Work Plan will
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include, but is not limited to the Contractor s turnover activities as
follows
l. Descriptions of the turnover activities identified as major tasks and
minor tasks to be performed during Turnover period.
2. A proposed schedule for the occurrence of all turnover tasks and
services to be performed.
3. Proposed schedules and staff allocations, by classification, for all
turnover activities, including narrative descriptions.
4. A detailed description of the procedures that will be utilized by the
Contractor to ensure an acceptable transfer of the Contractor's
records retention responsibilities to the successor Contractor.
5. A detailed description of the means by which the Contractor will
support the Department, during Turnover, with documentation, software,
and any other resources required to complete a test of the successor
Contractor's operation of the HCO program. This will include
descriptions of the tasks necessary to perform operational test runs.
6. A detailed description of the Contractor's activities during the
turnover including a schedule of reports, files, and data that will be
provided to the successor Contractor and a schedule demonstrating the
proposed sequential organization of the transfer(s).
The Department will review the Turnover Work Plan to determine if all
the Turnover requirements are adequately and appropriately detailed
and sufficiently covered, by the Contractor, prior to giving final
written Department approval to the Turnover Work Plan.
C. Turnover Preparation
The objective of the turnover preparation is to schedule activities to
ensure the Department's procurement and the successor Contractor's takeover
schedule will not in any way disrupt the Health Care Options contract
activities. Turnover preparation activities will begin 6 months prior to
the end of the Contract. During this turnover preparation period, the
Contractor will provide the Department with a schedule of hands-on training
for designated successor Contractor's staff on equipment and records being
turned over.
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D. Processing
The Contractor's obligations and liabilities will be as follows:
1. The Contractor will remain responsible for performing all contractual
obligations until the close of the contract or as requested by the
Department for phase-down period.
2. The Contractor will keep the beneficiary history file operative and
current until the expiration of the contract.
3. The Contractor will develop a report describing, at the lowest level
of detail understandable to the lay person, work in progress to be
transferred to the successor Contractor.
4. Additional Contractor responsibilities during turnover will include:
a. Maintain staffing consistent with workload during the turnover by
encouraging and/or providing incentives for staff retention.
b. In conjunction with the successor Contractor, hold job seminars
with the Contractor's employees to encourage employees to accept
employment with the successor Contractor, thereby enhancing the
continuity of Health Care Options.
E. Contract Closeout
Following the operations phase of the contract, the Contractor will perform
the following activities:
1. Transfer all records to the successor Contractor. This physical
transfer will be in an orderly and efficient manner, and in full
compliance with the security and confidentiality provisions of this
contract. The Contractor will transfer to the successor Contractor, in
covered boxes, all unprocessed documents along with transmittal sheets
indicating the contents of each box, the type(s) of document(s)
contained in each box, the exact status of each document, and the
remaining activities to be performed for each document. This transfer
will be accomplished with no disruption in services to users,
including but not necessarily limited to provision of records
retention services, during execution of the transfer. This transfer
will be completed in accordance with the Departments phase-down plan,
will be executed no later than the last day of the contract period,
and will include but not be limited
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to the following:
a. Enrollment forms
b. Disenrollment forms
c. Inquiries and correspondence
d. Appeals
e. Returned mail
f. Logs and correspondence for special review
g. All other related documents and records as identified by the
Department or the Contractor throughout contract closeout.
2. The Department may perform a final audit of all contract-related
documentation in preparation for Federal or State conducted audits of
the Contract.
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Maximus 96-26293
EXHIBIT D DEPARTMENT RESPONSIBILITIES
In discharging its obligations under the resulting contract, the Department will
perform the following duties:
A. Comply with provisions of the Request for Proposal and the Contractor's
approved Technical Proposal.
B. Make appropriate payments for work performed by the Contractor as specified
in the contract.
C. Designate the Department staff, also referred to as the Health Care Options
(HCO) contract manager, who will act as a single source liaison or contact
within the Department for all HCO related matters.
D. Provide and maintain liaison duties between the Contractor and the County
Welfare Departments.
E. Provide and maintain liaison duties between the Contractor and the Managed
Care Plans (MCP).
F. Provide the Contractor with a sufficient number of "Medi-Cal Choice"
booklets and enrollment forms.
G. Ensure each County Welfare Department's compliance in referrals of Medi-Cal
applicants and beneficiaries to the Contractors representatives.
H. Provide necessary access to the County Welfare Department's Medi-Cal
Eligibility Data System (MEDS).
I. Evaluate and approve or disapprove all training materials and training
courses the Contractor proposes to use to perform the implementation and
continuous training requirements for the Contractor's staff.
In the event the Department does not approve the training plan or
materials, the Department will direct the Contractor to make appropriate
modifications to make the material acceptable.
J. Notify the Contractor of the addition of new MCPs or termination of
existing plans.
K. Provide to the Contractor, a list of beneficiary categories to be exempted
from assignment to health care plans.
L. Provide to the Contractor written procedures for handling assignment and
appeals.
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Maximus 96-26293
M. Specify content and format for reports to be prepared by the Contractor
relative to assignment.
N. Provide to the Contractor data files (see Section 9.0), in a jointly
approved format, listing beneficiaries who have become eligible for
Medi-Cal in aid categories and areas in which Medi-Cal health care plans
are available.
O. Inform the Contractor of any changes in any health care plan listings of
available clinic/office/hospital locations and information regarding public
transportation to and from clinics/offices/hospitals, language capabilities
and any extra services offered by the health care plan as this information
becomes available.
P. Provide the Contractor with all the approved marketing materials developed
by he MCPs which may be provided to the applicant or beneficiary with the
enrollment packet or during the HCO presentation.
Q. Provide the Contractor with a detailed list of all primary CWD intake
offices where the Contractor will be required to maintain staff and the
addresses and County contacts for each primary location.
R. Provide the Contractor with complete and current information on program
content, regulations, policies, procedures, and guidelines affecting
performance under this contract.
S. Provide the Contractor with approved zip codes by MCP.
T. Provide printed materials to be distributed by the Contractor in
appropriate languages, as required by the Department.
U. Approve all audio, visual, and~printed materials developed by the
Contractor for distribution to the applicant or beneficiary, and used in
any presentation discussing the HCO program.
V. Approve the "Conflict of Interest Disclosure Statement" and the "Conflict
of Interest Avoidance Plan" developed by the Contractor.
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Maximus 96-26293
Department of Health Services EXHIBIT E
Contract Management Unit
SHORT-TERM TRAVEL REIMBURSEMENT INFORMATION
EFFECTIVE JULY 1, 1993
1. The following rate policy is to be applied for reimbursing the travel
expenses of persons under contract:
a. Short Term Travel is defined as a 24-hour period and less than 31
consecutive days. Starting time is ether one hour prior to takeoff
time or from the time a person leaves his or her home, whichever is
earlier.
b. Contractors on travel status for more than one 24-hour period and less
than 31 consecutive days may claim a tractional pan of a period of
more than 24 hours. Consult the chart appearing on page 2 of this
bulletin to determine the reimbursement allowance.
(1) Lodging: Statewide Rate (no receipts) $24.99
Statewide Rate (with receipts) Actual costs
up to $79.00 plus tax.
Reimbursement for actual lodging expenses exceeding the above
amounts may be allowed with the advance written approval of the
Deputy Director of the Department of Health Services or his or
her designee. Receipts are required.
(2) Meals/Supplemental Expenses (with or
without.receipts):
Breakfast $5.50 Dinner $17.00
Lunch 9.50 Incidentals 5.00
c. Out-of-state travel may only be reimbursed if such travel has been
stipulated in the contract and has been approved in advance by the
program with which the contract is held. For out-of-state travel,
contractors may be reimbursed actual lodging expenses, supported by a
receipt and may be reimbursed for meals and supplemental expenses each
24-hour period computed at the rates listed in b(2) above.
d. In computing allowances for continuous periods of travel of less than
24 hours, consult the chart appearing on page 2 of this bulletin.
e. No meal or lodging expenses will be reimbursed for any period of
travel that occurs within normal working hours.
2. If any of the reimbursement rates stated herein change by law, an amendment
to the contract must be entered into to incorporate the new rates. The
effective date of any new rates will be determined by the effective date of
the contract amendment.
3. For transportation expenses, the contractor must retain receipts for
parking; taxi, airline, bus, or rail tickets; car rental; or any other
travel receipts pertaining to each trip for attachment to an invoice as
substantiation for reimbursement. Reimbursement may be requested for
commercial carrier fares; private car mileage; parking fees; bridge tolls;
taxi, bus, or streetcar fares; and auto rental fees when substantiated by a
receipt.
4. Note on Use of Autos: if a Contractor uses his or her car for
transportation, the rate of pay will be 24 cents per mile. If, however, the
contractor Claims that his or her actual cost is over 24 cents per mile,
the contractor may Claim up to 30 cents per mile provided the Contractor
types on an invoice and Certifies the following: "I certify that the actual
cost of operating my vehicle was equal to or greater than the rate I have
claimed." If a contractor uses his or her car in lieu of air fare, the air
coach fare will be the maximum paid by the state. The contractor must
provide a cost comparison upon request by the state. Gasoline and routine
automobile repair expenses are not reimbursable. Amounts Claimed in excess
of 24 cents per mile may be reported to the Internal Revenue Service.
5. The contractor may be required to furnish details surrounding each period
of travel. Travel detail may include but not be limited to: departure and
return times, destination points, miles driven, mode of transportation etc.
6. Contractors are to consult with the program with which the contract is held
to obtain specific invoicing procedures.
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<TABLE>
SHORT-TERM TRAVEL REIMBURSEMENT GUIDE
<CAPTION>
=============================================================================================================
IF LENGTH OF TRAVEL IS IF THIS CONDITION EXISTS CONTRACTOR MAY CLAIM
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than 24 hours Travel period began at Breakfast
least one hour before
the regularly scheduled
work day began.
Example: A contractor may claim breakfast if,
during a period of travel, he or she begins their
travel at 7:00 a.m. or earlier and their normal
working day was scheduled to begin at 8:00 a.m.
Less than 24 hours ----------------------- No lunch
Less than 24 hours Travel period ends at Dinner
least one hour after the
regularly scheduled work
day ends.
- -------------------------------------------------------------------------------------------------------------
24 hours A contractor is on Breakfast, lunch, and
travel status for a full dinner
24-hour period
(determined begin and
end times).
- -------------------------------------------------------------------------------------------------------------
Last fractional part of Return at or after 9:00 Breakfast
more than 24 hours a.m.
Example: If a contractor returns the last day of a
trip of more than 24 hours at or after 9:00 a.m.,
a breakfast allowance may be claimed.
Last fractional part of Return at or after 2:00 Lunch
more than 24 hours p.m.
Example: If a contractor returns the last day of a
trip of more than 24 hours at or after 2:00 p.m.,
a lunch allowance may be claimed.
Last fractional part of Return at or after 2:00 Dinner
more than 24 hours p.m.
Example: If a contractor returns the last day of a
trip of more than 24 hours at or after 7:00 p.m.,
a dinner allowance may be claimed.
=============================================================================================================
</TABLE>
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 7,
1997, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-21611)
and related Prospectus of MAXIMUS, Inc. for the registration of 4,400,000 shares
of its common stock.
/s/ ERNST & YOUNG LLP
Washington, DC
March 27, 1997