<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-4
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 No.)
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)
with copies to:
Lynnette C. Fallon, Esq.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective
and all other conditions to the merger described in the enclosed Prospectus and
Proxy Statement have been satisfied or waived.
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
Common Stock, No par value.... 1,166,179 $29.3125(2) $34,183,621(2) $10,084(2)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the Registrant's estimate of the maximum number of shares that
may be issued in the Merger described herein.
(2) The Registrant has calculated the registration fee, in accordance with Rule
457(c) under the Securities Act of 1933, as amended and based on the average
of the high and low prices of the Registrant's Common Stock on April 2, 1998
as reported on the New York Stock Exchange.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
DAVID M. GRIFFITH & ASSOCIATES, LTD.
630 DUNDEE ROAD, SUITE 200
NORTHBROOK, ILLINOIS 60062
(847) 564-9270
, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
David M. Griffith & Associates, Ltd. ("Griffith") to be held at on
, 1998.
The principal purposes of the Special Meeting will be to vote on approving
the proposed acquisition of Griffith by MAXIMUS, Inc. ("MAXIMUS"), in which
Griffith shareholders will receive 5.198 shares of MAXIMUS Common Stock in
exchange for each of their shares of Griffith Common Stock and Griffith will
become a wholly-owned subsidiary of MAXIMUS.
The Board of Directors believes that this acquisition is in the best
interests of the shareholders of Griffith and has unanimously approved the
acquisition. Information about MAXIMUS and details of the proposed acquisition
are included in the attached Prospectus/Proxy Statement. I urge you to read
these materials carefully.
We appreciate the loyalty and support our shareholders have demonstrated
over the years. We hope that you will continue this support by voting FOR the
acquisition proposal now. Approval of the acquisition requires the affirmative
vote of two-thirds of the outstanding shares of Griffith Common Stock.
Therefore, regardless of the number of shares you may own, it is important that
your shares be represented at the meeting. Accordingly, please promptly sign and
return your proxy in the envelope provided, whether or not you plan to attend
the meeting. It is a precondition to the acquisition that all obligations of
Griffith to repurchase or redeem outstanding shares of Griffith be terminated.
Accordingly, please also promptly sign and return the attached Waiver in the
envelope provided if you agree to the termination of any such repurchase and
redemption rights in the event of the acquisition of Griffith by MAXIMUS.
Sincerely,
Louis E. Chappuie
Chairman and President
<PAGE> 3
DAVID M. GRIFFITH & ASSOCIATES, LTD.
630 DUNDEE ROAD, SUITE 200
NORTHBROOK, ILLINOIS 60062
(847) 564-9270
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
------------------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of David M.
Griffith & Associates, Ltd. ("Griffith") will be held on , 1998, at
for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement") dated as of March 9, 1998 among Griffith, MAXIMUS, Inc.
("MAXIMUS") and MAXIMUS Acquisition Corp. ("Merger Sub"), a
wholly-owned subsidiary of MAXIMUS, and the merger and share exchange
contemplated by the Merger Agreement, pursuant to which Merger Sub
will be merged with and into Griffith. Each share of the common stock
of Griffith outstanding at the effective time of the Merger will be
converted into the right to receive a number of shares of MAXIMUS
common stock as provided in the Merger Agreement. A copy of the Merger
Agreement is attached as Appendix A to the accompanying Prospectus and
Proxy Statement; and
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shareholders at the close of business on the date of this notice (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting
and any adjournment or postponement of the Special Meeting.
In connection with the proposed merger and share exchange, appraisal rights
based on the value of Griffith shares immediately prior to the Merger will be
available to those shareholders of Griffith who do not vote in favor of the
Merger Agreement and who comply with the requirements of Sections 11.65 and
11.70 of the Illinois Business Corporation Act (the "IBCA"), the text of which
are attached as Appendix B to the accompanying Prospectus/Proxy Statement.
Reference is made to text of the IBCA, and to the section in the attached
Prospectus/Proxy Statement entitled "The Merger -- Griffith Shareholder
Appraisal Rights" for a discussion of the procedures to be followed in asserting
appraisal rights under Sections 11.65 and 11.70 of the IBCA in connection with
the proposed merger and share exchange.
By Order of the Board of Directors,
Jerrold Wolf
Secretary
Northbrook, Illinois
, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
PRELIMINARY PROSPECTUS AND PROXY STATEMENT DATED APRIL 2, 1998
-- SUBJECT TO COMPLETION --
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 LAW OF ANY SUCH STATE.
<TABLE>
<S> <C>
MAXIMUS, INC. DAVID M. GRIFFITH & ASSOCIATES, LTD.
1356 BEVERLY ROAD 630 DUNDEE ROAD
MCLEAN, VIRGINIA 22101 NORTHBROOK, ILLINOIS 60062
(703) 734-4200 (847) 564-9270
PROSPECTUS PROXY STATEMENT
COMMON STOCK, NO PAR VALUE FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
</TABLE>
This Prospectus and Proxy Statement (the "Prospectus/Proxy Statement") is
being furnished to holders of Common Stock, $0.01 par value ("Griffith Common
Stock"), of David M. Griffith & Associates, Ltd., an Illinois corporation
("Griffith"), in connection with the solicitation of proxies by the Board of
Directors of Griffith to be used at the Special Meeting of Shareholders of
Griffith (the "Griffith Special Meeting") to be held on and any
adjournments or postponements thereof.
The principal item on the agenda at the Griffith Special Meeting will be to
vote on approving the proposed acquisition of Griffith by MAXIMUS, Inc., a
Virginia corporation ("MAXIMUS"), in which Griffith shareholders will have the
right to receive that number of shares of the common stock, no par value, of
MAXIMUS ("MAXIMUS Common Stock") for each share of Griffith Common Stock they
hold when the acquisition is completed as is provided in an Agreement and Plan
of Merger dated as of March 9, 1998 (the "Merger Agreement").
The acquisition will take place on the terms of the Merger Agreement among
Griffith, MAXIMUS and MAXIMUS Acquisition Corp. ("Merger Sub") under which
Merger Sub, a wholly-owned subsidiary of MAXIMUS, will be merged with and into
Griffith (the "Merger") and Griffith will become a wholly-owned subsidiary of
MAXIMUS. (The Merger Agreement is attached as Appendix A to this
Prospectus/Proxy Statement and is incorporated herein by reference.)
All outstanding shares of the Griffith Common Stock will be converted into
shares of MAXIMUS Common Stock as provided in the Merger Agreement and described
herein. See "The Merger -- Conversion of Griffith Common Stock." 1,166,179
shares of MAXIMUS Common Stock (the "Merger Consideration") will be issued in
the Merger. Five percent of the number of shares comprising the Merger
Consideration shall be deposited with an escrow agent reasonably satisfactory to
each party to the Merger Agreement and shall be subject to reduction to satisfy
certain claims to which MAXIMUS is entitled to be indemnified under the Merger
Agreement. No shares owned by the David M. Griffith & Associates, Ltd. Employee
Stock Ownership Plan (the "ESOP") will be deposited with the escrow agent.
Assuming (a) there are no claims to which MAXIMUS is entitled to be indemnified
under the Merger Agreement and (b) that the number of shares of Griffith Common
Stock outstanding on the effective date of the Merger is the same as the number
of such shares outstanding as of the Record Date, each share of Griffith Common
Stock would be converted into approximately 5.198 shares of MAXIMUS Common
Stock.
On the Record Date, Griffith had outstanding 224,339 shares of Common Stock
entitled to vote at the Special Meeting. Each share of Griffith Common Stock
entitled to vote at the Special Meeting is entitled to one vote for each matter
submitted to a vote at the Special Meeting. A majority in interest of the
outstanding Griffith Common Stock, represented at the Griffith Special Meeting
in person or by proxy, constitutes a quorum for the transaction of business. The
affirmative vote of two-thirds of the outstanding shares of Griffith Common
Stock entitled to vote thereon is required to adopt the Merger Agreement.
Abstentions will be counted for purposes of determining a quorum, but will have
the effect of a vote against adoption of the Merger Agreement.
MAXIMUS has filed a registration statement on Form S-4 (including the
exhibits and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of MAXIMUS Common Stock issuable in accordance with the Merger Agreement in
exchange for Griffith Common Stock. This Prospectus/Proxy Statement also
constitutes the prospectus of MAXIMUS covering such shares of MAXIMUS Common
Stock.
See "RISK FACTORS" beginning on page 8 for certain information that should
be considered by Griffith shareholders.
------------------------
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/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus/Proxy Statement is , 1998 and it is
first being mailed to Griffith shareholders on or about April , 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 1
SUMMARY..................................................... 2
RISK FACTORS................................................ 8
SELECTED FINANCIAL DATA..................................... 16
Summary Historical and Unaudited Pro Forma Financial
Data................................................... 16
Comparative Per Share Data................................ 20
Market Price Information.................................. 22
GRIFFITH SPECIAL MEETING.................................... 23
Matters to be Considered at the Meeting................... 23
Record Date; Outstanding Securities....................... 23
Required Votes; Voting of Proxies......................... 23
Information for ESOP Participants......................... 24
Participants Eligible to Instruct the ESOP Trustee........ 24
Effect of Participants' Instructions...................... 24
The Trustee's Fiduciary Obligations....................... 24
How to Instruct the Trustee............................... 25
Failure to Sign, Complete or Return a Voting Instruction
Form................................................... 25
Confidentiality........................................... 26
Dissenting Shares......................................... 26
BUSINESS OF MAXIMUS, INC.................................... 27
MAXIMUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 36
Overview.................................................. 36
Results of Operations..................................... 37
Liquidity and Capital Resources........................... 40
Year 2000................................................. 41
Forward Looking Statements................................ 42
BUSINESS OF DAVID M. GRIFFITH & ASSOCIATES, LTD............. 43
Services.................................................. 43
Marketing and Sales....................................... 43
Proprietary Information................................... 43
Human Resources and Facilities............................ 43
Future Business........................................... 43
Legal Proceedings......................................... 44
GRIFFITH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 45
Overview.................................................. 45
Results of Operations..................................... 45
Liquidity and Capital Resources........................... 46
Provision for Income Taxes................................ 46
MANAGEMENT.................................................. 47
Executive Officers and Directors.......................... 47
Certain Relationships and Related Transactions............ 50
Director Compensation..................................... 50
Executive Compensation.................................... 51
Executive Employment Agreements........................... 53
BACKGROUND AND REASONS FOR THE MERGER....................... 55
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Background of the Merger.................................. 55
MAXIMUS's Reasons for the Merger.......................... 55
Griffith's Reasons for the Merger; Recommendation of
the Board of Directors................................. 55
THE MERGER.................................................. 56
General................................................... 56
Conversion of Griffith Common Stock....................... 56
Surrender of Certificates................................. 56
Merger and Effective Time................................. 57
Conditions of Merger...................................... 57
Regulatory Approvals Required............................. 58
Waiver and Amendment...................................... 59
Termination............................................... 59
Termination Fees.......................................... 59
No Solicitation........................................... 59
Shareholder Voting Agreement.............................. 60
Affiliate Letters; Resales of MAXIMUS Common Stock........ 60
Interests of Certain Persons in the Merger................ 60
Certain Federal Income Tax Consequences................... 61
Accounting Treatment...................................... 61
Conduct of Griffith's Business Pending the Merger......... 62
Expenses.................................................. 62
Griffith Shareholder Appraisal Rights..................... 62
ESOP Appraisal Rights..................................... 63
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION....................................... 64
MAXIMUS STOCK OWNERSHIP..................................... 70
GRIFFITH STOCK OWNERSHIP.................................... 71
SHARES ELIGIBLE FOR FUTURE SALE............................. 72
DESCRIPTION OF MAXIMUS CAPITAL STOCK........................ 74
Common Stock.............................................. 74
Limitation of Liability................................... 74
Anti-Takeover Provisions of the Articles of Incorporation
and By-Laws............................................ 74
Anti-Takeover Provisions of Virginia Law.................. 75
Transfer Agent............................................ 75
COMPARISON OF RIGHTS OF HOLDERS OF MAXIMUS AND GRIFFITH
COMMON STOCK................................................ 76
Meetings of Shareholders.................................. 76
Inspection Rights......................................... 76
Action by Consent of Shareholders......................... 76
Cumulative Voting......................................... 76
Issuance of Stock; Preferred Stock........................ 76
Dividends and Repurchases of Stock........................ 77
Classification of the Board of Directors.................. 77
Removal of Directors...................................... 77
Vacancies on the Board of Directors....................... 77
Exculpation of Directors.................................. 78
Indemnification of Directors, Officers and Others......... 78
Interested Director Transactions.......................... 78
Sale, Lease or Exchange of Assets and Mergers............. 79
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Amendments to Charter..................................... 79
Appraisal Rights.......................................... 79
"Anti-Takeover" Provisions................................ 79
LEGAL MATTERS............................................... 80
EXPERTS.....................................................
OTHER MATTERS...............................................
INDEX TO FINANCIAL STATEMENTS OF MAXIMUS AND GRIFFITH....... F-1
CONSOLIDATED FINANCIAL STATEMENTS OF MAXIMUS................
CONSOLIDATED FINANCIAL STATEMENTS OF GRIFFITH...............
APPENDIX A -- MERGER AGREEMENT.............................. A-1
APPENDIX B -- THE TEXT OF SECTIONS 11.65 AND 11.70 OF THE
ILLINOIS BUSINESS CORPORATION ACT........................... B-1
APPENDIX C -- OPINION OF WILLAMETTE MANAGEMENT ASSOCIATES,
INC. TO THE TRUSTEE OF THE GRIFFITH EMPLOYEE STOCK OWNERSHIP
PLAN........................................................ C-1
</TABLE>
iii
<PAGE> 8
AVAILABLE INFORMATION
MAXIMUS is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements filed pursuant to Sections 14(a) and 14(c) of the
Exchange Act and other information filed with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Midwest Regional Office,
500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, MAXIMUS is required
to file electronic versions of such material with the Commission through the
commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. MAXIMUS
Common Stock is listed on the New York Stock Exchange. Reports and other
information concerning MAXIMUS can be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus/Proxy Statement does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus/Proxy Statement as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits filed or
incorporated by reference as a part thereof, are available for inspection and
copying at the Commission's offices as described above. All information herein
with respect to MAXIMUS has been furnished by MAXIMUS and all information with
respect to Griffith has been furnished by Griffith.
No person is authorized to give any information or make any representation
not contained in this Prospectus/Proxy Statement, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Prospectus/Proxy Statement does not constitute an offer to sell
or a solicitation of an offer to buy the securities offered by this
Prospectus/Proxy Statement or a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the delivery of this
Prospectus/Proxy Statement nor any distribution of the securities offered
pursuant to this Prospectus/Proxy Statement shall create an implication that
there has been no change in the affairs of MAXIMUS or Griffith since the date of
this Prospectus/Proxy Statement or that the information in this Prospectus/Proxy
Statement or in the documents incorporated herein by reference is correct as of
any time after the dates hereof or thereof.
1
<PAGE> 9
- --------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Prospectus/Proxy Statement,
including the appendices hereto. You are urged to read this Prospectus/Proxy
Statement, the Merger Agreement, which is attached hereto as Appendix A and
incorporated herein by reference, and the other appendices attached hereto in
their entirety. Cross-references in this summary are to captions in this
Prospectus/Proxy Statement. Certain capitalized terms used in this summary are
defined in this Prospectus/Proxy Statement.
Certain of the information contained in this Prospectus/Proxy Statement may
constitute forward-looking statements, including statements as to the benefits
and synergies expected to be realized as a result of the Merger and as to future
financial performance and the analyses used by the financial advisors to
Griffith. See "Background and Reasons for the Merger -- MAXIMUS's Reasons for
the Merger; "-- Griffith's Reasons for the Merger; Recommendation of the Board
of Directors." There are a number of important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements. Such factors include but are not limited to those set forth in this
Prospectus/Proxy Statement under the heading "Risk Factors."
THE COMPANIES
MAXIMUS, INC.
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. MAXIMUS believes that
it has been at the forefront of innovation in "Helping Government Serve the
People(TM)" since its inception in 1975. MAXIMUS's services are designed to make
government operations more efficient and cost effective while improving the
quality of the services provided to program beneficiaries. MAXIMUS applies an
entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. MAXIMUS believes that
its 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 $19 million in fiscal 1990 to $128
million in fiscal 1997.
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.
MAXIMUS's executive offices are located at 1356 Beverly Road, McLean,
Virginia 22101. Its telephone number is (703) 734-4200.
DAVID M. GRIFFITH & ASSOCIATES, LTD.
David M. Griffith & Associates, Ltd. is an Illinois corporation. Griffith
was incorporated on December 30, 1976. The Company provides consulting services,
primarily for state and local governments, throughout the United States and
Puerto Rico.
Griffith's services include cost allocation, executive search, revenue
maximization, health and human services management, human resources consulting,
fleet management, housing and environmental consulting, child support
collections, organizational and productivity studies, university research rate
negotiation, disaster management, franchise fee and information system studies.
As of December 31, 1997, full-time Griffith employees included 34 officers,
204 consultants and 51 administrative personnel. Griffith also employed
part-time employees in consultant or administrative
- --------------------------------------------------------------------------------
2
<PAGE> 10
- --------------------------------------------------------------------------------
capacities. All officers and consultants have employment agreements with
Griffith. No employees are covered by a collective bargaining agreement.
Griffith's principal executive offices are located at 630 Dundee Road,
Suite 200, Northbrook, Illinois 60062. Its telephone number is (847) 564-9270.
GRIFFITH SPECIAL MEETING
THE MEETING
The Griffith Special Meeting will be held on , 1998, at
. At the Griffith Special Meeting, the shareholders of Griffith
will be asked to approve and adopt the Merger Agreement. Holders of shares of
record of Griffith Common Stock at the close of business on are
entitled to notice of and to vote at the Griffith Special Meeting. At such date,
224,339 shares of Griffith Common Stock were outstanding, each of which will be
entitled to one vote.
REQUIRED VOTES
The affirmative vote of the holders of two-thirds of the shares of Griffith
Common Stock outstanding as of the record date and entitled to vote is required
to approve and adopt the Merger Agreement, which is a condition to the
consummation of the Merger. MAXIMUS and its directors and executive officers do
not own any shares of Griffith Common Stock. See "Griffith Special Meeting --
Required Votes; Voting of Proxies."
THE MERGER
TERMS OF THE MERGER
MAXIMUS's acquisition of Griffith will be structured as a merger of Merger
Sub into Griffith. Following the Merger, Griffith will be the surviving
corporation and will operate as a wholly-owned subsidiary of MAXIMUS. 1,166,179
shares of MAXIMUS Common Stock will be issued in the Merger (assuming no
dissenting shareholders). At the time the Merger becomes effective (the
"Effective Time"), assuming 224,339 shares of Griffith Common Stock are
outstanding, each issued and outstanding share of Griffith Common Stock will be
converted into the right to receive 5.198 shares of MAXIMUS Common Stock
together with cash in lieu of any fractional share otherwise issuable, based on
the value of $25.25 per share. The number of shares of MAXIMUS Common Stock
issued in the Merger divided by the number of shares of Griffith Common Stock
outstanding at the Effective Time is referred to herein as the "Conversion
Factor." See "The Merger -- General;" "-- Conversion of Griffith Common Stock."
Five percent (5%) of the MAXIMUS Common Stock to be issued in connection
with the Merger shall be held in escrow (the "Escrow") to satisfy any indemnity
obligations of the shareholders of Griffith (other than the Griffith Employee
Stock Ownership Plan, which has no indemnity obligations). The time period for
the Escrow shall be the lesser of one year after consummation of the Merger or
until the first audit following the consummation of the Merger is completed, and
MAXIMUS's recourse for any breach of a representation or warranty by Griffith
under the Merger Agreement is limited to the Escrow.
The Merger will become effective after the conditions specified in the
Merger Agreement have been met. MAXIMUS and Griffith expect the Merger to be
completed as soon as possible after the Griffith Special Meeting. See "The
Merger -- Merger and Effective Time," "-- Conditions of Merger."
RECOMMENDATION OF THE GRIFFITH BOARD OF DIRECTORS
The Griffith Board of Directors has unanimously approved the Merger
Agreement and determined that the Merger is fair and in the best interests of
Griffith and its shareholders. THE GRIFFITH BOARD OF DIRECTORS RECOMMENDS THAT
GRIFFITH SHAREHOLDERS VOTE TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE
MERGER. For a discussion of the factors considered by the Griffith Board of
Directors in reaching its decision to approve the Merger Agreement and
- --------------------------------------------------------------------------------
3
<PAGE> 11
- --------------------------------------------------------------------------------
the Merger, see "Background and Reasons for the Merger -- Griffith's Reasons for
the Merger; Recommendation of the Board of Directors."
MAXIMUS'S REASONS FOR THE MERGER
The Board of Directors of MAXIMUS (the "MAXIMUS Board") has determined that
the Merger Agreement and the transactions contemplated thereby are in the best
interests of MAXIMUS and, therefore, has unanimously approved the Merger
Agreement. In making this determination, the MAXIMUS Board and management
reviewed information about Griffith available to it from Griffith's management
and other sources and assessed Griffith's financial condition. After considering
this information, the MAXIMUS Board concluded that the anticipated business
advantages of the Merger favored adoption of the Merger Agreement and
consummation of the Merger. See "Background and Reasons for the Merger --
MAXIMUS's Reasons for the Merger."
CONDITIONS TO THE MERGER
The obligations of MAXIMUS and Griffith to consummate the Merger are
subject to the satisfaction of certain conditions, including but not limited to
obtaining the approval of Griffith shareholders, obtaining requisite regulatory
clearance (including under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Hart-Scott-Rodino Act")), the continuing accuracy as of
the Effective Time of the representations and warranties made by MAXIMUS and
Griffith in the Merger Agreement, limitations on the exercise of dissenters'
appraisal rights and the receipt of accountants' letters concurring with the
conclusions of management of MAXIMUS as to the appropriateness of pooling of
interests accounting for the Merger. Each party has the right to waive certain
of the closing conditions referred to above. The regulatory clearance required
under the Hart-Scott-Rodino Act was obtained on February 21, 1998 by virtue of
the expiration of the applicable waiting period. See "The Merger -- Accounting
Treatment," "-- Certain Federal Income Tax Consequences," "-- Regulatory
Approvals Required" and "-- Conditions of Merger."
CONDUCT OF GRIFFITH'S BUSINESS PENDING THE MERGER
Griffith has made certain covenants and agreements in the Merger Agreement
relating to, among other things, the conduct of its business pending the
consummation of the Merger, including actions taken by Griffith in relation to
issuing shares of stock, employment and compensation, payment of dividends on
Griffith Common Stock, acquisition transactions and other matters. See "The
Merger -- Conduct of Griffith's Business Pending the Merger."
NO SOLICITATION
Griffith has agreed that, from the date of the Merger Agreement through the
Effective Time, neither Griffith or any of its subsidiaries or any of their
respective directors, officers, advisors or other representatives may, directly
or indirectly, without the prior written consent of MAXIMUS, solicit or
encourage the solicitation from, or engage in negotiations with, any third party
concerning any proposal regarding a merger, consolidation or sale of substantial
assets or other similar transaction involving Griffith or any of its
subsidiaries; provided, however, that Griffith may, prior to the approval of the
Merger Agreement by the shareholders of Griffith, to the extent the Griffith
Board of Directors determines that the Board's fiduciary duties require it to do
so but subject to the conditions in the Merger Agreement, participate in
discussions or negotiations with, furnish information to, and consummate a
transaction with, any person, entity or group that has delivered a superior
proposal to Griffith. See "The Merger -- No Solicitation" and "-- Termination
Fees."
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
MAXIMUS and Griffith, at the option of either MAXIMUS or Griffith if the Merger
is not consummated by June 1, 1998 (although such date may be extended by mutual
consent of the parties) or upon the occurrence of certain events,
- --------------------------------------------------------------------------------
4
<PAGE> 12
including if the Merger Agreement is not approved by Griffith's shareholders.
See "The Merger -- Termination."
TERMINATION FEES
In the event the Merger Agreement is terminated by MAXIMUS because of a
breach of Griffith's agreement not to solicit other proposals, Griffith will be
required to pay MAXIMUS a termination fee of $100,000. In the event MAXIMUS
terminates the Merger Agreement for a reason other than Griffith's failure to
satisfy a closing condition, MAXIMUS shall pay Griffith $500,000. See "The
Merger -- Termination" and "-- Termination Fees."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986 (the "Code") in which no
gain or loss will be recognized by Griffith, MAXIMUS or Merger Sub and no gain
or loss will be recognized by Griffith shareholders, except in respect of cash
received in lieu of fractional shares. No ruling has been or will be requested
from the Internal Revenue Service with request to any tax matters. With respect
to the foregoing, as well as the consequences if the Merger does not constitute
a reorganization within the meaning of the Code, see "The Merger -- Certain
Federal Income Tax Consequences."
Because certain tax consequences of the Merger may vary depending upon the
particular circumstances of each Griffith shareholder, each shareholder should
consult his or her own tax advisor as to the federal (and any state, local or
foreign) tax consequences of the Merger on his or her particular circumstances.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. The Merger Agreement requires that each of
MAXIMUS and Griffith shall have received letters, dated as of the consummation
of the Merger, from Ernst & Young LLP and Grant Thornton LLP regarding those
firms concurrence with MAXIMUS management's conclusion, as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if the Merger is closed and
consummated in accordance with the Merger Agreement. Under this method of
accounting, the historical recorded assets and liabilities of MAXIMUS and
Griffith will be carried forward to the combined company at their recorded
amounts, the operating results of the combined company will include the
operating results of MAXIMUS and Griffith for the entire fiscal year in which
the combination occurs and the historical reported operating results of the
separate companies for prior periods will be combined and restated as the
operating results of the combined company. See "The Merger -- Accounting
Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors and management of Griffith have
certain interests in the Merger that are in addition to the interests of
shareholders of Griffith generally. Among other things, Griffith has entered
into agreements with each of its executive officers, as well as certain other
members of management, that provide certain benefits in the event of the
termination of such officer's employment following a change in control of
Griffith. The Merger will constitute a change in control of Griffith within the
meaning of the executive compensation agreements. See "The Merger -- Interests
of Certain Persons in the Merger." The Board of Directors of Griffith was aware
of these interests and considered them, among other matters, in approving and
adopting the Merger Agreement and the transactions contemplated thereby. Certain
agreements of shareholders of Griffith with Griffith provide for redemption of
such shareholder's Griffith stock, in the event of death of such shareholder or
termination of such shareholder's employment. Termination of such redemption
rights is a condition of the acquisition.
At the Closing of the Merger, Louis E. Chappuie, the President and Chief
Executive Officer of Griffith will enter into an Employment, Non-Compete and
Confidentiality Agreement with MAXIMUS under which
5
<PAGE> 13
he will serve as an executive officer of MAXIMUS following the Merger (the
"Chappuie Agreement"). See "The Merger -- Interests of Certain Persons in the
Merger."
Pursuant to the Merger Agreement, as part of the Chappuie Agreement,
controlling shareholders of MAXIMUS will agree to vote shares of MAXIMUS Common
Stock held by them in favor of the election of Louis Chappuie to the Board of
Directors of MAXIMUS for a period of two years following the Closing.
APPRAISAL RIGHTS
Under Illinois law, holders of Griffith Common Stock who deliver to
Griffith a written demand for payment before the taking of the vote, and do not
vote to adopt the Merger Agreement, may elect to have the "fair value" of their
shares (determined in accordance with Illinois Law) judicially appraised and
paid to them if the Merger is consummated and if they comply with Sections 11.65
and 11.70 of the IBCA, the text of which are attached hereto as Appendix B. See
"The Merger -- Griffith Shareholder Appraisal Rights."
COMPARATIVE RIGHTS OF HOLDERS OF GRIFFITH AND MAXIMUS COMMON STOCK
Upon consummation of the Merger, holders of Griffith Common Stock will
become shareholders of MAXIMUS. The internal affairs of MAXIMUS are governed by
the Virginia Stock Corporation Act and MAXIMUS's Amended and Restated Articles
of Incorporation and Amended and Restated By-laws. There are certain differences
in the rights of holders of Griffith and MAXIMUS Common Stock. See "Description
of MAXIMUS Capital Stock" and "Comparison of Rights of Holders of MAXIMUS and
Griffith Common Stock."
THE ESOP
The ESOP was established effective as of January 1, 1992 for the benefit of
the Griffith employees to enable such employees to share in the growth and
prosperity of Griffith. The original ESOP trustee was an individual trustee
which was later replaced by an institutional trustee, Cole Taylor Bank.
ESOP TRUSTEE
Cole Taylor Bank became the independent trustee of the ESOP on August 25,
1993 (the "Trustee"). For its services to the ESOP in connection with this
transaction, the Trustee will receive a fee of $22,000 plus its hourly rate, and
will be reimbursed for its reasonable out-of-pocket expenses, including the fees
of its counsel. The fee and expenses of the Trustee are payable by Griffith and
are not contingent upon the closing of the Merger. Griffith has agreed to
indemnify the Trustee against certain liabilities. The Trustee has retained
independent counsel, which is different than legal counsel representing MAXIMUS
or Griffith in connection with the Merger, to advise it of its duties and
responsibilities under applicable laws.
ESOP FAIRNESS OPINION
The Trustee will receive an opinion from the independent appraiser to the
ESOP, Willamette Management Associates, Inc. ("WMA") as to whether the
consideration to be received by the ESOP in the Merger is not less than the fair
market value of the Griffith Common Stock currently held by the ESOP and that
the Merger is fair to the ESOP from a financial point of view. It is anticipated
that WMA will render such an opinion to the Trustee. WMA is one of the leading
independent valuation firms in the country. A copy of the form of opinion, which
includes the assumptions to be made and the matters to be considered by WMA is
attached hereto as Appendix C and should be read in its entirety by ESOP
participants. It is not expected that the opinion of WMA will be delivered until
immediately prior to the Griffith Special Meeting. As set forth therein, WMA
will rely, without independent investigation, on the accuracy and completeness
of the information contained in this Prospectus/Proxy Statement and other
information furnished to it by Griffith. The Trustee selected WMA on the basis
of its ability to evaluate the fairness of the financial terms of the proposed
Merger. The Trustee considered, among other factors, its qualifications and
previous experience with the ESOP and its reputation in the banking and
investment communities. No limitations were placed on the scope of the firm's
investigations.
6
<PAGE> 14
Griffith has agreed to pay WMA a fee for its services related to this
transaction, will reimburse WMA for its reasonable out-of-pocket expenses and
will indemnify WMA against certain liabilities in connection with the fairness
opinion. The fee payable to WMA is not contingent upon the consummation of the
Merger.
The fees and expenses of the Trustee, its counsel and WMA will be paid by
Griffith not later than the Merger Date.
The following table sets forth, at the valuation date indicated, the
valuation per share of Griffith Common Stock as determined by an independent
valuation:
<TABLE>
<CAPTION>
VALUATION PER SHARE OF
VALUATION DATE GRIFFITH COMMON STOCK
-------------- ----------------------
<S> <C>
May 15, 1997........................ $64.70
May 17, 1996........................ $64.50
May 9, 1995......................... $46.60
May 16, 1994........................ $37.22
October 22, 1993.................... $32.46
</TABLE>
EFFECT OF THE MERGER ON ESOP PARTICIPANTS
Griffith will amend the ESOP to cease all benefit accruals thereunder prior
to the Effective Time. As soon as reasonably practicable after the Effective
Time, the ESOP will be terminated and its assets distributed to the ESOP
participants. Each ESOP participant will receive shares of MAXIMUS Common Stock
in place of the Griffith Common Stock currently held in their accounts equal to
the Merger Consideration as described in the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of MAXIMUS Common Stock to the accounts of participants in the
ESOP will not be a taxable transaction. ESOP participants should consult their
own tax advisers to consider the effects of any distribution (which will
generally be taxable to the participant) from the ESOP following the Merger.
The foregoing briefly summarizes certain federal income tax consequences of
the proposed Merger and does not purport to be complete. ESOP participants who
receive a distribution are urged to consult their own tax advisers to consider
the particular tax consequences of the Merger to them.
7
<PAGE> 15
RISK FACTORS
The following risk factors, in addition to other information contained or
incorporated by reference in this Prospectus/Proxy Statement, should be
considered by the holders of Griffith Common Stock in evaluating whether to
approve and adopt the Merger Agreement and thereby become holders of MAXIMUS
Common Stock.
RISKS RELATING TO THE MERGER
Combination of Businesses. The Merger involves the combination of certain
aspects of two companies that have operated independently. There can be no
assurance that such combination will be successful or that the benefits expected
from the combination will be realized. Furthermore, there can be no assurance
that the operations, managements and personnel of the two companies will be
compatible and that the surviving corporation will not experience loss of key
personnel.
RISKS RELATING TO MAXIMUS AND THE SURVIVING CORPORATION
Reliance on Government Clients. Substantially all of MAXIMUS's clients are
federal, state or local government authorities. Effective marketing of MAXIMUS's
services to government clients requires the ability to respond to government
requests for proposals ("RFPs"). To succeed in the RFP process, MAXIMUS 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. MAXIMUS must assemble and submit a large volume of information
on a rigid timetable set forth in the RFP. MAXIMUS's ability to successfully
respond to the RFP process in the future will have an important impact on
MAXIMUS's business, financial condition and results of operations. No assurance
can be given that MAXIMUS will be awarded contracts through the RFP process.
Risks Associated with Government Contracting. Contracts awarded to MAXIMUS
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
MAXIMUS's contracts. While MAXIMUS has experienced a limited number of early
terminations since inception, the unexpected termination of one or more of
MAXIMUS'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 MAXIMUS. There can be
no assurance that such government authorities will not terminate any or all of
MAXIMUS's contracts to administer and manage health and human services programs.
In order to establish and maintain relationships with members of government
agencies, MAXIMUS occasionally engages marketing consultants, including
lobbyists. In the event of a significant political change, such consultants may
lose their ability to effectively assist MAXIMUS. In addition, the
implementation of term limits on certain elected officials will require MAXIMUS
to confront political change on a regular basis. If MAXIMUS fails to manage its
relationships effectively with political consultants, its business, financial
condition and results of operations could be materially and adversely affected.
No assurance can be given that MAXIMUS 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 MAXIMUS for such
services. To the extent that state and local officials determine not to seek
MAXIMUS's services, the business, financial condition and results of operations
of MAXIMUS could be adversely affected.
8
<PAGE> 16
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 MAXIMUS 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 MAXIMUS believes that adjustments
resulting from audits of subsequent years will not have a material adverse
effect on MAXIMUS'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 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
MAXIMUS becomes subject to penalties or sanctions, such penalties or sanctions
could have a material adverse effect on MAXIMUS'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, MAXIMUS'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, MAXIMUS may be required
to make significant investments prior to the receipt of related contract
payments.
Approximately 40% (53% after excluding a significant contract with the
Social Security Administration) of MAXIMUS's total revenues for the year ended
September 30, 1997 resulted from fixed price contracts pursuant to which MAXIMUS
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. MAXIMUS'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, MAXIMUS recognizes
revenues on fixed price contracts based on costs incurred. MAXIMUS 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 MAXIMUS's business, financial condition
and results of operations. MAXIMUS's failure to accurately estimate the factors
on which contract pricing is based could result in MAXIMUS reporting a decrease
in revenues or incurring losses on such contracts and could have a material
adverse effect on MAXIMUS's business, financial condition and results of
operations.
MAXIMUS'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 MAXIMUS's financial condition because MAXIMUS is often required to
indemnify clients for its failure to meet performance standards. Certain of
MAXIMUS's contracts have liquidated damages provisions and financial penalties
related to performance failures. In addition, in order for MAXIMUS's Government
Operations Group to bid for certain contracts, MAXIMUS 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 MAXIMUS's ability to bid for contracts in the future. In
addition, MAXIMUS's failure to meet a client's expectations in the performance
of its contractual obligations could have a material adverse effect on MAXIMUS's
reputation, thereby adversely affecting its business, financial condition and
results of operations.
When contracts between MAXIMUS's Government Operations Group and a state or
local government expire or otherwise terminate, unless MAXIMUS 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, MAXIMUS
will need to terminate the employment of such employees. The termination of
large Government
9
<PAGE> 17
Operations Group contracts and the subsequent re-assignment or termination of
employees places significant demands on MAXIMUS's management and its
administrative resources. If MAXIMUS is unable to manage these challenges,
MAXIMUS's business could materially and adversely be affected.
Legislative Change and Political Developments. The market for MAXIMUS'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 MAXIMUS will be able to anticipate and
respond in a timely manner to any such legislative change. MAXIMUS's failure to
manage effectively its business in light of anticipated or unanticipated
legislative change could have a material adverse effect on MAXIMUS'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, MAXIMUS plans to aggressively pursue the
opportunities created by this legislation by seeking new contracts to administer
and manage welfare 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 MAXIMUS. 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 MAXIMUS 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, 1997, MAXIMUS earned revenues of $31.6 million from the
SSA Contract, representing approximately 25% of MAXIMUS'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 revenues were earned thereunder after March 31, 1997.
In addition, under current law the privatization of certain functions of
government programs, such as determining eligibility for Food Stamps and
Medicaid, requires the consent and/or waiver of the executive branch acting
through the applicable administering government agency. In May 1997, in response
to a request by the State of Texas for a waiver to allow private corporations to
decide the eligibility of applicants for Food Stamps and Medicaid benefits, the
Department of Health and Human Services determined not to grant a waiver to the
existing requirement in these programs that only public employees may make such
decisions. MAXIMUS did not bid for any contracts for these Texas projects, and
the determination will not affect any of MAXIMUS's existing contracts. However,
there can be no assurance that the Department of Health and Human Services or
other health and human services agencies will not in the future narrow or
eliminate certain future markets for health and human services contracts in
which MAXIMUS intends to compete.
Opposition from Government Unions. MAXIMUS'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 MAXIMUS to provide services to
government agencies, thereby adversely affecting the business, financial
condition and results of operations of MAXIMUS. A recent example of the
influence of government unions is the role played by union lobbyists in
promoting a May 1997 determination by the Department of Health and Human
Services, in response to a waiver request by the State of Texas, that only
public employees may make decisions on eligibility of applicants for Food Stamps
and Medicaid benefits.
10
<PAGE> 18
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.
Variability of Quarterly Operating Results. Variations in MAXIMUS'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
MAXIMUS has been awarded and general economic conditions. Because a significant
portion of MAXIMUS'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, MAXIMUS
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.
Reliance on Key Executives. The success of MAXIMUS is highly dependent
upon the efforts, abilities, business generation and project execution
capabilities of certain of its executive officers and senior managers. While
MAXIMUS has executive employment agreements with each of David V. Mastran,
President and Chief Executive Officer, 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, MAXIMUS 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
MAXIMUS's business, financial condition and results of operations, including its
ability to secure and complete engagements. MAXIMUS maintains key-man life
insurance policies on David V. Mastran and Raymond B. Ruddy in the amounts of
$6,100,000 and $3,950,000, respectively.
Attraction and Retention of Employees. MAXIMUS's business involves the
delivery of professional services and is labor-intensive. When MAXIMUS's
Government Operations Group is awarded a contract by a government agency,
MAXIMUS 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 MAXIMUS's employees create demand for
increased administrative personnel at MAXIMUS's headquarters. MAXIMUS'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 MAXIMUS 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 MAXIMUS's business,
financial condition and results of operations, including its ability to obtain
and successfully complete service contracts.
Challenges Resulting from Growth. MAXIMUS's continued growth has placed
significant demands on MAXIMUS's management as well as its administrative,
operational and financial resources. MAXIMUS's ability to manage its growth will
require MAXIMUS 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, MAXIMUS'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 MAXIMUS is unable to manage effectively any of these factors, the
quality of MAXIMUS's services, its financial condition and results of operations
could be materially and adversely affected. No assurance can be given that
MAXIMUS will continue to experience growth or that MAXIMUS will be successful in
managing its growth, if any.
11
<PAGE> 19
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 other services is not yet competitive. MAXIMUS'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. MAXIMUS'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 MAXIMUS. The
significant financial resources of certain competitors could lead to severe
price cutting in an effort to secure market share, which could adversely affect
MAXIMUS's business, financial condition and results of operations. There can be
no assurance that MAXIMUS will compete successfully against its existing
competitors or against new competitors, if any. See "Business of MAXIMUS, Inc.
- --Competition."
In addition to competition from existing competitors, MAXIMUS may
experience future competition from its former employees. Although MAXIMUS 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 MAXIMUS. Any such competition by former employees could have a material
adverse effect on MAXIMUS.
Adverse Publicity. MAXIMUS 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 MAXIMUS's Government Operations Group and the establishment of revenue
maximization programs by MAXIMUS's Consulting Group have been the subject of
highly controversial media coverage. Negative coverage of the types of program
management services provided by MAXIMUS could influence government officials and
slow the pace of welfare reform, thereby reducing MAXIMUS's growth prospects. In
addition to media attention arising out of the types of services provided by
MAXIMUS, MAXIMUS is also vulnerable to media attention as a result of the
activities of political consultants engaged by MAXIMUS, even when such
activities are unrelated to MAXIMUS. Such an event occurred in connection with a
marketing representative hired by MAXIMUS 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, MAXIMUS voluntarily withdrew from the
bidding. Certain media coverage relating to this incident was inaccurate and
incorrectly suggested wrongdoing by MAXIMUS. MAXIMUS 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
MAXIMUS will not receive adverse media attention as the result of activities of
individuals not under MAXIMUS's control. In addition, there can be no assurance
that media attention focused on MAXIMUS will be accurate or that MAXIMUS will be
able to anticipate and respond in a timely manner to all media contacts.
Inaccurate or misleading media coverage or MAXIMUS's failures to manage such
coverage could have a material adverse effect on MAXIMUS's reputation, thereby
adversely affecting its business, financial condition and results of operations.
Risks Related to Possible Acquisitions. A part of MAXIMUS's growth
strategy is to expand its operations through the acquisition of additional
businesses. MAXIMUS has no prior history of making acquisitions and there can be
no assurance that MAXIMUS will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses into
MAXIMUS 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 MAXIMUS'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 MAXIMUS
as a whole. In addition, there can be no assurance
12
<PAGE> 20
that acquired businesses, if any, will achieve anticipated revenues and
earnings. The failure of MAXIMUS to manage its acquisition strategy successfully
could have a material adverse effect on MAXIMUS's business, financial condition
and results of operations.
Uncertainties Related to International Operations. While MAXIMUS's current
international operations are paid in U.S. dollars by the World Bank and the U.S.
Agency for International Development, as MAXIMUS 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 MAXIMUS'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 MAXIMUS. See "Business of MAXIMUS, Inc. -- 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 MAXIMUS
and other parties as third party defendants in an action by the State of Hawaii
against Network Six. In 1991, MAXIMUS'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 MAXIMUS is liable to Network Six on grounds
that: (i) Network Six was an intended third party beneficiary under the contract
between MAXIMUS and Hawaii; (ii) MAXIMUS engaged in bad faith conduct and
tortiously interfered with the contract and relationship between Network Six and
Hawaii; (iii) MAXIMUS negligently breached duties to Network Six; and (iv)
MAXIMUS aided and abetted Hawaii in Hawaii's breach of contract. Network Six's
complaint seeks damages, including punitive damages, from the third party
defendants in an amount to be proven at trial. MAXIMUS believes that Network Six
was not an intended third party beneficiary under its contract with Hawaii and
that Network Six's claims are without factual or legal merit. MAXIMUS does not
believe this action will have a material adverse effect on its business and
intends to vigorously defend this action. However, given the early stage of this
litigation, no assurance may be given that MAXIMUS will be successful in its
defense. A decision by the court in Network Six's favor or any other conclusion
of this litigation in a manner adverse to MAXIMUS could have a material adverse
effect on MAXIMUS's business, financial condition and results of operations.
On November 28, 1997, a former officer, director and shareholder of MAXIMUS
filed a complaint in the United States District Court for the District of
Massachusetts, alleging that at the time he resigned from MAXIMUS in 1996,
thereby triggering the repurchase of his shares, MAXIMUS and certain of its
officers and directors had failed to disclose material information to him
relating to the potential value of the shares. He further alleges that MAXIMUS
and its officers and directors violated Sections 10(b) and 20(a) of the
Securities and Exchange Act of 1934 and breached various fiduciary duties owed
to him and claims damages in excess of $10 million. MAXIMUS does not believe
that this action will have a material adverse effect on MAXIMUS's business, and
it intends to vigorously defend this action. However, given the early stage of
this litigation, no assurance may be given that MAXIMUS will be successful in
its defense.
On January 20, 1997, Allstate Insurance Company filed a complaint in the
United States District Court for the District of Arizona, followed by an amended
complaint on May 8, 1997, against Griffith and thirteen other named defendants,
alleging violations of Rule 10b-5 of the Securities and Exchange Act of 1934,
violations of the Arizona Securities Act, consumer fraud, common law fraud, and
common law negligent misrepresentation in connection with Griffith's examination
of feasibility studies. Griffith entered a motion to dismiss the lawsuit on
March 23, 1998 and is awaiting a decision. Based on the same set of operative
facts, Superstition Mountains Community Facilities District No.1 filed a
complaint in U.S. District Court for the District of Arizona on December 2,
1996, followed by an amended complaint on November 13, 1997, against Griffith
and nine other named defendants, alleging with regard to Griffith, breach of
fiduciary duty, breach of
13
<PAGE> 21
contract, professional negligence, and negligence. If the Merger occurs, MAXIMUS
intends to vigorously defend these actions. However, a decision by the court in
favor of either or both plaintiffs could have a material adverse effect on
Griffith's business, financial condition and results of operations.
Control by Principal Shareholders. Following the Merger, and based on
stockholding as of March 16, 1998, MAXIMUS's executive officers will own
beneficially 52% of MAXIMUS's outstanding shares of Common Stock. Certain
executive officers who will hold approximately 51% of the outstanding shares of
Common Stock after giving effect to the Merger, have agreed with MAXIMUS not to
dispose of such shares until June 2001 subject to certain exceptions. In
addition, each of Dr. Mastran and Mr. Ruddy, who, based on the foregoing
assumption, will hold together approximately 48% of the outstanding shares of
Common Stock of MAXIMUS upon completion of the Merger, 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 until September 30, 2001.
As a result, these officers are 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 MAXIMUS. Such
control could adversely affect the market price of the Common Stock or delay or
prevent a change in control of MAXIMUS. See "Management -- Executive Employment
Agreements."
Possible Volatility of Stock Price. The market price of the MAXIMUS 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, political
and legislative developments adverse to the privatization of government
services, 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 MAXIMUS could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on MAXIMUS's business, financial condition
and results of operations.
Dividend Policy; Absence of Dividends. Other than the dividend paid to
MAXIMUS's shareholders upon termination of its S corporation status and past
dividends to cover S corporation taxes payable by shareholders, MAXIMUS has
rarely paid cash dividends on its capital stock and does not anticipate paying
cash dividends in the foreseeable future. MAXIMUS currently intends to retain
all earnings for the development of its business.
Certain Anti-Takeover Effects. MAXIMUS's Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws (the "Restated By-Laws") 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 MAXIMUS 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 MAXIMUS by means of a proxy contest or otherwise. See "Management -- Board of
Directors." The ability of the shareholders of MAXIMUS 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 and By-Laws." 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 upon completion of the
Merger, MAXIMUS will have 16,824,499 shares of Common Stock outstanding. The
1,166,179 shares issued to the Griffith shareholders pursuant to the Merger
Agreement and the 5,250,000 shares sold in connection with MAXIMUS's initial
14
<PAGE> 22
public 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 MAXIMUS. 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,
913,855 shares of Common Stock are issuable upon the exercise of outstanding
stock options (417,700 of which are currently exercisable), which shares have
been registered by MAXIMUS under the Securities Act and are freely tradable
without restriction. Certain executive officers of MAXIMUS, holding an aggregate
of 8,867,547 shares of Common Stock (including 270,325 shares of Common Stock
issuable upon the exercise of currently exercisable stock options, have entered
into Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreements pursuant to which each such executive will have agreed with MAXIMUS,
subject to certain exceptions, not to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock until June 2001. See "Management --
Executive Employment Agreements." However, 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
MAXIMUS's ability to raise additional capital at a price favorable to MAXIMUS.
See "Shares Eligible for Future Sale."
15
<PAGE> 23
SELECTED FINANCIAL DATA
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below and on the following pages are certain selected financial
data with respect to MAXIMUS and Griffith. The selected historical financial
data should be read in conjunction with the Management's Discussion and Analysis
of Financial Condition and Results of Operations for MAXIMUS and Griffith set
forth elsewhere in the Prospectus/Proxy Statement.
MAXIMUS, INC.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues(1)....................... $30,593 $29,860 $51,963 $103,113 $127,947 $37,244 $36,356
Cost of revenues.................. 15,388 21,716 36,071 78,429 94,254 29,534 27,300
------- ------- ------- -------- -------- ------- -------
Gross profit...................... 15,205 8,144 15,892 24,684 33,693 7,710 9,056
Selling, general and
administrative expenses......... 10,178 6,979 9,078 13,104 16,782 4,039 5,346
Stock option compensation
expense(2)...................... -- -- -- -- 5,874 -- --
------- ------- ------- -------- -------- ------- -------
Income from operations............ 5,027 1,165 6,814 11,580 11,037 3,671 3,710
Interest and other income......... 80 80 169 264 928 84 575
------- ------- ------- -------- -------- ------- -------
Income before income taxes........ 5,107 1,245 6,983 11,844 11,965 3,755 4,285
Provision (benefit) for income
taxes(3)........................ 114 (5) 124 225 3,376 57 1,692
------- ------- ------- -------- -------- ------- -------
Net income........................ $ 4,993 $ 1,250 $ 6,859 $ 11,619 $ 8,589 $ 3,698 $ 2,593
======= ======= ======= ======== ======== ======= =======
Earnings per share:
Basic........................... $ 0.42 $ 0.11 $ 0.61 $ 1.02 $ 0.70 $ 0.32 $ 0.18
======= ======= ======= ======== ======== ======= =======
Diluted......................... 0.42 0.11 0.61 1.02 0.68 0.31 0.17
======= ======= ======= ======== ======== ======= =======
Shares used in computing earnings
per share:
Basic........................... 11,924 11,752 11,312 11,371 12,306 11,453 14,791
======= ======= ======= ======== ======== ======= =======
Diluted......................... 11,924 11,752 11,312 11,371 12,691 11,817 15,182
======= ======= ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments.............. $ 1,093 $ 326 $ 2,502 $ 3,333 $51,829 $42,081
Working capital....................... 6,818 6,855 13,184 22,700 62,567 64,705
Total assets.......................... 12,745 15,049 22,670 35,493 96,825 87,452
Redeemable common stock............... 6,971 6,889 10,578 16,757 -- --
Total shareholders' equity............ 2,484 2,921 5,706 9,197 66,139 68,733
</TABLE>
- ---------------
(1) In fiscal year 1993, MAXIMUS's Government Operations Group had revenues of
$10.4 million related to a significant contract that expired in July 1993.
No further revenues were received under this contract after its expiration.
16
<PAGE> 24
(2) In January 1997, MAXIMUS issued options to various employees to purchase
403,975 shares of MAXIMUS Common Stock at a formula price based on book
value. During 1997, MAXIMUS recorded a non-recurring charge against income
of $5,874,000 for the difference between the IPO price and the formula price
for all options outstanding. MAXIMUS recorded a deferred tax benefit
relating to the charge in the amount of $2,055,000. The option exercise
price is a formula price based on the book value of the Common Stock at
September 30, 1996, and was established pursuant to a pre-existing
shareholder agreement.
(3) For each of the four years ended September 30, 1996, and during fiscal year
1997 up to June 12, 1997, no federal income taxes were recorded due to
MAXIMUS's S corporation status. For those periods, the tax provision
consisted of state taxes for those states in which MAXIMUS, rather than the
shareholders, was liable for income taxes. Upon completion of the IPO,
MAXIMUS S corporation status terminated for federal and state taxation
purposes, and MAXIMUS recorded a deferred tax charge against income of
$2,566,000 for the cumulative differences between the financial reporting
and income tax basis of certain assets and liabilities at June 12, 1997.
Subsequent to June 12, 1997, MAXIMUS has recorded state and federal income
taxes based on earnings for those periods.
DAVID M. GRIFFITH & ASSOCIATES, LTD.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................... $24,522 $27,582 $30,577 $32,560 $39,377
Cost of revenues(1)......................... 17,184 19,984 22,053 24,154 28,743
------- ------- ------- ------- -------
Gross profit................................ 7,338 7,598 8,524 8,406 10,634
Selling, general and administrative
expenses(1)............................... 4,629 5,004 6,764 7,194 8,625
------- ------- ------- ------- -------
Income from operations...................... 2,709 2,594 1,760 1,212 2,009
Interest and other income (expense)......... (804) (647) (654) (733) (536)
------- ------- ------- ------- -------
Income before income taxes.................. 1,905 1,947 1,106 479 1,473
Provision for income taxes.................. 155 1,094 612 305 728
------- ------- ------- ------- -------
Net income.................................. $ 1,750 $ 853 $ 494 $ 174 $ 745
======= ======= ======= ======= =======
Net income per share........................ $ 7.76 $ 3.74 $ 2.14 $ 0.75 $ 3.22
======= ======= ======= ======= =======
Weighted average shares outstanding......... 225.5 228.1 231.2 231.4 231.2
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments............................. $ 472 $ 664 $ 138 $ 61 $ 40
Working capital........................... 1,842 2,157 2,493 2,400 2,822
Total assets.............................. 11,905 13,355 13,722 13,227 15,548
Long-term debt............................ 5,696 4,835 4,224 3,885 3,988
Redeemable common stock................... 7,310 8,501 10,784 14,926 14,497
Contributed capital....................... 894 998 1,110 1,110 1,088
Total shareholders' equity (deficit)...... (7,995) (8,230) (9,907) (13,876) (13,177)
</TABLE>
- ---------------
(1) Includes expenses for the Employee Stock Ownership Plan.
17
<PAGE> 25
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
----------------------------- DECEMBER 31,
1995 1996 1997 1997(2)
------- -------- -------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenues........................................ $82,540 $135,673 $167,324 $47,806
Cost of revenues................................ 57,198 101,539 121,968 35,577
------- -------- -------- -------
Gross profit.................................... 25,342 34,134 45,356 12,229
Selling, general and administrative expenses.... 15,781 20,238 25,323 8,098
Stock option, deferred compensation and ESOP
expense....................................... 1,400 1,556 7,372(3) 284
------- -------- -------- -------
Income from operations.......................... 8,161 12,340 12,661 3,847
Interest and other income (expense)............. (72) (17) 777 400
------- -------- -------- -------
Income before income taxes...................... 8,089 12,323 13,438 4,247
Provision for income taxes(4)................... 736 530 4,104 1,710
------- -------- -------- -------
Net income...................................... $ 7,353 $ 11,793 $ 9,334 $ 2,537
======= ======== ======== =======
Earnings per share:
Basic......................................... $ 0.59 $ 0.94 $ 0.69 $ 0.16
======= ======== ======== =======
Diluted....................................... $ 0.59 $ 0.94 $ 0.67 $ 0.16
======= ======== ======== =======
Shares used in computing earnings per share:
Basic......................................... 12,507 12,573 13,508 15,974
======= ======== ======== =======
Diluted....................................... 12,507 12,573 13,893 16,365
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments........ $ 36,500
Working capital............................................. 64,585
Total assets................................................ 95,991
Long-term debt.............................................. 454
Redeemable common stock..................................... --
Total shareholders' equity.................................. 69,256
</TABLE>
- ---------------
(1) The pro forma combined statements of income data includes the MAXIMUS
operating results for the fiscal years ended September 30, 1995, 1996 and
1997, combined with the Griffith operating results for the years ended
December 31, 1995, 1996 and 1997.
(2) The Griffith operating results for the three months ended December 31, 1997
are included in the pro forma combined operating results for both the fiscal
year ended September 30, 1997 and the three months ended December 31, 1997.
(3) In January 1997, MAXIMUS issued options to various employees to purchase
403,975 shares of MAXIMUS Common Stock at a formula price based on book
value. During 1997, MAXIMUS recorded a non-recurring charge against income
of $5,874,000 for the difference between the IPO price and the formula price
for all options outstanding. MAXIMUS recorded a deferred tax benefit
relating to the
18
<PAGE> 26
charge in the amount of $2,055,000. The option exercise price is a formula
price based on the book value of the Common Stock at September 30, 1996, and
was established pursuant to a pre-existing shareholder agreement.
(4) For each of the years ended September 30, 1995 and 1996, MAXIMUS recorded no
federal income taxes due to MAXIMUS's S corporation status. For those
periods, the MAXIMUS tax provision consisted of state taxes for those states
in which MAXIMUS, rather than the shareholders, was liable for income taxes.
Upon completion of the IPO, MAXIMUS's S corporation status terminated for
federal and state taxation purposes, and MAXIMUS recorded a deferred tax
charge against income of $2,566,000 for the cumulative differences between
the financial reporting and income tax basis of certain assets and
liabilities at June 12, 1997. Subsequent to June 12, 1997, MAXIMUS has
recorded state and federal income taxes based on earnings for those periods.
Griffith's contributions to pro forma combined income was taxed, for the
purposes of federal and state income taxes, at normal corporate rates.
(5) Upon completion of the Merger, the $1.0 million obligation of Griffith under
its Stock Appreciation Rights Plan will become fully vested and payable, and
Griffith will be required to pay $200,000 under an employment agreement with
an officer. This will result in a one-time income statement charge of
approximately $1.2 million in the period the Merger is consummated. Such
charge is not reflected in the pro forma combined operating results but is
reflected in the pro forma combined balance sheet data as of December 31,
1997.
19
<PAGE> 27
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited historical per share data
of MAXIMUS and Griffith and the combined per share data on an unaudited pro
forma basis, after giving effect to the Merger on a pooling of interests basis
(and assuming the issuance of 5.198 shares of MAXIMUS Common Stock in the Merger
in exchange for each share of Griffith Common Stock). This data should be read
in conjunction with the unaudited selected financial data and the unaudited pro
forma combined financial data and the separate historical financial statements
of MAXIMUS and Griffith included elsewhere in this Prospectus/Proxy Statement.
The pro forma combined financial data are not necessarily indicative of the
operating results or financial position that would have been achieved if the
Merger had been consummated as of the beginning of the periods presented, nor
are they necessarily indicative of the future operating results or financial
position of MAXIMUS/Griffith.
DIVIDENDS
Neither MAXIMUS nor Griffith paid dividends during the three year period
ended December 31, 1997. MAXIMUS had S corporation distributions of $117,000,
$2,175,000 and $27,460,000 during the years ended September 30, 1995, 1996 and
1997.
INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30(1) ENDED DECEMBER 31
-------------------------- -----------------
1995 1996 1997 1997
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net income per share of MAXIMUS
Common Stock, historical:
Basic......................................... $0.61 $1.02 $0.70 $ 0.18
Diluted....................................... 0.61 1.02 0.68 0.17
Net income (loss) per share of Griffith Common
Stock, historical(1):
Basic......................................... 2.14 0.75 3.22 (0.24)
Diluted....................................... 2.14 0.75 3.22 (0.24)
Net income (loss) per share of Griffith Common
Stock, equivalent pro forma(3):
Basic......................................... 0.41 0.14 0.62 (0.04)
Diluted....................................... 0.41 0.14 0.62 (0.04)
Net income per share, pro forma combined(2):
Basic......................................... 0.59 0.94 0.69 0.16
Diluted....................................... 0.59 0.94 0.67 0.16
</TABLE>
BOOK VALUE
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
<S> <C> <C>
MAXIMUS, per share of Common Stock, historical... $4.47 $4.65
Griffith, per share of Common Stock,
historical(4).................................. 5.71 5.71
Griffith, per share of Common Stock, equivalent
pro forma(3)(4)................................ 1.10 1.10
Pro forma combined(2)(5)......................... 4.17 4.34
</TABLE>
- ---------------
(1) Net income per share of Griffith Common Stock is calculated using Griffith's
fiscal year end of December 31.
20
<PAGE> 28
(2) For the purposes of the pro forma combined data, MAXIMUS's financial data
for the fiscal years ended September 30, 1995, 1996 and 1997 have been
combined with Griffith's financial data for the fiscal years ended December
31, 1995, 1996 and 1997.
(3) The Griffith equivalent pro forma per share amounts are calculated by
dividing the Griffith per share amounts by the Conversion Factor of 5.198
shares of MAXIMUS Common Stock for each share of Griffith Common Stock.
(4) Griffith redeemable Common Stock is included in the book value. The Griffith
book value per share at December 31, 1997 is used for both periods.
(5) The pro forma combined balance sheet as of December 31, 1997 excludes any
accrual for the estimated merger-related expenses (approximately $1.0
million) and any deferred tax benefit relating to these expenses.
21
<PAGE> 29
MARKET PRICE INFORMATION
MAXIMUS Common Stock commenced trading on June 13, 1997 on the New York
Stock Exchange under the symbol "MMS." As of March 27, 1998, there were 123
holders of record of MAXIMUS Common Stock. Prior to June 13, 1997, there was no
public market for the Common Stock or any other securities of MAXIMUS.
The following table sets forth, for the fiscal periods indicated, the range
of high and low closing prices for MAXIMUS Common Stock on the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997
Third quarter (from June 13, 1997).......................... $18.37 $17.00
Fourth quarter.............................................. 32.88 17.88
YEAR ENDING SEPTEMBER 30, 1998
First quarter............................................... 31.56 22.56
Second quarter (through March 27, 1998)..................... 30.88 23.00
</TABLE>
As of March 27, 1998, MAXIMUS has granted options for 918,458 shares of
MAXIMUS Common Stock under MAXIMUS's 1997 Equity Incentive Plan (the "Equity
Plan") and options for 30,000 shares under its 1997 Director Stock Option Plan.
As of such date, 33,775 options had been exercised under the Equity Plan.
Prior to its initial public offering (the "IPO"), MAXIMUS and its
shareholders elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, MAXIMUS shareholders
included their pro rata share of the Company's income in their personal income
tax returns. Accordingly, MAXIMUS was not subject to federal and most state
income taxes during the periods prior to the initial public offering. The
completion of the IPO during June 1997 resulted in the termination of the
Company's S corporation status for income tax purposes. In connection therewith,
MAXIMUS recorded a deferred tax charge against income of $2,566,000 for the
cumulative differences between the financial reporting and income tax basis of
certain assets and liabilities at June 12, 1997. MAXIMUS made cash distributions
during 1997 to its S corporation shareholders prior to the IPO totaling
$1,212,000. In connection with the IPO, MAXIMUS made an additional distribution
of $20,500,000 to its S corporation shareholders and accrued an additional
distribution at September 30, 1997 in the amount of $5,748,000, such aggregate
amount representing the undistributed earnings of MAXIMUS taxed or taxable to
shareholders through the date of the IPO.
MAXIMUS currently anticipates that it will retain all of its earnings for
development of MAXIMUS'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 MAXIMUS's Board of Directors and will depend, among other
things, upon MAXIMUS'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.
On March 6, 1998, the last full trading day before the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sale price of MAXIMUS Common Stock on the NYSE was $26.00 per share.
Based on a Conversion Factor of 5.198 shares of MAXIMUS Common Stock for each
share of Griffith Common Stock, the pro forma equivalent per share value of
Griffith Common Stock on March 6, 1998 was $135.148 per share. On March 27,
1998, the most recent practicable date before the printing of this
Prospectus/Proxy Statement, the last reported sale price of MAXIMUS Common Stock
on the NYSE was $30 per share.
The number of shares of MAXIMUS Common Stock that holders of Griffith
Common Stock will receive in the Merger will not change despite changes in the
market price of MAXIMUS Common Stock prior to the Merger. Griffith shareholders
are urged to obtain a current market quotation of MAXIMUS Common Stock.
22
<PAGE> 30
GRIFFITH SPECIAL MEETING
This Prospectus/Proxy Statement is being furnished to holders of Griffith
Common Stock in connection with the solicitation of proxies by the Griffith
Board of Directors for use at the Griffith Special Meeting to be held on
, 1998 at and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Griffith Special Meeting, the shareholders of Griffith will consider
and vote upon the approval and adoption of the Merger Agreement and any other
matters that may properly come before the meeting, or any adjournment or
postponement thereof. See "The Merger -- General" and "-- Conversion of Griffith
Common Stock."
THE BOARD OF DIRECTORS OF GRIFFITH HAS UNANIMOUSLY RECOMMENDED A VOTE IN
FAVOR OF APPROVING AND ADOPTING THE MERGER AGREEMENT. See "Background and
Reasons for the Merger."
RECORD DATE; OUTSTANDING SECURITIES
Only Griffith shareholders of record at the close of business on
, 1998 will be entitled to receive notice of and to vote at
the Griffith Special Meeting. At that date, there were 224,339 shares of
Griffith Common Stock outstanding, each of which is entitled to one vote, held
by approximately 40 holders of record. The presence, in person or by proxy, of
at least a majority of the total number of shares of Griffith Common Stock
outstanding will constitute a quorum at the Griffith Special Meeting.
REQUIRED VOTES; VOTING OF PROXIES
Under the Illinois Business Corporation Act, the affirmative vote of the
holders of two-thirds of the outstanding shares of Griffith Common Stock
entitled to vote is required to adopt the Merger Agreement. No vote of MAXIMUS
shareholders is required, or will be sought, to consummate the transaction.
All shares of Griffith Common Stock represented in person or by proxy at
the Griffith Special Meeting (including proxies that abstain from the matter
presented at the meeting) will be tabulated to determine whether or not a quorum
is present. Abstentions will be treated as shares that are present and entitled
to vote on each matter, but will not count as votes in favor of such matter.
Accordingly, an abstention from voting with respect to adoption of the Merger
Agreement would have the same legal effect as a vote "against" adoption.
As of March 16, 1998, directors and executive officers of Griffith and
their affiliates may be deemed to have or share beneficial ownership of
approximately 51.93% of the outstanding shares of Griffith Common Stock. None of
MAXIMUS or any of the directors and executive officers of MAXIMUS and their
affiliates own any shares of Griffith Common Stock.
All proxies that are properly executed and returned, unless previously
revoked, will be voted at the Griffith Special Meeting in accordance with the
instructions thereon. The execution of a proxy will not affect a shareholder's
right to attend the Griffith Special Meeting and vote in person. Executed but
unmarked proxies will be voted FOR the proposal to approve and adopt the Merger
Agreement. The purpose of the Special Meeting will be to vote upon the approval
and adoption of the Merger Agreement and any other matters that may properly
come before the meeting, or any adjournment or postponement thereof. However, if
any other matters are properly presented at the Griffith Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Griffith Special Meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
ANY GRIFFITH SHAREHOLDER GIVING A PROXY HAS THE POWER TO REVOKE THE PROXY
PRIOR TO ITS EXERCISE. A PROXY MAY BE REVOKED BY (A) FILING WITH THE
23
<PAGE> 31
SECRETARY OF GRIFFITH, AT OR BEFORE THE TAKING OF THE VOTE AT THE GRIFFITH
SPECIAL MEETING, (1) A WRITTEN NOTICE OF REVOCATION SPECIFYING THE NUMBER OF
SHARES AND CLEARLY IDENTIFYING THE PROXY TO BE REVOKED OR (2) DULY EXECUTING AND
FILING A NEW PROXY BEARING A LATER DATE, OR (B) ATTENDING THE GRIFFITH SPECIAL
MEETING AND VOTING IN PERSON (ALTHOUGH ATTENDANCE AT THE MEETING WILL NOT IN AND
OF ITSELF CONSTITUTE A REVOCATION OF A PROXY). ANY WRITTEN NOTICE OF REVOCATION
OR SUBSEQUENT PROXY SHOULD BE SENT AND DELIVERED TO DAVID M. GRIFFITH &
ASSOCIATES, LTD., 630 DUNDEE ROAD, SUITE 200 NORTHBROOK, ILLINOIS 60062;
ATTENTION: JERROLD WOLF, SECRETARY, OR HAND DELIVERED TO JERROLD WOLF, AT OR
BEFORE THE TAKING OF THE VOTE AT THE GRIFFITH SPECIAL MEETING.
Solicitation of proxies by mail may be supplemented by telephone, telegram,
facsimile or personal solicitation by directors, officers or employees of
Griffith. No additional compensation shall be paid to such persons for such
activities.
INFORMATION FOR ESOP PARTICIPANTS
As of March 30, 1998, 65,362 shares (28.29%) of Griffith Common Stock were
owned by the ESOP. Eligible ESOP participants are being offered the opportunity
to instruct the Trustee as to whether to vote such participants' allocated
shares of Griffith Common Stock in favor of or against the adoption of the
Merger Agreement. To instruct the Trustee, an ESOP participant should complete
the ESOP Voting Instruction Form which accompanies this Prospectus/Proxy
Statement and return it to the Trustee, all in accordance with the instructions
set forth below.
Before completing and returning the ESOP Voting Instruction Form to the
Trustee, ESOP participants should read and consider carefully the entire
Prospectus/Proxy Statement.
PARTICIPANTS ELIGIBLE TO INSTRUCT THE ESOP TRUSTEE
Each participant in the ESOP to whose account shares of Griffith Common
Stock have been allocated as of , 1998 is eligible to vote by
completing, signing and timely returning the Voting Instruction Form.
EFFECT OF PARTICIPANTS' INSTRUCTIONS
ESOP participants may instruct the Trustee to vote their allocated shares
of Griffith Common Stock in favor of or against the adoption of the Merger
Agreement. Under the terms of the ESOP, subject to the Trustee's fiduciary
obligations described below, the Trustee will vote all whole shares of Griffith
Common Stock allocated to participants and held in the ESOP as instructed by
participants. Fractional shares of Griffith Common Stock allocated to
participants will be combined to the largest number of whole shares and voted by
the Trustee, to the extent possible, reflecting the voting directions received
by participants as to whole shares. Unallocated shares of Griffith Common Stock
in the ESOP are to be voted as directed by Administrator of the ESOP. Whole
shares for which the Trustee receives no direction will not be voted. However,
the Trustee may be required to vote the shares in some instances under
applicable law.
As of March 30, 1998, 65,362 shares of Griffith Common Stock held in the
ESOP were allocated to ESOP participants' accounts, and no shares were
unallocated.
THE TRUSTEE'S FIDUCIARY OBLIGATIONS
The Trustee is subject to certain fiduciary obligations imposed on it by
ERISA. In general, the Trustee will be obligated under the ESOP and the
applicable provisions of ERISA to follow the participants' vote, to the extent
described above, unless the Trustee independently determines that to do so would
be imprudent or contrary to the best interests of the participants. Therefore,
it is possible that, notwithstanding the outcome of the ESOP participants'
instructions, the Trustee could, in the exercise of its fiduciary obligations,
decide to
24
<PAGE> 32
vote, or not to vote, all of the outstanding shares of Griffith Common Stock
held in the ESOP for or against the adoption of the Merger Agreement.
As of the date of this Prospectus/Proxy Statement, the ESOP Trustee has not
made a final determination on whether the consummation of the Merger in
accordance with the vote of the ESOP participants would be contrary to its
fiduciary obligations under ERISA. In accordance with its customary procedures,
the Trustee will not make this final determination until the date of the
Shareholder Meeting; however, the Trustee is not presently aware of any fact or
circumstance which would cause it to vote shares of Griffith Common Stock
against the adoption of the Merger Agreement.
HOW TO INSTRUCT THE TRUSTEE
An ESOP participant who wishes to vote his or her allocated shares of
Griffith Common Stock must properly complete and timely return the Voting
Instruction Form. To do so, after reading the Prospectus/Proxy Statement, each
participant should:
1. Mark, date and sign the Voting Instruction Form for the ESOP
2. Mail the Voting Instruction Form in the accompanying postage-paid and
preaddressed envelope so that it will be received by the Trustee no
later than Central Time on , 1998. Voting
Instruction Forms may also be sent to the Trustee by overnight mail
(at the ESOP participant's expense), or by facsimile, to the
following address:
Cole Taylor Bank
As Trustee of the David M. Griffith
& Associates, Ltd. Employee Stock
Ownership Plan
850 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Kathleen Ryan Ursa
Facsimile: 312-738-5522
IN ORDER TO BE EFFECTIVE, THE ESOP VOTING INSTRUCTION FORM MUST BE RECEIVED
BY THE TRUSTEE NO LATER THAN CENTRAL TIME ON , 1998.
FAILURE TO SIGN, COMPLETE OR RETURN A VOTING INSTRUCTION FORM
If a participant fails to sign or timely return a Voting Instruction Form
or if a participant properly signs and timely returns a Voting Instruction Form,
but does not specifically mark a box on the Voting Instruction Form, the Trustee
will consider the shares of Griffith Common Stock represented by such Voting
Instruction Form to be shares with respect to which no instruction has been
submitted. Therefore, if a participant does not want the Trustee to consider his
or her allocated shares as shares with respect to which no instruction has been
submitted, the participant must specifically mark a box on the Voting
Instruction Form, sign and date the Voting Instruction Form, and return it to
the Trustee so that the Trustee receives it by Central Time on
, 1998.
A participant who decides to change his or her vote after having submitted
a Voting Instruction Form must obtain a new form by contacting the Trustee at
the address listed above or by telephoning the Trustee at (312) 738-5467. By
properly completing and timely returning a new Voting Instruction Form, a
participant's previously submitted Voting Instruction Form will be automatically
revoked.
A participant may also revoke a Voting Instruction Form by notifying the
Trustee in writing of the participant's decision to revoke, but if a new Voting
Instruction Form is not timely received by the Trustee, the participant's
allocated shares covered by the revoked Voting Instruction Form will be
considered by the Trustee to be shares with respect to which no instruction has
been submitted. After Central Time on , 1998, no Voting
Instruction Form will be accepted and no Voting Instruction Form will be
permitted to be changed or revoked.
25
<PAGE> 33
CONFIDENTIALITY
Each Voting Instruction Form received by the Trustee will be held in
confidence by the Trustee and will not be released or divulged to
representatives of Griffith, MAXIMUS or Merger Sub. However, although no
individual participant's vote will be disclosed, the Trustee will inform
representatives of Griffith as to the total number of allocated shares of
Griffith Common Stock voted in favor of, and against, the adoption of the Merger
Agreement and the total number abstaining. Any participant in the ESOP should
contact the Trustee if he or she has been subject to pressure or coercion by any
party or if he or she is concerned about the confidentiality of instructions
submitted to the Trustee.
DISSENTING SHARES
The Merger Agreement provides as a condition to closing that holders of no
more than 5% of the Griffith Common Stock issued and outstanding at the
Effective Time shall have exercised dissenters' rights of appraisal under the
IBCA.
With respect to the ESOP, dissenters' rights of appraisal are not passed
through to the individual ESOP participants. The Trustee, as holder of record of
Griffith Common Stock under the ESOP, upon compliance with applicable statutory
procedures, may be entitled to appraisal rights. The Trustee will make a
decision on appraisal rights on behalf of the ESOP.
26
<PAGE> 34
BUSINESS OF MAXIMUS, INC.
OVERVIEW
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. MAXIMUS believes that
it has been at the forefront of innovation in "Helping Government Serve the
People(TM)" since its inception in 1975. MAXIMUS's services are designed to make
government operations more efficient and cost effective while improving the
quality of the services provided to program beneficiaries. MAXIMUS applies an
entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. MAXIMUS believes that
its 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 $19 million in fiscal 1990 to $128
million in fiscal 1997.
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
MAXIMUS believes that providing program management and consulting services
to government agencies in the health and human services sector represents a
significant market opportunity for MAXIMUS. Federal, state and local government
agencies in the United States spend over $200 billion annually on the health and
human services programs for which MAXIMUS 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 MAXIMUS:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
ESTIMATED NUMBER ADMINISTRATIVE
PROGRAM OF BENEFICIARIES SERVED 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, in 1997 the State of
Wisconsin awarded a performance-based contract to MAXIMUS to manage the
welfareto-work program in a section of Milwaukee.
MAXIMUS 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
27
<PAGE> 35
new solutions to reduce costs and improve the effectiveness of entitlement
programs. MAXIMUS 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 certain functions of government health and human
services programs. MAXIMUS 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 believes that it 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 MAXIMUS's services.
MAXIMUS 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.
Single Market Focus. MAXIMUS believes that it is the largest company
dedicated exclusively to providing program management and consulting services to
government health and human services agencies. MAXIMUS 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.
MAXIMUS 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. MAXIMUS 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 MAXIMUS's clients require their vendors to
provide a broad array of service offerings, something many of MAXIMUS's
competitors cannot provide. Engagements often require creative solutions that
must be drawn from diverse areas of expertise. MAXIMUS's expertise in a wide
range of services enables 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 MAXIMUS
to reduce project implementation time and cost. Because government agencies are
required to manage vast amounts of data and large numbers of cases without
access to advanced technology and experienced professionals, MAXIMUS believes
that MAXSTAR, together with MAXIMUS'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 profession-
28
<PAGE> 36
als with backgrounds in the public health and human services industry. MAXIMUS'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 MAXIMUS with respect to strategic
marketing and legislative initiatives.
GROWTH STRATEGY
MAXIMUS's goal is to be the leading provider of program management and
consulting services to government health and human services programs. MAXIMUS's
strategy to achieve this goal includes the following:
Capitalize on Trends Toward Outsourcing Government Functions. MAXIMUS
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.
MAXIMUS 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. MAXIMUS believes that
throughout its 22-year history, it has been a leader in developing innovative
solutions to meet the evolving needs of state and local health and human
services agencies. MAXIMUS plans to expand its revenue base by: (i) marketing
new and innovative program management solutions to MAXIMUS's extensive client
base; (ii) expanding MAXIMUS's client base by marketing MAXIMUS's experience and
established methodologies and systems; (iii) investing in early identification
of government bid opportunities; and (iv) submitting competitive bids that
leverage MAXIMUS's proven solutions for past projects.
Recruit Highly Skilled Professionals. MAXIMUS 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. MAXIMUS 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 MAXIMUS'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 MAXIMUS 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 MAXIMUS 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.
SERVICES
MAXIMUS'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. MAXIMUS 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.
GOVERNMENT OPERATIONS GROUP
MAXIMUS's Government Operations Group is comprised of four divisions
specializing in the administration and management of government health and human
services programs.
29
<PAGE> 37
Welfare Reform Division. MAXIMUS 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. MAXIMUS's typical welfare-to-work contract involves the engagement of
MAXIMUS for a period of three to five years. MAXIMUS has served approximately
250,000 welfare recipients at 30 locations in nine states. In 1996, for example,
Fairfax County, Virginia awarded MAXIMUS a one-year, $2 million contract to
place welfare recipients into unsubsidized employment. To date, MAXIMUS has
achieved a placement rate in excess of 90% on this contract. In addition, in
1997, the State of Wisconsin awarded MAXIMUS a three-year, $24 million contract
to manage its welfare reform program in Milwaukee County.
Child Support Enforcement Division. MAXIMUS 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. MAXIMUS operates statewide client service units,
updates case arrearage and demographic data for new CSE automated systems and
provides training to CSE workers. MAXIMUS believes that it has one of the
largest CSE staffs in the private sector with over 500 professionals. MAXIMUS
has been performing these services since 1976, which MAXIMUS believes is longer
than any other private sector firm in the United States. MAXIMUS is currently
engaged in the management of CSE programs in 19 locations in eleven states
providing full child support services for approximately 210,000 cases and
specialized services for an additional 300,000 cases. For example, MAXIMUS
currently is providing services under a five-year, $12 million, full-service CSE
program management contract in Nashville, Tennessee.
Federal Services Division. MAXIMUS provides a host of management services
geared toward case management, client monitoring and innovative return-to-work
strategies and program management and staffing. 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 (the "SSA Contract") to provide referral and monitoring services
to beneficiaries with drug or alcohol disabilities. Under the SSA Contract,
MAXIMUS successfully referred approximately 100,000 disabled beneficiaries into
treatment as a first step to re-entering the work force. MAXIMUS believes the
skills and tools it employed in the SSA Contract will be invaluable in pursuing
large scale program management contracts in other agencies of the federal
government. For example, MAXIMUS is currently pursuing opportunities at the
Department of Justice and the Department of Veterans Affairs.
Managed Care Enrollment Services Division. MAXIMUS has obtained
significant experience in managing certain aspects of Medicaid programs through
projects in 5 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 MAXIMUS in 1996. This project is one of the largest Medicaid managed
care enrollment programs in the country with over two million program
beneficiaries. Other states where MAXIMUS currently operates Medicaid managed
care enrollment projects include Texas, Vermont, and Michigan.
CONSULTING GROUP
MAXIMUS's Consulting Group is organized into four operational divisions:
the Human Services Division, the Information Technology Solutions Division, the
Systems Planning and Integration Division, and the International Division.
Human Services Division. Through its Human Services Division, MAXIMUS
provides program planning and implementation, revenue maximization, and
evaluation consulting assistance to human services,
30
<PAGE> 38
health and education agencies in state, local and federal government. MAXIMUS
recently completed comprehensive welfare reform planning and implementation
projects for the District of Columbia and the State of Nevada, and was recently
engaged by the District of Columbia to provide planning and implementation
assistance for a new Child Health Insurance Program. Revenue maximization
projects, which involve increasing federal financial participation in state
health and human services programs and are generally carried out on a
contingency fee basis, have been completed or are on-going in more than a dozen
states. The states have received more than $150 million in additional federal
revenue as a result of MAXIMUS's efforts and expect current projects to yield
another $150 million in new federal revenue. MAXIMUS also is frequently engaged
to conduct evaluations of government programs and demonstrations. Program
evaluation contracts are often multi-year research projects involving the
collection of extensive data using automated data merges as well as surveys and
case record reviews. Since 1994, MAXIMUS has completed 55 welfare reform,
revenue maximization and program evaluation projects for more than 25 states and
localities.
Information Technology Solutions Division. MAXIMUS provides computer
systems management and business process re-engineering services to state, county
and local governments. MAXIMUS provides services associated with project
management, assessments of current and future business needs, defining user
requirements, designing automated systems, developing requests for proposals,
and providing evaluation assistance, contract negotiations and quality assurance
monitoring services. Since 1991, MAXIMUS has provided information technology
systems and design services for projects in 42 states. MAXIMUS also specializes
in providing management services to agencies administering criminal justice
programs. MAXIMUS was selected by the State of Connecticut to provide project
management and system integration services for the criminal justice information
system Offender Based Tracking System for the Connecticut Office of Policy and
Management. This $5.5 million contract will run through September 2001. MAXIMUS
also provides re-engineering services to such government authorities as the
County of Los Angeles. MAXIMUS is assisting the County (Board of Supervisors,
Auditor-Controller, Office of the Assessor, Registrar-Recorder/County Clerk, and
the Treasurer and Tax Collector) in the development of the County's Property Tax
System Business Process Re-engineering Project. In addition, MAXIMUS provides
assistance in assessing, evaluating, testing and certifying government systems
affected by the century date change/Year 2000 problem. MAXIMUS is currently
engaged in a contract to provide Year 2000 project management services to the
Department of Information Technology for the State of Connecticut.
Systems Planning and Integration Division. MAXIMUS believes its Systems
Planning and Integration Division is a leading provider of strategic information
management, procurement and contracting, systems quality assurance, and systems
implementation services to the rapidly expanding state health, human services,
and child support enforcement agency market. Using an experienced team of
skilled project managers and information technology professionals, MAXIMUS has,
in 45 projects across 30 states, assisted clients in the planning, design,
procurement and implementation of information systems totalling nearly $1
billion. These complex, high-profile systems -- which range from $5 million to
over $100 million and from 200 to 2,000 users -- serve as the mission critical
infrastructure for over $30 billion in annual health and human services
expenditures. Given MAXIMUS's successful track record, core competencies, and
national market presence, MAXIMUS is well positioned to take advantage of the
increased nationwide emphasis in state government on eligibility systems,
managed care, child protective services, family court services and child support
enforcement -- as well as to address welfare reform impacts on these programs.
The division also includes the new MAXIMUS health finance and management
consulting practice, with an emphasis on managed care, health delivery reform,
and healthcare performance management, and a card technologies practice focused
on electronic benefits transfer and driver's license applications. The synergies
provided by our Consulting and Government Operations Groups, coupled with
strategic hires, are expected to uniquely position MAXIMUS to take advantage of
the new market opportunities created by the recently enacted changes to Medicare
and Medicaid managed care and by the new Child Health Insurance Program.
International Division. MAXIMUS provides health care consulting and
systems services to assist foreign government agencies and health care
organizations responsible for the delivery of treatment services to large
populations. MAXIMUS automates and restructures clinical information systems for
large outpatient providers, hospital information systems, managed care
information systems, beneficiary management systems,
31
<PAGE> 39
and treatment network management systems for managing large networks of health
treatment facilities. In addition, MAXIMUS consults with foreign government
agencies in developing health care policy reforms, treatment quality
improvements and productivity enhancements. MAXIMUS's health care systems
software, developed in ORACLE(R), is a platform-independent and multi-language
software package. MAXIMUS 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 health care system database in 18 hospitals and 200 clinics
throughout Egypt, allowing the Egyptian Health Insurance Organization to better
manage its facilities. MAXIMUS also just signed a $3.5 million, three-year
contract for a second major automation project for the United States Agency for
International Development in Egypt. This project will involve the installation
of a health information system in three hospitals in Cairo. In Argentina,
MAXIMUS recently signed a three-year, $5 million contract pursuant to which it
will provide organizational and management services to the health plan of an
employee union with almost 500,000 members.
BACKLOG
MAXIMUS's backlog represents an estimate of the remaining future revenues
from existing signed contracts and revenues from contracts which have been
awarded but not yet signed. Using the best available information, MAXIMUS
estimates backlog on a quarterly basis with 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 September 30, 1997 and September 30, 1996, MAXIMUS's backlog for
services pursuant to its contracts with federal, state and local health and
human services agencies was approximately $217 million and $87 million,
respectively.
MARKETING AND SALES
MAXIMUS'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 MAXIMUS's proposal to provide program management services,
MAXIMUS establishes and maintains relationships with elected officials,
political appointees and government employees. MAXIMUS occasionally engages
marketing consultants, including lobbyists to establish and maintain
relationships with these client representatives. MAXIMUS's consultants and
lobbyists provide introductions to government personnel and provide information
to MAXIMUS 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,
MAXIMUS'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.
32
<PAGE> 40
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
MAXIMUS'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 MAXIMUS
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. MAXIMUS'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. MAXIMUS'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 MAXIMUS. MAXIMUS anticipates that it will face
increased competition in the future as new companies enter the market. MAXIMUS
believes that its experience, reputation, industry focus and broad range of
services will enable it to compete effectively in its marketplace.
GOVERNMENT REGULATION
The market for MAXIMUS'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 known as "Welfare," which have included the Aid to
Families with Dependent Children Program ("AFDC") and the Job Opportunities and
Basic Skills Training Program ("JOBS"). 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.
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
33
<PAGE> 41
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 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 women 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 enrollment 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 16, 1998 MAXIMUS had more than 2,100 employees, consisting of
1,908 employees in the Government Operations Group, 108 employees in the
Consulting Group and 101 administrative employees. MAXIMUS'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,
MAXIMUS 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 MAXIMUS's Government Operations Group is awarded a contract by
state or local government, MAXIMUS 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, MAXIMUS engages intensive short-term hiring efforts
at the project's location.
MAXIMUS's hiring focus is to identify candidates who are well suited by
background and temperament to serve MAXIMUS's government clients. MAXIMUS'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
34
<PAGE> 42
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.
MAXIMUS 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, MAXIMUS has established several employee benefit plans, including a
401(k) savings and retirement plan and MAXIMUS's 1997 Equity Incentive Plan.
DESCRIPTION OF PROPERTY
MAXIMUS is headquartered in McLean, Virginia, in a 21,000 square foot
office building which is owned by MAXIMUS. MAXIMUS leases office space for other
management and administrative functions in connection with the performance of
its contracts in various states and foreign countries. On November 30, 1997,
MAXIMUS conducted operations from thirty-six leased office facilities totaling
approximately 318,000 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. MAXIMUS believes that additional space will be required as the business
expands and believes that it will be able to obtain such space as needed.
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 MAXIMUS and other
parties as third party defendants in an action by the State of Hawaii against
Network Six. In 1991, MAXIMUS'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 MAXIMUS is liable to Network Six on grounds that: (i) Network Six was an
intended third party beneficiary under the contract between MAXIMUS and Hawaii;
(ii) MAXIMUS engaged in bad faith conduct and tortiously interfered with the
contract and relationship between Network Six and Hawaii; (iii) MAXIMUS
negligently breached duties to Network Six; and (iv) MAXIMUS aided and abetted
Hawaii in Hawaii's breach of contract. Network Six's complaint seeks damages,
including punitive damages, from the third party defendants in an amount to be
proven at trial. MAXIMUS believes that Network Six was not an intended third
party beneficiary under its contract with Hawaii and that Network Six's claims
are without factual or legal merit. MAXIMUS does not believe this action will
have a material adverse effect on MAXIMUS's business, and it intends to
vigorously defend this action. However, given the early stage of this
litigation, no assurance may be given that MAXIMUS will be successful in its
defense. A decision by the court in Network Six's favor or any other conclusion
of this litigation in a manner adverse to MAXIMUS could have a material adverse
effect on MAXIMUS's business, financial condition and results of operations.
On November 28, 1997, a former officer, director and shareholder of MAXIMUS
filed a complaint in the United States District Court for the District of
Massachusetts, alleging that at the time he resigned from MAXIMUS in 1996,
thereby triggering the repurchase of his shares, MAXIMUS and certain of its
officers and directors had failed to disclose material information to him
relating to the potential value of the shares. He further alleges that MAXIMUS
and its officers and directors violated Sections 10(b) and 20(a) of the
Securities and Exchange Act of 1934 and breached various fiduciary duties owed
to him and claims damages in excess of $10 million. MAXIMUS has filed a
counterclaim. MAXIMUS does not believe that this action will have a material
adverse effect on MAXIMUS's business, and it intends to vigorously defend this
action. However, given the early stage of this litigation, no assurance may be
given that MAXIMUS will be successful in its defense.
MAXIMUS is not a party to any material legal proceedings, except as set
forth above.
35
<PAGE> 43
MAXIMUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. Founded in 1975,
MAXIMUS has been profitable every year since inception. 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.
MAXIMUS'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, 1997, revenues from these contract types were approximately
39%, 40%, 17% 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 MAXIMUS 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 1997 revenues from the above contract types were approximately 20%, 53%,
23% and 4%, 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 provided to the Social Security
Administration were completed in the quarter ended March 31, 1997. The SSA
Contract contributed $31.6 million, $56.5 million, $14.3 million and $2.9
million to MAXIMUS's revenues in the fiscal years 1997, 1996, 1995 and 1994,
respectively.
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, 1997,
MAXIMUS's average Government Operations contract duration was 3 1/2 years.
MAXIMUS's Consulting Group is typically engaged for periods in excess of 24
months. Indicative of the long-term nature of MAXIMUS's engagements,
approximately 59% of MAXIMUS's fiscal 1997 revenues were in backlog as of
September 30, 1996.
MAXIMUS's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. MAXIMUS'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 MAXIMUS'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 and the success of its performance-based
contracts.
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation.
During its third fiscal 1997 quarter, MAXIMUS recognized two significant
charges against income. The completion of its initial public offering resulted
in the termination of MAXIMUS's S corporation status. As a result MAXIMUS
recorded a non-recurring deferred tax charge of $2.6 million for the cumulative
differences
36
<PAGE> 44
between the financial reporting and income tax basis of certain assets and
liabilities at June 12, 1997, the day prior to the initial public offering. In
connection with the offering, on January 31, 1997, certain key employees of
MAXIMUS surrendered rights to purchase shares of Common Stock of MAXIMUS in
exchange for options to purchase shares of Common Stock at an exercise price of
$1.46 per share. MAXIMUS recognized 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. Compensation expense totaling
$150,000 had been recognized through March 31, 1997, and, in the third fiscal
quarter, MAXIMUS recognized an additional charge against income of $5.7 million.
The option exercise price was based on the adjusted book value of the Common
Stock at September 30, 1996, and was established pursuant to pre-existing
compensation arrangements with these employees.
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
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------
1995 1996 1997 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Government Operations Group.................... 32.6% 20.1% 51.4% 21.6% 76.4%
Consulting Group............................... 39.8 25.1 23.9 18.0 23.6
SSA Contract................................... 27.6 54.8 24.7 60.4 --
----- ----- ----- ----- -----
Total revenues................................. 100.0 100.0 100.0 100.0 100.0
Gross profit:
Government Operations Group.................... 22.7 20.3 22.3 18.4 17.8
Consulting Group............................... 48.0 46.9 47.8 46.3 48.0
SSA Contract................................... 14.8 14.7 13.9 13.9 --
Total gross profit as percentage of total
revenues.................................... 30.6 23.9 26.3 20.7 24.9
Selling, general and administrative expenses..... 17.5 12.7 13.1 10.8 14.7
Stock option compensation expense................ -- -- 4.6 -- --
----- ----- ----- ----- -----
Income from operations........................... 13.1 11.2 8.7 9.9 10.2
Interest and other income........................ 0.3 0.3 0.7 0.2 1.6
----- ----- ----- ----- -----
Income before income taxes....................... 13.4 11.5 9.4 10.1 11.8
Provision for income taxes....................... 0.2 0.2 2.6 0.2 4.7
----- ----- ----- ----- -----
Net income....................................... 13.2% 11.3% 6.7% 9.9% 7.1%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996
Revenues. Total contract revenues decreased 2.4% to $36.4 million for the
three months ended December 31, 1997 as compared to $37.2 million for the same
period in 1996. Government Operations Group revenues decreased 9.2% to $27.8
million for the three months ended December 31, 1997 from $30.6 million for the
same period in 1996 due to the termination of the SSA Contract (see Overview) in
February 1997. For the three months ended December 31, 1997, revenues from the
SSA Contract were $0 as compared to $22.5 million for the same period in 1996.
Excluding the SSA Contract, Government Operations Group revenues increased
245.9% to $27.8 million in the three months ended December 31, 1997 from $8.0
million for the same period in 1996. This increase is due to an increase in the
number of contracts in the Child Support Enforcement, Managed Care, and Welfare
Reform divisions of the Government Operations Group. Consulting Group revenues
increased 28.0% to $8.6 million for the three months ended December 31, 1997
from $6.7 million for the same period in 1996 due to an increase in the number
of contracts.
37
<PAGE> 45
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 17.5% to $9.1 million for the three
months ended December 31, 1997 as compared to $7.7 million for the same period
in 1996. Government Operations Group gross profit increased 7.1% to $4.9 million
for the three months ended December 31, 1997 from $4.6 million for the three
months ended December 31, 1996. As a percentage of revenues, Government
Operations Group gross profit increased to 17.8% in the three months ended
December 31, 1997 from 15.1% in the same period in 1996, primarily due to the
absence of revenue from the SSA Contract in the December 1997 quarter, which
contract had a lower gross profit margin than other contracts in the Group. The
Consulting Group gross profit increased 32.8% to $4.1 million for the three
months ended December 31, 1997 from $3.1 million for the same period in 1996 due
principally to the increased revenues. As a percentage of revenues, Consulting
Group gross profit increased to 48.0% for the three months ended December 31,
1997 from 46.3% for the same period in 1996.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 32.4% to $5.3 million for the three months
ended December 31, 1997 as compared to $4.0 million in the same period in 1996.
As a percentage of revenues, selling, general and administrative expenses
increased to 14.7% for the three months ended December 31, 1997 from 10.8% for
the same period in 1996. This increase in costs was due to increases in both
professional and administrative personnel necessary to support MAXIMUS's growth
and marketing and proposal preparation expenditures to pursue further growth.
Provision for Income Taxes. Prior to the IPO, MAXIMUS and its shareholders
elected to be treated as an S corporation under the Internal Revenue Code. Under
the provisions of the tax code, MAXIMUS's shareholders included their pro rata
share of MAXIMUS's income in their personal tax returns. Accordingly, MAXIMUS
was not subject to federal and most state income taxes during 1996 and the
period to June 12, 1997. Upon completion of the IPO, MAXIMUS's S corporation
status was terminated and MAXIMUS's became subject to federal and state
corporate income taxes. Income taxes at normal corporate rates have been
provided subsequent to June 12, 1997.
MAXIMUS's income tax provision for the three months ended December 31, 1997
was $1.7 million as compared to $0.1 for the three months ended December 31,
1996. The provision for income taxes for the three months ended December 31,
1996 consisted of state income taxes payable. The provision for income taxes for
the three months ended December 31, 1997 consisted of state and federal income
tax of $1.7 million, which is based on an estimated annual income tax rate of
40%.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Revenues. Total revenues increased 24.1% to $127.9 million in fiscal 1997
from $103.1 million in fiscal 1996. Government Operations Group revenues
increased 26.1% to $97.4 million in fiscal 1997 from $77.2 million in fiscal
1996 due to an increase in the number of projects offset by a decrease in
revenue from the SSA Contract, which was terminated in February 1997. The SSA
Contract contributed $31.6 million to fiscal 1997 revenues as compared to $56.5
million to fiscal 1996 revenues. Excluding the SSA Contract, Government
Operations Group revenues increased 218.0% to $65.8 million in fiscal 1997 from
$20.7 million in fiscal 1996 due to increases in the numbers of contracts in the
Welfare Reform, Managed Care Enrollment Services, and Child Support Enforcement
divisions of the group. Consulting Group revenues increased 18.1% to $30.6
million in fiscal 1997 from $25.9 million in fiscal 1996 due to an increase in
the number of contracts and increased revenues from revenue maximization
contracts and international business. Revenues attributable to revenue
maximization contracts grew to $7.4 million in fiscal 1997 from $5.1 million in
fiscal 1996.
Gross Profit. Total gross profit increased 36.5% to $33.7 million in
fiscal 1997 from $24.7 million in fiscal 1996. Government Operations Group gross
profit increased 52.1% to $19.1 million in fiscal 1997 from $12.5 million in
fiscal 1996. As a percentage of revenues, Government Operations Group gross
profit increased to 19.6% in fiscal 1997 from 16.2% in fiscal 1996 primarily due
to the decreased revenue volume of the SSA contract in fiscal 1997, which had a
lower gross profit margin than other contracts in the Group, and to favorable
profit recognition adjustments on two large projects. Excluding the SSA
contract, Government Operations Group gross profit as a percentage of revenues
increased to 22.3% in fiscal 1997 from 20.3% in fiscal 1996. Consulting Group
gross profit increased 20.4% to $14.6 million in fiscal 1997 from $12.1 million
in
38
<PAGE> 46
fiscal 1996 due to principally to the increased revenues. As a percentage of
revenues, Consulting Group gross profit increased to 47.8% in fiscal 1997 from
46.9% in fiscal 1996 which represents normal variability of gross profit from
period to period.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 28.1% to $16.8 million in fiscal 1997 from
$13.1 million in fiscal 1996. This increase in costs was due to increases in
both professional and administrative personnel and professional fees necessary
to support MAXIMUS's growth and marketing and proposal preparation expenditures
incurred to pursue further growth. From September 30, 1996 to September 30,
1997, administrative and systems personnel increased 39.3% from 61 to 85. As a
percent of revenues, selling, general and administrative expenses increased to
13.1% for fiscal 1997 from 12.7% for fiscal 1996 to support the growth of
MAXIMUS from 754 total employees at September 30, 1996 to 1,421 total employees
at September 30, 1997.
Provision for Income Taxes. For the years ended September 30, 1995 and
1996, no federal income taxes have been recorded due to MAXIMUS's S corporation
status. For these years, the tax provision consists of state taxes for those
states in which MAXIMUS, rather than the shareholders, is liable for income
taxes. Upon completion of the IPO, MAXIMUS's S corporation status terminated for
federal and state taxation purposes, and MAXIMUS recorded a deferred tax charge
against income of $2,566,000 for the cumulative differences between the
financial reporting and income tax basis of certain assets and liabilities at
June 12, 1997. Income taxes at normal corporate rates have been provided for the
period from June 13, 1997 to September 30, 1997.
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 $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 decreased to 20.3% 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 MAXIMUS'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 MAXIMUS 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 MAXIMUS's ability to
support its growth without a proportionate increase in associated costs.
39
<PAGE> 47
QUARTERLY RESULTS
Set forth below are selected income statement data for the eight quarters
ended December 31, 1997. 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 footnotes included elsewhere in this Prospectus/Proxy
Statement. 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
-------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Government Operations Group......... $ 4,947 $ 4,896 $ 6,736 $ 8,029 $ 15,551 $ 19,158 $ 23,019 $ 27,772
Consulting Group.................... 7,333 5,832 7,585 6,704 6,885 8,138 8,851 8,584
SSA Contract........................ 10,606 17,170 21,308 22,511 9,082 19 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Revenues........................ 22,886 27,898 35,629 37,244 31,518 27,315 31,870 36,356
Cost of revenues...................... 16,962 21,577 27,863 29,534 23,323 18,561 22,836 27,300
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 5,924 6,321 7,766 7,710 8,195 8,754 9,034 9,056
Selling, general and administrative
expenses............................ 3,144 3,343 3,875 4,039 3,972 4,298 4,473 5,346
-------- -------- -------- -------- -------- -------- -------- --------
Stock option compensation expense..... -- -- -- 150 5,724 -- --
Income (loss) from operations......... 2,780 2,978 3,891 3,671 4,073 (1,268) 4,561 3,710
Interest and other income............. 46 63 102 84 64 185 595 575
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes..... 2,826 3,041 3,993 3,755 4,137 (1,083) 5,156 4,285
Provision for income taxes............ 55 60 71 57 93 1,011 2,215 1,692
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ 2,771 $ 2,981 $ 3,922 $ 3,698 $ 4,044 $ (2,094) $ 2,941 $ 2,593
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
MAXIMUS'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
MAXIMUS has been awarded and general economic conditions. Because a significant
portion of MAXIMUS's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commences or completed during any quarter may cause significant
variations in operating results from quarter to quarter. Furthermore, MAXIMUS
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 and
the absence of revenues thereunder after March 31, 1997, significantly reduced
MAXIMUS'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 MAXIMUS's operating results and financial condition. See "Risk Factors
- -- Variability of Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
MAXIMUS' primary source of liquidity is cash flows from operations.
MAXIMUS' cash flow from operations was ($3.9) million, $17.3 million, $3.1
million and $2.7 million for the three months ended December 31, 1997 and for
the years ended September 30, 1997, 1996 and 1995, respectively. The use of cash
in operations for the three months ended December 31, 1997 was primarily due to
the payment of income taxes totalling $4.9 million and employee bonuses
totalling $2.9 million related to the year ended September 30, 1997 which were
paid in October 1997. The increase in cash from operations in fiscal 1997 as
compared to fiscal 1996 is due primarily to higher net income earned during
fiscal 1997, after adjusting for the $5.9 million non-cash compensation charge
related to MAXIMUS's initial public offering, a net increase in current and
deferred income taxes payable of $2.9 million due to the termination of
MAXIMUS's S corporation status during fiscal 1997, and an increase in accrued
compensation and employee benefits payable
40
<PAGE> 48
at September 30, 1997 of $4.0 million principally due to the increased number of
employees, and an increase in billings in excess of costs and estimated earnings
of $6.5 million. The timing of receipt of contract payments can vary and,
combined with the requirement to provide start-up funding for new projects, can
cause cash flows to fluctuate from period to period.
Certain short-term investments were sold during the three months ended
December 31, 1997 generating $9.4 million in proceeds. These investments were
sold to provide general operating capital and the necessary cash to make income
tax payments and to pay the final S corporation distribution discussed below. Of
the $40.3 million of cash flow used for investing activities for the year ended
September 30, 1997, $39.9 million was used to purchase short-term municipal and
commercial bonds, which can be readily converted to cash if needed. MAXIMUS has
no material commitments for capital expenditures and, as a services company,
does not anticipate making any significant capital expenditures during fiscal
year 1998.
During the three months ended December 31, 1997, MAXIMUS made final S
corporation distributions totaling $5.7 million. The distributions to
shareholders were based upon the fiscal 1997 income taxable to the S corporation
shareholders. The amount of the fiscal 1997 taxable income was determined during
the finalization of MAXIMUS' income for the full fiscal year ended September 30,
1997, and the liability for the $5.7 million distribution was recognized on the
September 30, 1997 balance sheet. Cash flows from financing activities were
$31.7 million in fiscal 1997. MAXIMUS received proceeds of $53.8 million for the
sale of stock in its initial public offering, net of underwriters fees and other
expenses. MAXIMUS made S corporation distributions of $21.7 million,
representing a portion of the estimated income taxed or taxable to the S
corporation shareholders through the date of the initial public offering.
MAXIMUS 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 totaled $0.5 million at March
16, 1998. The Credit Facility bears interest at a rate equal to LIBOR plus an
amount which ranges from 0.65% to 1.25% depending on MAXIMUS's debt to equity
ratio. The Credit Facility contains certain restrictive covenants and financial
ratio requirements, including a minimum net worth requirement of $60 million.
MAXIMUS has not used the Credit Facility to finance its working capital needs
and, at March 16, 1998, MAXIMUS had $9.5 million available under the Credit
Facility.
In November 1997, MAXIMUS entered into a non-binding letter of intent to
purchase certain Medicaid enrollment contracts and operations for a cash amount
of $5.7 million, subject to adjustments. It is anticipated that this transaction
will be finalized in the fiscal quarter ending June 30, 1998. On March 16, 1998,
MAXIMUS concluded a merger with Spectrum Consulting Group, Inc. wherein MAXIMUS
exchanged 840,000 shares of its Common Stock for 100% of the common stock of
Spectrum. This combination is expected to be accounted for as a pooling of
interests. Because the effect is immaterial, MAXIMUS will record this
combination effective January 1, 1998. It is not anticipated that these
acquisitions will have a material effect on the liquidity of MAXIMUS.
Management believes that MAXIMUS will have sufficient resources to meet its
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, investment in upgraded systems infrastructure or acquisitions of other
businesses and technologies. Cash requirements beyond the next 12 months depend
on MAXIMUS's profitability, its ability to manage working capital requirements
and its rate of growth.
YEAR 2000
MAXIMUS is aware of the issues that many computer systems will face as the
millennium ("Year 2000") approaches. MAXIMUS believes that its own internal
software and hardware is Year 2000 compliant. In addition, in order to perform
on its government contracts, MAXIMUS relies to varying extents on information
processing performed by the governmental agencies and entities with which it
contracts. MAXIMUS has inquired where necessary of such agencies and entities of
potential Year 2000 problems, and, based on responses to such inquiries,
management believes that MAXIMUS will be able to continue to perform on such
contracts without material negative financial impact.
41
<PAGE> 49
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about
MAXIMUS's confidence and strategies and expectations about future contracts,
market opportunities, market demand or acceptance of MAXIMUS's products are
forward looking statements that involve risks and uncertainties. These
uncertainties include reliance on government clients; risks associated with
government contracting; risks involved in managing governmental projects;
legislative change and political developments; opposition from government
unions; challenges resulting from growth; adverse publicity; and legal, economic
and other risks detailed in this Prospectus/Proxy Statement.
42
<PAGE> 50
BUSINESS OF DAVID M. GRIFFITH & ASSOCIATES, LTD.
SERVICES
David M. Griffith & Associates, Ltd. ("Griffith"), an Illinois corporation,
was incorporated on December 30, 1976. Griffith provides consulting services,
primarily for state and local governments, throughout the United States and
Puerto Rico. In addition, the Company has worked with 390 other entities
including state universities, school districts and non-profit organizations.
Over time, the Company often provides several of its services to a single
client. In many cases, the Company provides certain services on a recurring
annual basis.
Griffith's services include cost allocation, executive search, revenue
maximization, health and human services management, human resources consulting,
fleet management, housing and environmental consulting, child support
collections, organizational and productivity studies, university research rate
negotiation, disaster management, franchise fee and information system studies.
Griffith's revenues are generated from contracts with various payment
arrangements including:
- Fixed price
- Time and materials reimbursement
- Performance based criteria
MARKETING AND SALES
Griffith markets its services in many ways. Griffith has long-standing
relationships with many state and local governments, which fosters the
opportunities for multi-year assignments and sole source engagements. Griffith
also has contractual relationships with various county and city associations
which allow for their members to contract for specific Griffith services through
master agreements. Finally, Griffith responds to requests for proposals from
existing and new clients. Griffith also advertises in trade publications and
attends as a sponsor at trade group conferences.
PROPRIETARY INFORMATION
Griffith has developed and maintains several proprietary PC-based software
tools that it has registered with the US Copyright Office. These include systems
known as: Project Accounting for Contracts; Random Moment Sampling; New Griffith
Cost System; Quarterly Information Consolidation; Program Expenditure Tracking;
Cost Accounting for Management Information; Archer Compensation / Compensation;
Archer Matrix-Point-Factor Job Evaluation; Archer Multi-Dimensional Performance
Appraisal; and Comprehensive Rate Information.
HUMAN RESOURCES AND FACILITIES
As of December 31, 1997, full-time Griffith employees included 34 officers,
204 consultants and 51 administrative personnel. Griffith also employed
part-time employees in consultant or administrative capacities. All officers and
consultants have employment agreements with Griffith. No employees are covered
by a collective bargaining agreement. Griffith maintains 38 offices and
organizes its operations in five geographic regions. The offices range in size
from one employee to forty employees.
FUTURE BUSINESS
Griffith does not depend on a single product or service nor is it dependent
on any one large client. Based on 1997 revenues, Griffith's largest single
client, a state department, provided approximately 5% of Griffith's revenues.
Many services are subject to government procurement practices so Griffith has no
assurance that its contracts will be renewed. However, Griffith emphasizes
strong relationships with its client contacts in order to assure itself of
bidding opportunities.
Griffith also has long-standing agreements with county and municipal
associations in several states. These agreements provide for offering additional
services to member entities under master agreements with the respective
associations. When Griffith develops a new service it may then be able to
approach the association
43
<PAGE> 51
about offering the service under the master agreements. However, the
associations are not required to offer each new service.
Certain services are dependent on existing federal regulations governing
grants management practices at the state and local level. During 1997,
approximately 29% of Griffith's revenues were for cost allocation services. In
1990, about 50% of Griffith's revenues were for cost allocation services. A
significant portion of this revenue is for projects that allow state and local
governments to recover administrative costs from grants and contracts with the
federal government. Changes in federal reimbursement regulations could effect
these assignments. Most other revenue of Griffith is not linked to federal
reimbursement rules.
LEGAL PROCEEDINGS
On January 20, 1997, Allstate Insurance Company filed a complaint in the
United States District Court for the District of Arizona, followed by an amended
complaint on May 8, 1997, against Griffith and thirteen other named defendants,
alleging violations of Rule 10b-5 of the Securities and Exchange Act of 1934,
violations of the Arizona Securities Act, consumer fraud, common law fraud, and
common law negligent misrepresentation in connection with Griffith's examination
of feasibility studies. Griffith entered a motion to dismiss the lawsuit on
March 23, 1998 and is awaiting a decision. Based on the same set of operative
facts, Superstition Mountains Community Facilities District No.1 filed a
complaint in U.S. District Court for the District of Arizona on December 2,
1996, followed by an amended complaint on November 13, 1997, against Griffith
and nine other named defendants, alleging with regard to Griffith, breach of
fiduciary duty, breach of contract, professional negligence, and negligence. If
the Merger occurs, MAXIMUS intends to vigorously defend these actions. However,
a decision by the court in favor of either or both plaintiffs could have a
material adverse effect on Griffith's business, financial condition and results
of operations.
44
<PAGE> 52
GRIFFITH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Griffith's revenues are generated pursuant to contracts with its customers,
who are primarily state and local governments throughout the United States and
Puerto Rico. Contract periods vary. Most contracts provide for a specific scope
of work to be performed by a specified completion date. In some cases, Griffith
has flexibility with respect to the scheduling of field work as long as the
assignment is completed by a specific target date. Many contracts cover one or
more years. Some of these contracts call for an assignment that will be
conducted annually until the contract expires or the customer terminates the
agreement. Revenue is recognized when earned and when there is assurance of
collection.
Griffith's most significant expense is cost of revenues, which consists
primarily of project related consultant salaries and benefits, subcontractor
expense, travel and subsistence. For the years 1996 and 1997, these costs were
74.2% and 73.0% of revenues, respectively. Profitability is tied closely to
controlling the hiring and utilization of consultants.
Selling, general and administrative ("SG&A") consists of support expenses
and general operating expenses. Support expenses include clerical salaries and
benefits, equipment and software depreciation, office rent, office supplies and
services, and insurance. General operating expenses include computer software,
dues and subscriptions, training, advertising, interest, legal and accounting
services, other professional services and corporate meetings.
Interest and other expenses include interest on 1) Griffith's revolving
line of credit and 2) interest on deferred compensation to current and former
employees. At December 31, 1996 and 1997, the present value of deferred
compensation payable to current and former employees was $4.2 million and $3.5
million, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues(1):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of Revenues(2)......................................... 72.1% 74.2% 73.0%
Gross Profit................................................ 27.9% 25.8% 27.0%
SG&A Expenses(2)............................................ 22.1% 22.1% 21.9%
Income From Operations...................................... 5.8% 3.7% 5.1%
Interest and Other Expenses................................. 2.1% 2.3% 1.4%
Income before Income Taxes.................................. 3.7% 1.4% 3.7%
Income Tax Expense.......................................... 2.0% 0.9% 1.8%
Net Income.................................................. 1.6% 0.5% 1.9%
</TABLE>
- ---------------
(1) Note: minor differences attributable to rounding.
(2) Includes expenses for the Employee Stock Ownership Plan.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues increased 20.9% to $39.4 million from $32.6 million. Prior to
1997, Griffith netted subcontractor expenses against revenues. Beginning in
1997, Griffith discontinued netting the costs against the revenue. This change
represented approximately $600,000 of the $6.8 million increase in revenues. The
following consulting practices experienced significant growth during 1997:
Management Studies, Revenue Maximiza-
45
<PAGE> 53
tion, Fleet Consulting, Franchise Fee Consulting, Child Support Enforcement
Recovery Services, Mandate Claiming Services for local governments and school
districts in California, and fees and services related to the installation of
Company software. Revenues related to User Fee Services fell but this service
comprised less than 5% of Griffith's revenues during 1996.
Gross profit increased 26.5% from $8.4 million in 1996 to $10.6 million in
1997. Cost of revenues increased 19.0% from $24.2 million to $28.7 million. SG&A
increased 19.9% from $7.2 million to $8.6 million, consistent with revenue
growth. The decrease in operating expenses from 22.1% to 21.9% is largely due to
the inclusion of the $600,000 of subcontractor cost in revenues.
Interest expense decreased from 2.3% to 1.4% due to a decrease in average
outstanding bank borrowing.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues increased 6.5% from $30.6 million to $32.6 million. In 1993,
Griffith embarked on a program to establish national practices to oversee
projects for certain specialty services. During 1996, many of these practices
experienced significant growth and this growth accounted for most of Griffith's
growth in revenues. Services with significant growth during 1996 included
Management Studies, Revenue Maximization, Child Support Enforcement Recovery
Services, and fees and services related to the installation of Company software.
Revenues related to Disaster Grant Management Services fell but this service
comprised approximately 5% of Griffith's revenues during 1995.
Cost of revenues increased 9.5% from $22.1 million to $24.2 million. Gross
profit decreased 1.4% from $8.5 million to $8.4 million. The decrease in gross
profit was due to lower project billability by the consulting staff brought
about by the hiring of new consultant staff members in early 1996. SG&A
increased 6.4% from $6.8 million to $7.2 million. As a percent of revenue, SG&A
was 22.1% in 1995, 22.1% in 1996 and the increase in SG&A was consistent with
the growth in revenue.
PROVISION FOR INCOME TAXES
Griffith is a "C" corporation. Griffith qualifies for use of the cash
method for accounting for income tax purposes. Griffith recognizes deferred
taxes for temporary differences between the financial reporting basis and tax
basis of assets and liabilities based upon the currently enacted tax rates
expected to be in effect when such amounts are realized or settled. At December
31, 1996, Griffith reported a deferred income tax asset of $1.5 million and a
deferred tax liability of $2.7 million. At December 31, 1997, the deferred
income tax asset and liability were $1.4 million and $3.2 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Griffith's primary source of liquidity has been a revolving line of credit.
Griffith has had a single lender since 1993, with which it has negotiated a $4.0
million revolving line of credit for the period May 10, 1997 through June 10,
1998. The line of credit bears an interest rate of .25% over the prime lending
rate. Griffith believes it is in compliance with the loan covenants.
Long-term debt obligations include deferred compensation to current and
former employees. Deferred compensation is subordinated to bank debt.
Griffith has not paid dividends and is prohibited from doing so until it
has met obligations to certain retired executives. Capital will be used for
equipment purchases but such purchases are primarily for office furniture and
personal computers. Capital expenditures were $727,116 in 1997, $447,064 in 1996
and $613,152 in 1995. Griffith has no future plans for equipment purchases
significantly above these levels. The increase in capital expenditures in 1997
is attributable to the Company's acquisition of the computer equipment and
office furniture of Saguaro Systems, Inc. of Grand Rapids, Michigan at a cost of
$127,875 as part of a merger agreement.
46
<PAGE> 54
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following individuals will serve as the executive officers and
directors of MAXIMUS immediately following the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David V. Mastran(1).................... 55 President, Chief Executive Officer and Director
Raymond B. Ruddy(1).................... 54 Chairman of the Board of Directors, Vice President
of MAXIMUS, President of Consulting Group and
Treasurer
Russell A. Beliveau.................... 50 President of Government Operations Group and
Director
Peter B. Pond(2)....................... 53 Director
Jesse Brown(2)......................... 53 Director
F. Arthur Nerret....................... 50 Vice President, Finance and Chief Financial
Officer
Susan D. Pepin......................... 43 President of Systems Planning and Integration
Division and Director
Lynn P. Davenport...................... 50 President of Human Services Division and Director
Robert J. Muzzio....................... 63 Executive Vice President and Director
Ilene R. Baylinson..................... 41 President of Disability Services Division
Louis E. Chappuie...................... 55 President of David M. Griffith, Ltd.
John F. Boyer.......................... 51 Executive Vice President
Kevin Dorney........................... 49 Executive Vice President
David M. Casey......................... 40 President of Information Technology Solutions
Division
Edward F. Hilz......................... 52 Chief Information Officer
David A. Hogan......................... 49 President of Child Support Division
John P. Lau, Sr........................ 54 President of International Division
Holly A. Payne......................... 45 President of Welfare Reform Division
Philip A. Richardson................... 50 Executive Vice President
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Immediately following the Merger, Griffith will be operated as a
wholly-owned subsidiary of MAXIMUS. The executive officers of the Surviving
Corporation will be the executive officers of Merger Sub except that Louis
Chappuie, the President and Chief Executive Officer of Griffith will become
President and a Director of the Surviving Corporation. The management of MAXIMUS
will remain unchanged after the Merger except that Louis Chappuie will be a
member of the Board of Directors of MAXIMUS and an executive officer of MAXIMUS.
Executive officers of MAXIMUS are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors. MAXIMUS's
Articles of Incorporation provide that the Board of Directors of MAXIMUS is
divided into three classes, with each class to be as nearly equal in number of
directors as possible. The term of one class expires, and their successors are
elected for a term of three years, at each annual meeting of MAXIMUS's
shareholders.
DAVID V. MASTRAN has served as President and Chief Executive Officer since
he founded MAXIMUS in 1975. Dr. Mastran received his Sc. D. in Operations
Research from George Washington University in 1973,
47
<PAGE> 55
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 MAXIMUS's Consulting Group since 1986. From 1969 until he
joined MAXIMUS, 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 MAXIMUS'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.
PETER B. POND has served as a director of MAXIMUS since his election by the
Board in December 1997. Mr. Pond is a Principal and Managing Director in the
Investment Banking Department at Donaldson, Lufkin & Jenrette Securities
corporation in Chicago and is head of that company's Midwest Investment Banking
Group. Mr. Pond holds a BS in Economics from Williams College and an MBA from
the University of Chicago. He is a director of The Metzler Group, Inc.
JESSE BROWN has served as a director of MAXIMUS since his election by the
Board in September 1997. Mr. Brown, who is currently President of Brown &
Associates, Inc., an international consulting company, served as Secretary of
Veteran Affairs under the Clinton Administration from 1993 until 1997, and as
Executive Director of the Washington office of Disabled American Veterans from
1987 to 1993. Mr. Brown is an honors graduate of Chicago City College and also
attended Roosevelt University of Chicago and Catholic University in Washington,
D.C.
F. ARTHUR NERRET has served as Treasurer and Chief Financial Officer of
MAXIMUS since 1994 and serves as Trustee of MAXIMUS's 401(k) Plan. He has over
24 years of accounting experience as a CPA. From 1981 until he joined MAXIMUS,
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.
SUSAN D. PEPIN has served as the President of MAXIMUS's Systems Planning
and Integration Division since 1994 and has been with MAXIMUS 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
MAXIMUS, 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 MAXIMUS's Human Services
Division since he joined MAXIMUS in 1991. He has over thirteen 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 MAXIMUS, 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 MAXIMUS 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 MAXIMUS, Mr. Muzzio held
48
<PAGE> 56
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 MAXIMUS'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.
LOUIS E. CHAPPUIE has served as President of David M. Griffith &
Associates, Ltd. since 1992 and Chairman of the Board since 1997. Prior to
assuming the Presidency, he was Executive Vice President of the Firm's Western
Practice Area in Sacramento, California for 12 years. Additional experience
includes Arthur Young & Company and Foreign Service Officer, U.S. State
Department. Mr. Chappuie received his B.A. and M.A. from the University of
Minnesota in 1960 and 1961, respectively, and has completed course work for a
Ph.D. in Economics.
JOHN F. BOYER has served as Vice President for Strategic Planning and
Contract Administration of MAXIMUS since 1995. Dr. Boyer has more than 20 years
experience in health care delivery in both clinical and administrative settings.
Prior to joining MAXIMUS, Dr. Boyer served as Director of Health Services
Financing Policy in The Office of The Assistant Secretary of Defense (Health
Affairs) at the Pentagon from 1989 until 1995. Dr. Boyer received his Ph.D. in
Public Administration and Public Policy Analysis from The American University in
1989, his M.S. in Management from The Naval Postgraduate School in 1981, his
M.S. in Nursing from New York Medical College in 1973 and his B.S. from Illinois
State University in 1969.
KEVIN DORNEY has served as an Executive Vice President of MAXIMUS since
1990 and has more than 20 years of experience in child support enforcement,
financial management and the administration of large-scale diverse programs and
projects. Prior to jointing MAXIMUS Mr. Dorney worked in a variety of positions
for the Massachusetts Department of Public Welfare, including Deputy Assistant
Commissioner and Director of Administration. Mr. Dorney received his B.A. from
Bridgewater State College in 1970.
DAVID M. CASEY has served as the President of the Information Technology
Solutions Division of MAXIMUS since 1994. Mr. Casey has 17 years of professional
experience in management information systems. Prior to joining MAXIMUS, Mr.
Casey served as a Government and Education Account Executive for Wang
Laboratories, Inc. from 1987 until 1994 and served as a Sales Consultant at Wang
Laboratories, Inc. from 1986 to 1987. Mr. Casey has also held positions at
Motorola, Inc. and Polaroid Corporation. Mr. Casey holds a B.S. in General
Engineering and Computer Science from Northeastern University.
EDWARD F. HILZ has served as the Chief Information Officer of MAXIMUS 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 MAXIMUS, 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 of MAXIMUS has served as the President of the Child Support
Division since 1994 and served as a Vice President of the division from 1993
until 1994. Prior to joining MAXIMUS, 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 MAXIMUS's International
Division since 1993 and served as President of the MAXIMUS's Advanced Systems
Division of MAXIMUS from 1989 until 1993.
49
<PAGE> 57
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 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 MAXIMUS since
1987 and as President of the Welfare Reform Division of MAXIMUS since 1995. Ms.
Payne has over 21 years of human services programs experience. From 1983 until
she joined MAXIMUS, 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.
PHILIP A. RICHARDSON has served as an Executive Vice President of MAXIMUS
since 1989 and served as a Director of MAXIMUS from 1980 until 1983. Dr.
Richardson has extensive management analysis and program evaluation experience.
Dr. Richardson was the Technical Director of Macro Systems, Inc. from 1983 to
1989. Dr. Richardson received his Ph.D. in Sociology from the University of
Pennsylvania in 1977, his M.A. in Criminology from the University of
Pennsylvania in 1970 and his B.A. in Social Science from York University in
1969.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Pond serves as a Principal and Managing Director in the Investment
Banking Department at Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") in Chicago. DLJ served as a managing underwriter for the initial public
offering by MAXIMUS of its Common Stock completed in June 1997. MAXIMUS also
employs DLJ Investment Management Corp. to manage MAXIMUS's securities
portfolio.
In May 1995, MAXIMUS entered into a Stock Purchase Agreement with Mr.
Ruddy, under which the parties agreed that MAXIMUS would purchase up to
2,878,040 of Mr. Ruddy's shares of Common Stock over a four year period at a
price per share equal to the book value of the stock on the date of sale,
subject to various conditions including an election by Mr. Ruddy after each
fiscal year end to demand such sale. No shares were purchased subject to this
agreement, and the agreement terminated upon completion of MAXIMUS's initial
public offering in June 1997.
In March 1996, MAXIMUS loaned to Mr. Davenport the aggregate principal
amount of $85,000, evidenced by an interest bearing promissory note. The note
was repaid in full in January 1997.
DIRECTOR COMPENSATION
Directors who are also employees of MAXIMUS do not receive additional
compensation for their services as directors. Outside directors are paid $2,500
for attendance at each meeting of the Board of Directors or committee thereof.
During fiscal 1997, no payments were made to directors in connection with their
services.
Any director who is not an employee of MAXIMUS is eligible to participate
in MAXIMUS's 1997 Director Stock Option Plan (the "Director Plan"), unless such
director irrevocably elects not to participate (an "Eligible Director"). Options
under the Director Plan are automatically granted to Eligible Directors upon the
election or reelection of such directors. Under the Director Plan, as amended on
December 1, 1997, each option consists of 5,000 shares of MAXIMUS Common Stock
for each year of the term of office to which the director is elected (with any
period of term of office less than a year deemed a full year). Such option
becomes exercisable with respect to 5,000 shares immediately upon grant and, in
the event the grant is for more than 5,000 shares, with respect to an additional
5,000 shares at each subsequent annual meeting of shareholders during which the
optionee is an Eligible Director and there remain unvested shares underlying the
option. Options granted under the Director Plan have a term of ten years. The
exercise price for each
50
<PAGE> 58
option is equal to the last sale price for MAXIMUS Common Stock on the business
day immediately preceding the date of grant, as reported on the New York Stock
Exchange. Currently, the only Eligible Directors are Messrs. Brown and Pond.
Upon his election to the Board in September 1997, Mr. Brown received an option
for 4,000 shares. In connection with the Amendment to the Director Plan in
December 1997, Mr. Brown received an additional option for 6,000 shares. Mr.
Pond received an option for 5,000 shares upon his election to the Board in
December 1977.
EXECUTIVE COMPENSATION
Summary Compensation Table. The table below sets forth certain
compensation information for the Chief Executive Officer of MAXIMUS and the four
most highly compensated executive officers of MAXIMUS whose salary and bonus for
the fiscal year ended September 30, 1997 exceeded $100,000 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(3)
ANNUAL COMPENSATION(1) ------------------
FISCAL ---------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) UNDERLYING OPTIONS COMPENSATION(4)
--------------------------- ------ --------- --------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
David V. Mastran.............. 1997 $358,413 --190,039 -- --
President and 1996 311,538 $ -- --
Chief Executive Officer
Raymond B. Ruddy.............. 1997 350,000 -- -- $ 3,067
Chairman of the Board, Vice 1996 300,000 177,165 -- 12,000
President of MAXIMUS, and
President of Consulting
Services
Russell A. Beliveau........... 1997 246,634 75,000 16,874(5) 5,758
President of Government 1996 215,000 70,000 9,900 8,600
Operations Group
Lynn P. Davenport............. 1997 259,615 100,000 116,365(6) 6,454
President of Human Services 1996 212,884 246,067 13,200 6,063
Division
Susan D. Pepin................ 1997 219,167 85,000 115,411(7) 6,734
President of Systems Planning 1996 184,358 212,883 13,200 7,374
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 fiscal year ended September 30, 1997.
(2) Bonuses earned for the fiscal year ended September 30, 1997 were paid on
October 21, 1997 for each of the Named Executive Officers receiving a bonus
for such fiscal year. Bonuses earned for the fiscal year ended September 30,
1996 were paid on September 30, 1996 for Messrs. Ruddy and Beliveau, on
October 21, 1996 for Dr. Mastran, and on December 20, 1996 for Mr. Davenport
and Ms. Pepin.
(3) For fiscal 1996, the figures in this column represent rights to purchase
shares of Common Stock at a price of $0.94 per share granted to certain
Named Executive Officers in the year ended September 30, 1996 for
performance during the year ended September 30, 1995. All such purchase
rights were exercised in March 1996.
(4) The figures in this column represent the amount contributed by MAXIMUS to
the employee under MAXIMUS's 401(k) Plan.
(5) Includes options to purchase 12,100 and 4,774 shares of Common Stock at
exercise prices of $1.46 and $26.50 per share, respectively.
51
<PAGE> 59
(6) Includes options to purchase 110,000 and 6,365 shares of Common Stock at
exercise prices of $1.46 and $26.50 per share, respectively.
(7) Includes options to purchase 110,000 and 5,411 shares of Common Stock at
exercise prices of $1.46 and $26.50 per share, respectively.
Option Grant Table. The following table sets forth certain information
concerning options granted to the Named Executive Officers in the fiscal year
ended September 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- -------------------- ---------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David V. Mastran...... -- -- -- -- --
Raymond B. Ruddy...... -- -- -- -- --
Russell A. Beliveau... 12,100 2.3% $1.46 (2) $ 11,110 $ 28,155
Lynn P. Davenport..... 110,000 20.7 1.46 (2) 101,000 255,955
Susan D. Pepin........ 110,000 20.7 1.46 (2) 101,000 255,955
</TABLE>
- ---------------
(1) These options were granted on January 31, 1997 under MAXIMUS's 1997 Equity
Incentive Plan in exchange for options originally granted in November 1996
and became fully exercisable upon consummation of MAXIMUS's initial public
offering in June 1997. Each option expires upon the earlier of the
termination of the Named Executive Officer's employment with MAXIMUS or
January 31, 2007.
(2) Potential realizable value is based on an assumption that the market price
of the stock will appreciate at the stated rate, compounded annually, from
the date of grant until the end of the 10-year term. There was no public
trading market for the Common Stock at the date of grant. Accordingly, these
values have been calculated based on $1.46 per share, the book value per
share at September 20, 1996, which is also the exercise price. These values
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect MAXIMUS's estimate or projection of future
stock prices. Actual gains, if any, on stock option exercises will be
dependent upon the future performance of the price of MAXIMUS's Common
Stock, which will benefit all shareholders proportionately.
On October 28, 1997, Mr. Beliveau, Mr. Davenport and Ms. Pepin were each
granted options under MAXIMUS's Equity Incentive Plan to purchase 4,774, 6,365,
and 5,411 shares of Common Stock of MAXIMUS, respectively, at an exercise price
of $26.50, the closing sales price of MAXIMUS's Common Stock as reported by the
New York Stock Exchange on October 27, 1997. Each option may be exercised on a
cumulative basis with respect to one-fourth of the shares underlying the option
on each of the first, second, third and fourth anniversaries of the date of
grant. Each option expires upon the earlier of the executive's termination of
employment or October 28, 2007.
52
<PAGE> 60
Option Exercises and Year-End Values. The following table sets forth
certain information concerning exercisable and unexercisable stock options held
by the Named Executive Officers as of September 30, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END (#) AT FISCAL YEAR-END($)(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David V. Mastran........................ -- -- -- --
Raymond B. Ruddy........................ -- -- -- --
Russell A. Beliveau..................... 12,100 -- $ 332,508 --
Lynn P. Davenport....................... 110,000 -- 3,022,800 --
Susan D. Pepin.......................... 110,000 -- 3,022,800 --
</TABLE>
- ---------------
(1) No options were exercised during the fiscal year ended September 30, 1997 by
the Named Executive Officers.
(2) Value of unexercised in-the-money options represents the difference between
the last reported sales price of MAXIMUS's Common Stock as reported by the
New York Stock Exchange on September 30, 1997 ($28.94) and the exercise
price of the option, multiplied by the number of shares subject to the
option.
EXECUTIVE EMPLOYMENT AGREEMENTS
MAXIMUS has entered into Executive Employment, Non-Compete, Confidentiality
and Stock Restriction Agreements with Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms.
Pepin, Mr. Davenport and Ilene R. Baylinson, President of MAXIMUS's Federal
Services Division, (each, an "Executive Agreement") pursuant to which each
individual has agreed to serve as an officer of MAXIMUS. Under the terms of the
Executive Agreements, each officer is entitled to a base salary and a year-end
bonus consistent with MAXIMUS's past practices. The initial base salary for each
of Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Mr. Davenport, Ms. Pepin and Ms.
Baylinson is $350,000, $350,000, $237,500, $250,000, $220,000 and $182,000,
respectively. In addition, Mr. Ruddy's Executive Agreement provides that his
aggregate compensation shall not be less than that paid to Dr. Mastran. The term
of the employment obligation under each Executive Agreement commenced on June
18, 1997 and continues until September 30, 2001, subject to the right of MAXIMUS
to terminate each officer if the officer breaches any material duty or
obligation to MAXIMUS or engages in certain other proscribed conduct. Each
Executive Agreement also provides that the officer will not compete with MAXIMUS
and will maintain MAXIMUS's trade secrets in strict confidence. In addition,
each Executive Agreement restricts the ability of the officer to sell or
transfer shares of Common Stock of MAXIMUS held by such officer until June 19,
2001 (the fourth anniversary of the closing of MAXIMUS's initial public
offering), and grants to the officer certain piggyback registration rights with
respect to such shares.
In the Executive Agreements with each of Raymond B. Ruddy and David V.
Mastran, such executives agreed to vote their shares in favor of the election of
the other to the Board of Directors, as long as each such executive owns or
controls at least 20% of the outstanding Common Stock. In addition, Mr. Ruddy
agreed in his Executive Agreement to vote his shares of Common Stock in a manner
consistent with instructions received from Dr. Mastran until September 30, 2001.
At the Closing of the Merger, Louis E. Chappuie, the President and Chief
Executive Officer of Griffith, will enter into an Employment, Non-Compete and
Confidentiality Agreement with MAXIMUS under which he will serve as an executive
officer of MAXIMUS following the Merger (the "Chappuie Agreement"). Under the
terms of the Chappuie Agreement, Mr. Chappuie is entitled to a base salary and a
year-end bonus consistent with MAXIMUS's regular bonus plan. The initial base
salary for Mr. Chappuie is $425,000. The term of the employment obligation under
the Chappuie Agreement is two years, commencing on the date
53
<PAGE> 61
Mr. Chappuie and MAXIMUS enter into such Agreement, subject to the right of
MAXIMUS to terminate Mr. Chappuie if he breaches any material duty or obligation
to MAXIMUS or engages in certain other proscribed conduct. The Chappuie
Agreement also provides that Mr. Chappuie will not compete with MAXIMUS and will
maintain MAXIMUS's trade secrets in strict confidence.
54
<PAGE> 62
BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
Officials of MAXIMUS first met the principals of Griffith on September 17,
1997 to discuss the possibility of a business combination involving the two
companies. The meeting was arranged by MAXIMUS's investment bankers who had
become aware that Griffith was interested in either selling their operations or
going public. The meeting was followed by a letter dated September 29, 1997 from
the president of Griffith setting out certain information about their company
and indicating their interest in pursuing a transaction. The senior executives
of MAXIMUS met with Griffith officials in Chicago during October 1997, and
negotiated the terms of the transaction which were included in a letter of
intent which was signed on November 4, 1997.
MAXIMUS and Griffith executed an extension to the letter of intent on
January 30, 1998, extending the commitments thereunder to April 30, 1998.
The letter of intent was superseded by the Merger Agreement, which was
signed on March 9, 1998.
MAXIMUS'S REASONS FOR THE MERGER
The Board of Directors of MAXIMUS has determined that the Merger is in the
best interest of MAXIMUS's shareholders for the following reasons:
- The Merger will consolidate MAXIMUS's position as a leader in the area of
consulting services to government customers and further enable MAXIMUS to
better generate new business and to increase its visibility with certain
state, county and local government customers.
- The Merger will enable MAXIMUS shareholders to participate in, and
benefit from the future growth potential of, an integrated company with a
greater depth of consulting service offerings, cross-marketing
opportunities and operating resources.
- Through the Merger, MAXIMUS will provide Griffith with financial
stability and resources that are expected to enhance Griffith's ability
to effectively compete for new business.
- Through the Merger, MAXIMUS's stock will enable Griffith to pursue
acquisitions which will strengthen both companies.
- Through the Merger, MAXIMUS's stock options will enable Griffith to
attract other high caliber consultants to its firm which will strengthen
both companies.
GRIFFITH'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
Griffith believes the Merger is advantageous to the Griffith shareholders
primarily because of the valuation being accorded to the Griffith Common Stock
in the Merger and the greater liquidity available to shareholders of MAXIMUS,
which has a significantly greater market capitalization than Griffith, and whose
Common Stock is traded on the New York Stock Exchange. Griffith believes the
proposed Merger also strengthens its ability to diversity within the state
government consulting businesses. While Griffith's financial condition is
currently strong, the Merger will provide Griffith with increased financial
resources with which to expand its services offerings.
55
<PAGE> 63
THE MERGER
This portion of the Prospectus/Proxy Statement describes various aspects of
the Merger. The following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
incorporated herein by reference and a conformed copy of which is attached
hereto as Appendix A. Summaries of the Disclosure Schedule referenced in the
Merger Agreement are available for review by Griffith shareholders at all
Griffith offices. Capitalized terms used herein and not otherwise defined have
the respective meanings ascribed to them in the Merger Agreement. GRIFFITH'S
SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
GENERAL
The Merger Agreement provides that, subject to the satisfaction or, in
certain cases, waiver of certain conditions (including the approval of the
Merger Agreement by the shareholders of Griffith), Merger Sub will be merged
with and into Griffith. Griffith will be the surviving corporation under the
name "David M. Griffith & Associates, Ltd." and will be a wholly-owned
subsidiary of MAXIMUS. The outstanding shares of Griffith will automatically be
converted into the right to receive the Merger Consideration (as described
below), and the shareholders of Griffith will become shareholders of MAXIMUS.
CONVERSION OF GRIFFITH COMMON STOCK
As a result of the Merger, at the Effective Time all outstanding shares of
Griffith Common Stock (other than shares held by Griffith as treasury stock and
Dissenting Shares) will be converted into shares of MAXIMUS Common Stock.
Assuming there are no Dissenting Shares, 1,166,179 shares of MAXIMUS Common
Stock will be issued in the Merger (the "Merger Consideration"). The Merger
Consideration will be reduced by the number of shares of MAXIMUS Common Stock
that would otherwise be allocable to holders of Griffith Common Stock who
perfect dissenters' rights under Illinois law.
Five percent of the number of shares comprising the Merger Consideration
shall be deposited with an escrow agent reasonably satisfactory to MAXIMUS and
Griffith and shall be subject to reduction to satisfy certain claims to which
MAXIMUS may be entitled to be indemnified under the Merger Agreement. Assuming
(a) no claims to which MAXIMUS is entitled to be indemnified under the Merger
Agreement and (b) that the number of shares of Griffith Common Stock outstanding
on the effective date of the Merger is the same as the number of such shares
outstanding as of the Record Date, each share of Griffith Common Stock would be
converted into approximately 5.198 shares of MAXIMUS Common Stock. At the time
of the Merger, each former Griffith Stockholder's entitlement to MAXIMUS Common
Stock will be rounded down to the nearest whole share and the fraction of a
MAXIMUS share to which such stockholder would have been entitled will be paid in
cash, as described below. Following consummation of the Merger, the former
shareholders of Griffith will hold approximately 7% of the outstanding shares of
MAXIMUS Common Stock.
SURRENDER OF CERTIFICATES
The conversion of Griffith Common Stock into MAXIMUS Common Stock will
occur automatically at the Effective Time. Prior to the Effective Time, Griffith
shall deliver to MAXIMUS a list of Griffith Stockholders at the Effective Time,
which list shall indicate whether such Griffith Stockholders hold certificates
representing shares of Griffith Common Stock. Any Griffith Stockholders holding
certificates representing shares of Griffith Common Stock must deliver such
Griffith Certificates to MAXIMUS's exchange agent (the "Exchange Agent") in
exchange for certificate(s) representing MAXIMUS Common Stock. GRIFFITH
SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY
RECEIVE A LETTER OF INSTRUCTION FROM THE EXCHANGE AGENT.
Upon surrender of a duly executed certificate for exchange and cancellation
to the Exchange Agent, the holder of such certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of MAXIMUS Common Stock to which such holder of Griffith Common Stock
shall have become entitled under the Merger Agreement, and a check representing
the amount of cash payable in lieu of
56
<PAGE> 64
a fractional share, as described below, and the certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on unpaid dividends
and distributions, if any, payable to holders of certificates.
After the Closing Date, there shall be no transfers on the stock transfer
books of Griffith of the shares of Griffith Common Stock that were issued and
outstanding immediately prior to the Closing Date. If, after the Closing Date,
certificates representing such shares are presented for transfer to the Exchange
Agent, they shall be cancelled and exchanged for certificates representing
shares of MAXIMUS Common Stock and cash as provided above. No fractional shares
of MAXIMUS Common Stock will be issued to any Griffith shareholder upon
consummation of the Merger. Each holder of Griffith Common Stock otherwise
entitled to a fraction of a share of MAXIMUS Common Stock shall be entitled to
receive an amount of cash in lieu thereof equal to such fraction multiplied by
$25.25. Following consummation of the Merger, no former holder of Griffith
Common Stock shall be entitled to dividends or any other rights in respect of
any such fraction.
Griffith shareholders owing shares of Griffith Common Stock not represented
by certificates shall be entitled to receive certificates representing MAXIMUS
Common Stock and cash payments in lieu of fractional shares, as described above,
upon delivery of the list of Griffith shareholders to MAXIMUS.
MERGER AND EFFECTIVE TIME
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of Delaware and a Certificate of Merger with the
Secretary of State of Illinois, unless a different date and time is specified as
the effective time in such Certificates of Merger (the "Effective Time"). At the
Effective Time, Merger Sub shall be merged with and into Griffith as permitted
by and in accordance with applicable laws and on the terms and subject to the
conditions contained in the Merger Agreement. At the Effective Time, (a) the
separate existence of Merger Sub shall cease and (b) Griffith, as the surviving
corporation ("Surviving Corporation"), shall continue to exist under and be
governed by the Illinois Business Corporation Act ("IBCA"). At the Effective
Time, the certificate of incorporation and by-laws of the Surviving Corporation
shall be the certificate of incorporation and by-laws of Griffith as in effect
immediately prior to the Merger and the directors and officers of the Surviving
Corporation shall be those persons who were the directors and officers of Merger
Sub immediately prior to the Merger, provided that the President of the
Surviving Corporation shall be the President of Griffith immediately prior to
the Merger. MAXIMUS and Griffith expect the Merger to be completed as soon as
possible after the Griffith Special Meeting.
CONDITIONS OF MERGER
The respective obligations of MAXIMUS and Griffith to effect the Merger are
subject to satisfaction, on or prior to the Effective Time, of certain
conditions, including: (i) the Merger Agreement shall not have been terminated
in accordance with its terms; (ii) the waiting period applicable to the
consummation of the Merger under the Hart-Scott-Rodino Act shall have expired or
been terminated by the reviewing agency and any similar governmental
requirements shall have been satisfied or complied with (see "The Merger --
Regulatory Approvals Required"); (iii) approval of the Merger Agreement and the
Merger by the requisite vote of Griffith shareholders; (iv) the Registration
Statement of which this Prospectus/Proxy Statement forms a part shall have been
declared effective by the SEC, shall remain effective and no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC; (v) no governmental entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) that has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; and (vi) all obligations of
Griffith to repurchase outstanding shares of Griffith stock shall be terminated,
to the extent such obligations would otherwise survive the Merger and apply to
MAXIMUS Common Stock. The applicable waiting period under the Hart-Scott-Rodino
Act expired on February 21, 1998.
The obligation of Griffith to consummate the transactions contemplated by
the Merger Agreement are further subject to the satisfaction, or waiver by
Griffith, on or before the Effective Time, of the following
57
<PAGE> 65
conditions: (i) the representations and warranties of MAXIMUS and Merger Sub
contained in the Merger Agreement shall be true and correct in all material
respects as of the date of the Merger Agreement and (except to the extent that
such representations and warranties speak as of an earlier date) as of the
Effective Time as though made on and as of the Effective Time, and MAXIMUS and
Merger Sub shall have in all material respects performed all obligations and
agreements and complied with all covenants contained in the Merger Agreement to
be performed and complied with by MAXIMUS and Merger Sub on or prior to the
Effective Time, and Griffith shall have received a certificate signed on behalf
of MAXIMUS to the foregoing effect; (ii) Griffith shall have received the
opinion of Palmer & Dodge LLP, counsel to MAXIMUS, dated the Effective Time, in
a form that is customary for transactions of this type; (iii) each of certain
individuals shall have entered into a Voting Agreement regarding the election of
Louis Chappuie to the Board of Directors of MAXIMUS, and such agreement shall be
in full force and effect as of the Effective Time; and (iv) the shares of
MAXIMUS Common Stock issuable to shareholders of Griffith pursuant to the Merger
Agreement and such other shares required to be reserved for issuance in
connection with the Merger shall have been listed on the New York Stock
Exchange.
The obligations of MAXIMUS and Merger Sub to consummate the transactions
contemplated by the Merger Agreement are further subject to the satisfaction, or
waiver by MAXIMUS, on or before the Effective Time, of the following conditions:
(i) the representations and warranties of Griffith contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties speak as of an earlier date) as of the Effective Time as though made
on and as of the Effective Time, Griffith shall have in all material respects
performed all obligations and agreements and complied with all covenants
contained in the Merger Agreement to be performed and complied with by Griffith
on or prior to the Effective Time, and MAXIMUS shall have received a certificate
signed on behalf of Griffith to the foregoing effect; (ii) MAXIMUS shall have
received the opinion of Baker & McKenzie, counsel to Griffith, dated the Closing
Date, in a form that is customary for transactions of this type; (iii) MAXIMUS
shall have received a letter from Ernst & Young LLP addressed to MAXIMUS and a
copy of a letter from Grant Thornton LLP addressed to Griffith to the effect
that such accountants concur with the conclusion of MAXIMUS and Griffith's
management as to the appropriateness of pooling of interests accounting; (iv)
certain affiliates of Griffith shall have entered into an Affiliate Agreement in
the form attached to the Merger Agreement, and such agreements shall be in full
force and effect as of the Effective Time; (v) certain individuals shall have
entered into an Employment and Non-Competition Agreement with MAXIMUS, and such
agreements shall be in full force and effect as of the Effective Time; and (vi)
the Escrow Agreement in the form attached to the Merger Agreement shall have
been executed and shall be in full force and effect as of the Effective Time.
REGULATORY APPROVALS REQUIRED
Consummation of the Merger is subject to expiration or termination by the
reviewing agency, either the Federal Trade Commission or the Department of
Justice, of the waiting period applicable to the consummation of Merger under
the Hart-Scott-Rodino Act. The applicable waiting period expired on February 21,
1998.
MAXIMUS and Griffith are not aware of any other governmental approvals,
other than those of the Commission and state securities administrators with
respect to the Registration Statement and this Prospectus/Proxy Statement, or
actions that are required before the parties may consummate the Merger. It is
presently contemplated that if any such additional governmental approvals or
actions are required, such approvals or actions will be sought. There can be no
assurance, however, that any such additional approvals or actions will be
obtained.
WAIVER AND AMENDMENT
Waiver. Except as expressly provided in the Merger Agreement, no waiver by
any party of any failure or refusal of any other party to comply with its
obligations under the Merger Agreement shall be deemed a waiver of any other or
subsequent failure or refusal to so comply by such other party. No waiver shall
be valid unless in writing signed by the party to be charged and only to the
extent therein set forth.
58
<PAGE> 66
Amendment. The Merger Agreement may be amended by the parties thereto by
written instrument executed by all parties (subject to compliance with
applicable law); provided, however, that after any approval of the transactions
contemplated by the Merger Agreement by Griffith's shareholders, there may not
be, without further approval of such shareholders, any amendment of the Merger
Agreement which reduces the amount or changes the form of the Merger
Consideration other than as contemplated by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval of the Merger by Griffith's shareholders,
by mutual written consent of MAXIMUS and Griffith. In addition, the Merger
Agreement may be terminated by either Griffith or MAXIMUS: (i) if the Merger
shall not have been consummated by June 1, 1998, (which date may be extended by
mutual consent of the parties) provided, however, that the actions or the
failure to act of the party exercising such right shall not have been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date if such action or failure to act constitutes a breach of the
Merger Agreement; (ii) if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action, in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree or ruling is final and nonappealable; and (iii) if the required
approval of the Griffith's shareholders contemplated by the Merger Agreement
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote taken at a meeting of shareholders.
Further, the Merger Agreement may be terminated by MAXIMUS: (i) if the
Board of Directors of Griffith shall have (a) failed to convene the Griffith
Special Meeting, (b) failed to recommend approval of the Merger Agreement and
the Merger in this Prospectus/Proxy Statement or withdrawn its recommendation in
favor of the Merger or (c) if Griffith breaches its agreement not to entertain
other offers for the purchase of its assets or capital stock; (ii) upon a breach
of any representation, warranty, covenant or agreement on the part of Griffith
set forth in the Merger Agreement, if (a) as a result of such breach the
conditions set forth in the representations and warranties or the agreements and
covenants would not be satisfied as of the time of such breach and (b) such
breach shall not have been cured by Griffith within thirty (30) business days
following receipt by Griffith of written notice of such breach from MAXIMUS; and
(iii) in the event that it receives written notice from either Ernst & Young
LLP, Grant Thornton LLP, or the Commission that, in the opinion of the entity
giving such notice, the Merger will not qualify for pooling of interests
accounting treatment.
Finally, the Merger Agreement may be terminated by Griffith, upon a breach
of any representation, warranty, covenant or agreement on the part of MAXIMUS
set forth in the Merger Agreement, if (a) as a result of such breach the
representations and warranties or covenants and agreements would not be
satisfied as of the time of such breach and (b) such breach shall not have been
cured by MAXIMUS within ten (10) business days following receipt by MAXIMUS of
written notice of such breach from Griffith.
TERMINATION FEES
In order to induce MAXIMUS to enter into the Merger Agreement and to
reimburse it for its expenses involved in investigating Griffith and negotiating
and entering into the Merger Agreement and related matters, Griffith agreed to
make certain cash payments to MAXIMUS in the event that the Merger Agreement is
terminated under certain circumstances. Griffith agreed to make a cash payment
of $100,000 to MAXIMUS if Griffith breaches its No Solicitation obligation (as
described below).
In the event MAXIMUS terminates the Merger Agreement for a reason other
than Griffith's failure to satisfy a closing condition, MAXIMUS shall pay
Griffith $500,000.
NO SOLICITATION
Griffith and its subsidiaries have agreed that, from the date of execution
of the Merger Agreement and until the earlier of the Effective Time or
termination of the Merger Agreement, neither the Principal Shareholders,
Griffith nor its subsidiaries will (i) directly or indirectly, solicit any
proposal relating to the
59
<PAGE> 67
acquisition by another party of all or any portion of the capital stock of
Griffith or the assets of the business of Griffith; (ii) except to the extent
reasonably required by fiduciary obligations under applicable law as advised in
writing by independent legal counsel, directly or indirectly, engage in any
discussions or negotiations with any other party regarding any such acquisition,
or otherwise encourage or facilitate any efforts by any other party to engage in
such an acquisition; or (iii) sell, transfer or dispose of all or any portion of
the capital stock of Griffith or the assets of the business of Griffith.
SHAREHOLDER VOTING AGREEMENT
A closing condition under the Merger Agreement is the execution by
controlling shareholders of MAXIMUS of Voting Agreement pursuant to which such
shareholders will agree to vote all their shares of MAXIMUS Common Stock in
favor of Mr. Louis Chappuie's election to the Board of Directors of MAXIMUS for
a period of two years following the Merger.
AFFILIATE LETTERS; RESALES OF MAXIMUS COMMON STOCK
Affiliate Letters. It is condition to the Merger that each director,
executive officer and other Affiliate (for purposes of Rule 145 under the
Securities Act) of Griffith execute an agreement in the form of Exhibit B to the
Merger Agreement (an "Affiliate Letter"). In order to comply with provisions
relating to the pooling-of-interest accounting treatment of the Merger, the
Affiliate Letter provides that the signatory will not sell, transfer, assign or
otherwise dispose or reduce the risk of ownership of any shares of Griffith
Common Stock owned by such person other than by gift or other distribution
without consideration during a period commencing 30 days prior to the effective
date of the Merger and ending when financial results covering at least 30 days
of combined operations of MAXIMUS and Griffith after the effective date of the
Merger have been published. The signatory also makes certain representations
related to the tax-free nature of the Merger.
Resales. The shares of MAXIMUS Common Stock to be issued pursuant to the
Merger Agreement have been registered under the Securities Act and may be traded
without restriction by all former holders of shares of Griffith Common Stock who
are not Affiliates of Griffith. Directors and officers of Griffith, shareholders
of Griffith owning more than 10% of the issued and outstanding Common Stock and
certain members of their immediate families and associates, may be deemed to be
Affiliates. The ability of Affiliates to sell the shares of MAXIMUS Common Stock
they receive in connection with the Merger is restricted by the terms of Rule
145 under the Securities Act, and each person executing the Affiliate Letter has
agreed to comply with such restrictions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of Griffith's Board of Directors with
respect to the Merger, shareholders should be aware that the President of
Griffith has certain interests in the Merger that are in addition to the
interests of shareholders of Griffith generally. The Board of Directors of
Griffith was aware of these interests and considered them, among other matters,
in approving and adopting the Merger Agreement and the transactions contemplated
thereby.
Employment Agreements. At the Closing of the Merger, Louis E. Chappuie,
the President and Chief Executive Officer of Griffith will enter into an
Employment, Non-Compete and Confidentiality Agreement with MAXIMUS under which
he will serve as an executive officer of MAXIMUS following the Merger (the
"Chappuie Agreement"). Under the terms of the Chappuie Agreement, Mr. Chappuie
is entitled to a base salary and a year-end bonus consistent with MAXIMUS's
regular bonus plan. The initial base salary for Mr. Chappuie is $425,000. The
term of the employment obligation under the Chappuie Agreement is two years,
commencing on the date Mr. Chappuie and MAXIMUS enter into such Agreement,
subject to the right of MAXIMUS to terminate Mr. Chappuie if he breaches any
material duty or obligation to MAXIMUS or engages in certain other proscribed
conduct. The Chappuie Agreement also provides that Mr. Chappuie will not compete
with MAXIMUS and will maintain MAXIMUS's trade secrets in strict confidence.
Voting Agreement. Pursuant to the Merger Agreement, as part of the
Chappuie Agreement, certain controlling shareholders of MAXIMUS will agree to
vote all their shares of MAXIMUS Common Stock in
60
<PAGE> 68
favor of Mr. Louis Chappuie's election to the Board of Directors of MAXIMUS for
a period of two years following the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of the material federal
income tax consequences of the Merger. This summary is not a complete
description of all of the tax consequences of the Merger and, in particular, may
not address federal income tax considerations that may affect the treatment of a
shareholder who, at the Effective Time, already owns some MAXIMUS Common Stock,
is not a U.S. person, is a tax-exempt entity or an individual who acquired
Griffith Common Stock pursuant to an employee stock option or otherwise as
compensation. In addition, no information is provided herein with respect to the
tax consequences of the Merger under applicable foreign, state or local laws.
Consequently, each Griffith shareholder is advised to consult a tax advisor as
to the specific tax consequences of the transaction to that shareholder. The
following discussion is based on the law, as in effect on the date of this
Prospectus/Proxy Statement, and there can be no assurances that future
legislation, regulations, administrative rulings or court decisions will not
adversely affect the accuracy of the statements contained herein. The following
discussion gives no consideration to the particular facts or circumstances of
any holder of Griffith Common Stock and assumes that the Griffith Common Stock
held by each holder thereof is held as a capital asset.
Effect of the Merger. Neither MAXIMUS nor Griffith has requested or will
receive an advance ruling from the Internal Revenue Service as to the tax
consequences of the Merger, which has been designed to be treated for federal
income tax purposes as a reorganization within the meaning of Section 368 of the
Code.
If the Merger constitutes a reorganization within the meaning of Section
368 of the Code, it is expected that: (i) no gain or loss will be recognized by
Griffith, MAXIMUS or Merger Sub as a result of the Merger; (ii) no gain or loss
will be recognized by shareholders of Griffith on account of their receipt of
MAXIMUS Common Stock in exchange for their Griffith Common Stock as a result of
the Merger; (iii) a holder of Griffith Common Stock who receives cash proceeds
for fractional interests in MAXIMUS Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then were
redeemed by MAXIMUS; (iv) the tax consequences of the assumed redemption
occurring in connection with the payment of cash in lieu of fractional shares
will be determined in accordance with Section 302 of the Code and should
generally give rise to capital gain or loss; (v) the tax basis of the MAXIMUS
Common Stock received by shareholders who exchange Griffith Common Stock for
MAXIMUS Common Stock in the Merger will be the same as the tax basis of the
Griffith Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received); and (vi)
the holding period of the MAXIMUS Common Stock in the hands of the Griffith
shareholders will include the holding period of the Griffith Common Stock
exchanged therefor.
If, for any reason, the Merger is not treated as a reorganization within
the meaning of Section 368 of the Code, no gain or loss will be recognized by
Griffith, MAXIMUS or Merger Sub. However, exchanges of Griffith Common Stock
pursuant to the Merger will be taxable transactions. In that event, each
exchanging holder of Griffith Common Stock will recognize capital gain or loss
equal to the difference between such holder's adjusted basis in the Griffith
Common Stock exchanged and the sum of fair market value of MAXIMUS Common Stock
received by such holder in the Merger and the amount of any cash received in
lieu of fractional shares.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests under
generally accepted accounting principles ("GAAP"). Under this method of
accounting, the historical recorded assets and liabilities of MAXIMUS and
Griffith will be carried forward to the combined company at their recorded
amounts, the operating results of the combined company will include the
operating results of MAXIMUS and Griffith for the entire fiscal year in which
the combination occurs and the historical reported operating results of the
separate companies for prior periods will be combined and restated as the
operating results of the combined company. The Merger Agreement requires that
each of MAXIMUS and Griffith shall have received letters,
61
<PAGE> 69
dated as of the consummation of the Merger, from Ernst & Young LLP and Grant
Thornton LLP regarding those firms concurrence with MAXIMUS management's
conclusion as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is closed
and consummated in accordance with the Merger Agreement.
CONDUCT OF GRIFFITH'S BUSINESS PENDING THE MERGER
Griffith has agreed in the Merger Agreement that, except as may be
permitted by the terms of the Merger Agreement, during the period from the date
of the execution of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement pursuant to its terms or the Closing Date,
Griffith and each of its subsidiaries agree to carry on its business diligently
and in accordance with good commercial practice and to carry on its business in
the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and use its commercially reasonable efforts consistent with
past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
The Merger Agreement also contains certain restrictions on the conduct of
Griffith's business pending consummation of the Merger. Generally, except as may
be otherwise permitted by the terms of the Merger Agreement, Griffith may not
amend its charter documents, enter into material agreements, including
agreements to merge with or acquire the stock or assets of another entity or to
encumber or dispose of assets of Griffith or to incur any additional
indebtedness, increase compensation, issue additional shares of Griffith Common
Stock, declare or pay dividends or make any other distributions or repurchase
any shares of common stock.
EXPENSES
Except as otherwise provided in the Merger Agreement, fees, expenses and
out-of-pocket expenses incurred by MAXIMUS, Griffith and Merger Sub in
connection with the transactions contemplated by the Merger Agreement will be
borne by the party that incurs such expenses. MAXIMUS will bear all expenses in
connection with obtaining regulatory approvals and the registration, listing and
"blue sky" registration and approvals of the MAXIMUS Common Stock to be issued
as part of the Merger Consideration.
GRIFFITH SHAREHOLDER APPRAISAL RIGHTS
Under Illinois law, holders of Griffith Common Stock who deliver to
Griffith a written demand for payment before the taking of the vote on the
Merger Agreement and do not vote to adopt the Merger Agreement may elect to have
the "fair value" of their Griffith shares (determined in accordance with
Illinois Law) judicially appraised and paid to them if the Merger is consummated
and if they comply with Sections 11.65 and 11.70 of the Illinois Business
Corporation Act (the "IBCA"), the text of which are attached hereto as Appendix
B. In such a judicial proceeding, the amount paid to a dissenter is calculated
based upon the value of such dissenter's Griffith shares immediately before the
Merger, which may be less or greater than the value of the MAXIMUS stock which
otherwise would be delivered to such shareholder.
Under rights provided by Sections 11.65 and 11.70 of the IBCA, shareholders
may elect not to vote in favor of the Merger Agreement and obtain cash payment
for their shares by asserting dissenter's rights. In order to dissent, a
shareholder must, prior to the vote on the Merger Agreement at the Griffith
Special Meeting, deliver to Griffith a written demand for payment of his or her
shares in the event the Merger Agreement is approved. A shareholder may not
demand cash payment if he or she votes in favor of the Merger Agreement.
Within 10 days of the consummation of the merger and share exchange, or 30
days after the delivery to Griffith of written demand for payment, whichever is
later, Griffith shall send each shareholder who has delivered a written demand
for payment (a "Dissenter"), a statement setting forth the opinion of Griffith
as to the estimated fair value of the Griffith shares immediately before the
merger and share exchange, Griffith's balance sheet as of December 31, 1997,
together with a statement of income for the year ended December 31,
62
<PAGE> 70
1997 and the latest available interim financial statements, and a commitment to
pay for the shares of the Dissenter at the estimated fair value thereof.
Upon the consummation of the merger and share exchange, Griffith shall pay
to each Dissenter the amount Griffith has estimated as the fair value of his or
her Griffith shares, plus accrued interest from the date of the merger and share
exchange to the date of payment (at a rate equal to the rate paid by Griffith on
its principal bank loans), accompanied by a description of how the interest was
calculated.
If a Dissenter disagrees with Griffith's opinion as to the estimated fair
value of his or her Griffith shares or the amount of interest due, the Dissenter
shall, within 30 days from the delivery of Griffith statement of share value,
notify Griffith in writing of the Dissenter's estimate of the fair value and the
amount of interest due, and demand payment for the difference between the
Dissenter's estimate of fair value and interest due and the payment by Griffith.
If within 60 days of delivery of the Dissenter's estimate of value,
Griffith and the Dissenter have not agreed in writing upon the fair value of the
shares and the interest due, Griffith shall either pay the difference in value
demanded by the Dissenter with interest, or file a petition in the circuit court
for Cook County, Illinois, and request the court determine the fair value of the
shares and the interest due, joining all Dissenters whose claims have not been
settled. Each Dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the value of his or her shares,
plus interest, exceeds the amount paid by Griffith.
If the fair value of the shares as determined by the court materially
exceeds the value estimated by Griffith, the court may assess the costs of such
proceeding against Griffith. The costs of such proceeding may be assessed
against a Dissenter if the fair value of the shares as estimated by the
Dissenter materially exceeds the fair value of the shares as determined by the
court. Fees and expenses of counsel and experts may be awarded against Griffith
if it does not substantially comply with these requirements, or against any
party who is found to have acted arbitrarily, vexatiously, or not in good faith.
The court may also award attorneys' fees to counsel for any Dissenter out of
amounts awarded to other Dissenters if it finds that the services of such
counsel were of substantial benefit to such other Dissenters and that such fees
should not be assessed against Griffith.
The above description is not intended to be a complete statement of the
rights of Dissenters under Sections 11.65 and 11.70 of the IBCA and is qualified
by the full text of such sections, copies of which are attached as Appendix B to
this Prospectus/Proxy Statement.
ANY DEMAND OR NOTICE REQUIRED IN CONNECTION WITH THE EXERCISE OF
DISSENTERS' RIGHTS SHOULD BE SENT TO THE ATTENTION OF JERROLD WOLF, CORPORATE
SECRETARY, DAVID M. GRIFFITH & ASSOCIATES, LTD., 630 DUNDEE ROAD, SUITE 200,
NORTHBROOK, IL 60062.
The Merger Agreement provides as a condition to closing that holders of no
more than 5% of the Griffith Common Stock shall have exercised dissenters'
rights of appraisal under the IBCA.
ESOP APPRAISAL RIGHTS
The appraisal rights described above are not passed through to the
individual ESOP participants. The Trustee, as holder of record of Griffith
Common Stock under the ESOP, upon compliance with the applicable statutory
procedure described above, may exercise appraisal rights on behalf of the ESOP.
63
<PAGE> 71
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements assume a
business combination between MAXIMUS and Griffith accounted for on a pooling of
interests basis and are based on the respective historical financial statements
and the notes thereto of MAXIMUS and Griffith, which are included elsewhere in
this Proxy Statement/Prospectus. The pro forma combined condensed balance sheet
combines MAXIMUS's December 31, 1997 balance sheet with Griffith's December 31,
1997 balance sheet. The pro forma statements of income combine MAXIMUS's
historical operating results for the years ended September 30, 1997, 1996 and
1995 with the corresponding Griffith operating results for the years ended
December 31, 1997, 1996 and 1995 respectively, and the MAXIMUS and Griffith
operating results for the three months ended December 31, 1997.
For purposes of the preparation of the unaudited pro forma combined balance
sheet, no estimate is used for the sum of the merger-related expenses (which the
companies anticipate will be approximately $1.0 million) and no deferred tax
benefit relating to these expenses is included.
The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
MAXIMUS/Griffith. The pro forma combined financial information does not give
effect to any cost savings which may result from the integration of MAXIMUS's
and Griffith's operations.
These pro forma combined financial statements are based on, and should be
read in conjunction with, the historical financial statements and the related
notes thereto of MAXIMUS and Griffith, included in this Prospectus/Proxy
Statement. See "Available Information."
64
<PAGE> 72
MAXIMUS, INC.
DAVID M. GRIFFITH & ASSOCIATES, LTD.
PRO FORMA COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAXIMUS GRIFFITH ADJUSTMENTS COMBINED
------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $10,579 $ 40 $ (3,674)(3) $ 4,998
(1,947)(4)
Marketable securities........................... 31,502 -- 31,502
Accounts receivable............................. 33,920 12,880 46,800
Costs and estimated earnings in excess of
billings...................................... 6,546 -- 6,546
Prepaid expenses and other current assets....... 877 143 1,020
------- -------- -------- --------
Total current assets............................ 83,424 13,063 (5,621) 90,866
Property and equipment at cost:
Land............................................ 662 -- 662
Building and improvements....................... 1,721 -- 1,721
Office furniture and equipment.................. 1,731 3,257 4,988
Leasehold improvements.......................... 188 -- 188
------- -------- -------- --------
4,302 3,257 7,559
Less: Accumulated depreciation and
amortization.................................. (1,430) (2,232) (3,662)
------- -------- -------- --------
Total property and equipment, net............... 2,872 1,025 3,897
Deferred income taxes........................... 404 1,388 (1,084)(3) 404
(304)(4)
Other assets.................................... 752 72 824
Total assets.................................... $87,452 $ 15,548 (7,009) $ 95,991
======= ======== ======== ========
LIABILITIES, REDEEMABLE COMMON STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 3,508 $ 815 $ 4,323
Accrued compensation and benefits............... 4,384 4,258 $ (763)(3) 7,879
Billings in excess of costs and estimated
earnings...................................... 9,663 528 10,191
Notes payable................................... 188 1,408 1,596
Income taxes payable............................ 445 51 (832)(4) (1,720)
(1,384)(3)
Deferred income taxes........................... 531 3,181 300(3) 4,012
------- -------- -------- --------
Total current liabilities....................... 18,719 10,241 (2,679) 26,281
Long-term debt, less current portion............ -- 454 454
Deferred compensation, less current portion..... -- 3,534 (2,760)(3) --
(774)(4)
------- -------- -------- --------
Total liabilities............................... 18,719 14,229 (6,213) 26,735
------- -------- -------- --------
Commitments and contingencies
Redeemable common stock......................... -- 14,497 (14,497)(1) --
------- -------- -------- --------
Shareholders' equity............................ 68,733 (13,178) 14,497(1) 69,256
(796)(4)
------- -------- -------- --------
Total liabilities, redeemable common stock and
shareholders' equity.......................... $87,452 $ 15,548 $ (7,009) $ 95,991
======= ======== ======== ========
</TABLE>
65
<PAGE> 73
MAXIMUS, INC.
DAVID M. GRIFFITH & ASSOCIATES, LTD.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAXIMUS GRIFFITH ADJUSTMENTS(2) COMBINED
------- -------- -------------- --------
<S> <C> <C> <C> <C>
Revenues................................... $51,963 $30,577 $ -- $82,540
Cost of revenues........................... 36,071 22,053 (926) 57,198
------- ------- ------- -------
Gross profit............................... 15,892 8,524 926 25,342
Selling, general and administrative
expenses................................. 9,078 6,764 (61) 15,781
Stock option, deferred compensation
and ESOP expense......................... -- -- 1,400 1,400
------- ------- ------- -------
Income from operations..................... 6,814 1,760 (413) 8,161
Interest and other income (expense)........ 169 (654) 413 (72)
------- ------- ------- -------
Income before income taxes................. 6,983 1,106 -- 8,089
Provision for income taxes................. 124 612 -- 736
------- ------- ------- -------
Net income................................. $6,859 $ 494 $ -- $ 7,353
======= ======= ======= =======
Earnings per share:
Basic.................................... $ 0.59
Diluted.................................. $ 0.59
</TABLE>
66
<PAGE> 74
MAXIMUS, INC.
DAVID M. GRIFFITH & ASSOCIATES, LTD.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAXIMUS GRIFFITH ADJUSTMENTS(2) COMBINED
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
Revenues................................. $103,113 $ 32,560 $ -- $135,673
Cost of revenues......................... 78,429 24,154 (1,044) 101,539
-------- -------- -------- --------
Gross profit............................. 24,684 8,406 1,044 34,134
Selling, general and administrative
expenses............................... 13,104 7,194 (60) 20,238
Stock option, deferred compensation and
ESOP expense........................... -- -- 1,556 1,556
-------- -------- -------- --------
Income from operations................... 11,580 1,212 (452) 12,340
Interest and other income (expense)...... 264 (733) 452 (17)
-------- -------- -------- --------
Income before income taxes............... 11,844 479 -- 12,323
Provision for income taxes............... 225 305 -- 530
-------- -------- -------- --------
Net income............................... $11,619 $ 174 $ -- $ 11,793
======== ======== ======== ========
Earnings per share:
Basic.................................. $ 0.94
Diluted................................ $ 0.94
</TABLE>
67
<PAGE> 75
MAXIMUS, INC.
DAVID M. GRIFFITH & ASSOCIATES, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAXIMUS GRIFFITH ADJUSTMENTS(2) COMBINED
-------- -------- -------------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $127,947 $39,377 $ -- $167,324
Cost of revenues.......................... 94,254 28,743 (1,029) 121,968
-------- ------- ------- --------
Gross profit.............................. 33,693 10,634 1,029 45,356
Selling, general and administrative
expenses................................ 16,782 8,625 (84) 25,323
Stock option, deferred compensation and
ESOP expenses........................... 5,874 -- 1,498 7,372
-------- ------- ------- --------
Income from operations.................... 11,037 2,009 (385) 12,661
Interest and other income (expense)....... 928 (536) 385 777
-------- ------- ------- --------
Income before income taxes................ 11,965 1,473 -- 13,438
Provision for income taxes................ 3,376 728 -- 4,104
-------- ------- ------- --------
Net income................................ $ 8,589 $ 745 $ -- $ 9,334
======== ======= ======= ========
Earnings per share:
Basic................................... $ 0.69
Diluted................................. $ 0.67
</TABLE>
68
<PAGE> 76
MAXIMUS, INC.
DAVID M. GRIFFITH & ASSOCIATES, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAXIMUS GRIFFITH ADJUSTMENTS COMBINED
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues..................................... $36,356 $11,450 $ -- $47,806
Cost of revenues............................. 27,300 8,540 (263) 35,577
------- ------- ----- -------
Gross profit................................. 9,056 2,910 263 12,229
Selling, general and administrative
expenses................................... 5,346 2,773 (21) 8,098
Stock option, deferred compensation and ESOP
expense.................................... -- -- 284 284
------- ------- ----- -------
Operating income............................. 3,710 137 -- 3,847
Interest and other income (expense).......... 575 (175) -- 400
------- ------- ----- -------
Income (loss) before income taxes............ 4,285 (38) -- 4,247
Provision for income taxes................... 1,692 18 -- 1,710
------- ------- ----- -------
Net income................................... $ 2,593 $ (56) $ -- $ 2,537
======= ======= ===== =======
Earnings per share:
Basic................................... $ 0.16
Diluted................................. $ 0.16
</TABLE>
- ---------------
NOTES:
(1) Adjustment to give effect to issuance of 1,166,179 shares of MAXIMUS Common
Stock for all of the outstanding stock of Griffith.
(2) Adjustment to reclassify deferred compensation and ESOP related expenses to
conform to MAXIMUS presentation.
(3) Adjustment to give effect to the settlement of Griffith deferred
compensation obligations which are accelerated upon consummation of the
Merger. This will result in a one-time income statement charge of
approximately $150,000 in the period the Merger is consummated. Adjustment
gives effect to payment of these obligations net of related tax benefits in
the pro forma combined balance sheet.
(4) Upon completion of the Merger, the $1.0 million obligation of Griffith under
its Stock Appreciation Rights Plan will become fully vested and payable and
Griffith will be required to pay $200,000 under an employment agreement with
an officer. This will result in a one-time income statement charge of
approximately $1.2 million in the period the merger is consummated.
Adjustment gives effect to payment of these obligations net of related tax
benefits in the pro forma combined balance sheet.
69
<PAGE> 77
MAXIMUS STOCK OWNERSHIP
The following table sets forth information, as of March 16, 1998, regarding
the ownership of MAXIMUS's Common Stock by (i) the only persons known by MAXIMUS
to own more than five percent of the outstanding shares, (ii) all directors of
MAXIMUS, (iii) each of the executive officers of MAXIMUS named in the Summary
Compensation Table (the "Named Executive Officers") and (iv) all directors and
executive officers of MAXIMUS as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------
BENEFICIAL OWNER SHARES PERCENT
---------------- ---------- -------
<S> <C> <C>
David V. Mastran............................................ 8,120,907(2) 51.9%
Raymond B. Ruddy............................................ 3,242,772(3) 20.7
Lynn P. Davenport........................................... 274,762(4) 1.7
Susan D. Pepin.............................................. 229,680(5) 1.5
Russell A. Beliveau......................................... 201,627(6) 1.3
Robert J. Muzzio............................................ 114,401(7) *
Jesse Brown................................................. 5,000(8) *
Peter B. Pond............................................... 10,000(8) *
All directors and executive officers as a group (20
persons).................................................. 9,098,715(9) 56.99%
</TABLE>
- ---------------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock of MAXIMUS.
(1) The number of shares beneficially owned by each director or executive
officer is determined under rules of the Securities and Exchange Commission,
and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has the sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days of March 16, 1998 through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power (or shares such power with his or her spouse)
with respect to the shares set forth in the table. The inclusion therein of
any shares deemed beneficially owned does not constitute an admission of
beneficial ownership of such shares. The number of shares deemed outstanding
includes 15,658,320 shares outstanding as of March 16, 1998, plus any shares
subject to issuance upon exercise of options held by the person in question
that are currently exercisable or exercisable within 60 days after March 16,
1998.
(2) Includes the holdings of (i) Dr. Mastran's spouse, consisting of 89,129
shares and 3,575 shares issuable upon exercise of stock options exercisable
within the 60-day period following March 16, 1998 and (ii) Mr. Ruddy,
consisting of 3,242,772 shares, who is obligated by written agreement to
vote such shares in a manner consistent with instructions received from Dr.
Mastran until September 30, 2001. See "Executive Employment Agreements." Dr.
Mastran does not, however, have dispositive power over Mr. Ruddy's shares.
(3) Includes 1,020,000 shares held by trusts for the benefit of Mr. Ruddy's
family members.
(4) Includes 110,000 shares issuable upon exercise of stock options exercisable
within the 60-day period following March 16, 1998. Also includes the
holdings of Mr. Davenport's son consisting of 1,250 shares.
(5) Includes 110,000 shares issuable upon exercise of stock options exercisable
within the 60-day period following March 16, 1998.
(6) Includes 12,100 shares issuable upon exercise of stock options exercisable
within the 60-day period following March 16, 1998.
(7) Consists of (i) 110,826 shares held by the Robert J. Muzzio Trust U/A dtd
10/17/96, of which Mr. Muzzio and his spouse are co-trustees and
co-beneficiaries, and (ii) 3,575 shares issuable upon exercise of stock
options exercisable within the 60-day period following March 16, 1998.
(8) Consists of shares issuable upon exercise of stock options exercisable
within the 60-day period following March 16, 1998.
(9) See footnotes (2) through (8) above. Also, includes the holdings of 12 other
executive officers, consisting of 142,338 shares and 91,400 shares issuable
upon exercise of stock options exercisable within the 60-day period
following March 16, 1998.
70
<PAGE> 78
GRIFFITH STOCK OWNERSHIP
The following table sets forth information, as of March 30, 1998, regarding
the ownership of Griffith Common Stock by (i) all persons known by Griffith to
be beneficial owners of more than 5% of any class of voting stock, (ii) all
directors and (iii) all officers and directors of Griffith as a group:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED(1)
------------------
NAME OF BENEFICIAL OWNERS SHARES PERCENT
- ------------------------- ------- -------
<S> <C> <C>
DMG Employee Stock Ownership Plan Trust..................... 65,362 28.3%
David M. Griffith........................................... 30,532(1) 13.29
Jerrold Wolf................................................ 16,049(2) 6.9
Louis E. Chappuie........................................... 15,720 6.8
David Mazo.................................................. 11,898(3) 5.1
Luis Vasquez................................................ 9,877 4.3
Chris Zitzow................................................ 9,466 4.1
James Olson................................................. 9,027 3.9
Don Brown................................................... 8,976(4) 3.9
Brad Wilkes................................................. 2,581 1.1
Anita White................................................. 905 *
Michael Mount............................................... 533 *
Robert Taggart.............................................. 472 *
Mark Epstein................................................ 388 *
Allan Burdick............................................... 360 *
Robert Murray............................................... 205 *
All directors and executive officers as a group (33
persons).................................................. 116,491 51.93
</TABLE>
- ---------------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock of Griffith.
(1) As Trustee of Declaration of Trust dated May 29, 1980, David M. Griffith,
Settlor.
(2) As Trustee under a Trust Agreement dated September 28, 1995 and known as The
Jerrold Emil Wolf Declaration of Trust.
(3) As Trustee under Trust Agreement dated February 5, 1981 and known as the
David R. Mazo Declaration of Trust.
(4) As Trustee of the Don L. Brown, Jr. Declaration of Trust under Trust
Agreement dated February 5, 1998.
71
<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger (based on the shares outstanding as of March
16, 1998), MAXIMUS will have 16,824,499 shares of Common Stock outstanding,
assuming no exercise of any outstanding options, warrants or other rights to
purchase MAXIMUS Common Stock. Of these shares, the 1,166,179 shares issued to
the Griffith shareholders pursuant to the Merger Agreement and the 5,250,000
shares sold in connection with MAXIMUS's initial public offering will be freely
tradable, without restriction or further registration under the Securities Act,
except for shares owned by "affiliates" of MAXIMUS 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 10,408,320 outstanding shares of MAXIMUS Common Stock are
owned by existing shareholders. All such shares 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. All such
shares are currently eligible for sale under Rules 144 and 701.
In general, under Rule 144, as amended 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 MAXIMUS 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 such Restricted Shares are eligible for sale under Rule 144.
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
MAXIMUS and volume limitations.
Pursuant to Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreements with MAXIMUS, Dr. Mastran, Mr. Ruddy, Mr. Beliveau, Ms.
Baylinson, Ms. Pepin and Mr. Davenport have agreed not to offer, sell, assign,
grant a participation in, pledge or otherwise transfer any of their respective
shares of Common Stock of MAXIMUS until June 2001 without the prior written
consent of MAXIMUS 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 are between MAXIMUS
and each executive officer and may be waived by MAXIMUS at any time, Griffith
shareholders should not rely on the stock restrictions contained therein.
Certain executive officers of the Company (the "Rightsholders"), are
entitled to certain piggyback rights with respect to registration under the
Securities Act, for resale to the public, of an aggregate of 9,472,585 shares of
MAXIMUS Common Stock (excluding shares issuable upon the exercise of outstanding
stock options) (collectively, the "Registrable Shares") under the terms of each
Rightsholder's employment agreement with MAXIMUS. If MAXIMUS proposes to
register shares of its 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; 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.
MAXIMUS has filed 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.
913,855 shares of MAXIMUS Common Stock are issuable upon the exercise of
outstanding options (417,700 of which are currently exercisable). Such shares
are eligible for immediate resale upon exercise, subject, in the case of
affiliates, to the volume and notice requirements of Rule 144.
72
<PAGE> 80
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 MAXIMUS 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."
73
<PAGE> 81
DESCRIPTION OF MAXIMUS CAPITAL STOCK
The following summary describes the material terms of MAXIMUS's Common
Stock. Such summary is subject to, and qualified in its entirety by, applicable
law and the provisions of MAXIMUS's Amended and Restated Articles of
Incorporation (the "Restated Articles") and MAXIMUS's Amended and Restated
By-Laws (the "Restated By-Laws"), which are included as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information." The authorized capital stock of MAXIMUS consists of 30,000,000
shares of Common Stock, no par value per share, of which 15,658,320 shares were
outstanding on March 16, 1998.
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 MAXIMUS, holders of Common Stock are entitled to receive ratably
the net assets of MAXIMUS available for distribution after the payment of all
debts and other liabilities of MAXIMUS. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares of MAXIMUS offered hereby will be,
when issued in connection with the Merger, 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 MAXIMUS may authorize, designate and issue in the
future.
After giving effect to the issuance of the shares of MAXIMUS Common Stock
offered by MAXIMUS in connection with the Merger, there will be 16,824,499
shares of Common Stock outstanding, plus an additional 8,867,547 shares of
Common Stock issuable upon exercise of options exercisable.
LIMITATION OF LIABILITY
The Restated Articles limit the liability of MAXIMUS's directors and
officers to the maximum extent permitted by Virginia law. Thus, the directors
and officers of MAXIMUS shall not be personally liable to MAXIMUS 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 MAXIMUS's shareholders from taking any
action, or consenting to any action, by unanimous written consent without a
meeting. MAXIMUS's Restated Articles also provide that the directors of MAXIMUS
shall be classified into three classes, with staggered three-year terms. See
"Management -- Executive Officers and 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.
MAXIMUS'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 MAXIMUS. 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 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. MAXIMUS'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
74
<PAGE> 82
Directors of MAXIMUS. 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 MAXIMUS.
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 MAXIMUS.
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, MAXIMUS, 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 MAXIMUS 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. MAXIMUS 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 MAXIMUS Common Stock is American
Stock Transfer & Trust Company.
75
<PAGE> 83
COMPARISON OF RIGHTS OF HOLDERS OF MAXIMUS AND
GRIFFITH COMMON STOCK
At the Effective Time of the Merger, the shareholders of Griffith will
become shareholders of MAXIMUS, a corporation governed by Virginia law and
Articles of Incorporation and By-Laws adopted thereunder. The following
discussion summarizes the material differences between the rights of holders of
Griffith Common Stock and holders of MAXIMUS Common Stock, based on a comparison
of the Illinois and Virginia corporation laws and differences between the
charters and by-laws of Griffith and MAXIMUS. The Articles of Incorporation and
By-Laws of Griffith are referred to herein as the "Griffith Charter" and the
"Griffith By-Laws", respectively, and the Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws of MAXIMUS are referred to herein
as the "MAXIMUS Restated Articles," and the "MAXIMUS Restated By-Laws,"
respectively. This summary does not purport to be complete and is qualified in
its entirety by reference to the Griffith Charter and Griffith Bylaws, the
MAXIMUS Restated Articles and MAXIMUS Restated By-Laws and the relevant
provisions of the Illinois Business Corporation Act and the Virginia Stock
Corporation Act (the "VSCA").
MEETINGS OF SHAREHOLDERS
Illinois law provides that special meetings of shareholders may be called
by the president, by the board of directors, by the holders of one-fifth of all
the outstanding shares entitled to vote, or by such other officers or persons
authorized by a corporation's articles of incorporation or by-laws. The Griffith
By-Laws authorize the president, the Board of Directors or holders of one-fifth
of all of the outstanding shares of the corporation to call special meetings.
The MAXIMUS Restated By-Laws provide for the call of a special meeting of
shareholders only by the president or a majority of the Board of Directors of
MAXIMUS.
INSPECTION RIGHTS
Inspection rights under the IBCA are broader than those under the VSCA.
Under Illinois law, shareholders demonstrating a proper purpose have the right
to inspect a corporation's record of shareholders and other books and records.
Under Virginia law, a corporation's shareholders have the right for a proper
purpose, upon five days prior written notice to the Corporation, to inspect the
corporation's record of shareholders and other books and records only if they
have been shareholders of record for at least six months or hold at least five
percent of all the outstanding shares and the records are directly connected
with the shareholders' proper purpose.
ACTION BY CONSENT OF SHAREHOLDERS
Under the Griffith By-Laws, any action that is required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting by written
consent of all of the shareholders. Under the MAXIMUS Restated Articles, for so
long as the corporation has a class of stock registered under the Securities
Exchange Act of 1934, as amended, no action required or permitted to be taken at
any annual or special meeting of shareholders may be taken by written consent
without a meeting.
CUMULATIVE VOTING
Under both Illinois and Virginia law, a corporation may provide in its
articles of incorporation for cumulative voting by shareholders in elections of
directors (i.e., each shareholder casts as many votes for directors as he has
shares of stock multiplied by the number of directors to be elected). While the
Griffith By-Laws provide for cumulative voting in all elections for directors,
the MAXIMUS Restated Articles do not provide for any cumulative voting rights.
ISSUANCE OF STOCK; PREFERRED STOCK
Under the Griffith Charter, the corporation is authorized to issue
1,000,000 shares of Common Stock, $.10 par value. Shares of Griffith Common
Stock may be issued from time to time in such amounts and for such
consideration, as may be determined by the Griffith Board of Directors. Holders
of Griffith Common
76
<PAGE> 84
Stock are not entitled to preemptive or preferential rights to purchase or to
subscribe for shares of capital stock or other securities that may be issued by
Griffith. No Preferred Stock has been authorized or issued.
Under the MAXIMUS Restated Articles, the corporation is authorized to issue
30,000,000 shares of Common Stock, no par value. Shares of MAXIMUS Common Stock
may be issued from time to time, in such amounts and for such consideration, as
may be determined by the MAXIMUS Board of Directors. No holder of MAXIMUS Common
Stock has any preemptive or preferential rights to purchase or to subscribe for
any shares of capital stock or other securities that may be issued by MAXIMUS.
No Preferred Stock has been authorized or issued.
DIVIDENDS AND REPURCHASES OF STOCK
Under Illinois law, a corporation is permitted to make distributions to its
shareholders, including payment of dividends and repurchase of shares of stock
provided that such distribution would not render the corporation insolvent or
leave the net assets of the corporation at an amount less than zero. The
directors of an Illinois corporation who vote for or assent to any distribution
in violation of the above will be held jointly and severally liable to the
corporation for the amount of such distribution. Under Virginia law, the payment
of dividends and the repurchase of the corporation's stock are not permissible
if such actions would render the corporation unable to pay its debts as they
become due in the usual course of business, or if the corporation's total assets
would be less than its total liabilities plus the amount needed to satisfy any
preferential rights held by shareholders. The directors of a Virginia
corporation may be personally liable to the corporation and its creditors to the
extent that a dividend authorized by the directors exceeds such permissible
amounts and is not repaid to the corporation. A director is entitled to
contribution from every other director who voted for or assented to the
distribution, and from the shareholders who received the distribution in
proportion to the amounts they received.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Both Illinois and Virginia law allow (but do not require) classification of
a corporation's board of directors into one, two or three classes. A resolution
adopted at a Board Meeting held in November of 1995, provides that Griffith
shall have from 11 to 16 directors. Each director holds office until the next
annual meeting of shareholders or until his successor is elected and qualified.
The MAXIMUS Restated Articles provide that for so long as the corporation has a
class of stock registered under The Exchange Act, the directors will be divided
into three classes, as nearly equal in number as practicable, with the term of
office of one class expiring each year.
REMOVAL OF DIRECTORS
The IBCA provides that in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no director may be
removed, with or without cause, if the votes cast against removal would be
sufficient to elect the director if then cumulatively voted. The affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors is needed to remove the entire board. The IBCA
also provides that a director can be removed only at a meeting of shareholders
called at least in part for such purpose. The Griffith Charter and By-Laws do
not provide otherwise. Under Virginia law, the shareholders may remove directors
with or without cause, unless the articles of incorporation provide that they
may be removed only with cause. Unless the articles of incorporation require a
greater vote, the shareholders may remove a director at a special meeting by a
majority vote of the votes entitled to be cast at an election of directors of
the voting group or groups by which the director was elected. The MAXIMUS
Restated Articles provide that at any special meeting called at least in part
for the purpose, any director may be removed for cause by vote of a majority of
stock entitled to vote for the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
The Griffith By-Laws provide that any vacancies occurring in the board of
directors and any directorship to be filled by reason of an increase in the
number of directors, may be filled by election at an annual meeting
77
<PAGE> 85
or at a special meeting of shareholders called for that purpose. Under Virginia
law, unless otherwise provided in the articles of incorporation, vacancies on
the board of directors, including newly created directorships resulting from any
increase in the authorized number of directors may be filled by the
shareholders, the board, or if the remaining directors do not constitute a
quorum, then by a majority of the remaining directors. The MAXIMUS Restated
By-Laws provide that until filled by the shareholders, and except as otherwise
determined by the MAXIMUS Board in establishing a series of preferred stock, any
vacancy on the Board may be filled by vote of a majority of the directors then
in office although less than a quorum, or by the sole remaining director.
EXCULPATION OF DIRECTORS
Neither the IBCA nor the Griffith Charter or By-Laws provide for
exculpation of directors for breaches of fiduciary duty. The VSCA provides that
in any proceeding brought by or on behalf of the corporation or its
shareholders, the damages assessed against a director cannot exceed the lesser
of (1) the amount, including the elimination of liability, specified in the
articles of incorporation, or (2) the greater of (i) $100,000 or (ii) the
individual's cash compensation for the preceding 12 months. The VSCA provides
further that liability cannot be limited if the director engaged in willful
misconduct or a knowing violation of the criminal law or any federal or state
securities law. The MAXIMUS Restated Articles provide for exculpation of
directors to the fullest extent permitted by Virginia law.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Both Illinois and Virginia law generally permit indemnification, or
reimbursement, of directors and officers for reasonable expenses paid in
settlement of claims incurred by them by reason of their position with the
corporation, if the director or officer has acted in good faith and with the
reasonable belief that his conduct was in, or not opposed to, the best interests
of the corporation. Illinois law and Virginia law both also allow advancement of
expenses. Under Virginia law, a corporation must indemnify a director or officer
who entirely prevails in the defense of any proceeding he was made a party to
because of his director or officer status, while Illinois law provides for
mandatory indemnification to the extent such person has been successful. Unlike
Illinois law, Virginia law does not permit a corporation to indemnify persons
against judgments in actions brought by or in the right of the corporation. The
Griffith By-Laws provide for indemnification of officers, directors and other
employees and agents consistent with Illinois law but does not provide for
advancement of expenses. The MAXIMUS Restated Articles and Restated By-Laws
provide for the indemnification of officers and directors to the maximum extent
legally permissible and for indemnification of other employees and agents to the
extent authorized by the MAXIMUS Board and permitted by law.
INTERESTED DIRECTOR TRANSACTIONS
The IBCA provides that if a transaction is fair to a corporation the fact
that a director of the corporation is directly or indirectly a party to the
transaction is not grounds for invalidating the transaction provided that if a
proceeding is brought contesting the transaction, such director shall have the
burden of proving fairness unless, after disclosure of material facts, the
transaction is approved by the affirmative vote of a majority of disinterested
directors or by the shareholders entitled to vote (not including a shareholder
who is an interested director). The MAXIMUS Restated By-Laws provide that no
transaction between a corporation and one or more of its directors or officers
or an entity in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for that
reason. In addition, no such transaction shall be void or voidable solely
because the director or officer is present at, participates in, or votes at the
meeting of the board of directors, or committee thereof, which authorizes the
transaction. In order that such a transaction not be found void or voidable, it
must, after disclosure of material facts, be approved by a majority of the
disinterested directors, a committee of disinterested directors, or by vote of
the shareholders, or the transaction must be fair as to the corporation.
78
<PAGE> 86
SALE, LEASE OR EXCHANGE OF ASSETS AND MERGERS
Illinois law requires the approval of a majority of the directors and the
vote of two-thirds of the shareholders or class of shareholders entitled to vote
thereon for the sale, lease, or exchange of all or substantially all of a
corporation's property and assets, a share exchange, or a merger or
consolidation of the corporation into any other corporation, although the
articles of incorporation may provide that the vote of a greater or lesser
proportion, but not less than a majority of the outstanding shares of each
class, is required. Virginia law requires the approval of the board of directors
and the vote of two-thirds of each voting group entitled to vote thereon to
authorize the sale, lease, or exchange of all or substantially all of a
corporation's property and assets (other than in the usual and regular course of
business), a share exchange, or a merger or consolidation of the corporation
into any other corporation, except that the articles of incorporation may
provide that the vote of a greater proportion is required.
AMENDMENTS TO CHARTER
Under both the IBCA and the VSCA, a majority of the directors may make
amendments to a corporation's articles of incorporation relating to certain
changes in capitalization or in the corporate name without shareholder action.
Other amendments require adoption by the directors and the affirmative vote of
two-thirds of the shareholders or class of shareholders entitled to vote, except
that the articles of incorporation may provide that the vote of a greater
proportion is required. The Griffith Charter does not provide for a greater or
lesser vote. The MAXIMUS Restated Articles does not require a greater proportion
except with respect to amendment, revision or revocation, in whole or in part,
to the classification, term or removal of directors and the action by consent of
shareholders, which require the affirmative vote of the holders of 80% of the
voting power of the shares of all classes of stock entitled to vote for the
election of directors.
APPRAISAL RIGHTS
Dissenting shareholders have the right to obtain the fair value of their
shares (so-called "appraisal rights") in more circumstances under Illinois law
than under Virginia law. Under the laws of both states, a properly dissenting
shareholder is entitled to receive the appraised value of his shares when the
corporation votes (i) to sell, lease, or exchange all or substantially all of
its property and assets, (ii) to merge or consolidate with another corporation,
or (iii) to consummate a plan of share exchange, if the shareholder was entitled
to vote on such action. Illinois law also provides dissenter rights where the
corporation votes to adopt an amendment to its articles of organization which
adversely affects the rights of the shareholder. The VSCA does not provide for
dissenter's rights where the shares of stock were listed on a national
securities exchange or on Nasdaq or held by 2,000 record shareholders except in
limited circumstances.
The appraisal rights of the Griffith ESOP can only be exercised by the ESOP
Trustee.
"ANTI-TAKEOVER" PROVISIONS
The Charters and By-Laws of Griffith and the Restated Articles and Restated
By-Laws of MAXIMUS contain provisions that could discourage potential takeover
attempts and prevent shareholders from changing the company's management,
including in the case of MAXIMUS provisions authorizing the Board of Directors
to issue shares of preferred stock in series and in the case of both
corporations' restrictions on the ability of shareholders to call a special
meeting of shareholders.
Illinois's Business Combination statute is substantially similar to the
Virginia Affiliated Transaction Article. However, while the Illinois statute
provides that, if a person acquires 15% or more of the stock of an Illinois
corporation without the approval of its board of directors (an "interested
shareholder"), such person may not engage in certain transactions with the
corporation for a period of three years, the Virginia statute lowers the 15%
threshold to 10%. The Illinois statute includes certain exceptions to this
prohibition; for example, if the board of directors approves the acquisition of
stock or the transaction prior to the time that the person became an interested
shareholder, or if the interested shareholder acquires 85% of the voting stock
of the corporation (excluding voting stock owned by directors who are also
officers and certain employee stock plans) in one transaction, or if the
transaction is approved by the affirmative vote of 66 2/3% of the outstanding
79
<PAGE> 87
voting shares which are not owned by the interested shareholder, the prohibition
does not apply. The Virginia statute provides an exception for transactions
approved by the majority (but not less than two) of the disinterested directors
and the affirmative vote of two-thirds of the disinterested shareholders.
Griffith is subject to the Illinois Business Combinations statute, but the
MAXIMUS Restated Articles contains a provision expressly electing not to be
governed by the Virginia Affiliated Transaction Article.
LEGAL MATTERS
The validity of the shares of MAXIMUS Common Stock to be issued in
connection with the Merger will be passed upon for MAXIMUS by Palmer & Dodge
LLP, Boston, Massachusetts.
EXPERTS
The financial statements of MAXIMUS, Inc. as of September 30, 1997 and 1996
and for each of the three years in the period ended September 30, 1997, included
in the Proxy Statement of David M. Griffith & Associates, Ltd., which is
referred to and made a part of this Prospectus and Registration Statement of
MAXIMUS, Inc., have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of David M. Griffith & Associates, Ltd. as of
December 31, 1996 and 1997, and for each of the years in the three-year period
ending December 31, 1997, have been included in this Prospectus/Proxy Statement
in reliance upon the report of Grant Thornton LLP, independent certified public
accountants given upon their authority as experts in accounting and auditing.
OTHER MATTERS
Griffith knows of no other business that will be presented for action by
the shareholders at the Griffith Special Meeting.
80
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS OF MAXIMUS AND GRIFFITH
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAXIMUS Financial Statements:
Report of Independent Auditors............................ F-2
Balance Sheets at September 30, 1996 and 1997............. F-3
Statements of Income for the years ended September 30,
1995, 1996 and 1997.................................... F-4
Statements of Changes in Redeemable Common Stock and
Shareholders' Equity for the years ended September 30,
1995, 1996 and 1997.................................... F-6
Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997.................................... F-5
Notes to Consolidated Financial Statements................ F-7
Balance Sheets at September 30, 1997 and December 31, 1997
(unaudited)............................................ F-16
Statements of Income for the three months ended December
31, 1996 and 1997 (unaudited).......................... F-17
Statements of Cash Flows for the three months ended
December 31, 1996 and 1997 (unaudited)................. F-18
Notes to Financial Statements (unaudited)................. F-19
Griffith Financial Statements:
Report of Independent Certified Public Accountants........ F-21
Balance Sheets at December 31, 1996 and 1997.............. F-22
Statements of Earnings for the years ended December 31,
1995, 1996 and 1997.................................... F-23
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997....................... F-24
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997
Notes to Financial Statements............................. F-26
</TABLE>
F-1
<PAGE> 89
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, 1996 and 1997, and the related statements of income, changes in
redeemable common stock and shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. 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, 1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Washington, D.C.
November 28, 1997,
except for Note 3, as to which the date is
March 31, 1998
F-2
<PAGE> 90
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,326 $10,960
Marketable securities..................................... 1,007 40,869
Accounts receivable....................................... 25,352 33,651
Costs and estimated earnings in excess of billings (Note
4)..................................................... 2,949 5,605
Prepaid expenses and other current assets................. 605 1,292
Deferred income taxes (Note 8)............................ -- 729
------- -------
Total current assets........................................ 32,239 93,106
Property and equipment at cost:
Land...................................................... 662 662
Building and improvements................................. 1,676 1,721
Office furniture and equipment............................ 1,206 1,645
Leasehold improvements.................................... 188 188
------- -------
3,732 4,216
Less: Accumulated depreciation and amortization........... (1,096) (1,346)
------- -------
Total property and equipment, net........................... 2,636 2,870
Other assets................................................ 618 849
------- -------
Total assets................................................ $35,493 $96,825
======= =======
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,043 $ 3,099
Accrued compensation and benefits......................... 1,912 5,874
Billings in excess of costs and estimated earnings (Note
4)..................................................... 5,208 11,749
Note payable.............................................. -- 188
Income taxes payable...................................... 19 3,881
Deferred income taxes..................................... 357 --
S corporation distribution payable (Note 9)............... -- 5,748
------- -------
Total current liabilities................................... 9,539 30,539
Deferred income taxes (Note 8).............................. -- 147
------- -------
Total liabilities........................................... 9,539 30,686
Commitments and contingencies (Notes 6 and 10)
Redeemable common stock (Note 9):
No par value; 30,000,000 shares authorized; 11,453,145
shares issued and outstanding at September 30, 1996, at
redemption amount...................................... 16,757 --
Shareholders' equity (Note 9):
Common stock:
No par value; 30,000,000 shares authorized; 14,790,470
shares issued and outstanding at September 30, 1997.... -- 66,730
Retained earnings (deficit)............................... 9,197 (591)
------- -------
Total shareholders' equity.................................. 9,197 66,139
------- -------
Total liabilities, redeemable common stock and shareholders'
equity.................................................... $35,493 $96,825
======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 91
MAXIMUS, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues................................................ $51,963 $103,113 $127,947
Cost of revenues........................................ 36,071 78,429 94,254
------- -------- --------
Gross profit............................................ 15,892 24,684 33,693
Selling, general and administrative expenses............ 9,078 13,104 16,782
Stock option compensation expense (Note 9).............. -- -- 5,874
------- -------- --------
Income from operations.................................. 6,814 11,580 11,037
Interest and other income............................... 169 264 928
------- -------- --------
Income before income taxes.............................. 6,983 11,844 11,965
Provision for income taxes (Note 8)..................... 124 225 3,376
------- -------- --------
Net income.............................................. $ 6,859 $ 11,619 $ 8,589
======= ======== ========
Earnings per share (Note 3):
Basic.............................................. $ 0.61 $ 1.02 $ 0.70
======= ======== ========
Diluted............................................ $ 0.61 $ 1.02 $ 0.68
======= ======== ========
Shares used in computing earnings per shares (Note 3):
Basic.............................................. 11,312 11,371 12,306
======= ======== ========
Diluted............................................ 11,312 11,371 12,691
======= ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 92
MAXIMUS, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
---------------------
REDEEMABLE RETAINED
COMMON COMMON EARNINGS
STOCK STOCK (DEFICIT)
---------- ------ ---------
<S> <C> <C> <C>
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 -- (5,935)
S Corporation distributions............................ -- -- (2,175)
-------- ------- --------
Balance at September 30, 1996............................... 16,757 -- 9,197
Purchase of redeemable common stock from employees..... (626) -- --
Issuance of common stock to employees.................. -- 4 --
Compensation charge for stock options.................. -- 5,874 --
Net income............................................. -- -- 8,589
Adjustment to retained earnings upon termination of S
Corporation status................................... -- (9,083) 9,083
Reclassification of redeemable common stock upon
initial public offering.............................. (16,131) 16,131 --
Net proceeds from sale of common stock in initial
public offering...................................... -- 53,804 --
S Corporation distributions............................ -- -- (27,460)
-------- ------- --------
Balance at September 30, 1997............................... $ -- $66,730 $ (591)
======== ======= ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 93
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 6,859 $11,619 $ 8,589
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 168 307 415
Stock option compensation expense...................... -- -- 5,874
Other.................................................. (134) (22) (165)
Changes in assets and liabilities:
Accounts receivable, net............................. (6,646) (9,411) (8,299)
Costs and estimated earnings in excess of billings... 1,587 (2,173) (2,656)
Prepaid expenses and other current assets............ 245 (251) (687)
Other assets......................................... (124) (101) (231)
Accounts payable..................................... 1,680 (157) 1,056
Accrued compensation and benefits.................... 161 1,119 3,962
Billings in excess of costs and estimated earnings... (1,154) 2,090 6,541
Income taxes payable................................. 41 (22) 3,862
Deferred income taxes................................ 62 120 (939)
------- ------- --------
Net cash provided by operating activities................. 2,745 3,118 17,322
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (180) (348) (484)
Purchase of marketable securities......................... -- (1,000) (39,862)
------- ------- --------
Net cash used in investing activities..................... (180) (1,348) (40,346)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of expenses.... -- -- 53,804
S Corporation distributions............................... (117) (2,175) (21,712)
Payment for purchase of redeemable common stock........... (548) -- (438)
Issue of redeemable common stock to employees............. 277 229 --
Issue of common stock to employees........................ -- -- 4
------- ------- --------
Net cash provided by (used in) financing activities....... (388) (1,946) 31,658
------- ------- --------
Net increase (decrease) in cash and cash equivalents...... 2,177 (176) 8,634
Cash and cash equivalents, beginning of year.............. 325 2,502 2,326
------- ------- --------
Cash and cash equivalents, end of year.................... $ 2,502 $ 2,326 $ 10,960
======= ======= ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 94
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(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
Services Group provides health and human services planning, information
technology consulting, strategic program evaluation, program improvement,
communications planning and assistance to state and local governments 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% of total revenues for the year ended
September 30, 1997.
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.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition
The Company generates revenue 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 quarterly and
adjusts revenues to reflect 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.
Marketable Securities
Marketable securities are classified as available-for-sale and are recorded
at fair market value with unrealized gains and losses, net of taxes, reported as
a separate component of shareholders' equity, if material.
F-7
<PAGE> 95
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Realized gains and losses and declines in market value judged to be other than
temporary are included in investment income. Interest and dividends are included
in investment income. There are no material unrealized gains or losses on
marketable securities at September 30, 1997. At September 30, 1997 the
marketable securities consisted primarily of short-term municipal and commercial
bonds.
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
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.
Prior to its initial public offering, the Company and its shareholders
elected to be treated as an S corporation under the Internal Revenue Code. Under
the provisions of the tax code, the Company's shareholders included 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 prior to the initial public offering. The completion of the
Company's initial public offering during June 1997 resulted in the termination
of the Company's S corporation status for income tax purposes. In connection
therewith, the Company recorded a deferred tax charge against income of $2,566
for the cumulative differences between the financial reporting and income tax
basis of certain assets and liabilities at June 12, 1997.
Accounting Standards Not Adopted
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments
of an Enterprise and Related Information" which established standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas and major customers. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The financial information
is required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997.
F-8
<PAGE> 96
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company does not expect the impact of adopting these new accounting
standards to be significant.
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, marketable
securities, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1996 and 1997.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net Income............................................... $ 6,859 $11,691 $ 8,589
Denominator:
Denominator for the basic earnings per share:
Weighted average shares outstanding................. 11,312 11,371 12,306
11,312 11,371 12,854
------- ------- -------
Stock options............................................ -- -- 385
------- ------- -------
Denominator for dilutive earnings per share.............. 11,312 11,371 13,239
</TABLE>
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, 1996:
Costs and estimated earnings.............. $ 89,893 $ 60,489
Billings.................................. 86,944 65,697
-------- --------
$ 2,949 $ 5,208
======== ========
September 30, 1997:
Costs and estimated earnings.............. $136,008 $117,586
Billings.................................. 130,403 129,335
-------- --------
$ 5,605 $ 11,749
======== ========
</TABLE>
F-9
<PAGE> 97
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS -- (CONTINUED)
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 maintained a $10 million revolving line of credit with a bank
during the years ended September 30, 1996 and 1997. Borrowings under this line
bear interest at LIBOR plus an amount which ranges from 0.65% to 1.25% depending
on the Company's debt to equity ratio. Under the terms of the line, the Company
is required to maintain at all times: (i) an excess of current assets to current
liabilities of not less than 1.5 to 1, (ii) net worth of $60 million, and (iii)
a ratio of total liabilities to net worth of not more than 1.5 to 1. There were
no outstanding borrowings under the line of credit facility at September 30,
1997. The line of credit expires on March 31, 1999. At September 30, 1996 and
1997, the Company had letters of credit outstanding amounting to $1,210 and
$508, respectively.
6. LEASES
The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. The 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 index. Rent expense for the years ended
September 30, 1995, 1996 and 1997 was $1,150, $2,282 and $4,023, respectively.
Minimum future payments under these leases are as follows:
<TABLE>
<S> <C>
YEARS ENDED SEPTEMBER 30,
1998........................................................ $3,402
1999........................................................ 2,895
2000........................................................ 1,775
2001........................................................ 1,018
2002........................................................ 358
Thereafter.................................................. 130
------
$9,578
======
</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 year ended September 30, 1995. During the
years ended September 30, 1996 and 1997, the Company contributed $574 and $690
to the plan, respectively.
8. INCOME TAXES
For the years ended September 30, 1995 and 1996, no federal income taxes
have been recorded due to the Company's S corporation status. For these years,
the tax provision consists of state taxes for those states in which the Company,
rather than the shareholders, is liable for income taxes.
F-10
<PAGE> 98
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. INCOME TAXES -- (CONTINUED)
Upon completion of the initial public offering, the Company's S Corporation
status terminated for federal and state taxation purposes, and the Company
recorded a deferred tax charge against income of $2,566 for the cumulative
differences between the financial reporting and income tax basis of certain
assets and liabilities at June 12, 1997.
The Company's provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current provision:
State..................................... $ 62 $ 105 $ 593
Federal................................... -- -- 3,722
Deferred tax expense (benefit)................. 62 120 (939)
------- ------- -------
$ 124 $ 225 $ 3,376
======= ======= =======
</TABLE>
The provision for income taxes resulted in effective tax rates that varied
from the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Expected federal income tax provision.......... $ 2,374 $ 4,027 $ 4,068
Effect of income taxed directly to S
Corporation Shareholders..................... (2,374) (4,027) (3,893)
State income taxes............................. 124 225 503
Cumulative deferred income taxes recognized.... -- -- 2,566
Other.......................................... -- -- 132
------- ------- -------
$ 124 $ 225 $ 3,376
======= ======= =======
</TABLE>
The significant items comprising the Company's deferred tax assets and
liabilities as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets-current:
Liabilities for costs deductible in future periods..... $ 425
Billings in excess of costs and estimated earnings..... 4,699
-------
Total deferred tax assets - current......................... 5,124
Deferred tax liabilities - current:
Cash versus accrual accounting......................... 2,153
Costs and estimated earnings and excess of billing..... 2,242
-------
Total deferred tax liabilities - current.................... 4,395
-------
Net deferred tax asset - current............................ 729
=======
Deferred tax assets (liabilities) non-current:
Stock option compensation.............................. 2,056
Cash versus accrual accounting......................... (2,203)
-------
Net deferred tax (liability) - non-current.................. $ (147)
=======
</TABLE>
Cash paid for income taxes during the years ended September 30, 1995, 1996
and 1997 was $9, $110 and $218, respectively.
F-11
<PAGE> 99
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY
Initial Public Offering
The Company completed an initial public offering (the "IPO") of common
stock during June 1997. Of the 6,037,500 shares of common stock sold in the IPO,
2,360,000 shares were sold by selling shareholders and 3,677,500 shares were
sold by MAXIMUS, Inc. generating $53,804 in proceeds to the Company, net of
offering expenses.
S Corporation distributions
During fiscal year 1997, the Company made cash distributions to its S
Corporation Shareholders prior to the IPO totaling $1,212. In connection with
the IPO, the Company made an additional distribution of $20,500 to its S
Corporation Shareholders and accrued an additional distribution at September 30,
1997 in the amount of $5,748, such aggregate amount representing the
undistributed earnings of the Company taxed or taxable to shareholders through
the date of the IPO.
Redeemable Common Stock
Prior to the IPO, a shareholders' agreement obligated 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 were
obligated to sell and the Company was 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
was reflected as redeemable common stock in the balance sheet at September 30,
1996. The Company's obligation to purchase common shares from shareholders
terminated upon completion of the IPO. Accordingly, amounts classified
previously as redeemable common stock were reclassified into shareholder's
equity.
Employee Stock Purchases
The Company entered into employee stock purchase 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,
1995 and 1996, the Company sold 277,000 and 229,000 shares, respectively, under
these arrangements.
Stock Option Plans
The Company's Board of Directors established stock option plans during 1997
pursuant to which the Company may grant incentive and non-qualified stock
options to officers, employees and directors of the Company. Such plans also
provide for stock awards and direct purchases of the Company's common stock.
The vesting period and share price for awards are determined by the
Company's Board of Directors at the date of grant. Options granted during 1997
include those which were fully vested on issuance and others which vest over
periods from two to four years. The Company's Board of Directors has reserved
1.1 million shares of common stock for issuance under the Company's stock option
plans.
In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at a formula price based
on book value. During 1997, the Company recorded a non-recurring charge against
income of $5,874 for the difference between the IPO price and the formula price
for all options outstanding. The Company recorded a deferred tax benefit
relating to the charge in the amount of $2,055.
F-12
<PAGE> 100
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting and Disclosure for
Stock-Based Compensation," which provides for a fair value based methodology of
accounting for all stock option plans. Under SFAS No. 123, companies may account
for stock options under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations and provide
pro forma disclosure of net income, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. The Company has elected to
follow APB 25 and related interpretations in accounting for its employee stock
options and provide pro forma fair value disclosure under SFAS 123.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a minimal valuation method with the
following assumptions - risk free interest rate 6.3%, dividend yield 0% and an
expected life of the option of four years.
For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to reflect such expense over the options' vesting period.
For the year ended September 30, 1997 pro forma net income and pro forma net
income per share resulting from the adjustment for stock option compensation was
as follows:
<TABLE>
<S> <C>
Net income.................................................. $8,589
FAS 123 compensation expense................................ (972)
------
Net income, as adjusted..................................... $7,617
======
Net income per share, as adjusted:.......................... $
Basic.................................................. $ 0.62
Diluted................................................ $ 0.60
======
</TABLE>
A summary of the Company's stock option activity for the year ended September
30, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
EXERCISE AVERAGE
OPTIONS PRICE FAIR VALUE
------- --------- ----------
<S> <C> <C> <C>
Granted................................................... 531,975 $5.05 $3.58
Exercised................................................. (3,025) 1.46 3.56
-------
Outstanding at September 30, 1997......................... 528,950 5.07 3.58
=======
</TABLE>
The Company had approximately 434,000 options exercisable at September 30,
1997. The average contractual life of outstanding options at December 31, 1996
is ten years. Of the 528,950 options outstanding at September 30, 1997, 395,450
options have an exercise price of $1.46, 124,000 options have an exercise price
of $16.00, 5,500 options have an exercise price of $0.01 and 4,000 options have
an exercise price of $27.94.
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.
F-13
<PAGE> 101
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
On November 28, 1997, an individual who was a former officer, director and
shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and breached
various fiduciary duties owed to him and claims damages in excess of $10
million. The Company does not believe that this action will have a material
adverse effect on the Company's business, and it intends to vigorously defend
this action.
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.
DCAA Audits
A substantial portion of payments to the Company from United States
Government agencies is subject to adjustments upon audit by the Defense Contract
Audit Agency. 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.
Employment Agreements
During 1997, the Company entered into employment agreements with six of its
executives that provide for initial base salaries of approximately $1.6 million
per year. The term of the employment obligation is four year.
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 government agencies located in the
United States.
At September 30, 1996 and 1997, $14,815 and $1,436, respectively, of the
Company's accounts receivable were due from the United States Government.
Revenues under contracts with various agencies of the United States Government
were $17,851, $61,317 and $35,802 for the years ended September 30, 1995, 1996
and 1997, respectively. Of these amounts, $14,314, $56,530 and $31,611 for the
years ended September 30, 1995, 1996 and 1997, 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
United States Government that contributed substantially all of the revenues of
the government operations segment for 1995, 1996 and 1997 was terminated by the
United States Government. This contract concluded during the second quarter of
1997.
At September 30, 1997, $10,482 of the Company's accounts receivable were
due from one state government. Revenues from contracts with this state were
$26,189 for the year ended September 30, 1997.
F-14
<PAGE> 102
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. BUSINESS SEGMENTS
The following table provides certain financial information for each
business segment:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Revenues:
Government Operations.................. $31,265 $ 77,211 $ 97,369
Consulting............................. 20,698 25,902 30,578
------- -------- --------
$51,963 $103,113 $127,947
======= ======== ========
Income (loss) from operations:
Government Operations.................. $ 1,636 $ 4,936 $ 6,164
Consulting............................. 5,178 6,644 4,873
------- -------- --------
$ 6,814 $ 11,580 $ 11,037
======= ======== ========
Identifiable assets:
Government Operations.................. $ 8,962 $ 19,369 $ 26,610
Consulting............................. 8,416 9,910 13,338
Corporate.............................. 5,292 6,214 56,877
------- -------- --------
$22,670 $ 35,493 $ 96,825
======= ======== ========
Capital expenditures:
Government Operations.................. $ 2 $ 4 $ 2
Consulting............................. 19 73 67
Corporate.............................. 159 271 415
------- -------- --------
$ 180 $ 348 $ 484
======= ======== ========
Depreciation and amortization:
Government Operations.................. $ 5 $ 99 $ 204
Consulting............................. 17 27 31
Corporate.............................. 146 181 180
------- -------- --------
$ 168 $ 307 $ 415
======= ======== ========
</TABLE>
13. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT
On March 16, 1998, the Company issued 840,000 shares of its common stock in
exchange for all the common stock of Spectrum Consulting Group, Inc. of San
Antonio, Texas. This merger will be accounted for as an immaterial pooling of
interests and accordingly, the Company's financial statements, including
earnings per share, will not be restated for periods prior to January 1, 1998.
F-15
<PAGE> 103
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,960 $10,579
Marketable securities..................................... 40,869 31,502
Accounts receivable, net.................................. 33,651 33,920
Costs and estimated earnings in excess of billings........ 5,605 6,546
Prepaid expenses and other current assets................. 1,292 877
Deferred income taxes..................................... 729 --
------- -------
Total current assets........................................ 93,106 83,424
Property and equipment at cost:
Land...................................................... 662 662
Building and improvements................................. 1,721 1,721
Office furniture and equipment............................ 1,645 1,731
Leasehold improvements.................................... 188 188
------- -------
4,216 4,302
Less: Accumulated depreciation and amortization........... (1,346) (1,430)
------- -------
Total property and equipment, net........................... 2,870 2,872
Deferred income taxes....................................... -- 404
Other assets................................................ 849 752
------- -------
Total assets................................................ $96,825 $87,452
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,099 $ 3,508
Accrued compensation and benefits......................... 5,874 4,384
Billings in excess of costs and estimated earnings........ 11,749 9,663
Note payable.............................................. 188 188
Income taxes payable...................................... 3,881 445
Deferred income taxes..................................... -- 531
S Corporation distribution payable........................ 5,748 --
------- -------
Total current liabilities................................... 30,539 18,719
Deferred income taxes....................................... 147 --
------- -------
Total liabilities........................................... $30,686 $18,719
------- -------
Contingencies (Note 3)
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized;
14,790,470 and 14,790,970 shares issued and outstanding
at September 30, 1997 and December 31, 1997, at stated
amount................................................. 66,730 66,731
Retained earnings (deficit)............................ (591) 2,002
------- -------
Total shareholders' equity.................................. 66,139 68,733
------- -------
Total liabilities and shareholders' equity.................. $96,825 $87,452
------- -------
</TABLE>
See notes to financial statements.
F-16
<PAGE> 104
MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................... $37,244 $36,356
Cost of revenues............................................ 29,534 27,300
------- -------
Gross profit................................................ 7,710 9,056
Selling, general and administrative expenses................ 4,039 5,346
------- -------
Income from operations...................................... 3,671 3,710
Interest and other income................................... 84 575
------- -------
Income before income taxes.................................. 3,755 4,285
Provision for income taxes.................................. 57 1,692
------- -------
Net income.................................................. $ 3,698 $ 2,593
======= =======
Earnings per share:
Basic....................................................... $ .32 $ .18
======= =======
Diluted..................................................... $ .31 $ .17
======= =======
Shares used in computing earnings per share:
Basic.................................................. 11,453 14,791
======= =======
Diluted................................................ 11,817 15,182
======= =======
</TABLE>
See notes to financial statements.
F-17
<PAGE> 105
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 3,698 $ 2,593
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 70 84
Change in assets and liabilities:
Accounts receivable, net............................... (4,584) (269)
Costs and estimated earnings in excess of billings..... (1,898) (941)
Prepaid expenses and other current assets.............. (50) 415
Deferred income taxes.................................. 30 709
Other assets........................................... 59 97
Accounts payable....................................... 2,370 409
Accrued compensation and benefits...................... 833 (1,490)
Billings in excess of costs and estimated earnings..... 1,319 (2,086)
Income taxes payable................................... -- (3,436)
------- -------
Net cash provided by (used in) operating activities......... 1,847 (3,915)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (9) (86)
Sale of marketable securities............................. -- 9,367
------- -------
Net cash (used in) provided by investing activities......... (9) 9,281
CASH FLOWS FROM FINANCING ACTIVITIES:
S Corporation distributions............................... -- (5,748)
Issuance of common stock.................................. -- 1
------- -------
Net cash used in financing activities....................... -- (5,747)
------- -------
Net increase (decrease) in cash and cash equivalents........ 1,838 (381)
Cash and cash equivalents, beginning of period.............. 2,326 10,960
------- -------
Cash and cash equivalents, end of period.................... $ 4,164 $10,579
======= =======
</TABLE>
See notes to financial statements.
F-18
<PAGE> 106
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normally recurring
accruals considered necessary for a fair presentation have been included. The
results of operations for the three month period ended December 31, 1997 is not
necessarily indicative of the results that may be expected for the full fiscal
year. These financial statements should be read in conjunction with the audited
financial statements as of September 30, 1996 and 1997 and for each of the three
years in the period ended September 30, 1997, included in the Company's Annual
Report on Form 10-K (No. 1-12997), as filed with the Securities and Exchange
Commission.
2. INITIAL PUBLIC OFFERING
The Company completed an initial public offering ("IPO") of Common Stock
during June 1997. Of the 6,037,500 shares of Common Stock sold in the IPO,
2,360,000 shares were sold by selling shareholders and 3,677,500 shares were
sold by MAXIMUS, Inc. generating $53,804 in proceeds to the Company, net of
offering expenses.
The Company made cash payments of S corporation distributions (the "S
Corporation Dividend") to shareholders totaling $21,712 and accrued $5,748
during the year ended September 30, 1997. The S Corporation Dividend represented
the undistributed earnings of the Company taxed or taxable to the shareholders
through the date of the IPO. During the quarter ended December 31, 1997, the
Company paid the remaining $5,748 of S Corporation Dividend.
See also note 5.
3. CONTINGENCIES
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.
On November 28, 1997, an individual who was a former officer, director and
shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and breached
various fiduciary duties owed to him and claims damages in excess of $10
million. The Company does not believe that this action will have a material
adverse effect on the Company's business, and it 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.
The Company also is involved in various other legal proceedings in the
ordinary course of 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-19
<PAGE> 107
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
4. REVENUES FROM SIGNIFICANT CONTRACT
Government Operations Group revenues for the three month periods ended
December 31, 1997 and 1996 include $0 and $22,511, respectively, from a
significant contract with the U.S. Government Social Security Administration
which was terminated in February 1997 pursuant to legislative action.
5. INCOME TAX PROVISION
Prior to the IPO, the Company and its shareholders elected to be treated as
an S corporation under the Internal Revenue Code. Under the provisions of the
tax code, the Company's shareholders included their pro rata share of the
Company's income in their personal tax returns. Accordingly, the Company was not
subject to federal and most state income taxes.
6. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
F-20
<PAGE> 108
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
David M. Griffith & Associates, Ltd.
We have audited the accompanying balance sheets of David M. Griffith &
Associates, Ltd. (an Illinois corporation) as of December 31, 1996 and 1997, and
the related statements of earnings, stockholders' equity, and cash flows for the
years ended December 31, 1995, 1996, and 1997. 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 David M. Griffith &
Associates, Ltd. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1996, and
1997, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Chicago, Illinois
March 18, 1998, except for Note L
which is as of March 23, 1998.
F-21
<PAGE> 109
DAVID M. GRIFFITH & ASSOCIATES, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 60,612 $ 40,384
Accounts receivable
Billed (less allowance for doubtful accounts of $150,000
in 1996 and 1997, respectively)....................... 5,100,071 6,358,501
Unbilled................................................ 5,487,366 6,521,420
------------ ------------
10,587,437 12,879,921
Refundable income taxes................................... 1,547 --
Prepaid expenses.......................................... 41,945 142,402
------------ ------------
Total current assets.................................. 10,691,541 13,062,707
PROPERTY AND EQUIPMENT -- AT COST
Furniture and office equipment............................ 3,000,517 3,257,480
Vehicles.................................................. 49,049 --
------------ ------------
3,049,566 3,257,480
Less accumulated depreciation............................. 2,131,950 2,232,612
------------ ------------
917,616 1,024,868
OTHER ASSETS
Deferred income taxes..................................... 1,548,323 1,388,022
Deposits.................................................. 65,237 71,937
Intangibles, net of accumulated amortization.............. 4,139 345
------------ ------------
1,617,699 1,460,304
------------ ------------
$ 13,226,856 $ 15,547,879
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank..................................... $ 911,797 $ 1,388,710
Current maturities of long-term debt...................... 114,235 19,826
Current portion of deferred compensation.................. 896,495 763,073
Accounts payable.......................................... 488,010 661,859
Accrued liabilities
Salaries and wages...................................... 1,597,514 2,065,813
Payroll taxes 1,103,553 1,429,594
Income taxes............................................ -- 50,778
Interest and other...................................... 160,224 152,945
------------ ------------
2,861,291 3,699,130
Deferred revenue.......................................... 298,179 527,527
Deferred income taxes..................................... 2,721,146 3,180,845
------------ ------------
Total current liabilities............................. 8,291,153 10,240,970
LONG-TERM DEBT, less current maturities..................... 19,826 454,189
DEFERRED COMPENSATION, less current portion
Current employees......................................... 2,392,369 2,772,112
Former employees.......................................... 1,472,880 761,548
------------ ------------
3,865,249 3,533,660
REDEEMABLE COMMON STOCK..................................... 14,926,332 14,496,558
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Common stock -- authorized, 1,000,000 shares of $.10 par
value; issued and outstanding, 231,417 and 231,078
shares.................................................. 23,141 23,107
Additional contributed capital............................ 1,086,798 1,064,902
Retained earnings (deficit)................................. (59,311) 685,240
Obligation for redeemable common stock...................... (14,926,332) (14,950,747)
------------ ------------
(13,875,704) (13,177,498)
------------ ------------
$ 13,226,856 $ 15,547,879
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 110
DAVID M. GRIFFITH & ASSOCIATES, LTD.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.......................................... $30,577,028 $32,559,755 $39,376,987
Cost of revenues.................................. 21,127,405 23,109,629 27,713,572
Deferred compensation and ESOP contribution....... 925,575 1,044,364 1,029,048
----------- ----------- -----------
22,052,980 24,153,993 28,742,620
----------- ----------- -----------
Gross profit. .................................... 8,524,048 8,405,762 10,634,367
Selling general and administrative expenses. ..... 6,702,424 7,133,912 8,541,035
ESOP contribution. ............................... 61,553 60,123 83,941
----------- ----------- -----------
6,763,977 7,194,035 8,624,976
----------- ----------- -----------
Income from operations............................ 1,760,071 1,211,727 2,009,391
Other deductions
Interest expense on deferred compensation
arrangements................................. 413,074 452,209 384,592
Interest expense................................ 216,313 254,834 144,242
Net loss on disposal of equipment............... 24,755 25,929 8,006
----------- ----------- -----------
654,142 732,972 536,840
----------- ----------- -----------
Income before income taxes........................ 1,105,929 478,755 1,472,551
Provision for income taxes
Current......................................... 193,000 145,000 108,000
Deferred........................................ 419,000 160,000 620,000
----------- ----------- -----------
612,000 305,000 728,000
----------- ----------- -----------
NET INCOME........................................ $ 493,929 $ 173,755 $ 744,551
=========== =========== ===========
NET INCOME PER SHARE.............................. $ 2.14 $ .75 $ 3.22
=========== =========== ===========
Average shares outstanding........................ 231,166 231,417 231,219
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 111
DAVID M. GRIFFITH & ASSOCIATES, LTD.
STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL RETAINED OBLIGATION FOR
COMMON CONTRIBUTED EARNINGS REDEEMABLE
STOCK CAPITAL (DEFICIT) COMMON STOCK TOTAL
------- ----------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.......... $22,840 $ 975,122 $(726,995) $ (8,501,346) $ (8,230,379)
Purchase of 22,820 shares of
common stock...................... (2,282) (980,256) -- -- (982,538)
Issuance of 25,828 shares of
common stock...................... 2,583 1,091,932 -- -- 1,094,515
Increase in value of redeemable
common stock...................... -- -- -- (2,282,640) (2,282,640)
Net earnings for the year........... -- -- 493,929 -- 493,929
------- ---------- --------- ------------ ------------
Balance at December 31, 1995........ 23,141 1,086,798 (233,066) (10,783,986) (9,907,113)
Purchase of 15,111 shares of
common stock...................... (1,511) (898,013) -- -- (899,524)
Issuance of 15,111 shares of
common stock...................... 1,511 898,013 -- -- 899,524
Increase in value of redeemable
common stock...................... -- -- -- (4,142,346) (4,142,346)
Net earnings for the year........... -- -- 173,755 -- 173,755
------- ---------- --------- ------------ ------------
Balance at December 31, 1996........ 23,141 1,086,798 (59,311) (14,926,332) (13,875,704)
Purchase of 12,314 shares of
common stock...................... (1,231) (795,038) -- -- (796,269)
Issuance of 11,975 shares of
common stock...................... 1,197 773,142 -- -- 774,339
Increase in value of redeemable
common stock...................... -- -- -- (24,415) (24,415)
Net earnings for the year........... -- -- 744,551 -- 744,551
------- ---------- --------- ------------ ------------
Balance at December 31, 1997........ $23,107 $1,064,902 $ 685,240 $(14,950,747) $(13,177,498)
======= ========== ========= ============ ============
</TABLE>
The accompanying notes are integral part of this statement
F-24
<PAGE> 112
DAVID M. GRIFFITH & ASSOCIATES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings......................................... $ 493,929 $ 173,755 $ 744,551
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization................... 567,858 493,741 611,737
Net loss on disposal of fixed assets............ 24,755 25,929 8,006
Deferred income taxes........................... 419,000 160,000 620,000
Deferred compensation and related interest...... 710,202 913,696 600,581
Payments on deferred compensation agreements.... (1,165,595) (1,148,928) (1,065,592)
Changes in assets and liabilities
Accounts receivable........................... (836,937) (58,714) (2,292,484)
Refundable income taxes....................... -- (1,547) 1,547
Prepaid expenses and other assets............. (41,285) 47,870 (107,157)
Accounts payable and accrued expenses......... 1,284,974 438,873 1,735,249
Income taxes.................................. (86,745) (56,818) 50,778
Deferred revenue.............................. 13,560 (95,249) 229,348
----------- ----------- -----------
Total adjustments............................. 889,787 718,853 392,013
----------- ----------- -----------
Net cash provided by operating activities..... 1,383,716 892,608 1,136,564
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................... (613,152) (447,064) (727,116)
Proceeds from sale of fixed assets................. 9,525 12,520 3,915
----------- ----------- -----------
Net cash used in investing activities......... (603,627) (434,544) (723,201)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) proceeds from borrowings............ (228,150) 464,947 476,913
Payments on long-term debt......................... (95,453) (100,735) (114,235)
Common stock repurchased........................... (982,538) (899,524) (796,269)
----------- ----------- -----------
Net cash used in financing activities......... (1,306,141) (535,312) (433,591)
----------- ----------- -----------
Net decrease in cash.......................... (526,052) (77,248) (20,228)
Cash at beginning of year............................ 663,912 137,860 60,612
----------- ----------- -----------
Cash at end of year.................................. $ 137,860 $ 60,612 $ 40,384
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest........................................ $ 218,910 $ 271,339 $ 146,121
Income taxes, net of refunds.................... 279,745 203,365 55,675
Supplemental schedule of non-cash investing and
financing activities
During 1997, the Company issued a note payable for
$454,189 to satisfy a redeemable common stock
obligation.
During 1995, 1996, and 1997, the Company issued
capital stock valued at $1,094,515, $899,524,
and $774,339, respectively, to satisfy
obligations under the accrued bonus liability,
ESOP contribution, and stock purchase program.
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE> 113
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Industry
David M. Griffith & Associates, Ltd. (the "Company") specializes in
financial consulting services, primarily for state and local government agencies
throughout the United States and Puerto Rico.
Receivables
The Company maintains its accounting records on a cash basis and are
adjusted to the accrual basis for financial reporting purposes. Accordingly,
receivables (billed and unbilled) that management considers collectible are
recorded at the end of a reporting period, and prior period receivables which
are believed by management to be uncollectible will be reflected as an
adjustment to revenue.
Unbilled Receivables and Deferred Revenue
Revenue is recorded under the percentage-of-completion method, where
revenue and cost are recorded as the work is performed. Cash received in excess
of revenue earned, is recorded as deferred revenue.
The fees collectible for certain work performed under contingent fee
arrangements are not determinable until billed or received, and, therefore, the
revenue is not recorded until ultimately billed or collected.
Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated useful lives, using both
straight-line and accelerated methods.
Earnings Per Share
Earnings per share are calculated based upon the weighted average shares
outstanding during the year.
Income Taxes
Deferred taxes are provided for temporary differences between the financial
reporting basis and tax basis of assets and liabilities based upon the currently
enacted tax rates expected to be in effect when such differences reverse.
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B -- NOTES PAYABLE TO BANK
In May 1997, the Company entered into a thirteen month agreement for a
revolving line of credit which provides for maximum borrowings of $4,000,000.
The Company had borrowings of $1,388,710 at December 31, 1997. Under a similar
agreement, there were borrowings of $539,944 at December 31, 1996. Interest on
these agreements is payable monthly at the prime rate (8.5% at December 31,
1997) plus 1/4%.
In April 1996, the Company entered into an agreement for an additional term
loan covering capital expenditures up to $750,000 which bears interest at prime
plus 1/4%. At December 31, 1996 the balance
F-26
<PAGE> 114
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
NOTE B -- NOTES PAYABLE TO BANK -- (CONTINUED)
outstanding was $296,853, due April 1998. Borrowing under the agreement is
collateralized by a security agreement covering substantially all of the assets
of the Company and the limited personal guaranty of the stockholder/board
members of the Company. The deferred compensation balances are subordinated to
these notes payable, and the Company is required to meet certain financial
covenants based on tangible net worth and net earnings. All borrowings were
repaid in 1997 and this agreement was terminated in January 1998.
In May 1995, the Company entered into a two-year term loan which provides
for maximum borrowings of $900,000. The Company had borrowed $75,000 at December
31, 1996, with interest at the prime rate plus 1/2%. All borrowings were repaid
in 1997.
NOTE C -- LONG-TERM DEBT
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Installment note payable to former employee/stockholder with
principal due in March 2001 and annual interest payments
due at 8%................................................. $ -- $454,189
Installment note payable to former employee/stockholder due
in 56 monthly installments (36 payments of $10,417 and
twenty payments of $10,000), including imputed interest at
7%, with a final payment due on February 28, 1998......... 134,061 19,826
-------- --------
134,061 474,015
Less current maturities................................ 114,235 19,826
-------- --------
$ 19,826 $454,189
======== ========
</TABLE>
NOTE D -- DEFERRED COMPENSATION
Under previous employment agreements with certain officers and employees,
the Company agreed to provide certain additional deferred compensation benefits,
based upon a formula applied to the cumulative results of profit centers and
activities assigned to the individuals.
Amounts accrued are payable to the participant or the participant's
beneficiary upon death or normal retirement (generally age 55). The amounts may
be adjusted by action of the Board of Directors. Participant balances are
payable with interest at 8% to 9.75% in monthly installments ranging from $4,500
to $30,725. Should an individual voluntarily or involuntarily retire early, the
discounted amount is payable with interest. In the event of death, life
insurance proceeds, if any, must be used to pay the obligation. Excess life
insurance proceeds, if any, belong to the Company.
Deferred compensation is to be paid out on the scheduled normal retirement
dates of each participant through 2005. The future values of amounts due current
employees have been discounted, based on the contract terms using an interest
rate of 12%. During 1995, a deferred compensation agreement of a current
employee was amended to provide for additional compensation, excluding interest,
of approximately $201,000. This change is included in deferred compensation
expense.
The employment agreements include noncompete and other restrictive clauses
and are subordinate to the Company's debt. Payments to be made under the
retirement provisions are subject to certain restrictions in the Company's loan
agreements.
F-27
<PAGE> 115
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
NOTE D -- DEFERRED COMPENSATION -- (CONTINUED)
The following is a schedule of the principal maturities of the deferred
compensation payable under retirement provisions to former and current
employees:
<TABLE>
<S> <C>
Years ending December 31,
1998...................................................... $ 763,073
1999...................................................... 1,104,993
2000...................................................... 1,447,436
2001...................................................... 83,386
Thereafter................................................ 124,558
----------
$3,523,446
==========
</TABLE>
On November 5, 1994, the Company adopted a Stock Appreciation Rights Plan
for key executives of the Company and granted approximately 53,000 stock
appreciation rights. No additional rights have been granted since that date. The
Company had 46,900 stock appreciation rights outstanding as of December 31, 1997
to officers and employees of the Company at a price of $37.22 per share. The
maximum value of the stock appreciation rights is limited by the agreement to
approximately $1,746,000. The officers and employees vest in their stock
appreciation rights over a five-year period and redemption begins in December
1999. The fair value of the stock appreciation rights at December 31, 1997,
based on the fair value of the Company's stock ($64.70 at December 31, 1997), is
approximately $1,289,000 and is recorded as deferred compensation expense over
the vesting period. In the case of a "change in control" of the Company, as
defined, the entire fair value of the stock appreciation rights (subject to a
maximum of $1,746,000) would become fully vested and payable. The fair value of
the rights, recorded as a liability at December 31, 1996 and 1997, is $557,298
and $773,287, respectively. Expense of $95,812, $461,487, and $215,989 was
recognized for the years ended December 31, 1995, 1996, and 1997, respectively.
NOTE E -- EMPLOYEE BENEFIT PLANS
In 1977, the David M. Griffith & Associates, Ltd. Money Purchase Pension
Plan was established. Eligible employees are all full-time employees who have
completed one year of service and have attained the age of 21. The plan as
amended provides for an annual Company contribution of 3% of the eligible
participants' annual compensation. During the years ended December 31, 1995,
1996, and 1997, amounts charged to operations for the plan were approximately
$345,000, $343,000, and $448,000, respectively.
Effective January 1, 1992, the Company adopted the David M. Griffith &
Associates, Ltd. Employee Stock Ownership Plan ("ESOP") covering substantially
all employees of the Company. The ESOP is a noncontributory plan designed to
invest primarily in the common stock of the Company and to distribute retirement
benefits (or benefits in the event of death or disability) in the form of such
stock or cash. Stock distributions may be repurchased by the Company as provided
for under certain plan provisions. The Company may make contributions to the
ESOP in the form of cash or Company stock at the discretion of the Board of
Directors. During the years ended December 31, 1995, 1996, and 1997, amounts
charged to operations for the plan were approximately $690,000, $643,000, and
$897,000, respectively.
Effective July 1, 1994, the Company adopted a 401(k) plan for employees of
the Company. Participants may contribute up to 9% of their eligible income. The
Company contributes 20% of the first $3,000 contributed by the participant up to
a maximum of $600. During the years ended December 31, 1995, 1996, and 1997, the
amounts charged to operations were approximately $68,000, $76,000, and $84,000,
respectively.
F-28
<PAGE> 116
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
NOTE F -- STOCK PURCHASE PROGRAM
The Company has a stock purchase program for the stockholders/officers of
the Company. There were 4,409, 2,937, and 2,167 shares acquired by the
stockholders/officers from former employees in 1995, 1996, and 1997,
respectively. The Company has the right of first refusal to purchase shares that
a stockholder/officer holds for sale under the terms of the stockholder
agreement.
NOTE G -- REDEEMABLE COMMON STOCK
The shares of common stock held by members of the ESOP are subject to
repurchase upon termination of employment at fair market value as provided under
the terms of the plan. Common stock owned by individual stockholders other than
the ESOP is also subject to repurchase provisions under agreements with
stockholders.
The agreements provide that the purchase price is the value per share
established by the ESOP's independent appraiser for the prior calendar year. The
redemption of stock under agreements with shareholders is dependent upon a
variety of factors including exercise, in certain circumstances, of "put"
provisions. The Company generally has up to five years within which to make
stock redemption payments.
Based upon the most recent valuation dated June 5, 1997 of $64.70 per
share, the repurchase obligation at December 31, 1997 would be $14,950,747 for
all shares outstanding.
NOTE H -- EMPLOYMENT AND STOCK PURCHASE AGREEMENTS
Under Employment and Share Purchase Agreements (the Repurchase Agreements)
with all individual stockholders of the Company, dated November 1992, the
Company (or the ESOP Plan, at the discretion of the Company) is required to
redeem all outstanding shares of Company stock at retirement or death of the
employee/stockholder. The shares are purchased in annual lots, as described in
the agreement, based upon 4.5% to 7.5% of eligible ESOP wages (approximately
$13,550,000 for 1997) and the fair value of the Company's stock at the previous
year end as determined by an independent appraiser.
At December 31, 1997, a total of 71,011 shares are in the process of
repurchase from retired shareholders and have an estimated fair value, utilizing
the most recent independent appraisal of $64.70 per share, of approximately
$4,594,412.
On December 11, 1997, a retired officer of the Company died. Under the
terms of the Employment and Share Purchase Agreement, the Company must purchase
and the successor-in-interest must sell 7,020 common shares in exchange for the
Company's promissory note requiring payments of interest only at 8% per annum
due on the third anniversary of the date of acquisition. A $454,189 principal
payment is reflected in Long-Term-Debt in the accompanying financial statements
to provide for the repurchase of shares executed in March 1998.
On April 26, 1997, the Company entered into an employment and shareholder
agreement with the president of the Company providing for maximum of $200,000
performance compensation based upon an increase in the market value of the
Company, as defined, during the employment period and payable if earned through
2002. Upon consummation of the merger discussed in note M, it is expected that
$200,000 will be paid and a new employment agreement will be entered into.
NOTE I -- PERFORMANCE BONUSES
The Company awards its officers, discretionary bonuses based upon
performance. On February 16, 1998, the Board of Directors, authorized the
distribution of $370,000 in bonuses, which has been accrued at
F-29
<PAGE> 117
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
NOTE I -- PERFORMANCE BONUSES -- (CONTINUED)
December 31, 1997. Discretionary bonuses charged to operations were $325,000,
$152,426, and $1,065,500 for 1995, 1996, and 1997, respectively.
NOTE J -- INCOME TAXES
The Company has permanent differences between financial reporting and tax
amounts, resulting primarily from premiums paid on officers' life insurance and
the nondeductible portion of meals and entertainment costs.
The tax effect of these differences is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes at the statutory rate of 34% (35% in 1995 and
1996).................................................. $387,075 $167,564 $500,650
State income taxes, net of federal income tax effect..... 100,500 24,895 103,770
Non-deductible meals and entertainment expenses.......... 70,500 70,990 79,050
Non-deductible officers' life insurance.................. 20,665 21,265 20,400
Other.................................................... 33,260 20,286 24,130
-------- -------- --------
$612,000 $305,000 $728,000
======== ======== ========
</TABLE>
The Company is permitted to maintain its income tax records on a cash
basis. Accordingly, all accrual basis adjustments result in temporary
differences. The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets at
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities
Accounts receivable not recognized for tax purposes....... $(4,255,904) $(5,046,705)
Prepaid expense........................................... (16,460) (55,935)
Other..................................................... (26,968) --
----------- -----------
(4,299,332) (5,102,640)
Deferred tax assets
Deferred compensation..................................... 1,908,714 1,687,757
Accrued payroll and related taxes......................... 705,906 729,568
Accounts payable.......................................... 194,980 260,030
Accrued expenses.......................................... 262,448 603,703
Other..................................................... 54,461 28,759
----------- -----------
3,126,509 3,309,817
----------- -----------
Net deferred tax liability.................................. $(1,172,823) $(1,792,823)
=========== ===========
</TABLE>
F-30
<PAGE> 118
DAVID M. GRIFFITH & ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996, AND 1997
NOTE K -- COMMITMENTS
The Company leases various office facilities under operating leases.
Several of the leases have renewal options. Rent expense, including taxes and
operating expenses, for all operating leases for the years ended December 31,
1995, 1996, and 1997 was approximately $986,000, $1,039,000, and $1,273,000,
respectively. The future minimum rental payments under noncancellable operating
leases as of December 31, 1997 are approximately as follows:
<TABLE>
<S> <C>
Years ending December 31,
1998...................................................... $1,249,000
1999...................................................... 989,000
2000...................................................... 605,000
2001...................................................... 189,000
2002...................................................... 55,000
</TABLE>
Certain leases are with stockholders of the Company. Lease payments to
those stockholders, which are included in rent expense above, were approximately
$99,000, $103,000, and $143,000 in 1995, 1996, and 1997, respectively.
NOTE L -- CONTINGENCIES
During 1994, notification was received of a claim against the Company in
the amount of $610,405. The claim alleges that a subsequent disallowance of
costs previously reimbursed to a client was caused by the Company's errors.
Management intends to defend against these allegations and believes the outcome
will not materially affect the financial statements.
In January 1997, a lawsuit was filed against a number of defendants,
including the Company, by a purchaser of municipal bonds. The Company prepared
two reports rendering an opinion on the anticipated debt service coverage of the
Revenue Bonds for the first five years of operation of the sewer project by
Superstition Mountain Community Facilities District No. 1 (the "District"). The
District was unable to meet its debt service obligations and filed bankruptcy.
The purchaser of the Revenue Bonds, Allstate Insurance Company, has sued a
number of defendants, including the Company, for damages of $32,100,000, which
is the face value of the Revenue Bonds, plus interest. The Company entered a
motion to dismiss the lawsuit on March 23, 1998 and is awaiting a decision. The
District has also filed a lawsuit against the Company seeking damages in excess
of $50,000. No trial date has been set for either lawsuit. Under the
circumstances, legal counsel is unable to express an opinion concerning the
ultimate resolution of either case or the liability of the Company, if any, in
connection therewith.
NOTE M -- SUBSEQUENT EVENT
On November 4, 1997, the Company entered into a letter of intent with
MAXIMUS to merge. A merger agreement was signed on March 9, 1998 and provides
for the exchange of 5.198 shares of MAXIMUS common stock for each share of
common stock outstanding, subject to approval by the shareholders of the
Company.
F-31
<PAGE> 119
APPENDIX A -- MERGER AGREEMENT
A-1
<PAGE> 120
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
MAXIMUS, INC.,
MAXIMUS ACQUISITION CORP.,
AND
DAVID M. GRIFFITH & ASSOCIATES, LTD.
------------------------------------
DATED AS OF MARCH 9, 1998
------------------------------------
A-2
<PAGE> 121
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1 -- THE MERGER............................................
1.1 The Merger..................................................
1.2 Effective Time..............................................
1.3 Effects of the Merger.......................................
1.4 Certificate of Incorporation and Bylaws.....................
1.5 Directors and Officers......................................
1.6 Conversion of Stock.........................................
1.7 Closing of DMG Transfer Books...............................
1.8 Dissenting Shares...........................................
1.9 Issuance of Maximus Certificates............................
1.10 No Fractional Shares........................................
1.11 Escrow of Shares............................................
SECTION 2 -- REPRESENTATIONS AND WARRANTIES OF DMG.................
2.1 Organization and Qualification. ............................
2.2 Capitalization. ............................................
2.3 Authority to Execute and Perform Agreements.................
2.4 Subsidiaries and Other Affiliates. .........................
2.5 Charter and By-laws; Books and Records. ....................
2.6 Financial Statements........................................
2.7 Receivables.................................................
2.8 Absence of Undisclosed Liabilities..........................
2.9 No Material Adverse Change. ................................
2.10 Tax Matters. ...............................................
2.11 Compliance with Laws. ......................................
2.12 Consents; No Breach. .......................................
2.13 Actions and Proceedings. ...................................
2.14 Contracts and Other Agreements. ............................
2.15 Real Property; Leases. .....................................
2.16 Tangible Property. .........................................
2.17 Intellectual Property. .....................................
2.18 Title to Assets; Liens. ....................................
2.19 Customers. .................................................
2.20 Employee Benefit Plans. ....................................
2.21 Employee Relations..........................................
2.22 Relationships with Affiliates...............................
2.23 Insurance...................................................
2.24 Banking Relationships. .....................................
2.25 Brokerage...................................................
2.26 Hazardous Materials.........................................
2.27 Full Disclosure.............................................
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF MAXIMUS.............
3.1 Organization................................................
3.2 Authority to Execute and Perform Agreement..................
3.3 Capitalization..............................................
3.4 SEC Reports.................................................
3.5 Financial Statements........................................
3.6 No Material Adverse Change. ................................
3.7 Actions and Proceedings.....................................
3.8 Insurance...................................................
</TABLE>
A-3
<PAGE> 122
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.9 Employee Relations..........................................
3.10 No Breach...................................................
3.11 Brokerage...................................................
3.12 Compliance with Laws. ......................................
3.13 Intellectual Property. .....................................
3.14 Tax Matters. ...............................................
3.15 Full Disclosure.............................................
SECTION 4 -- COVENANTS AND AGREEMENTS..............................
4.1 Conduct of DMG Business.....................................
4.2 Conduct of Maximus Business.................................
4.3 NYSE Listing................................................
4.4 Post Closing Compensation Payments by Maximus...............
4.5 Agreement not to Entertain other Offers.....................
Best Efforts to Assist Maximus to Hire DMG Employees; Stock
4.6 Options.....................................................
4.7 Corporate Examinations and Investigations...................
4.8 Expenses....................................................
4.9 Authorization from Others...................................
4.10 Consummation of Agreement...................................
4.11 Further Assurances..........................................
4.12 Securities Law Matters......................................
4.13 Shareholder Meeting.........................................
4.14 Public Announcements and Confidentiality....................
4.15 Affiliate Letters...........................................
4.16 Filings Under HSR Act.......................................
4.17 Maximus SEC Filings.........................................
4.18 Employee Benefit Seniority..................................
4.19 Distribution of Plan Assets. ...............................
SECTION 5 -- CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER...........
5.1 Approvals...................................................
5.2 HSR Act.....................................................
5.3 Absence of Order............................................
5.4 New York Stock Exchange Listing.............................
5.5 Effectiveness of Registration Statement.....................
5.6 Human Resources Agreement...................................
SECTION 6 -- CONDITIONS PRECEDENT TO THE OBLIGATION OF
MAXIMUS TO CONSUMMATE THE MERGER.................
6.1 Representations, Warranties and Covenants...................
6.2 Affiliate Letters...........................................
6.3 Pooling of Interests........................................
6.4 SEC Reporting...............................................
6.5 Opinion of Counsel to DMG...................................
6.6 Merger Documents............................................
6.7 Employment Agreements.......................................
6.8 Continuation of Employees...................................
6.9 Amendment of Benefit Plans and Repurchase Obligations.......
6.10 Dissenting Shares and Redemption Requests...................
6.11 Escrow Agreement............................................
6.12 Bank Accounts...............................................
6.13 Certificates................................................
</TABLE>
A-4
<PAGE> 123
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 7 -- CONDITIONS PRECEDENT TO THE OBLIGATION OF
DMG TO CONSUMMATE THE MERGER.......................................
7.1 Representations, Warranties and Covenants...................
7.2 Voting Agreement............................................
7.3 Opinion of Counsel to Maximus...............................
7.4 Certificates................................................
SECTION 8 -- TERMINATION, AMENDMENT AND WAIVER.....................
8.1 Termination.................................................
8.2 Effect of Termination.......................................
SECTION 9 -- INDEMNIFICATION.......................................
9.1 Survival....................................................
9.2 Obligation of the Stockholders to Indemnify.................
9.3 Obligation of Maximus to Indemnify..........................
9.4 Limitations on Indemnification..............................
9.5 Notice and Defense of Claims................................
SECTION 10 -- MISCELLANEOUS........................................
10.1 Notices.....................................................
10.2 Amendment...................................................
10.3 Waiver......................................................
10.4 Entire Agreement............................................
10.5 Governing Law...............................................
10.6 Binding Effect; No Assignment...............................
10.7 Variations in Pronouns......................................
10.8 Counterparts................................................
10.9 Exhibits and Disclosure Schedules...........................
EXHIBITS (Attached hereto).........................................
A Form of Escrow Agreement........................................
B Form of Affiliate Letter........................................
DISCLOSURE SCHEDULES (Delivered concurrently; Not attached
hereto)..........................................................
DMG Disclosure Schedule............................................
Maximus Disclosure Schedule........................................
</TABLE>
A-5
<PAGE> 124
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of March 9, 1998 (this
"Agreement") is among MAXIMUS, Inc. ("Maximus"), a Virginia corporation, Maximus
Acquisition Corp. ("MAC"), a Delaware corporation, and David M. Griffith &
Associates, Ltd. ("DMG"), an Illinois corporation. The parties wish to effect
the acquisition of DMG by Maximus through a merger of MAC into DMG on the terms
and conditions hereof. This Agreement is intended to be a "plan of
reorganization" within the meaning of sec.368(a) of the Internal Revenue Code of
1986, as amended (the "Code").
Accordingly, in consideration of the mutual representations, warranties and
covenants contained herein, the parties hereto agree as follows:
SECTION 1 -- THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions hereof, and
in accordance with the Illinois Business Corporation Act (the "IBCA") and the
General Corporation Law of the State of Delaware (the "DGCL"), MAC shall be
merged with and into DMG (the "Merger"). The Merger shall occur at the Effective
Time (as defined herein). Following the Merger, DMG shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of MAC shall cease.
1.2 EFFECTIVE TIME. As soon as practicable after satisfaction or waiver of
all conditions to the Merger, the parties shall cause Articles of Merger to be
filed in accordance with Section 11.25 of the IBCA and a Certificate of Merger
to be filed in accordance with Section 252 of the DGCL (the Certificates of
Merger as appropriate for each state are referred to herein collectively as the
"Merger Documents") and shall take all such further actions as may be required
by law to make the Merger effective. The Merger shall be effective at such time
as the Merger Documents are filed, as appropriate, with the Secretary of the
State of Illinois in accordance with the IBCA and the Secretary of State with
the State of Delaware in accordance with the DGCL or at such later time as is
specified in such documents (the "Effective Time"). Immediately prior to the
filing of the Merger Documents, a closing (the "Closing") will be held at the
offices of Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts (or such
other place as the parties may agree) for the purpose of confirming satisfaction
or waiver of all conditions to the Merger. Subject to satisfaction or waiver of
each of the conditions specified in Sections 5, 6 and 7 hereof, the Closing
shall take place within three business days after the last to occur of:
(a) the day the Merger is approved by the shareholders of DMG pursuant
to Section 4.13;
(b) the date of expiration or termination of any waiting period or
extension thereof applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act");
(c) the effective date of the Registration Statement on Form S-4 to be
filed by Maximus covering the Merger Consideration, as defined herein,
pursuant to Section 4.12; or on such other date as the parties may agree,
but not later than June 1, 1998. The date on which the Closing occurs is
referred to herein as the "Closing Date".
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Section 11.50 of the IBCA and Section 259 of the DGCL.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of DMG, in each case as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation and Bylaws of the Surviving
Corporation immediately after the Effective Time.
1.5 DIRECTORS AND OFFICERS. The directors and officers of MAC immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation immediately after the Effective Time, except that the President of
DMG immediately prior to the Effective Time shall be a director and the
President of the Surviving Corporation immediately after the Effective Time,
each such officer and director to hold office in accordance with their
respective terms.
A-6
<PAGE> 125
1.6 CONVERSION OF STOCK.
(a) For purposes of this Agreement, "Merger Consideration" means 1,166,179
shares of common stock, no par value, of Maximus ("Maximus Common Stock")
reduced by the number of shares of Maximus Common Stock which would be issued
but for the terms of Section 11.65 of the IBCA in respect of Dissenting Shares
(as defined in Section 1.8).
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of Maximus or DMG:
(i) All shares of Common Stock of DMG, $0.10 par value per share,
(collectively, the "DMG Stock") outstanding immediately prior to the
Effective Time, other than Dissenting Shares (as defined in Section 1.8),
shall be converted into and become the right to receive, (subject to the
payment of cash for fractional shares as provided in Section 1.10 and the
escrow deposit required by Section 1.11) shares of Maximus Common Stock in
accordance with Section 1.6(c).
(ii) All shares of DMG Stock held at the Effective Time by DMG as
treasury stock or by a subsidiary of DMG shall be canceled and no payment
shall be made with respect thereto.
(iii) All Dissenting Shares shall be dealt with in accordance with
Section 1.8.
(iv) All shares of Common Stock of MAC, $0.01 par value per share,
outstanding immediately prior to the Effective Time, shall be converted
into the right to receive the same number of shares of the Surviving
Corporation.
(c) The Merger Consideration shall be allocated among the holders of shares
of DMG Stock outstanding immediately prior to the Effective Time by allocating
to each such holder of DMG Stock outstanding at the Effective Time (other than
the holders of Dissenting Shares) that number of shares of Maximus Common Stock
determined by multiplying the number of shares of DMG Common Stock held by each
such holder by the Conversion Factor (as defined below).
(d) "Conversion Factor" means the quotient obtained by dividing (i) the
number of shares of Maximus Common Stock comprising the Merger Consideration by
(ii) the number of shares of DMG Stock outstanding immediately prior to the
Effective Time reduced by the number of shares of DMG Stock represented by the
Dissenting Shares. As of the date of this Agreement, based on 224,339
outstanding shares of DMG Stock, the Conversion Factor is 5.198.
1.7 CLOSING OF DMG TRANSFER BOOKS. At the Effective Time, the stock
transfer books of DMG shall be closed and no transfer of DMG Stock shall
thereafter be made. If, after the Effective Time, certificates representing
shares of DMG Stock are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates representing Maximus Common Stock.
1.8 DISSENTING SHARES.
(a) Shares of capital stock of DMG held by a shareholder who has properly
exercised dissenters rights with respect thereto in accordance with Section
11.65 of the IBCA (collectively, the "Dissenting Shares") shall not be converted
into shares of Maximus Common Stock. From and after the Effective Time, a
shareholder who has properly exercised such dissenters rights shall no longer
retain any rights of a shareholder of DMG or the Surviving Corporation, except
those provided under the IBCA.
(b) DMG shall give Maximus (i) prompt notice of any written demands under
Section 11.70 of the IBCA with respect to any shares of capital stock of DMG,
any withdrawal of any such demands and any other instruments served pursuant to
the IBCA and received by DMG and (ii) the right to participate in all
negotiations and proceedings with respect to any demands under Section 11.70
with respect to any shares of capital stock of DMG. DMG shall cooperate with
Maximus concerning, and shall not, except with the prior written consent of
Maximus, voluntarily make any payment with respect to, or offer to settle or
settle, any such demands.
A-7
<PAGE> 126
1.9 ISSUANCE OF MAXIMUS CERTIFICATES. Maximus shall authorize one or more
persons to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, DMG shall deliver to Maximus a list of all
holders of DMG Stock immediately prior to the Effective Time (the
"Stockholders"), setting forth each Stockholder's name, address and number of
shares of DMG Stock held prior to the Effective Time and such other information
as may be reasonably requested by the Exchange Agent, certified by the Chief
Executive Officer of DMG (the "Stockholder List"). The Stockholder List shall
indicate whether any Stockholder is in possession of any certificates
representing DMG Stock. Any and all outstanding certificates representing DMG
Stock shall be surrendered to the Exchange Agent. Upon receipt of the
Stockholder List and any certificate held by a Stockholder, each Stockholder
shall be entitled to receive (subject to the escrow deposit required by Section
1.11) a certificate representing that number of whole shares of Maximus Common
Stock into which the shares of DMG Stock as set forth on the Stockholder List
shall have been converted pursuant to the provisions of this Agreement. The
shares of DMG Stock outstanding immediately prior to the Effective Time (and any
certificates representing such shares) shall be deemed canceled as of the
Effective Time. Maximus Common Stock into which DMG Stock shall be converted in
the Merger shall be deemed to have been issued at the Effective Time. If any
Maximus Common Stock certificates are to be issued in a name other than that in
which the DMG Stock was registered immediately prior to the Effective Time, it
shall be a condition of such issuance that the person requesting such issuance
shall deliver to the Exchange Agent all documents necessary to evidence and
effect such transfer and shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Maximus Common Stock in a name other than that of the registered holder of the
certificate or surrendered or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
1.10 NO FRACTIONAL SHARES. No certificates representing fractional shares
of Maximus Common Stock shall be issued upon the surrender for exchange of DMG
Stock certificates. No fractional interest shall entitle the owner to vote or to
any rights of a security holder. In lieu of fractional shares, each Stockholder
who would otherwise have been entitled to a fractional share of Maximus Common
Stock, will receive from Maximus at Closing an amount in cash (without interest)
determined by multiplying such fraction by $25.25. Maximus shall not be liable
to any Stockholder for any cash in lieu of fractional interests delivered to a
public official pursuant to applicable escheat or abandoned property laws.
1.11 ESCROW OF SHARES. At the Effective Time, Maximus shall deposit 5% of
the Merger Consideration, rounded to the nearest whole share, with an escrow
agent reasonably satisfactory to DMG to be held and disbursed by such agent in
accordance with the form of escrow agreement (the "Escrow Agreement") attached
hereto as Exhibit A. Such shares shall be deducted on a pro rata basis from the
shares of Maximus Common Stock otherwise due to the Stockholders (excluding the
DMG Employee Stock Ownership Plan and the beneficiaries under the DMG Employee
Stock Ownership Plan) hereunder.
SECTION 2 -- REPRESENTATIONS AND WARRANTIES OF DMG
Except as set forth on the disclosure schedule (the "DMG Disclosure
Schedule") delivered to Maximus on the date hereof, (regardless of whether the
DMG Disclosure Schedule is referenced in any particular subsection of this
Section 2), the subsection numbers of which are numbered to correspond to the
subsection numbers of this Agreement to which they refer (provided that
disclosure thereon under any subsection number shall be disclosure for any
section hereof), DMG represents and warrants to Maximus as set forth below:
2.1 ORGANIZATION AND QUALIFICATION. DMG is a corporation duly organized,
validly existing and in good standing under the laws of the state or other
jurisdiction of its incorporation and has full corporate power and authority to
own, lease and operate its assets, properties and business and to carry on its
business as now being and as heretofore conducted. DMG is qualified or is
otherwise authorized to transact business as a foreign corporation in each
jurisdiction (in the United States and outside of the United States) in which
the failure to so qualify would have a material adverse effect on DMG's
business, all of which jurisdictions are identified in Section 2.1 of the DMG
Disclosure Schedule.
A-8
<PAGE> 127
2.2 CAPITALIZATION.
2.2.1 OUTSTANDING CAPITAL STOCK. DMG's authorized capital stock consists
of 1,000,000 shares of Common Stock, $0.10 par value per share, of which 224,339
shares are issued and outstanding on the date hereof, (collectively, the
"Shares"). The Shares are held of record by the persons named in Section 2.2 of
the DMG Disclosure Schedule. The Shares are duly authorized, validly issued,
fully paid, and nonassessable and have been issued in compliance with all
charter documents of DMG and all applicable federal and state laws. No
certificates representing shares of DMG Stock have been issued, except to the
DMG Employee Stock Ownership Plan Trust (which certificates will be indicated on
the Stockholder List). Except as set forth in this Section 2.2.1, no other
capital stock of DMG is authorized or outstanding.
2.2.2 OPTIONS OR OTHER RIGHTS. Except as contemplated by this Agreement,
(i) other than pursuant to the Principal Executive Officer Stock Purchase
Program and the Employee Stock Ownership Plan as described in the DMG Disclosure
Schedule, no subscription, warrant, option, preemptive right, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock or other security of DMG issued by DMG is authorized or
outstanding, (ii) there is no commitment or offer by DMG to issue or provide any
such subscription, warrant, option, preemptive right, convertible security or
other right or to issue or distribute to holders of any shares of its capital
stock any evidences of indebtedness or assets of DMG, (iii) DMG has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof, (iv) there are no
restrictions on the transfer of DMG's capital stock other than those arising
from securities laws, and (v) there are no voting trusts, proxies or other
agreements, instruments or understandings with respect to outstanding shares of
DMG's capital stock to which DMG is a party.
2.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Subject to the
requirement to obtain approval of its Stockholders to consummate the Merger
under the IBCA, DMG has the requisite corporate power and authority to execute
and deliver this Agreement and each agreement, document and instrument
contemplated by this Agreement to which it is a party, to consummate the
transactions contemplated hereby and thereby and to perform fully its respective
obligations hereunder and thereunder. The execution, delivery and performance of
this Agreement and each such other agreement, document and instrument to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of DMG. This Agreement and each agreement, document and instrument to which it
is a party executed and delivered pursuant to this Agreement constitutes, or
when executed and delivered will constitute, valid and binding obligations of
DMG, as the case may be, enforceable in accordance with their terms.
2.4 SUBSIDIARIES AND OTHER AFFILIATES. DMG does not have any subsidiary or
directly or indirectly own or have any investment in any of the capital stock
of, or any other interest in, and is not a party to a partnership or joint
venture with, any other person or entity.
2.5 CHARTER AND BY-LAWS; BOOKS AND RECORDS. DMG has heretofore delivered
or made available to Maximus true and complete copies of its Articles of
Incorporation (certified by the Secretary of State or comparable authority of
its jurisdiction of incorporation) and By-laws as in effect on the date hereof,
and corporate minute books. DMG is not in default in the performance,
observation or fulfillment of either its charter or By-laws. The minute books of
DMG contain true and complete records of all meetings and consents in lieu of
meetings of the Board of Directors and of the stockholders of DMG prior to the
date hereof, and accurately reflect all transactions referred to in such minutes
and consents in lieu of meetings. The stock books of DMG are true, complete and
correct. The general ledgers and books of account of DMG to which Maximus and
its representatives have been given access are correct and complete in all
material respects and have been maintained in accordance with good business
practice.
2.6 FINANCIAL STATEMENTS. DMG has previously delivered to Maximus the (i)
audited financial statements of DMG at and for the fiscal year ended December
31, 1996 (the "Audited Financial Statements") and (ii) the unaudited balance
sheet of DMG and related statements of income and cash flow at and for the
9-month period ended September 30, 1997 (the "Current Financial Statements").
Prior to the Closing, DMG will deliver to Maximus the audited balance sheet of
DMG and related statements of income and cash flow at
A-9
<PAGE> 128
and for the period ended on December 31, 1997 (the "Updated Financial
Statements"). All of the foregoing are referred to collectively as the "DMG
Financial Statements". The DMG Financial Statements have been (or, in the case
of the Updated Financial Statements) will be prepared from and in accordance
with the books and records of DMG, present (or will present) fairly the
financial position and results of operation of DMG as of the date and for the
period indicated, and have been (or will be) prepared in accordance with
generally accepted accounting principles ("GAAP") applied consistently with past
practices; provided that the Current Financial Statements and the Updated
Financial Statements are unaudited and do not contain footnotes required by GAAP
and are subject to normal year-end adjustments, which are not, in the aggregate
material.
2.7 RECEIVABLES. Except to the extent that reserves have been established
and specifically identified in the Current Financial Statements and the Updated
Financial Statements, to the best knowledge of DMG, and except as set forth in
the DMG Disclosure Schedule, all of the account receivables shown on the Current
Financial Statements and the Updated Financial Statements are collectable in the
ordinary course of business.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the DMG
Disclosure Schedule or the Updated Financial Statements, as at September 30,
1997, DMG had no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise (including without limitation, liabilities as guarantor
or otherwise with respect to obligations of others or liabilities for taxes due
or then accrued or to become due), required to be reflected or disclosed in the
September 30, 1997 balance sheet included in the Current Financial Statements
that were not adequately reflected or reserved against on such balance sheet.
Except as set forth in the DMG Disclosure Schedule, DMG has no such liabilities,
except as and to the extent (i) adequately reflected and reserved against in the
September 30, 1997 balance sheet included in the Current Financial Statements,
(ii) adequately reflected and reserved against in the balance sheet included in
the Current Financial Statements, (iii) when delivered, adequately reflected and
reserved against in the balance sheet included in the Updated Financial
Statements, or (iv) incurred subsequent to the dates of such balance sheets in
the ordinary course of business and not material in amount, either individually
or in the aggregate. The DMG Disclosure Schedule sets forth the amount of each
deferred compensation payment and stock appreciation payment due to employees of
DMG after the Merger, as contemplated by Section 4.4.
2.9 NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has not
been:
(i) any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of
DMG or any occurrence or circumstance which reasonably could be expected to
result in such a material adverse change;
(ii) any material change in the method of operating the business of
DMG, in the manner of keeping the books, accounts or records of DMG, or in
any accounting method or practice of DMG;
(iii) any sale, lease, mortgage, pledge, encumber, abandonment or
disposition of, or agreement to sell, lease, mortgage, pledge, encumber,
abandon or dispose of, any material assets or properties of DMG, other than
in the usual and ordinary course of business;
(iv) any material transaction, commitment, contract or agreement
entered into by DMG, or any relinquishment or abandonment by DMG of any
material contract or right, or any modification, waiver, amendment,
release, recision, or termination of any material term, condition or
provision of any contract pertaining to DMG (other than any satisfaction by
performance in accordance with the terms thereof), other than in the usual
and ordinary course of business;
(v) any adverse relationships or conditions with employees, suppliers,
lenders, customers or governmental agencies that could reasonably be
anticipated to have a material adverse effect on DMG or its business;
(vi) except with respect to the issuance of a promissory note in the
principal amount of $454,188.27 in connection with the repurchase of
7,019.9115 shares of Common Stock under the Employment and Share Purchase
Agreement between DMG and Wes Masco, any new material obligation or
liability of DMG for borrowed money;
A-10
<PAGE> 129
(vii) any acquisition by DMG (other than property or interests therein
acquired in the ordinary course of its lending business) of all or any part
of the assets, properties, capital stock or business of any other person or
entity;
(viii) any redemption or other acquisition by DMG of any of its
capital stock or any declaration, setting aside or payment of any dividend
or distribution of any kind with respect to shares of its capital stock;
(ix) any loan or advance by DMG to any shareholder, officers, director
or consultant, or any other loan or advance other than in the ordinary
course of business; or
(x) except as set forth in the DMG Disclosure Schedule, any new
employment or consulting agreement, any increase in compensation, bonus or
other benefits payable or to become payable by DMG to any director, officer
or employee, other than regularly scheduled increases consistent with past
practice in the ordinary course of business, or any new grant of severance
or termination rights, or increase in rights or benefits payable under
existing severance or termination policies or agreements, to any director,
officer or employee of DMG.
2.10 TAX MATTERS.
2.10.1 DMG is not and has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return. DMG has paid or
caused to be paid or established appropriate reserves for all federal, state,
county, local, foreign and other taxes, including, without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, import duties, value-added taxes, gross receipts taxes, franchise
taxes, capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, environmental taxes
and property taxes, whether or not measured in whole or in part by net income
and all deficiencies, or other additions to such taxes and interest, fines and
penalties thereon (hereinafter, "Taxes" or, individually, a "Tax") required to
be paid by DMG through the date hereof whether disputed or not. The Tax reserves
and the Tax provisions reflected on the balance sheet included in the Current
Financial Statements are adequate and, when delivered, the balance sheet
included in the Updated Financial Statements will be adequate, to cover any and
all Tax liabilities of DMG in respect of its assets, properties, business and
operations for periods ended on or prior to the date of such Updated Financial
Statements. There is no Tax deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith, asserted or, to the best knowledge
of DMG, threatened in writing to be asserted against DMG by any taxing
authority.
2.10.2 DMG has in accordance with applicable law timely filed all material
Tax reports or returns required to be filed by it through the date hereof and
paid all taxes and other charges shown as due thereon. To the best knowledge of
DMG, each of the Tax reports and returns filed by DMG correctly and accurately
reflects the amount of its Tax liability for such period and other required
information. Except with respect to the IRS audit of DMG being conducted for its
1995 and 1996 tax years the status of which are described on DMG Disclosure
Schedule, there has not been any audit or other examination of any Tax return
filed by DMG and no audit or other examination of any Tax return of DMG is in
progress and DMG has not been notified in writing by any Tax authority that any
such audit or other examination is contemplated or pending. No waiver or
agreement by DMG is in force for the extension of time for the assessment or
payment of any Tax. No claim has been made by an authority in a jurisdiction
where DMG does not file reports or returns that DMG is or may be subject to
taxation by that jurisdiction. There are no liens, encumbrances or other adverse
claims ("Encumbrances") on any of the assets of DMG that arose in connection
with any failure (or alleged failure) to pay any Taxes. DMG has no liability for
the taxes of any other person under any provision of state, local or foreign
law, as a transferee or successor, by contract, including any tax sharing
agreement, or otherwise.
2.11 COMPLIANCE WITH LAWS.
2.11.1 Except as set forth in the DMG Disclosure Schedule, none of DMG, its
ERISA Affiliates or the Plans, each as defined in Section 2.20, are in violation
in any material respect of any order, judgment, injunction, award or decree, or
any federal, state, local or foreign law, ordinance or regulation or any other
requirement of any governmental or regulatory body, court or arbitrator, and is
in compliance in all material
A-11
<PAGE> 130
respects with all of the foregoing that are applicable to it, its business or
its assets. None of DMG, its ERISA Affiliates or the Plans have received notice
of, and there has not been any citation, fine or penalty imposed or asserted
against any of them for, any such violation or alleged violation that has not
been favorably and fully resolved.
2.11.2 DMG holds all licenses, permits, certificates, franchises, orders or
approvals of any federal, state, local or foreign governmental or regulatory
body, that are material to the conduct of DMG's business and the uses of its
assets (collectively, "Permits") necessary to operate its business as presently
conducted. Such Permits are in full force and effect and the validity and
effectiveness of such Permits will not be affected by the transactions
contemplated hereby. No violations are or have been recorded with any
governmental or regulatory body in respect of any Permit, no proceeding is
pending or, to the best knowledge of DMG, threatened to revoke or limit any
Permit, and DMG knows of no grounds for any such revocation or limitation.
2.12 CONSENTS; NO BREACH. All consents, permits, authorizations and
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by DMG are set forth in Section 2.12 of the DMG
Disclosure Schedule, other than those which the failure to obtain would not
affect the validity of this transaction or materially adversely affect the
business of the Surviving Corporation after the Effective Time and except with
respect to customer contract change of control provisions. Subject to any prior
approval requirements set forth in Section 2.12 of the DMG Disclosure Schedule,
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not (i) violate any provision of
the Certificate of Incorporation or By-laws of DMG; (ii) except with respect to
change of control provisions in customer contracts, violate, conflict with or
result in the breach of any of the terms or conditions of, result in a material
modification of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any material instrument, contract or other agreement to which DMG
is a party or to which DMG or any of its assets or properties is bound or
subject; (iii) violate any statute, law or regulation of any jurisdiction (which
violation would affect the validity of the transaction contemplated hereby or
otherwise would materially adversely affect the business of the Surviving
Corporation after the Effective Time) or any order, judgment, injunction, award
or decree of any court, arbitrator or governmental or regulatory body applicable
to or binding upon DMG or its securities, properties, assets or business; (iv)
violate any material Permit; (v) except with respect to change of control
provisions in customer contracts, require any filing with, notice to, or
approval or consent of any foreign, federal, state, local or other governmental
or regulatory body or any other person or entity; (vi) result in the creation of
any Encumbrance on the assets or properties of DMG; or (vii) give rise to any
obligation to make any material payment.
2.13 ACTIONS AND PROCEEDINGS. Except as set forth on the DMG Disclosure
Schedule, there are no outstanding orders, judgments, injunctions, awards or
decrees of any court, governmental or regulatory body or arbitration tribunal
against or involving DMG or any of its securities, assets, or properties. There
are no actions, suits or claims or legal, judicial, administrative or arbitral
proceedings or investigations (whether or not the defense thereof or liabilities
in respect thereof are covered by insurance) pending or, to the best knowledge
of DMG, threatened against or involving DMG or any of its securities, assets or
properties.
2.14 CONTRACTS AND OTHER AGREEMENTS. Section 2.14 of the DMG Disclosure
Schedule sets forth a correct and complete list all of the following currently
effective contracts:
(i) written contracts and other agreements with or for the benefit of
any current or former officer, director, stockholder or employee of DMG
involving more than $100,000, (provided in the case of a loan by DMG to any
such person, the DMG Disclosure Schedule shall list all such loan
arrangements, whether or not in writing, involving at least $10,000) and
contracts and other agreements for the payment of fees or other
consideration to any entity in which DMG has an interest;
(ii) contracts and other agreements with any labor union or
association representing any employee of DMG or otherwise providing for any
form of collective bargaining;
A-12
<PAGE> 131
(iii) contracts and other agreements for the purchase or sale of
materials, supplies, equipment, merchandise or services that contain an
escalation, renegotiation or redetermination clause or that obligate DMG to
purchase all or substantially all of its requirements of a particular
product from a supplier, or for periodic minimum purchases of a particular
product from a supplier;
(iv) contracts and other agreements for the sale of any of the assets
or properties of DMG other than in the ordinary course of business or for
the grant to any person of any options, rights of first refusal, or
preferential or similar rights to purchase any of such assets or
properties;
(v) partnership or joint venture agreements;
(vi) contracts with agents or foreign representatives regarding the
sales or marketing of DMG's services;
(vii) contracts or other agreements under which DMG agrees to act as
surety or guarantor for or to indemnify any party (other than required
indemnification provisions in customer contracts) or to share the tax
liability of any party;
(viii) contracts, options, outstanding purchase orders and other
agreements for the purchase of any material asset, tangible or intangible;
(ix) contracts and other agreements with customers, suppliers or other
parties for the sharing of fees, the rebating of charges or other similar
arrangements other than such contracts entered into in the normal course of
business;
(x) contracts and other agreements containing obligations or
liabilities of any kind to holders of the securities of DMG as such
(including, without limitation, an obligation to register any of such
securities under any federal or state securities laws) and contracts
obligating DMG to issue or repurchase any DMG securities;
(xi) contracts and other agreements containing covenants of DMG not to
compete in any line of business or with any person or entity or covenants
of any other person or entity not to compete with DMG in any line of
business;
(xii) contracts and other agreements relating to the acquisition by
DMG of any operating business or the capital stock of any other person or
entity;
(xiii) contracts and other agreements requiring the payment to any
party of a brokerage or sales commission or a finder's or referral fee;
(xiv) contracts, indentures, mortgages, promissory notes, debentures
loan agreements, guaranties, security agreements, pledge agreements, and
other agreements and instruments relating to the borrowing or lending of
money or securing any such liability;
(xv) any agreement or series of related agreements requiring aggregate
payments by or to DMG of more than $100,000, provided in the case of
customer contracts, DMG need only provide an example of each type of form
of customer contract prepared by DMG;
(xvi) contracts under which DMG will acquire or has acquired ownership
of, or license to, intangible property, including software other than
commercially available end-user licenses; and
(xvii) any other material contract or other agreement whether or not
made in the ordinary course of business requiring aggregate payments by or
to DMG of more than $100,000.
There have been delivered or made available to Maximus true and complete
copies of all of the contracts and other agreements (and all amendments, waivers
or other modifications thereto) set forth in Section 2.14 of the DMG Disclosure
Schedule. All of such contracts and other agreements are valid, subsisting, in
full force and effect, binding upon DMG, and to the best knowledge of DMG,
binding upon the other parties thereto in accordance with their terms. Other
than defaults which would not, either singly or in the aggregate, have a
material adverse effect upon the business or financial condition of DMG (a
"Material Adverse Effect"), DMG
A-13
<PAGE> 132
is not in default under any of such scheduled contracts, nor, to the best
knowledge of DMG, is any other party to any such contract or other agreement in
default thereunder, nor does any condition exist that constitutes or with notice
or lapse of time or both would constitute a default thereunder.
2.15 REAL PROPERTY; LEASES. DMG does not own any real property or any
buildings or other structures and does not have any options or any contractual
obligations to purchase or acquire any interest in real property except as set
forth in Section 2.15 of the DMG Disclosure Schedule. Section 2.15 of the DMG
Disclosure Schedule sets forth a correct and complete list of all leases of real
property to which DMG is a party (collectively, the "Leases"). True and complete
copies of the leases and all amendments, modifications and supplemental
agreements thereto have been delivered by DMG to Maximus. The Leases are in full
force and effect and to the best knowledge of DMG, are binding and enforceable
against each of the parties thereto in accordance with their respective terms.
To the best knowledge of DMG no party to any Lease has given notice to any other
party thereto claiming the existence or occurrence of a breach or default
thereunder and there has not occurred any event or circumstances which
constitutes, or with the passage of time or the giving of notice would
constitute, a breach or default thereunder other than defaults which would not,
either singly or in the aggregate, have a Material Adverse Effect.
2.16 TANGIBLE PROPERTY. DMG has good and marketable title to, free and
clear of all Encumbrances, or otherwise has the unrestricted right to use, each
item of equipment, furniture, leasehold improvements, fixtures, vehicles,
structures, any related capitalized items and other tangible property material
to the business of DMG ("Tangible Property"). All such Tangible Property is in
good and sufficient operating condition and repair, ordinary wear and tear
excepted, and to the best knowledge of DMG, DMG has not received notice that any
of its Tangible Property is in violation of any existing law or any building,
zoning, health, safety or other ordinance, code or regulation.
2.17 INTELLECTUAL PROPERTY. DMG owns or is licensed to use, or otherwise
has the unrestricted right to use all patents, trademarks, service marks, trade
names, logos, franchises, and copyrights, and all applications for any of the
foregoing, and all technology, inventions, trade secrets, know-how, computer
software and processes material to the conduct of its business as now conducted
(collectively, the "Proprietary Rights"). A complete list of all such
Proprietary Rights and all applications therefor is set forth in Section 2.17 of
the DMG Disclosure Schedule. DMG does not have actual knowledge based on written
notice of any claim by any third party that the business of DMG as currently
conducted infringes upon the proprietary rights of others, nor has DMG received
any notice or claim from any third party of such infringement, provided that DMG
makes no representation with respect to its compliance with commercial software
in-licenses to the extent that the use of such software by DMG's customers may
be in violation of such in-licenses. DMG does not have actual knowledge of any
infringement by any third party on, or any competing claim of right to use or
own any of, DMG's Proprietary Rights. DMG has the right to use, free and clear
of claims or rights of others, all customer lists and (subject to the rights of
software licensors) third party computer software material to the conduct of its
business.
2.18 TITLE TO ASSETS; LIENS. DMG owns outright, leases or rents, and has
good title to all of its material assets and properties, including, without
limitation, all of the assets and properties reflected on the balance sheet
included in the Current Financial Statements (and, when delivered, the balance
sheet included in the Updated Financial Statements), free and clear of any
Encumbrance, except for (i) assets and properties disposed of in the ordinary
course of business, (ii) Encumbrances securing the claims of materialmen,
carriers, landlords and like persons, all of which are not yet due and payable,
(iii) liens for taxes not yet due and payable or for taxes being contested in
good faith by appropriate proceedings, or (iv) Encumbrances reflected on the
balance sheet included in the Current Financial Statements and, when delivered,
the balance sheet included in the Updated Financial Statements.
2.19 CUSTOMERS. Section 2.19 of the DMG Disclosure Schedule sets forth the
names and addresses of all parties that are current customers of DMG under
contracts providing total revenue of $100,000 or more (exclusive of extensions
which are not guaranteed) and DMG has provided or made available to Maximus with
correct and complete copies or descriptions of all current agreements with
customers. The relationships of DMG with its current customers are good
commercial working relationships. Except at the request of DMG,
A-14
<PAGE> 133
no customer of DMG under a current contract providing total revenue of $100,000
or more (exclusive of extensions which are not guaranteed) has notified DMG of
any material breach by DMG under such contract nor has any such customer
notified DMG of its intention to cancel, terminate or decline to extend such
contract.
2.20 EMPLOYEE BENEFIT PLANS. Section 2.20 of the DMG Disclosure Schedule
sets forth a correct and complete list of all pension, profit sharing,
retirement, deferred compensation, welfare, insurance, disability, bonus,
vacation pay, severance pay and similar plans, programs or arrangements,
including without limitation all employee benefit plans as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") with respect to which DMG is the "Plan Sponsor" within the meaning of
Section 3(16)(B) of ERISA, or in which DMG participates (the "Plans"). DMG has
never maintained or contributed to any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and DMG has not incurred any material liability
under Sections 4062, 4063 or 4201 of ERISA. Each Plan which is intended to be
qualified under Section 401(a) or 501(c)(9) of the Internal Revenue Code of
1986, as amended (the "Code"), has received a favorable determination letter
from the Internal Revenue Service. Each Plan has been administered in all
material respects in accordance with the terms of such Plan and the provisions
of any and all applicable statutes, orders or governmental rules or regulations,
including without limitation ERISA and the Code. To the knowledge of DMG,
nothing has been done or omitted to be done with respect to any Plan which is
intended to comply with Section 401(a) of the Code that would adversely affect
the qualified status of such Plan or result in any material liability on the
part of DMG including, without limitation, under Title I of ERISA or Section
4975 of the Code (other than an operational violation that could be corrected
through the Internal Revenue Service's Administrative Policy Regarding
Self-Correction). All material reports, returns, notices and documents required
to be filed with respect to all Plans, including without limitation annual
reports on Form 5500, have been timely filed. No "reportable event" as defined
at Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any Plan subject to
Title IV of ERISA, and no event has occurred requiring notices to be provided
under Section 4063(a) of ERISA. Except as set forth on the DMG Disclosure
Schedule, all contributions required by law or the terms of any Plan have been
made. With respect to all Plans subject to Title IV of ERISA, such Plans have no
unfunded benefit liabilities and all premium payments to the Pension Benefit
Guaranty Corporation with respect to such Plans have been made. Except as set
forth on the DMG Disclosure Schedule, all contributions to such Plans subject to
Section 412 of the Code required to be made under the minimum funding
requirements of Section 412 of the Code have been made or accrued. Except as set
forth on the DMG Disclosure Schedule, all claims for welfare benefits incurred
by employees of DMG on or before the Closing are or will be fully covered by
third-party insurance policies or programs. None of the Plans is a defined
benefit pension plan that is subject to Title IV of ERISA, nor has DMG ever
maintained such a plan. Except for continuation of health coverage to the extent
required under Section 4980B of the Code or as otherwise set forth in this
Agreement, there are no obligations under any Plan providing group health
expense reimbursements benefits after termination of employment. Complete copies
of the following documents with respect to each Plan (as applicable) have been
delivered to Maximus: (i) each relevant Plan document and subsequent amendment
thereto; (ii) each trust agreement, group annuity contract, insurance policy or
contract; (iii) each Form 5500 series annual report with each required schedule
and attachment for each of the three (3) most recent plan years; (iv) the most
recent IRS determination letter; and (v) the most recent summary plan
description and each summary of material modification thereto. For purposes of
this Section 2.20, references to DMG include DMG and its ERISA Affiliates. An
"ERISA Affiliate" of DMG means any trade or business (whether or not
incorporated) that together with DMG would have been deemed a "single employer"
within the meaning of Section 4001(b) of ERISA or Section 414(m) of the Code at
any time within the five-year period ending on the Closing Date.
2.21 EMPLOYEE RELATIONS. DMG has approximately 328 full-time equivalent
employees and generally enjoys good employer-employee relations. None of DMG's
employees are represented by any labor union. DMG is not delinquent in payments
to any of its employees or consultants for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed by them to the
date hereof or amounts required to be reimbursed to such employees or
consultants. Neither Maximus nor DMG will by reason of the Merger or anything
done prior to the Closing be liable to any DMG employees for severance pay
A-15
<PAGE> 134
or any other payments (other than accrued salary, vacation or sick pay in
accordance with DMG's normal policies) in the event any such employees are
terminated. Correct and complete information as to all current directors,
officers, employees or consultants of DMG including, in each case, name, current
job title and annual rate of compensation has been provided by DMG to Maximus.
2.22 RELATIONSHIPS WITH AFFILIATES. Except as set forth in Section 2.22 of
the Disclosure Schedule, no officer or director of DMG has directly or
indirectly any interest in, (i) any property or assets of DMG (except as a
shareholder of DMG), (ii) any competitor or customer of DMG, (iii) any supplier
or lender to DMG, or (iv) any party to any material contract or agreement with
DMG.
2.23 INSURANCE. Section 2.23 of the DMG Disclosure Schedule sets forth a
correct and complete list of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of DMG specifying in each case the type and scope
of coverage, the amount of coverage, the premium, the insurer, the expiration
date and all claims made thereunder within the past three years. Such policies
and binders are in full force and effect, are reasonably believed to be adequate
for the businesses engaged in by DMG, are in conformity with the requirements of
all leases or other agreements to which DMG is a party and are valid and
enforceable in accordance with their terms. All premiums due under such policies
and binders have been paid, and DMG is not in default with respect to any
provision contained in any such policy or binder nor has DMG failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion. There are no outstanding unpaid claims under any such policy or binder.
DMG has not received notice of cancellation or non-renewal of, or any material
amendment to, or any material increase in deductibles or premiums under, any
such policy or binder. Correct and complete copies of certificates of insurance
with respect to all such policies and binders have been provided by DMG to
Maximus.
2.24 BANKING RELATIONSHIPS. Section 2.24 of the DMG Disclosure
Schedulesets forth (i) a correct and complete list of each bank, or similar
financial institution in which DMG maintains an account or safety deposit box
(other than petty cash bank accounts which contain less than $2,500 individually
or $100,000 in the aggregate), including the name, number and location of each
such account or safety deposit box, the name of each person authorized to draw
on such account or have access to such safety deposit box, and the nature and
scope of such authority and (ii) a description of all loan agreements, lines of
credit, and other credit facilities maintained by DMG with banks or similar
financial institutions.
2.25 BROKERAGE. Other than the $250,000 brokerage fee payable by DMG to
Duff & Phelps, no broker, finder, agent or similar intermediary has acted on
behalf of DMG in connection with this Agreement or the transactions contemplated
hereby, and there are no brokerage commissions, finders fees or similar fees or
commissions payable in connection therewith based on any agreement, arrangement
or understanding with, or any action taken by DMG.
2.26 HAZARDOUS MATERIALS. DMG has not generated, used or handled any
Hazardous Materials (as defined below), nor has DMG treated, stored or disposed
of any Hazardous Materials at any site owned or leased at any time by DMG or
shipped any Hazardous Materials for treatment, storage or disposal at any other
site or facility. To the knowledge of DMG, no other person has generated, used,
handled, stored or disposed of any Hazardous Materials at any site owned or
premises leased by DMG at any time or at any site in which DMG presently holds a
mortgage or similar interest, nor has there been or is there threatened any
release of any Hazardous Materials on or at any such site or premises. DMG does
not presently operate or lease nor has it operated or leased any site on which,
underground storage tanks are or were located and which tanks are the
responsibility of DMG to operate. To the knowledge of DMG, without
investigation, no lien has been imposed by any governmental agency in connection
with the presence of any Hazardous Materials on any property, facility,
machinery, or equipment operated or leased by DMG or in which DMG holds any
mortgage, lien, or similar interest. For purposes of this Section 2.26,
"Hazardous Materials" shall mean and include any "hazardous waste" as defined in
either the United States Resource Conservation and Recovery Act or regulations
adopted pursuant to said Act, and also any "hazardous substances" or "hazardous
materials" as defined in the United States Comprehensive Environmental Response,
Compensation and Liability Act, but
A-16
<PAGE> 135
excludes ordinary and customary materials in quantities reasonably required to
be used by DMG in the ordinary course of DMG's business.
2.27 FULL DISCLOSURE. All documents and other papers delivered by or on
behalf of DMG in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic. No representation,
warranty or statement of DMG made in this Agreement or in any Exhibit or the
Disclosure Schedule hereto or in any document, statement or certificate
furnished to Maximus pursuant to this Agreement contains any untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements made, in light of the circumstance under
which they were made, not false or misleading.
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF MAXIMUS
Except as set forth on the disclosure schedule delivered to DMG on the date
hereof (the "Maximus Disclosure Schedule"), the section numbers of which are
numbered to correspond to the section numbers of this Agreement to which they
refer, Maximus hereby makes the following representations and warranties:
3.1 ORGANIZATION. Each of Maximus and MAC is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease and operate
its assets and to carry on its business as now being and as heretofore
conducted.
3.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Each of Maximus and MAC
has the corporate power and authority to enter into, execute and deliver this
Agreement and to perform fully its respective obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Maximus and MAC, as necessary, which is the only required corporate
action on the part of Maximus. The Merger has also been authorized by Maximus,
as the sole stockholder of MAC. This Agreement has been duly executed and
delivered by each of Maximus and MAC and constitutes a valid and binding
obligation of Maximus and MAC, enforceable in accordance with its terms, except
as such enforceability may be limited by the application of general principles
of equity or by the effect of bankruptcy, insolvency, reorganization, moratorium
or similar laws generally affecting creditors' rights. MAC was incorporated on
January 16, 1998 and has not conducted any business other than that necessary to
consummate this transaction.
3.3 CAPITALIZATION. Maximus is authorized to issue 30,000,000 shares of
Maximus Common Stock, of which 14,790,970 shares were issued and outstanding as
of December 15, 1997. As of September 30, 1997, except for an aggregate of
1,600,000 shares of Maximus Common Stock reserved for issuance under various
stock option and stock purchase plans of Maximus, there is no outstanding right,
subscription, warrant, call, preemptive right, option or other agreement of any
kind to purchase or otherwise to receive from Maximus any shares of the capital
stock or any other security of Maximus and there is no outstanding security of
any kind convertible into or exchangeable for such capital stock. All issued and
outstanding shares of Maximus Common Stock are validly issued, fully paid,
non-assessable and free of any preemptive rights.
3.4 SEC REPORTS. Maximus has previously delivered to DMG all of the
following materials related to Maximus (i) its Registration Statement on Form
S-1, as filed with the Securities Exchange Commission ("SEC"), (ii) its Annual
Report on Form 10-K for its fiscal year ended September 30, 1997 (the "Maximus
10-K"), as filed with the SEC, (iii) the proxy statement relating to Maximus's
annual meeting of shareholders held on February 16, 1998 and (iv) all other
periodic and current reports filed by Maximus with the SEC under the Securities
Exchange Act of 1934 (the "Exchange Act") since becoming registered under the
Exchange Act. As of their respective dates, such reports complied in all
material respects with applicable SEC requirements and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Maximus has timely
filed with the SEC all reports required to be filed under Sections 13, 14 or
15(d) of the Exchange Act since becoming registered under the Exchange Act.
3.5 FINANCIAL STATEMENTS. The consolidated financial statements contained
in the Maximus 10-K and in Maximus's quarterly report on Form 10-Q for the
quarter ended December 31, 1997 (the "Max-
A-17
<PAGE> 136
imus 10-Q") have been prepared from, and are in accordance with, the books and
records of Maximus and present fairly, in all material respects, the
consolidated financial condition and results of operations of Maximus and its
subsidiaries as of and for the periods presented therein, all in conformity with
generally accepted accounting principles applied on a consistent basis, except
as otherwise noted therein and subject (in the case of the unaudited financial
statements included in the Maximus 10-Q) to normal year-end adjustments, which
are not, in the aggregate, material.
3.6 NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has not
been:
(i) any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of
Maximus or any occurrence or circumstance which reasonably could be
expected to result in such a material adverse change;
(ii) any material change in the method of operating the business of
Maximus, in the manner of keeping the books, accounts or records of
Maximus, or in any accounting method or practice of Maximus;
(iii) any sale, lease, mortgage, pledge, encumber, abandonment or
disposition of, or agreement to sell, lease, mortgage, pledge, encumber,
abandon or dispose of, any material assets or properties of Maximus, other
than in the usual and ordinary course of business;
(iv) except as disclosed in the Maximus Disclosure Schedule, any
material transaction, commitment, contract or agreement entered into by
Maximus, or any relinquishment or abandonment by Maximus of any material
contract or right, or any modification, waiver, amendment, release,
recision, or termination of any material term, condition or provision of
any contract pertaining to Maximus (other than any satisfaction by
performance in accordance with the terms thereof), other than in the usual
and ordinary course of business;
(v) any adverse relationships or conditions with employees, suppliers,
lenders, customers or governmental agencies that could reasonably be
anticipated to have a material adverse effect on Maximus or its business;
(vi) any new material obligation or liability of Maximus for borrowed
money;
(vii) except as disclosed in the Maximus Disclosure Schedule, any
acquisition by Maximus of all or substantially all of the assets,
properties, capital stock or business of any other person or entity;
(viii) except as disclosed in the Maximus 10-K, any redemption or
other acquisition by Maximus of any of its capital stock or any
declaration, setting aside or payment of any dividend or distribution of
any kind with respect to shares of its capital stock;
(ix) any loan or advance by Maximus to any shareholder, officers,
director or consultant, or any other loan or advance other than in the
ordinary course of business; or
(x) except as set forth in the Maximus Disclosure Schedule, any new
employment or consulting agreement, any increase in compensation, bonus or
other benefits payable or to become payable by Maximus to any director,
officer or employee, other than regularly scheduled increases consistent
with past practice in the ordinary course of business, or any new grant of
severance or termination rights, or increase in rights or benefits payable
under existing severance or termination policies or agreements, to any
director, officer or employee of Maximus.
3.7 ACTIONS AND PROCEEDINGS. Except as set forth in the Maximus 10-K or
the Maximus 10-Q, there are no actions, suits or claims or legal, administrative
or arbitration proceedings pending or, to the best knowledge of Maximus,
threatened against Maximus or any other corporation or legal entity of which
Maximus owns, directly or indirectly, 50% or more of the stock or other equity
interest entitled to vote for the election of directors that individually or in
the aggregate would have a material adverse effect upon the transactions
contemplated hereby or the business of Maximus. To the best knowledge of
Maximus, there is no fact, event or circumstance now in existence that
reasonably could be expected to give rise to any suit, action, claim,
investigation or proceeding that individually or in the aggregate would have a
material adverse effect upon the transactions contemplated hereby or the
business of Maximus.
A-18
<PAGE> 137
3.8 INSURANCE. All policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of Maximus are in full force and effect, are
reasonably believed to be adequate for the businesses engaged in by Maximus, are
in conformity with the requirements of all leases or other agreements to which
Maximus is a party and are valid and enforceable in accordance with their terms.
All premiums due under such policies and binders have been paid, and Maximus is
not in default with respect to any provision contained in any such policy or
binder nor has Maximus failed to give any notice or present any claim under any
such policy or binder in due and timely fashion. There are no outstanding unpaid
claims under any such policy or binder. Maximus has not received notice of
cancellation or non-renewal of, or any material amendment to, or any material
increase in deductibles or premiums under, any such policy or binder.
3.9 EMPLOYEE RELATIONS. Maximus has approximately 2,000 full-time
equivalent employees and generally enjoys good employer-employee relations. None
of Maximus' employees are represented by any labor union. Maximus is not
delinquent in payments to any of its employees or consultants for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to
such employees or consultants.
3.10 NO BREACH. The execution, delivery and performance of this Agreement
by Maximus and MAC and the Escrow Agreement by Maximus and consummation by such
parties of the transactions contemplated hereby will not (i) violate any
provision of the Articles of Incorporation or Bylaws of Maximus or the
Certificate of Incorporation or Bylaws of MAC; (ii) violate, conflict with or
result in the breach of any of the terms or conditions of, result in
modification of the effect of, or otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any instrument, contract or other agreement to
which Maximus or MAC is party or to which either of them or any of their assets
or properties is bound or subject; (iii) assuming the filings described below
are made in a timely manner, and appropriate clearances are obtained from
regulatory authorities relating to such filings, violate any law, ordinance or
regulation or any order, judgment, injunction, decree or requirement of any
court, arbitrator or governmental or regulatory body applicable to Maximus or
MAC or by which any of their assets or properties is bound; (iv) require any
filing with, notice to, or permit, consent or approval of, any governmental or
regulatory body or (v) result in the creation of any Encumbrance on the assets
or properties of Maximus, excluding from the foregoing clauses (ii), (iii), (iv)
and (v) any exceptions to the foregoing that, in the aggregate, would not have a
material adverse effect on the business of Maximus or on the ability of Maximus
to consummate the transactions contemplated hereby, and from the foregoing
clause (iv) the following: (a) the filing of a premerger notification form
pursuant to the HSR Act (b) the filing of the Merger Documents with the
Secretary of State of Illinois and with the Secretary of State of Delaware (c)
filings with various state blue sky authorities, (d) the filing with the New
York Stock Exchange of an application for listing of the shares of Maximus
Common Stock to be issued in the Merger and (e) the filing with the SEC of a
registration statement on Form S-4 to register the shares of Maximus Common
Stock to be issued in the Merger.
3.11 BROKERAGE. No broker, finder, agent or similar intermediary has acted
on behalf of Maximus in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by Maximus.
3.12 COMPLIANCE WITH LAWS. Maximus is not in violation in any material
respect of any order, judgment, injunction, award or decree, or any federal,
state, local or foreign law, ordinance or regulation or any other requirement of
any governmental or regulatory body, court or arbitrator, and is in compliance
in all material respects with all of the foregoing that are applicable to it,
its business or its assets. Maximus has not received notice of, and there has
not been any citation, fine or penalty imposed or asserted against any it for,
any such violation or alleged violation that has not been favorably and fully
resolved.
3.13 INTELLECTUAL PROPERTY. Maximus owns or is licensed to use, or
otherwise has the unrestricted right to use all patents, trademarks, service
marks, trade names, logos, franchises, and copyrights, and all applications for
any of the foregoing, and all technology, inventions, trade secrets, know-how,
computer
A-19
<PAGE> 138
software and processes material to the conduct of its business as now conducted
(collectively, the "Proprietary Rights"). Maximus does not have actual knowledge
based on written notice of any claim by any third party that the business of
Maximus as currently conducted infringes upon the proprietary rights of others,
nor has Maximus received any notice or claim from any third party of such
infringement. Maximus does not have actual knowledge of any infringement by any
third party on, or any competing claim of right to use or own any of, the
Proprietary Rights. Maximus has the right to use, free and clear of claims or
rights of others, all customer lists and third party computer software material
to the conduct of its business.
3.14 TAX MATTERS.
3.14.1 Maximus is not and has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return. Maximus has paid
or caused to be paid or established appropriate reserves for all federal, state,
county, local, foreign and other taxes, including, without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, import duties, value-added taxes, gross receipts taxes, franchise
taxes, capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, environmental taxes
and property taxes, whether or not measured in whole or in part by net income
and all deficiencies, or other additions to such taxes and interest, fines and
penalties thereon (hereinafter, "Taxes" or, individually, a "Tax") required to
be paid by Maximus through the date hereof whether disputed or not. The Tax
reserves and the Tax provisions reflected on the balance sheets included in the
Maximus 10-K and the Maximus 10-Q are adequate to cover any and all Tax
liabilities of Maximus in respect of its assets, properties, business and
operations for periods ended on or prior to the date of such financial
statements. There is no Tax deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith, asserted or, to the best knowledge
of Maximus, threatened in writing to be asserted against Maximus by any taxing
authority.
3.14.2 Maximus has in accordance with applicable law timely filed all
material Tax reports or returns required to be filed by it through the date
hereof and paid all taxes and other charges shown as due thereon. To the best
knowledge of Maximus, each of the Tax reports and returns filed by Maximus
correctly and accurately reflects the amount of its Tax liability for such
period and other required information. There has not been any audit or other
examination of any Tax return filed by Maximus and no audit or other examination
of any Tax return of Maximus is in progress and Maximus has not been notified in
writing by any Tax authority that any such audit or other examination is
contemplated or pending. No waiver or agreement by Maximus is in force for the
extension of time for the assessment or payment of any Tax. No claim has been
made by an authority in a jurisdiction where Maximus does not file reports or
returns that Maximus is or may be subject to taxation by that jurisdiction.
There are no liens, encumbrances or other adverse claims ("Encumbrances") on any
of the assets of Maximus that arose in connection with any failure (or alleged
failure) to pay any Taxes. Maximus has no liability for the taxes of any other
person under any provision of state, local or foreign law, as a transferee or
successor, by contract, including any tax sharing agreement, or otherwise.
3.15 FULL DISCLOSURE. All documents and other papers delivered by or on
behalf of Maximus in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic. No representation,
warranty or statement of Maximus made in this Agreement or in any Exhibit or the
Maximus Disclosure Schedule hereto or in any document, statement or certificate
furnished to DMG pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in light of the circumstance under which
they were made, not false or misleading.
SECTION 4 -- COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1 CONDUCT OF DMG BUSINESS. Except with the prior written consent of
Maximus and except as otherwise contemplated herein, during the period from the
date hereof to the Closing Date, DMG shall observe the following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. DMG will:
A-20
<PAGE> 139
(i) Preservation of Personnel. Use all reasonable efforts to preserve
intact their business organizations and keep available the services of
present employees, in each case in accordance with past practice, it being
understood that termination of employees with poor performance ratings
shall not constitute a violation of this covenant;
(ii) Insurance. Use all reasonable efforts to keep in effect
casualty, public liability, worker's compensation and other insurance
policies in coverage amounts not less than those in effect at the date of
this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
Contracts. Use all reasonable efforts to preserve their businesses,
advertise, promote and market their services, keep their properties intact,
preserve their goodwill, and maintain all physical properties in good
operating condition;
(iv) Intellectual Property Rights. Use all reasonable efforts to
preserve and protect the Proprietary Rights; and
(v) Ordinary Course of Business. Operate their businesses diligently
and solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. DMG will not:
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge or
create or permit to be created any Encumbrance on, any of their assets,
other than sales or transfers in the ordinary course of business and liens
existing under arrangements disclosed herein or permitted under Section
2.18;
(ii) Liabilities. Without the consent of Maximus, (A) incur any
obligation or liability other than in the ordinary course of DMG's
business, (B) incur any indebtedness for borrowed money or enter into any
contracts or commitments involving payments by DMG of $50,000 or more,
other than purchase orders or commitments for inventory materials and
supplies in the ordinary course of business;
(iii) Compensation. Without the consent of Maximus, (A) change the
compensation or fringe benefits of any officer, director or employee,
except for ordinary promotions and annual increases of up to 5.5% for
employees (other than officers) in accordance with past practices and
except for bonuses to officers for an aggregate of $375,000, or (B) enter
into or modify any Plan or any employment, severance or other agreement
with any officer, director or employee of DMG other than changes in
compensation permitted by clause (A) hereof or as required by law to
maintain the tax-qualified status of any Plan or as otherwise required by
law;
(iv) Capital Stock. (A) Grant or accelerate the exercisability of,
any option, warrant or other right to purchase, or to convert any
obligation into, shares of its capital stock, (B) declare or pay any
dividend or other distribution with respect to any shares of its capital
stock or (C) issue any shares of its capital stock, except upon the
exercise of options outstanding on the date hereof or as contemplated by
the DMG Disclosure Schedule;
(v) Charter and Bylaws. Amend the charter or Bylaws of DMG;
(vi) Acquisitions. Make any material acquisition of property other
than in the ordinary course of DMG's business; or
(vii) Material Agreements. Without the consent of Maximus, enter into
or modify any material agreement with any other person or entity, (other
than agreements between DMG and its customers in the ordinary course of its
business involving payments of less than $250,000).
4.2 CONDUCT OF MAXIMUS BUSINESS. Except with the prior written consent of
DMG and except as otherwise contemplated herein, during the period from the date
hereof to the Closing Date, Maximus and MAC shall observe the following
covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. MAC and Maximus will:
A-21
<PAGE> 140
(i) Preservation of Personnel. Use all reasonable efforts to preserve
intact their business organizations and keep available the services of
present employees, in each case in accordance with past practice, it being
understood that termination of employees with poor performance ratings
shall not constitute a violation of this covenant;
(ii) Insurance. Use all reasonable efforts to keep in effect
casualty, public liability, worker's compensation and other insurance
policies in coverage amounts not less than those in effect at the date of
this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
Contracts. Use all reasonable efforts to preserve their businesses,
advertise, promote and market their services, keep their properties intact,
preserve their goodwill, and maintain all physical properties in good
operating condition;
(iv) Intellectual Property Rights. Use all reasonable efforts to
preserve and protect the Proprietary Rights; and
(v) Ordinary Course of Business. Operate their businesses diligently
and solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. Maximus will not:
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge or
create or permit to be created any Encumbrance on, any of their assets,
other than sales or transfers in the ordinary course of business and liens
existing under arrangements disclosed herein or of the type permitted under
Section 2.18 and disclosed in the Maximus 10-K;
(ii) Liabilities. Except as disclosed to DMG herein, incur any
obligation or liability other than in the ordinary course of Maximus'
business;
(iii) Compensation. (A) Change the compensation or fringe benefits of
any officer, director or employee, except for ordinary promotions and
annual increases of up to 5.5% for employees in accordance with past
practices, or (B) enter into or modify any Plan or any employment,
severance or other agreement with any officer, director or employee of
Maximus other than changes in compensation permitted by clause (A) hereof
or as required by law to maintain the tax-qualified status of any Plan or
as otherwise required by law; or
(iv) Charter and Bylaws. Amend the charter or Bylaws of Maximus.
4.3 NYSE LISTING. Maximus shall take such actions as may be necessary to
list the shares of Maximus Common Stock to be issued hereunder on the New York
Stock Exchange.
4.4 POST CLOSING COMPENSATION PAYMENTS BY MAXIMUS. Within five days of the
Closing Date, Maximus shall pay, in cash, all of DMG's liabilities under
deferred compensation and stock appreciation rights agreements as set forth in
Section 2.8 of the DMG Disclosure Schedule.
4.5 AGREEMENT NOT TO ENTERTAIN OTHER OFFERS.
(a) In consideration of the efforts and expenses undertaken by Maximus in
conducting its investigation of the business of DMG and other valuable
consideration, the receipt and adequacy of which are acknowledged, until the
Closing Date or until this Agreement is otherwise terminated pursuant to Article
8, DMG shall not (i) directly or indirectly, solicit any proposal relating to
the acquisition by another party of all or any portion of the capital stock of
DMG or the assets of the business of DMG; (ii) except to the extent reasonably
required by fiduciary obligations under applicable law as advised in writing by
independent legal counsel, directly or indirectly, engage in any discussions or
negotiations with any other party regarding any such acquisition, or otherwise
encourage or facilitate any efforts by any other party to engage in such an
acquisition; or (iii) sell, transfer or dispose of all or any portion of the
capital stock of DMG or the assets of the business of DMG.
A-22
<PAGE> 141
(b) DMG and its representatives shall disclose to Maximus the identity of
any party that contacts or has contacted DMG with regard to a possible
acquisition of all or any portion of the capital stock of DMG or the assets of
the business of DMG and of the nature of such contact.
(c) In the event of any breach of the provisions of Section 4.5, unless the
transactions contemplated hereby are consummated upon the terms described in
this Agreement, the Agreement shall terminate on the option of Maximus and
Maximus's exclusive remedy shall be the payment by DMG to Maximus of a
cancellation fee of $100,000.00 plus an amount equal to all reasonable
out-of-pocket expenses of Maximus incurred in connection with the transaction
contemplated hereby, including without limitation reasonable attorneys' fees,
accountants' fees, appraiser's fees and other similar expenses.
4.6 BEST EFFORTS TO ASSIST MAXIMUS TO HIRE DMG EMPLOYEES; STOCK
OPTIONS. During the period until the Closing Date or termination of this
Agreement, DMG will use its best reasonable efforts to retain all current DMG
employees and will use its reasonable best efforts to: (i) assist Maximus in its
efforts to recruit and hire as employees of Maximus, effective at the Closing,
any or all such current DMG employees; and (ii) arrange for an orderly transfer
of current DMG employees from DMG to Maximus effective at the Closing. Maximus
acknowledges that DMG employees will receive stock options in Maximus at levels
consistent with grants to Maximus employees.
4.7 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the Effective
Time, each of Maximus and DMG shall be entitled, through its employees and
representatives, to have such access to the assets, properties, business, books,
records and operations of the other as Maximus or DMG, as the case may be, shall
reasonably request in connection with such party's investigation of the other
with respect to the transaction contemplated hereby. Any such investigation and
examination shall be conducted at reasonable times and the party being
investigated shall cooperate fully therein. No investigation by a party shall
diminish or obviate any of the representations, warranties, covenants or
agreements of any other party contained in this Agreement, provided that any
party having actual knowledge prior to the date hereof of an inaccuracy in a
representation or warranty of another party must have given notice thereof to
such other party prior to the date hereof to be entitled to make any recovery
hereunder for breach of such representation or warranty. For the purposes of
this Agreement, actual knowledge shall mean the conscious knowledge of the
executive officers of a party who have given substantive attention to this
transaction. In order that each of Maximus and DMG may have full opportunity to
make such investigation, the party being investigated shall furnish the
representatives of the other during such period with all such information and
copies of such documents concerning the affairs of the party being investigated
as such representatives may reasonably request and cause its officers,
employees, consultants, agents, accountants and attorneys to cooperate fully
with such representatives in connection with such investigation.
4.8 EXPENSES.
(a) Subject to Section 4.5, if the Merger is not consummated, each of DMG
and Maximus shall bear its respective expenses incurred in connection with this
Agreement and the transactions contemplated hereby provided, however, that if
Maximus terminates this Agreement without the non-occurrence of a valid closing
condition, Maximus shall make a payment of $500,000 to DMG. DMG represents and
warrants that such fees and expenses of its legal counsel, financial advisors
and accountants will be as set forth on the DMG Disclosure Schedule. If the
Merger is consummated, the Surviving Corporation, but not the Stockholders,
shall be liable for all unpaid expenses of DMG and MAC.
(b) Whether or not the Merger is consummated, each Stockholder shall bear
its own expenses for separate legal counsel or other advice incurred in
connection with this Agreement and the transactions contemplated hereby.
4.9 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, the parties
shall use all reasonable efforts to obtain all authorizations, consents and
permits required to permit the consummation of the transactions contemplated by
this Agreement, including without limitation all consents required from third
parties who have contractual relationships with DMG.
A-23
<PAGE> 142
4.10 CONSUMMATION OF AGREEMENT. Each party shall use all reasonable
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Effective Time, all to the end that the transactions contemplated
by this Agreement shall be fully carried out in a timely fashion.
4.11 FURTHER ASSURANCES. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
4.12 SECURITIES LAW MATTERS. Maximus shall prepare and file with the SEC a
Registration Statement on Form S-4 (or any other such form required by the SEC)
(the "Registration Statement") covering the shares of Maximus Common Stock
comprising the Merger Consideration as soon as practicable following the date
hereof and will use all reasonable efforts to have such Registration Statement
filed within 45 days after the date hereof and declared and maintained
effective, as soon as practicable following such filing. DMG will cooperate with
Maximus in such preparation and, after such Registration Statement is effective,
shall facilitate the distribution of the proxy statement and prospectus (the
"Proxy Statement") contained in the Registration Statement to the Stockholders.
Prior to the Effective Time, Maximus shall use all reasonable efforts to qualify
the shares of Maximus Common Stock to be issued in the Merger under the
securities or "blue sky" laws of every state necessary to offer and issue the
Merger Consideration to the Stockholders at the Closing, except any such state
with respect to which counsel for Maximus has determined that such qualification
is not required under the securities or "blue sky" laws of such state, and
except that in no event shall Maximus be obligated to qualify as a foreign
corporation or to execute a general consent to service of process in any state
in which it has not previously so qualified or has not previously so consented.
4.13 SHAREHOLDER MEETING. DMG, acting through its Board of Directors,
shall, in accordance with applicable law and its certificate of incorporation
and by laws:
(i) at the annual meeting of stockholders of DMG, currently scheduled
for April 24, 1998, and at any adjournment thereof, submit to the
stockholders a proposal to consider and act on this Agreement to obtain
such approval required under the IBCA for the consummation of the
transactions contemplated hereby;
(ii) subject to the duties of the Board of Directors under applicable
law as advised in writing by independent legal counsel, include in the
Proxy Statement to be delivered to the Stockholders of DMG soliciting their
approval of this Agreement and the transactions contemplated hereby the
recommendation of its Board of Directors that the Stockholders vote in
favor of the adoption of this Agreement; and
(iii) use all reasonable efforts (A) to obtain and furnish the
information required to be included by it in the Proxy Statement, (B) to
cause the Proxy Statement to be mailed to its shareholders at the earliest
practicable time after the effectiveness of the Registration Statement, and
(C) to obtain the necessary approvals by its shareholders of this
Agreement, the Merger and the transactions contemplated hereby.
4.14 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. Any press release or other
information to the press or any third party with respect to this Agreement or
the transactions contemplated hereby shall require the prior approval of Maximus
and DMG, which approval shall not be unreasonably withheld, provided that a
party shall not be prevented from making such disclosure as it shall be advised
by counsel is required by law. DMG shall also keep confidential and shall not
use in any manner any information or documents obtained from Maximus or its
representatives concerning Maximus's assets, properties, business and
operations, unless readily ascertainable from public information, already known
or subsequently developed by DMG independently, received from a third party not
under an obligation to keep such information confidential or otherwise required
by law. If this Agreement terminates prior to the Closing, Maximus shall also
keep confidential and shall not use in any manner any information or documents
obtained from DMG or their representatives unless readily ascertainable from
public information, already known or subsequently developed by Maximus
independently, received from a third party not under an obligation to keep such
information confidential or
A-24
<PAGE> 143
otherwise required by law. If this Agreement terminates prior to the Closing all
copies of any documents obtained from another party or its representatives will
be returned, except that one copy thereof may be retained by counsel to the
party returning such documents in order to evidence compliance hereunder. The
obligations set forth in the previous three sentences of this Section 4.14 shall
survive termination of this Agreement.
4.15 AFFILIATE LETTERS. Prior to the Closing Date, DMG shall identify to
Maximus all persons who, at the time of the vote of DMG's shareholders on the
Merger, DMG believes may be "affiliates" of DMG within the meaning of Rule 145
under the Securities Act. DMG shall use all reasonable efforts to provide
Maximus with such information as Maximus shall reasonably request for purposes
of making its own determination of persons who may be deemed to be affiliates of
DMG. DMG shall use all reasonable efforts to deliver to Maximus prior to the
Closing Date a letter from each of the affiliates specified by Maximus in
substantially the form attached hereto as Exhibit B (an "Affiliate Letter") and
each Stockholder who is identified as an affiliate by DMG and Maximus has
delivered, or agrees to deliver to Maximus prior to the Closing Date, an
Affiliate Letter. To the extent any Stockholder is so identified as an
affiliate, such Stockholder agrees to deliver an Affiliate Letter at or prior to
the Closing Date.
4.16 FILINGS UNDER HSR ACT. As soon as practicable, each of Maximus and
DMG shall file with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") a premerger
notification form and any supplemental information (other than privileged
information) which may be requested in connection therewith pursuant to the HSR
Act, which filings and supplemental information will comply in all material
respects with the requirements of the HSR Act. Each of DMG and Maximus shall
cooperate fully with the other in connection with the preparation of such
filings and shall use best efforts to respond to any requests for supplemental
information from the FTC or the Antitrust Division and to obtain early
termination of any waiting period applicable to the Merger under the HSR Act.
Any and all filing fees required to be paid in connection with the premerger
notification pursuant to the HSR Act shall be borne and paid by Maximus.
4.17 MAXIMUS SEC FILINGS. Until the Closing Date, Maximus shall furnish
DMG with a copy of each periodic or current report filed by Maximus under the
Exchange Act promptly after filing the same. All filings made by Maximus after
the date hereof pursuant to the Exchange Act will be made in a timely fashion,
will comply as to form in all material respects with the applicable provisions
of the Exchange Act and the rules and regulations thereunder and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.
4.18 EMPLOYEE BENEFIT SENIORITY. In the event that the DMG 401(k) Plan is
not maintained, any current or former employee of DMG who accepts employment
with the Surviving Corporation or Maximus (a "Transferring Employee") shall be
eligible to participate in a 401(k) plan sponsored by Maximus or a related
employer (as Maximus shall select), in accordance with the terms of such plan,
provided that Maximus shall ensure that each Transferring Employee receives
credit for the years of service of such Transferring Employee with DMG for
purposes of determining years of eligibility and vesting under such 401(k) plan.
Such Transferring Employees shall also receive credit for years of service with
DMG for purposes of determining years of eligibility and vesting under the other
plans and programs offered by Maximus or the Surviving Corporation.
4.19 DISTRIBUTION OF PLAN ASSETS. As soon as reasonably practicable after
the Effective Time, Maximus and/or the Surviving Corporation shall terminate and
distribute the assets of the DMG Employee Stock Purchase Plan and the DMG Money
Purchase Pension Plan to the participants and beneficiaries of such plans in
compliance with the Code and ERISA.
A-25
<PAGE> 144
SECTION 5 -- CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall be
subject to the satisfaction or waiver, at or before the Effective Time, of each
of the following conditions:
5.1 APPROVALS. All required approvals of the Stockholders of DMG and all
consents and approvals referred to in Sections 2.12 and 3.10 of this Agreement,
other than those which, the failure to obtain would not affect the validity of
this transaction or materially adversely affect the business of the surviving
corporation after the Effective Time and except with respect to customer
contract change in control provisions, shall have been obtained; provided,
however, that if Maximus waives the obtaining of any consent from a contracting
party set forth in Sections 2.12 or 3.10 of the DMG Disclosure Schedule, such
consent shall not be a condition to DMG's obligation to consummate the Merger.
5.2 HSR ACT. Any waiting period applicable to the Merger under the HSR Act
shall have expired or terminated.
5.3 ABSENCE OF ORDER. No restraining order or injunction of any court
which prevents consummation of the Merger shall be in effect.
5.4 NEW YORK STOCK EXCHANGE LISTING. The shares of Maximus Common Stock to
be issued in the Merger shall have been listed on the New York Stock Exchange.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC and there shall not be any stop
order in effect with respect to the Registration Statement.
5.6 HUMAN RESOURCES AGREEMENT. DMG and Maximus shall have executed a
mutually agreeable side agreement regarding the level of employee benefits to be
provided to employees of the Surviving Corporation.
SECTION 6 -- CONDITIONS PRECEDENT TO THE OBLIGATION OF
MAXIMUS TO CONSUMMATE THE MERGER
The obligation of Maximus to consummate the Merger is subject to the
satisfaction or waiver by Maximus, at or before the Effective Time, of the
following conditions:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of DMG contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time with the same force and effect
as though made on and as of the Effective Time (with such exceptions as may be
permitted under or contemplated by this Agreement, the DMG Disclosure Schedule).
DMG shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by them on or prior to the Effective Time. DMG shall have delivered to
Maximus a certificate, dated the Closing Date, to the foregoing effect, as
applicable.
6.2 AFFILIATE LETTERS. Maximus shall have received the Affiliate Letters
referred to in Section 4.15.
6.3 POOLING OF INTERESTS. Maximus shall have received a letter from
Maximus' accountants, Ernst & Young and a copy of a letter from DMG's
accountants, Grant Thornton, to DMG in each case expressing such accounting
firm's concurrence in Maximus management's assessment as to the appropriateness
of the treatment of the transactions contemplated herein under the pooling of
interests for accounting method.
6.4 SEC REPORTING. Ernst & Young shall have confirmed, to Maximus'
satisfaction, that DMG historical financial records are adequate to permit
Maximus to fulfill its SEC financial reporting obligations in connection with
Maximus' future registered financings without unreasonable effort or expense.
6.5 OPINION OF COUNSEL TO DMG. Maximus shall have received an opinion of
Baker & McKenzie, counsel to DMG, dated the Closing Date and in form and
substance reasonably acceptable to Maximus.
6.6 MERGER DOCUMENTS. DMG shall have executed and delivered the Merger
Documents referred to in Section 1.2.
A-26
<PAGE> 145
6.7 EMPLOYMENT AGREEMENTS. Maximus or the Surviving Corporation shall have
entered into an employment and non-competition agreement with such of employees
of DMG as Maximus has identified to DMG in writing prior to the date hereof, in
form and substance reasonably satisfactory to the parties thereto and provided
that Maximus shall provide to such persons employee and other benefits similar
to those provided to Maximus employees holding similar positions.
6.8 CONTINUATION OF EMPLOYEES. Maximus shall have reached understandings
reasonably satisfactory to it with the key personnel of DMG as Maximus has
identified in writing prior to the date hereof to continue their respective
employment with the Surviving Corporation after the Closing Date, on terms
acceptable to such individuals and Maximus.
6.9 AMENDMENT OF BENEFIT PLANS AND REPURCHASE OBLIGATIONS. DMG shall have
amended the DMG Employee Stock Ownership Plan and the DMG Money Purchase Pension
Plan to cease all benefit accruals thereunder as of the Closing Date and shall
have taken all actions necessary to effectuate such amendments, including,
without limitation, notice to interested parties under Section 204(h) of ERISA.
All obligations of DMG to repurchase outstanding shares of DMG Stock shall, to
the extent such obligations would otherwise survive the Merger and apply to
Maximus Common Stock, be terminated. In addition, DMG's Principal Executive
Officer Stock Purchase Program will be terminated, including all rights to
purchase stock thereunder.
6.10 DISSENTING SHARES AND REDEMPTION REQUESTS. The Dissenting Shares of
Common Stock shall not exceed five percent (5%) of the shares of the DMG Common
Stock issued and outstanding on the Closing Date.
6.11 ESCROW AGREEMENT. The Escrow Agreement, substantially in the form
attached hereto as Exhibit A, shall have been executed and delivered by all
parties thereto.
6.12 BANK ACCOUNTS. DMG shall have delivered to Maximus documentation
necessary to change the authorized signatories for DMG's bank and brokerage
accounts as specified by Maximus.
6.13 CERTIFICATES. DMG shall have furnished Maximus with such certificates
of public officials as may be reasonably requested by Maximus.
SECTION 7 -- CONDITIONS PRECEDENT TO THE OBLIGATION OF
DMG TO CONSUMMATE THE MERGER
The obligation of DMG to consummate the Merger is subject to the
satisfaction or waiver by them, at or before the Effective Time, of the
following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Maximus contained in this Agreement shall be true and correct in
all material respects on and as of the Effective Time with the same force and
effect as though made on and as of the Effective Time (with such exceptions as
may be permitted under or contemplated by this Agreement). Maximus shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Effective Time. Maximus shall have delivered to DMG a
certificate, dated the Effective Time, to the foregoing effect.
7.2 VOTING AGREEMENT. Controlling stockholders of Maximus shall have
executed an agreement in which such stockholders covenant for a period of two
years commencing on the Effective Time to vote their shares of Maximus Common
Stock in favor of the election of Louis Chappuie to the Board of Directors of
Maximus.
7.3 OPINION OF COUNSEL TO MAXIMUS. DMG shall have received an opinion of
Palmer & Dodge LLP, counsel to Maximus, dated the Closing Date and in form and
substance reasonably acceptable to DMG.
7.4 CERTIFICATES. Maximus shall have furnished DMG with such certificates
of public officials as may be reasonably requested by DMG.
A-27
<PAGE> 146
SECTION 8 -- TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time on or prior
to the Closing Date, whether prior to or after approval by DMG's shareholders,
as follows:
(a) by DMG or Maximus if, without fault of the terminating party, the
Closing Date shall not have occurred on or before June 1, 1998, which date
may be extended by mutual consent of the parties;
(b) by DMG upon written notice to Maximus if any representation or
warranty of Maximus made herein was not true and correct in all material
respects when made or Maximus has materially breached any covenant
contained herein and has not cured such breach within thirty (30) business
days of receipt of written notice from DMG or by the Closing Date,
whichever occurs first;
(c) by Maximus upon written notice to DMG if any representation or
warranty made herein by DMG was not true and correct in all material
respects when made or DMG has materially breached any covenant contained
herein and has not cured such breach within thirty (30) business days of
receipt of written notice from Maximus or by the Closing Date, whichever
occurs first;
(d) by any party if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree or ruling shall have become final and nonappealable;
(e) by either Maximus or DMG if the DMG shareholders vote and fail to
approve the Merger as required by Illinois law;
(f) by Maximus if DMG's Board of Directors (i) fails to include in the
Proxy Statement its recommendation that DMG shareholders vote in favor of
the adoption of this Agreement or (ii) withdraws its recommendation that
shareholders vote in favor (other than in connection with exercising DMG's
rights to terminate this Agreement pursuant to subsection (b) or (d) of
this Section 8.1);
(g) automatically upon Maximus' request for and receipt of the payment
specified in Section 4.5; or
(h) at any time with the written consent of Maximus and DMG.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided in
Section 8.1, this Agreement shall forthwith become void and have no effect,
without further obligation on the part of any party, its directors, officers or
shareholders following the date of such termination, other than the provisions
of this Section 8.2, Section 4.8 relating to expenses and Section 4.14 relating
to publicity and confidentiality to the extent provided therein. Nothing
contained in Section 8.2 shall eliminate or reduce any party's liability to
another party for any breach of this Agreement occurring before such
termination.
SECTION 9 -- INDEMNIFICATION
9.1 SURVIVAL. Notwithstanding any right of any party to fully investigate
the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and the
Closing hereunder, and shall be indemnified subject to the limitations set forth
in Section 9.4. No person shall have a right to recovery against any party (or
any officer, director, employee or agent of a party) other than through the
exercise of the indemnification rights set forth in Sections 9.2 and 9.3, which
shall constitute the sole and exclusive remedy after the Closing Date for any
breach by a party of any representation, warranty or covenant contained herein
or in any certificate or other instrument delivered pursuant hereto.
9.2 OBLIGATION OF THE STOCKHOLDERS TO INDEMNIFY. Subsequent to the
Effective Time, each of the Stockholders, other than the DMG Employee Stock
Ownership Plan or the beneficiaries under the DMG
A-28
<PAGE> 147
Employee Stock Ownership Plan, shall, to the extent of such Stockholder's
interest in the Maximus Common Stock held pursuant to the Escrow Agreement,
indemnify and hold harmless Maximus (and its respective directors, officers,
employees, agents, affiliates and assigns) from and against all losses,
liabilities, damages, deficiencies, costs or expenses, including interest and
penalties imposed or assessed by any judicial or administrative body and
reasonable attorneys' fees, whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing pursuant to this Section 9 ("Losses") based upon, arising out of or
otherwise in respect of any inaccuracy in, or breach of, any representation,
warranty or covenant of DMG or a Stockholder contained herein or in any
certificate delivered pursuant hereto.
9.3 OBLIGATION OF MAXIMUS TO INDEMNIFY. Subsequent to the Effective Time,
Maximus agrees to indemnify and hold harmless the Stockholders (and their
respective directors, officers, employees, agents, affiliates and assigns) from
and against any Losses based upon, arising out of or otherwise in respect of any
inaccuracy in, or breach of, any representation, warranty or covenant of Maximus
or MAC contained herein or in any certificate delivered pursuant hereto.
9.4 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing, the
right to indemnification under this Section 9 shall be subject to the following
terms:
(a) No indemnification shall be payable pursuant to Section 9.2 or
Section 9.3 unless and until the amount of all claims for indemnification
pursuant to the applicable Section exceeds $150,000 in the aggregate,
whereupon indemnification pursuant to such Section shall be payable for all
such claims without any deduction.
(b) No indemnification shall be payable pursuant to Section 9.2 or
Section 9.3 if on the date of this Agreement the claiming party had actual
knowledge (as defined in Section 4.7) of the breach of representation,
warranty or covenant giving rise to such claim and such facts could
reasonably have been expected to give rise to the Loss in light of the
circumstances known to the claiming party on the date of this Agreement and
the claiming party failed to give notice thereof to the indemnified party
under Section 4.7.
(c) No indemnification shall be payable pursuant to Section 9.2 or
Section 9.3 after the earlier of one year after the Effective Time or the
date of the completion of the next audited financial statements of Maximus
after the Merger (the "Expiration Date"), except with respect to claims
made prior to the Expiration Date, but not resolved by the Expiration Date.
Subject to the foregoing, the representations and warranties contained
herein or in any certificate delivered pursuant hereto shall expire at the
close of business on the Expiration Date.
(d) All indemnification claims under Section 9.2 shall be satisfied in
full from the shares held pursuant to the Escrow Agreement and no person
shall have any right to recovery from any Stockholder. Without limitation
of the foregoing, the maximum liability of any Stockholder for any breach
of a representation, warranty or covenant of DMG shall be limited to those
shares of Maximus Common Stock in which such Stockholder has an interest
that are held pursuant to the Escrow Agreement.
(e) Maximus shall not be liable for Losses in any amount in excess of
$1,472,300, provided such limitation shall not apply to Maximus' obligation
to deliver the Merger Consideration and the payments under Sections 4.4 and
4.8.
(f) In determining the amount of any indemnity, there shall be taken
into account any tax benefit, insurance proceeds or other similar recovery
or offset realized, directly or indirectly, by the party to be indemnified.
9.5 NOTICE AND DEFENSE OF CLAIMS. Promptly after receipt of notice of any
claim, liability or expense for which a party seeks indemnification hereunder,
such party shall give written notice thereof to the indemnifying party, but such
notification shall not be a condition to indemnification hereunder except to the
extent notice is not provided prior to the Expiration Date as contemplated by
Section 9.4(c) or in the event of actual prejudice to the indemnifying party.
The notice shall state the information then available regarding the amount and
A-29
<PAGE> 148
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. With respect to third party claims, if within 30 days after receiving
such notice the indemnifying party gives written notice to the indemnified party
stating that it intends to defend against such claim, liability or expense at
its own cost and expense, then defense of such matter, including selection of
counsel (subject to the consent of the indemnified party which consent shall not
be unreasonably withheld), shall be by the indemnifying party and the
indemnified party shall make no payment on such claim, liability or expense as
long as the indemnifying party is conducting a good faith and diligent defense.
Notwithstanding the foregoing, the indemnified party shall at all times have the
right to fully participate in such defense at its own expense directly or
through counsel; provided, however, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the indemnified party shall be paid by the indemnifying party. If no such
notice of intent to dispute and defend is given by the indemnifying party, or if
such diligent good faith defense is not being or ceases to be conducted, the
indemnified party shall, at the expense of the indemnifying party, undertake the
defense of such claim, liability or expense with counsel selected by the
indemnified party, and shall have the right to compromise or settle the same
exercising reasonable business judgment. The indemnified party shall make
available all information and assistance that the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense.
SECTION 10 -- MISCELLANEOUS
10.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(i) if to Maximus, to:
MAXIMUS, Inc.
36 Washington Street, Suite 320
Wellesley Hills, MA 02181
Attn: Raymond Ruddy
Tel: (617) 431-2212
Fax: (617) 431-1319
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Lynnette C. Fallon, Esq.
Tel: (617) 573-0220
Fax: (617) 227-4420
(ii) if to DMG, to:
David M. Griffith & Associates, Ltd.
Corporate Headquarters
630 Dundee Rd., Suite 200
Northbrook, IL 60062
Attn: Louis E. Chappuie, President
Tel: (847) 564-9270
Fax: (847) 564-9136
A-30
<PAGE> 149
with a copy to:
Baker & McKenzie
One Prudential Plaza
130 East Randolph Drive
Chicago, IL 60601
Attn: Robert C. Knuepfer, Esq.
Tel: (312) 861-8913
Fax: (312) 861-2898
Any party may by notice given in accordance with this Section 10.1 to the other
parties designate another address or person for receipt of notices hereunder.
10.2 AMENDMENT. This Agreement may not be amended except by an instrument
signed by each party hereto.
10.3 WAIVER. At any time prior to the Effective Time, any party hereto
may, (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party.
10.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the Merger and related transactions, and supersedes
all prior agreements, written or oral, with respect thereto.
10.5 GOVERNING LAW. This Agreement is governed by the laws of the State of
Delaware without regard to its conflict of law provisions, except to the extent
that the laws of Illinois apply to the Merger and the rights of DMG shareholders
relative to the Merger.
10.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable without the prior written
consent of the other parties hereto.
10.7 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
10.9 EXHIBITS AND DISCLOSURE SCHEDULES. The Exhibits and Disclosure
Schedules are a part of this Agreement as if fully set forth herein.
A-31
<PAGE> 150
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first stated above.
MAXIMUS, INC.
By /s/ DAVID V. MASTRAN
------------------------------------
Name: David V. Mastran
Title: President
MAXIMUS ACQUISITION CORP.
By /s/ DAVID V. MASTRAN
------------------------------------
Name: David V. Mastran
Title: President
DAVID M. GRIFFITH & ASSOCIATES, LTD.
By /s/ LOUIS E. CHAPPUIE
------------------------------------
Name: Louis E. Chappuie
Title: President
A-32
<PAGE> 151
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into on , 1998 by and
among MAXIMUS, Inc., a Virginia corporation ("Maximus"), David M. Griffith &
Associates, Ltd. ("DMG") and (the "Escrow Agent").
WHEREAS, Maximus, MAXIMUS Acquisition Corporation ("Acquisition") and DMG
have entered into an Agreement and Plan of Merger dated March 9, 1998 (the
"Merger Agreement"), providing for the merger of Acquisition into DMG;
WHEREAS, pursuant to the Merger Agreement, the stockholders of DMG other
than the DMG Employee Stock Ownership Plan or the beneficiaries thereunder (the
"Stockholders") have indemnified Maximus for certain losses;
WHEREAS, the Merger Agreement provides that a certain number of shares of
Maximus common stock to be issued in the closing under the Merger Agreement
shall be held in escrow as partial security for the Stockholders' indemnity
obligations to Maximus;
WHEREAS, Maximus and the Stockholders desire to designate the Escrow Agent
as the escrow agent under this Agreement and the Escrow Agent is willing to
accept such designation.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Agreement, the parties agree as follows:
1. DESIGNATION OF ESCROW AGENT. Maximus and the Stockholders hereby
appoint the Escrow Agent to act as escrow agent in accordance with the terms of
this Agreement, and the Escrow Agent hereby accepts such appointment and agrees
to act in such capacity.
2. ESTABLISHMENT OF ESCROW FUND.
2.1. Maximus deposited or caused or will cause to be deposited in escrow
with the Escrow Agent (i) certificates evidencing 5% of the Merger Consideration
(as defined in the Merger Agreement), rounded to the nearest whole shares,
deducted on a pro rata basis from the Merger Consideration otherwise due to the
Stockholders, together with any other securities deposited with the Escrow Agent
pursuant to Section 3, (the "Escrowed Securities") together with (ii) stock
powers endorsed in blank relating to the Escrowed Securities.
2.2. The Escrowed Securities shall, until such time as they may be
required, if at all, to be delivered hereunder to Maximus, remain registered in
the names of the Stockholders and the Stockholders shall be entitled to vote the
Escrowed Securities. During the term of this Agreement, the Stockholders shall
have no right to exercise control over the Escrowed Securities, except as
expressly provided herein. So long as the Escrowed Securities are held hereunder
by the Escrow Agent the same shall remain on the "stop-transfer list" maintained
by Maximus's transfer agent. The Escrowed Securities, the stock powers described
above in Section 2.1, and all products, proceeds, substitutions, additions,
interest, dividends, and other distributions in respect thereto, as described in
Section 3 below less any distributions to Maximus in accordance with this
Agreement, are collectively referred to hereinafter as the "Escrowed Property".
2.3. The Escrow Agent hereby acknowledges receipt of the Escrowed Property
and agrees to hold and dispose of the Escrowed Property in accordance with the
provisions of this Agreement.
3. CASH DIVIDENDS, STOCK DIVIDENDS, DISTRIBUTIONS, ETC. If, while this
Agreement is in effect, the Stockholders shall become entitled to receive or
shall receive:
(a) any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection
with any reclassification, increase or reduction of capital, or issued in
connection with any reorganization or merger of Maximus or any successor),
option or rights, whether as an addition to, in substitution of or in
exchange for any of the Escrowed Securities, or otherwise;
A-33
<PAGE> 152
(b) any cash dividends paid in respect of the Escrowed Securities;
(c) any sums payable upon or in respect of the Escrowed Securities
upon the liquidation or dissolution of Maximus or any other issuer thereof;
or
(d) any distribution of capital on or in respect of the Escrowed
Securities or any property distributed upon or with respect to the Escrowed
Securities pursuant to the recapitalization or reclassification of the
capital of the issuer thereof or pursuant to the reorganization thereof;
then the securities, certificates, cash or other property received or as to
which the Stockholders are entitled to receive shall be delivered to the Escrow
Agent as part of the Escrowed Property.
4. ADMINISTRATION OF ESCROW FUND. The Escrow Agent shall pay, promptly
upon receipt thereof, to the Stockholders any cash dividends received by the
Escrow Agent in respect to Escrowed Securities or other securities deposited
hereunder. In the event that all or part of the Escrowed Property is converted
by virtue of a merger or sale of Maximus or similar transaction, to cash
property, the Escrow Agent shall keep the cash portion of the Escrowed Property
invested and reinvested from time to time in (i) direct obligations of, or
repurchase agreements collateralized by direct obligations of the United States
or agencies or instrumentalities thereof, or (ii) certificates of deposit, time
deposits or other interest bearing deposits of commercial banks having total
capital and surplus of not less than $100,000,000. All income from such
investment funds received by the Escrow Agent shall be paid no less often than
quarterly to the Stockholders for which Escrowed Property includes income
bearing cash or cash equivalents.
5. NOTICES TO ESCROW AGENT. A party seeking indemnification under the
Merger Agreement shall give prompt notice to the Escrow Agent of any claim
pursuant to Section 9.5 of the Merger Agreement.
6. DELIVERY OF ESCROWED PROPERTY. The Escrow Agent is hereby directed to
deliver the Escrowed Property as follows:
6.1. If at any time the Escrow Agent receives a joint written instrument
signed by Maximus and the Stockholders holding a majority of the Escrowed
Securities instructing the Escrow Agent as to the disposition of all or any
portion of the Escrowed Property, the Escrow Agent shall deliver the Escrowed
Property in accordance with such joint written instructions.
6.2. On the earlier of (i) the first anniversary of the Effective Time (as
defined in the Merger Agreement), or (ii) the date of the completion of the next
audited financial statements of Maximus after the Merger (the "Expiration
Date"), the Escrow Agent shall redeliver such Escrowed Property held by the
Escrow Agent to the Stockholders, provided that in the event that the Escrow
Agent has received notice pursuant to Section 5 above made prior to the
Expiration Date, but not resolved by the Expiration Date, the Escrow Agent shall
retain and continue to hold in escrow the Escrowed Property having a value not
unreasonably grater than the amount of the indemnification claim for which
notice had been received.
6.3. Any portion of the Escrowed Property retained by the Escrow Agent
after the earlier of (i) the first anniversary of the Effective Time or (ii) the
Expiration Date, shall continue to be so retained until such time or times as
the Escrow Agent shall receive (1) a joint written instrument signed by Maximus
and the Stockholders in which case the Escrow Agent shall proceed in accordance
with such joint written instruction, or (2) notice that a judgement, order or
decree has been entered or made by any court affecting the Escrowed Property
which in the opinion of legal counsel chosen by the Escrow Agent is binding upon
the Escrow Agent and not subject to further appeal or modification before
compliance is required therewith, in which case the Escrow Agent shall comply
with such judgment, order or decree.
6.4. In satisfying the indemnity obligations of the Stockholders, Escrowed
Securities shall be valued at the mean of the closing prices of the Common Stock
of Maximus on The New York Stock Exchange, as reported in The Wall Street
Journal, averaged over the period of twenty (20) trading days ending on the
fifth trading day prior to the date of delivery to Maximus. To the extent that
the Escrowed Property contains securities other than Maximus Common Stock, such
securities shall be valued in an manner as near as possible to the manner
described in the foregoing sentence, provided, however, that if such securities
are not
A-34
<PAGE> 153
publicly traded, they shall have the value ascribed to them in good faith by the
Board of Directors of the issuer of such securities.
7. PAYMENT TO ESCROW AGENT. The Escrow Agent shall be entitled to receive
such a fee of $ [and reimbursement for its reasonable expenses for
postage, check issuance, legal fees, if any, and other similar expenses incurred
in connection with the performance of its duties hereunder], and Maximus shall
pay such fees and expenses.
8. DUTIES OF ESCROW AGENT; INDEMNITY. It is understood and agreed,
further, that the Escrow Agent shall:
(a) be under no duty to enforce payment of any check, draft or other
document which is to be delivered to or held by it hereunder;
(b) be protected in acting upon any notice, request, certificate, approval,
consent or other paper believed by it to be genuine and to be signed by the
proper party or parties;
(c) be indemnified by Maximus and the Stockholders against any claim made
against it by reason of its acting or failing to act in connection with any of
the transactions contemplated hereby and against any loss it may sustain in
carrying out the terms of this Agreement, including the reasonable fees of
counsel, except such claims or losses which arise out of or are occasioned by
its bad faith, gross negligence or misconduct;
(d) be permitted to consult with counsel of its choice, and the Escrow Agent
shall not be liable for any action taken, suffered or permitted by it in
accordance with the advice of such counsel provided, however, that nothing
contained in this Section 8(d), nor any action taken by the Escrow Agent, or
suffered or omitted by it in accordance with the advice of such counsel, shall
relieve the Escrow Agent from liability for any claims or losses which arise
out of or are occasioned by its bad faith, gross negligence or misconduct, all
as provided in Section 8(c);
(e) not be bound by any modification, amendment, termination, cancellation,
rescission or supersession of this Agreement, unless the same shall be in
writing and signed by Maximus and the Stockholders;
(f) be entitled to refrain from taking any action other than to keep all
funds deposited with it and documents held by it in escrow until it shall be
directed otherwise in writing by Maximus and the Stockholders or by a final
order or judgment of a court of competent jurisdiction, if it shall be
uncertain concerning its duties or rights hereunder or shall have received
instructions, claims or demands from Maximus and the Stockholders which, in
its opinion, are in conflict with any of the provisions of this Agreement;
(g) have no liability for following the instructions herein contained or
expressly provided for, or written instructions given by Maximus and the
Stockholders; and
(h) have the right, at any time, to resign hereunder by giving written
notice of its resignation to Maximus and the Stockholders at least ten
business days prior to the date specified for such resignation to take effect
and, upon the effective date of such resignation, all Escrowed Property shall
be delivered by it to such person as may be designated in writing by Maximus
and the Stockholders, whereupon the Escrow Agent's obligations hereunder shall
cease and terminate. If no such person has been so designated by such date all
obligations of the Escrow Agent shall, nevertheless, cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely all
funds and documents then held by it and to deliver the same to a person
designated by Maximus and the Stockholders or in accordance with a final order
or judgment of a court of competent jurisdiction.
9. MISCELLANEOUS.
9.1. No Rights in Third Parties. The escrow provided for in this Agreement
shall be for the exclusive benefit of Maximus and Stockholders and their
successors and assigns, and no other person, firm or organization, other than
the Stockholders, shall have any right, title or interest hereunder. Any claim
of any other person, firm or organization to the Escrowed Property, or any part
thereof, shall be subject and subordinate to the prior rights and lien of
Maximus under the terms of this Agreement.
A-35
<PAGE> 154
9.2. Jurisdiction. The parties hereto hereby irrevocably submit, in any
action, suit or proceeding arising out of or relating to this Agreement, to the
jurisdiction of the United States District Court for the District of
and the jurisdiction of any court of the State of located in the State
of and waive any and all objections to jurisdiction that they may have
under the laws of the State of .
9.3. Governing Law. This Agreement shall be governed, and its provision
constructed in accordance with the laws of the State of .
9.4. Notice. All notices, orders instructions, certificates and other
communications relating to this Agreement shall be in writing and shall be
deemed sufficiently given when delivered or when mailed, certified mail, postage
prepaid to the party for whom intended, in the case of Maximus to the address
set forth in the Merger Agreement, in the case of the Stockholders to their
addresses as shown in the stock records of DMG, and in the case of the Escrow
Agent, at the following address:
[Address]
with a copy to:
[Address]
9.5. Counterparts. This Agreement may be executed in two or more
counterparts, but in such event each counterpart shall constitute an original
and all such counterparts shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
MAXIMUS, INC.
By:
Name:
Title:
DAVID M. GRIFFITH & ASSOCIATES, LTD.
By:
Name:
Title:
[ESCROW AGENT]
By:
Name:
Title:
A-36
<PAGE> 155
EXHIBIT B
AFFILIATE LETTER
, 1998
MAXIMUS, Inc.
1356 Beverly Road
McLean, VA 22101
Ladies and Gentlemen:
Pursuant to the Agreement and Plan of Merger dated as of March 9, 1998 (the
"Agreement") among MAXIMUS, Inc. ("MAXIMUS"), a Virginia corporation, MAXIMUS
Acquisition Corporation ("Acquisition"), a Delaware corporation and wholly owned
subsidiary of MAXIMUS and David M. Griffith & Associates, Ltd. ("DMG"), an
Illinois corporation, providing for the merger of Acquisition into DMG (the
"Merger"), the undersigned will receive shares of common stock, no par value, of
MAXIMUS (such shares, together with any securities which may be paid as a
dividend or otherwise issued or delivered in exchange or substitution therefor,
hereinafter collectively referred to as the "MAXIMUS Shares") in exchange for
the shares of common stock, $0.10 par value, of DMG (the "DMG Shares") owned by
the undersigned in accordance with Section 1 of the Agreement. The undersigned
has been advised that as of the date the Merger is submitted to stockholders of
DMG for approval, the undersigned may be an "affiliate" of DMG, as the term is
defined for purposes of paragraph (c) of Rule 145 of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"),
although nothing contained herein shall be construed as an admission of such
fact.
A. In connection therewith, the undersigned represents, warrants and agrees
that:
1. The undersigned has not engaged in any sale, exchange, transfer,
pledge, disposition or any other transaction which would result in a
reduction in the risk of ownership (any such transaction, a "Sale") with
respect to the DMG Shares owned by the undersigned during the 30 days prior
to the effective date of the Merger.
2. The undersigned has no current plan or intent to engage in any
Related Party Sale (as defined below) with respect to more than 50% of the
MAXIMUS Shares to be received by the undersigned pursuant to the plan of
reorganization evidenced by the Agreement. The undersigned knows of no plan
(written or oral) pursuant to which the holders of shares of capital stock
of DMG intend to engage in Related Party Sales of a number of the MAXIMUS
Shares to be received in the Merger which would, in the aggregate,
constitute more than 50% of the value of the DMG capital stock. A Related
Party Sale is any Sale to MAXIMUS, for consideration other than MAXIMUS
Shares. In addition, if a Sale occurs with respect to DMG Shares, for
consideration other than shares of capital stock of MAXIMUS or DMG, in a
transaction that is in contemplation of, or related or pursuant to, the
Agreement, and the Sale is with DMG or MAXIMUS, such Sale of DMG Shares
shall be treated as if the DMG Shares were exchanged for the MAXIMUS Shares
pursuant to the plan of reorganization and the MAXIMUS Shares were then
disposed of in a Related Party Sale pursuant to a plan. Further, for
purposes of determining whether a Related Party Sale has occurred, a Sale
to a partnership shall be treated as a Sale to each partner of the
partnership, in proportion to that partner's interest in the partnership.
3. The undersigned shall not engage in any Sale of the MAXIMUS Shares
until after such time as MAXIMUS has published financial results covering
at least 30 days of combined operations after the effective date of the
Merger. The undersigned understands that the certificates representing the
MAXIMUS Shares received by the undersigned will be placed on the
"stop-transfer list" maintained by MAXIMUS's transfer agent and will remain
so listed until the publication of such financial results and
A-37
<PAGE> 156
until the provisions of Paragraph C.2. hereof have been satisfied.
4. The undersigned shall not engage in any Sale of the MAXIMUS Shares
in violation of the registration requirements of the Act or the rules and
regulations of the SEC thereunder.
5. The undersigned has been advised that the issuance of the MAXIMUS
Shares to the undersigned pursuant to the Merger has been registered under
the Act on a registration statement on Form S-4. However, the undersigned
has also been advised that if the undersigned is in fact an "affiliate" of
DMG at the time the Merger was submitted for a vote of the stockholders of
DMG and the distribution by the undersigned of the MAXIMUS Shares has not
been registered under the Act, Rule 145 under the Act will restrict the
undersigned's sales of MAXIMUS Shares received in the Merger. The
undersigned will not sell or otherwise dispose of any MAXIMUS Shares,
except pursuant to Rule 145(d) under the Act, an effective registration
statement under the Act or exemption from the registration requirements
under the Act (provided that the undersigned may make bona fide gifts or
distributions (including, if applicable, to the limited partners of the
undersigned) without consideration so long as the recipients thereof agree
not to sell, transfer or otherwise dispose of MAXIMUS Shares except as
provided herein).
6. The undersigned has carefully read this letter and the Agreement
and has discussed the requirements of each and the limitations upon the
disposition of the MAXIMUS Shares received by the undersigned, to the
extent deemed necessary, with the undersigned's counsel or with counsel for
DMG.
B. The undersigned understands and agrees that:
1. Except as provided in A.5. above, MAXIMUS is under no further
obligation to register the sale, transfer or other disposition of the
MAXIMUS Shares, to be received by the undersigned or, except as provided in
paragraph C.1. below, to take any action necessary in order to make an
exemption from registration available.
2. Stop transfer instructions will be given to the transfer agent of
MAXIMUS with respect to the MAXIMUS Shares the undersigned will receive,
and there will be placed on the certificate representing such stock, or any
certificates delivered in substitution therefor, a legend stating in
substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH RULE 145(D) OR AN EFFECTIVE
REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
3. Unless the transfer by the undersigned of the MAXIMUS Shares is a
sale made in conformity with the provisions of Rule 145(d), or made
pursuant to a registration statement under the Act, MAXIMUS reserves the
right to put an appropriate legend on the certificates issued to a
transferee.
4. This agreement shall be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees, devisees and
successors of the undersigned and any pledgee holding MAXIMUS Shares as
collateral.
C. MAXIMUS represents and agrees as follows:
1. For so long as and to the extent necessary to permit the
undersigned to sell the MAXIMUS Shares pursuant to Rule 145 and, to the
extent applicable, Rule 144 under the Act, MAXIMUS shall use its best
efforts to file, on a timely basis, all reports and data required to be
filed with the SEC by it pursuant to Section 13 of the Securities Exchange
Act of 1934 (the "1934 Act") so long as it is subject to such requirement,
furnish to the undersigned upon request a written statement as to whether
MAXIMUS has complied with such reporting requirements during the 12 months
preceding any proposed sale under Rule 145 and otherwise use its reasonable
best efforts to permit such sales pursuant to Rule 145 and Rule 144.
MAXIMUS has filed all reports required to be filed with the SEC under
Section 13 of the 1934 Act during the preceding 12 months.
A-38
<PAGE> 157
2. MAXIMUS agrees that, subject to Paragraph A.3. hereof, the stop
transfer instructions and legends referred to above shall be terminated or
removed if the undersigned shall have delivered to MAXIMUS a copy of a
letter from the staff of the SEC, an opinion of counsel in form and
substance satisfactory to MAXIMUS or other evidence satisfactory to
MAXIMUS, to the effect that such instructions and legends are not required
for the purposes of the Act.
Very truly yours,
--------------------------------------
Accepted this day of
, 1998 by
MAXIMUS, INC.
By:
- ------------------------------------
Title:
A-39
<PAGE> 158
APPENDIX B -- THE TEXT OF SECTIONS 11.65 AND 11.70 OF
THE ILLINOIS BUSINESS CORPORATION ACT
B-1
<PAGE> 159
APPENDIX B
ILLINOIS BUSINESS CORPORATION ACT
5/11.65 RIGHT TO DISSENT.--(a) A shareholder of a corporation is entitled
to dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right to respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
recorded in the names of different shareholders. A beneficial owner of shares
who is not the record owner may assert dissenters' rights as to shares held on
such person's behalf only if the beneficial owner submits to the corporation the
record owner's written consent to the dissent before or at the same time the
beneficial owners asserts dissenter's rights.
5/11.70 PROCEDURE TO DISSENT.--(a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the notice
of meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a
B-2
<PAGE> 160
shareholder may assert dissenter's rights only if he or she delivers to the
corporation within 30 days from the date of mailing the notice a written demand
for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
B-3
<PAGE> 161
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
B-4
<PAGE> 162
APPENDIX C -- OPINION OF WILLAMETTE MANAGEMENT ASSOCIATES, INC.
TO THE TRUSTEE OF THE GRIFFITH EMPLOYEE
STOCK OWNERSHIP PLAN
C-1
<PAGE> 163
APPENDIX C
February 16, 1998
Cole Taylor Bank
Trustee of the David M. Griffith & Associates, Ltd.
Employee Stock Ownership Plan
850 West Jackson Blvd., 8th Floor
Chicago, Illinois 60607
Dear Trustee:
Willamette Management Associates ("Willamette") has been retained by Cole
Taylor Bank (the "Trustee") as trustee of the David M. Griffith & Associates,
Ltd. ("DMG" or the "Company") Employee Stock Ownership Trust, which forms a part
of and implements the DMG Employee Stock Ownership Plan (the "ESOP"), to
determine, among other things, whether the proposed transaction described below
is fair to the ESOP from a financial point of view. Except as otherwise noted
herein, capitalized terms used in this letter are defined as set forth in the
January 14, 1998 draft of the Agreement and Plan of Merger between Maximus,
Inc., Maximus Acquisition Corp., David M. Griffith & Associates, Inc. and the
Principal Shareholders of David M. Griffith & Associates, Inc. (the "Draft
Merger Agreement").
Pursuant to the Draft Merger Agreement which Maximus will purchase 100
percent of DMG for $29.9 million in Maximus common stock and assume certain of
DMG's liabilities (the "Transaction"). In our capacity as your independent
financial advisor, you have specifically asked us to render a written opinion
(the "Opinion") as to whether:
1. the consideration to be received by the ESOP for its common stock
pursuant to the Transaction is at least equal to the fair market value
of such shares; and
2. the terms and conditions of the Transaction are fair to the ESOP from
a financial point of view.
In undertaking our engagement, our focus was directed to the valuation
issues arising from ERISA Section 3(18) which defines the term "adequate
consideration" as the fair market value of an asset determined by a fiduciary in
good faith. Pursuant to the Department of Labor Proposed Regulation Section
25103-18(b)(2), fair market value is defined as the price at which an asset
would change hands between a willing buyer and a willing seller when the former
is not under any compulsion to buy and the latter is not under any compulsion to
sell, both parties are able, as well as willing, to trade and are well informed
about the asset and the market for that asset.
Willamette is one of the nation's leading independent financial advisory
and business valuation firms. Willamette's principal business is the valuation
of businesses and business interests, including both privately-held and publicly
traded companies, for all purposes, including employee stock ownership plans,
mergers and acquisitions, divestitures, public offerings, gift and estate taxes,
corporate and partnership recapitalizations, dissolutions and other objectives.
Willamette has provided ESOP valuations for over 200 clients. Willamette is
independent of parties to the Transaction (other than the ESOP) within the
meaning of proposed regulation 29 CFR 25103-18(b) issued by the U.S. Department
of Labor and Section 401 (a)(28)(C) of the Internal Revenue Code of 1986, as
amended.
David M. Griffith & Associates, Ltd. was incorporated in 1976 and has
focused its resources solely on the needs of public sector and non-for-profit
entities. The Company offers a broad range of consulting products, each tailored
to the needs of the client. Products include: Cost Allocation Plans and Indirect
Cost Rate Proposals, Human Resources Consulting, Activity Based Coasting,
Executive Recruitment, Operational Reviews and Audits, Disaster Grants
Management and Higher Education Consulting.
In connection with this Opinion, we have made such reviews, analyses, and
inquiries as we deemed necessary and appropriate under the circumstances. We
visited DMG's headquarters in Northbrook, Illinois,
C-2
<PAGE> 164
and held discussions with executive management. In addition, we reviewed, among
other things (i) DMG's audited financial statements for the fiscal years ending
December 31, 1992 through 1996, and unaudited interim financial statements for
the fiscal year ending December 31, 1997; (ii) corporate projections for the
fiscal year ending 1998; (iii) the Draft Merger Agreement; (iv) ESOP valuations
of DMG as of May 22, 1996, May 24, 1995 and September 13, 1993 by Duff & Phelps
Financial Co.; (v) DMG articles of incorporation and by-laws; (vi) Maximus, Inc.
SEC reports including the S-1 and the September 30, 1997 10-K; (vii) Duff &
Phelps presentation to David M. Griffith Board of Directors dated September 30,
1997 10-K; (viii) various investment bank's research reports on Maximus, Inc.
(ix) certain publicly available information and financial data on publicly
traded companies similar to DMG; and (x) conducted additional studies, analyses,
and investigations as we deemed appropriate.
Although our thorough discussions with management and review of supporting
documentation give us comfort that our due diligence efforts are appropriate, we
have not conducted a physical examination of all DMG's properties or facilities
and we have not obtained or been provided with any independent formal evaluation
of such properties and facilities. We have reviewed the financial information
and other internal data provided to us and other publicly available information,
and while we are unable to verify the accuracy and completeness of such data and
information, we have judged the reasonableness thereof and made certain
adjustments thereto. Our Opinion is necessarily based upon market, economic, and
other conditions as they exist on, and can be evaluated as of the date of this
letter.
Management has represented to us that there has been no material adverse
change in the business, financial position, or results of operations of DMG
since September 30, 1997.
Based on the foregoing, and assuming the Transaction closed today, it is
our opinion that:
1. the consideration to be received by the ESOP for its common stock is
not less than the fair market value of such shares; and
2. the terms and conditions of the Transaction are fair to the ESOP from
a financial point of view.
This Opinion is solely for the use and benefit of the Administrative
Committee, and any summary of or reference to the Opinion or any other reference
to Willamette by DMG in connection with the Transaction will be subject to
Willamette's prior review and written approval, which shall not be unreasonably
withheld; provided, however, that the law firm of Seyfarth, Shaw, Fairweather &
Geraldson is granted permission to rely on this letter solely in connection with
the various legal opinions which it is rendering with respect to this
Transaction. The Opinion will not be included in, summarized, or referred to in
any manner in materials distributed to the public or potential investors of DMG
without Willamette's prior written consent, which shall not be unreasonably
withheld.
In accordance with recognized professional ethics, our professional fees
for this service are not contingent upon the opinion expressed herein, and
neither Willamette, nor any of its employees, has a present or intended
financial relationship with or interest in DMG.
Very truly yours,
WILLAMETTE MANAGEMENT ASSOCIATES
C-3
<PAGE> 165
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
MAXIMUS's Amended and Restated Articles of Incorporation provide that
MAXIMUS'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 MAXIMUS and as shall be
permitted by law.
Sections 13.1-697 and 13.1-702 of the VSCA permit MAXIMUS to indemnify an
individual made party to a proceeding because he was a director, officer,
employee or agent of MAXIMUS 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 MAXIMUS's best interests, or, in
all other cases, that such conduct was at least not opposed to the MAXIMUS'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 MAXIMUS in which the individual is adjudged liable to MAXIMUS, 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, MAXIMUS 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.
MAXIMUS 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 MAXIMUS.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2 Agreement and Plan of Merger dated March 9, 1998, by and
between MAXIMUS, Inc., Maximus Acquisition Corp., and David
M. Griffith and Associates, Ltd. Included as Appendix A to
the Prospectus/Proxy Statement, which is part of this
Registration Statement.
3.1 Amended and Restated Articles of Incorporation of MAXIMUS,
Inc.(1)
3.2 Amended and Restated By-laws of MAXIMUS, Inc.(1)
5 Opinion of Palmer & Dodge LLP. Filed herewith.
10.1 1997 Equity Incentive Plan.(2)
10.2 1997 Director Stock Option Plan.(2)
10.3 1997 Employee Stock Purchase Plan.(2)
10.4 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and David
V. Mastran.(2)
10.5 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and
Raymond B. Ruddy.(2)
10.6 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and
Russell A. Beliveau.(2)
10.7 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and Susan
D. Pepin.(2)
10.8 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and Ilene
R. Baylinson.(2)
10.9 Executive Employment, Non-Compete, Confidentiality and Stock
Restriction Agreement by and between MAXIMUS, Inc. and Lynn
P. Davenport.(2)
</TABLE>
II-1
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.10 Form of Indemnification Agreement by and between MAXIMUS,
Inc. and each of the directors of MAXIMUS, Inc.(2)
10.11.1 Letter Agreement dated June 29, 1995, as amended by the
Letter Amendment dated April 10, 1996, between MAXIMUS, Inc.
and Crestar Bank with respect to a $10 million line of
credit.(3)
10.11.2 Commercial Note, dated September 30, 1997, in the amount of
$10 million, issued by MAXIMUS to Crestar Bank.(3)
10.12 California Options Project Contract, dated October 1, 1996,
by and between MAXIMUS, Inc. and the Department of Health
Services of the State of California.(2)
11 Statement Re Computation of Net Income Per Share. Filed
herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed
herewith.
23.2 Consent of Grant Thornton LLP, independent auditors. Filed
herewith.
24 Power of Attorney. Contained on the signature page hereto.
27.1 Financial Data Schedule for fiscal year ended September 30,
1995. Filed herewith.
27.2 Financial Data Schedule for fiscal year ended September 30,
1996. Filed herewith.
27.3 Financial Data Schedule for fiscal year ended September 30,
1997. Filed herewith.
27.4 Financial Data Schedule for three months ended December 31,
1996. Filed herewith.
27.5 Financial Data Schedule for three months ended December 31,
1997. Filed herewith.
</TABLE>
- ---------------
(1) Filed as an exhibit to MAXIMUS's Quarterly Report on From 10-Q for the
quarter ended June 30, 1997 (File No. 1-12997) on August 14, 1997, and
incorporated herein by reference.
(2) Filed as an exhibit to the MAXIMUS's Registration Statement on Form S-1
(File No. 333-21611) declared effective on June 12, 1997, and incorporated
herein by reference.
(3) Filed as an exhibit to MAXIMUS's Annual Report on Form 10-K for the year
ended September 30, 1997 (File No. 1-12997) on December 12, 1997, and
incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
Not required.
ITEM 22. UNDERTAKINGS
(a) MAXIMUS hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment 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.
(b) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
<PAGE> 167
(2) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (b)(1) and (b)(2) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by MAXIMUS pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in this Registration Statement.
(c) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(d) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
MAXIMUS pursuant to the foregoing provisions, or otherwise, MAXIMUS has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by MAXIMUS of expenses incurred or paid
by a director, officer or controlling person of MAXIMUS 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,
MAXIMUS will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(f) MAXIMUS hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of MAXIMUS's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement 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.
(g) MAXIMUS hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11
or 13 of this Form within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
(h) MAXIMUS hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, Commonwealth of Virginia, on March 30, 1998.
MAXIMUS, INC.
/s/ DAVID V. MASTRAN
By:
--------------------------------------
David V. Mastran, President
POWER OF ATTORNEY
We, the undersigned officers and directors of MAXIMUS, Inc., hereby
severally constitute and appoint David V. Mastran, Raymond B. Ruddy, F. Arthur
Nerret and Lynnette C. Fallon, and each of them singly, our true and lawful
attorneys, with full power to them in any and all capacitates, to sign any
amendments to this Registration Statement on Form S-4 (including Pre-and
Post-Effective Amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID V. MASTRAN President, Chief Executive Officer and March 30, 1998
- --------------------------------------------- Director (Principal Executive Officer)
David V. Mastran
/s/ RAYMOND B. RUDDY Chairman of the Board of Directors March 30, 1998
- ---------------------------------------------
Raymond B. Ruddy
/s/ F. ARTHUR NERRET Chief Financial Officer (Principal March 30, 1998
- --------------------------------------------- Financial and Accounting Officer)
F. Arthur Nerret
Director March , 1998
- ---------------------------------------------
Russell A. Beliveau
/s/ JESSE BROWN Director March 30, 1998
- ---------------------------------------------
Jesse Brown
/s/ LYNN P. DAVENPORT Director March 30, 1998
- ---------------------------------------------
Lynn P. Davenport
/s/ PETER POND Director March 30, 1998
- ---------------------------------------------
Peter Pond
</TABLE>
II-4
<PAGE> 169
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. MUZZIO Director March 30, 1998
- ---------------------------------------------
Robert J. Muzzio
/s/ SUSAN D. PEPIN Director March 30, 1998
- ---------------------------------------------
Susan D. Pepin
</TABLE>
II-5
<PAGE> 170
DAVID M. GRIFFITH & ASSOCIATES, LTD.
630 DUNDEE ROAD, SUITE 200
NORTHBROOK, ILLINOIS 60062
(847) 564-9270
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Louis E. Chappuie and Jerrold Wolf, and
each of them, the true and lawful attorneys and proxies, with full power of
substitution in the name, place and stead of the undersigned to vote at a
Special Meeting of Shareholders (the "Meeting") of David M. Griffith &
Associates, Ltd. (the "Company") to be held on
, 1998, or at any adjournment or postponement thereof, in
the manner designated below, all of the shares of the Company's common stock
that the undersigned would be entitled to vote if personally present upon the
following matters.
1. Proposal to approve the acquisition of the Company by MAXIMUS, Inc.
("MAXIMUS") pursuant to the Merger Agreement dated as of March 9, 1998, a
copy of which has been distributed to all Company Shareholders, under which
the Company Shareholders would receive shares of MAXIMUS common stock in
exchange for each of the shares of Company common stock held by the Company
Shareholders and the Company would become a wholly-owned subsidiary of
MAXIMUS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, upon such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
[NAME OF SHAREHOLDER]
Please sign and date as your name
appears at the left and return in the
enclosed envelope. When shares are
held subject to community property
laws, both spouses should sign. When
signing as an attorney, executor,
administrator, trustee, guardian, or
corporate officer, please indicate the
capacity in which signing.
Date: ________________________ , 1998
--------------------------------------
Signature
<PAGE> 1
EXHIBIT 5
PALMER & DODGE LLP
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
April 2, 1998
MAXIMUS, Inc.
1356 Beverly Road
McLean, VA 22101
We are rendering this opinion in connection with the Registration Statement
on Form S-4 (the "Registration Statement") filed by MAXIMUS, Inc. (the
"Company") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, on or about the date hereof. The Registration Statement
relates to 1,166,179 shares of the Company's Common Stock, no par value (the
"Shares"), to be issued in connection with the merger of MAXIMUS Acquisition
Corp. ("Merger Sub") with and into David M. Griffith & Associates, Ltd.
("Griffith") pursuant to an Agreement and Plan of Merger dated as of March 9,
1998 (the "Agreement") among the Company, Griffith and Merger Sub.
We have acted as your counsel in connection with the preparation of the
Registration Statement and are familiar with the proceedings taken by the
Company in connection with the authorization and issuance of the Shares. We have
examined such documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that upon issuance in
accordance with the Agreement, the Shares will be duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to the use of our name under the caption "Legal Matters"
in the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ PALMER & DODGE LLP
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended September 30, December 31,
1995 1996 1997 1996 1997
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Historical net income 6,859 11,619 8,589 3,698 2,593
Shares used in computing net
income per share:
Shares used in computing basic
net income per share
(Weighted average shares
outstanding for period) 11,312 11,371 12,306 11,453 14,791
Three Months
Year Ended December 31,
1997 1996 1997
---------------------------
Effect of options granted
in January 1997:
Options granted 401 401 401
Options price $ 1.46 $ 1.46 $ 1.46
------ ------ ------
Assumed proceeds $ 585 $ 585 $ 585
Average market price $23.02 $16.00 $26.57
------ ------ ------
Shares assumed repurchased 25 37 22
Shares deemed outstanding 376 364 379 0 0 376 364 379
Effect of options granted
in June 1997:
Options granted 31 31 31
Options price $16.00 $16.00 $16.00
------ ------ ------
Assumed proceeds $ 496 $ 496 $ 496
Average market price $23.02 $16.00 $26.57
------ ------ ------
Shares assumed outstanding 22 31 19
Shares deemed outstanding 9 0 12 0 0 9 0 12
------ ------ ------ ------ ------
Shares used in computing
diluted net income per share: 11,312 11,371 12,691 11,817 15,182
====== ====== ====== ====== ======
Net income per share - basic: $0.61 $1.02 $0.70 $0.32 $0.18
====== ====== ====== ====== ======
Net income per share - diluted: $0.61 $1.02 $0.88 $0.31 $0.17
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 28, 1997, except for Note 3, as to which
the date is March 31, 1998, included in the Proxy Statement of David M. Griffith
& Associates, Ltd. that is made a part of the Registration Statement on Form S-4
and Prospectus of MAXIMUS, Inc. for the registration of 1,166,179 shares of its
common stock.
/s/ ERNST & YOUNG LLP
Washington, DC
April 1, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our report dated March 18, 1998, except for Note L which is
as of March 23, 1998, on the financial statements of David M. Griffith &
Associates, Ltd. as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997, included in the Registration
Statement on Form S-4 including the Prospectus/Proxy Statement of Maximus, Inc.
and David M. Griffith & Associates, Ltd. We hereby consent to the use of our
report in the Prospectus/Proxy Statement of Maximus, Inc. and David M. Griffith
& Associates, Ltd. included in the Registration Statement on Form S-4 and to the
use of our name as it appears under the caption "EXPERTS."
/s/ GRANT THORNTON LLP
Chicago, Illinois
April 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,502
<SECURITIES> 0
<RECEIVABLES> 15,941
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,573
<PP&E> 3,390
<DEPRECIATION> (810)
<TOTAL-ASSETS> 22,670
<CURRENT-LIABILITIES> 6,389
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,706
<TOTAL-LIABILITY-AND-EQUITY> 22,670
<SALES> 51,963
<TOTAL-REVENUES> 51,963
<CGS> 36,071
<TOTAL-COSTS> 36,071
<OTHER-EXPENSES> 9,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,983
<INCOME-TAX> 124
<INCOME-CONTINUING> 6,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,859
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,326
<SECURITIES> 1,007
<RECEIVABLES> 25,352
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,239
<PP&E> 3,732
<DEPRECIATION> 1,096
<TOTAL-ASSETS> 35,493
<CURRENT-LIABILITIES> 9,539
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,197
<TOTAL-LIABILITY-AND-EQUITY> 35,493
<SALES> 103,113
<TOTAL-REVENUES> 103,113
<CGS> 78,429
<TOTAL-COSTS> 78,429
<OTHER-EXPENSES> 13,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,844
<INCOME-TAX> 225
<INCOME-CONTINUING> 11,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,619
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,960
<SECURITIES> 40,869
<RECEIVABLES> 33,651
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 93,106
<PP&E> 4,216
<DEPRECIATION> 1,346
<TOTAL-ASSETS> 96,825
<CURRENT-LIABILITIES> 30,539
<BONDS> 0
0
0
<COMMON> 66,730
<OTHER-SE> (591)
<TOTAL-LIABILITY-AND-EQUITY> 96,825
<SALES> 127,947
<TOTAL-REVENUES> 127,947
<CGS> 94,254
<TOTAL-COSTS> 94,254
<OTHER-EXPENSES> 22,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,965
<INCOME-TAX> 3,376
<INCOME-CONTINUING> 8,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,589
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,164
<SECURITIES> 1,007
<RECEIVABLES> 29,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,559
<PP&E> 3,741
<DEPRECIATION> 1,166
<TOTAL-ASSETS> 43,856
<CURRENT-LIABILITIES> 14,204
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,862
<TOTAL-LIABILITY-AND-EQUITY> 43,856
<SALES> 37,244
<TOTAL-REVENUES> 37,244
<CGS> 29,534
<TOTAL-COSTS> 29,534
<OTHER-EXPENSES> 4,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,755
<INCOME-TAX> 57
<INCOME-CONTINUING> 3,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,698
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,579
<SECURITIES> 31,502
<RECEIVABLES> 33,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,424
<PP&E> 4,302
<DEPRECIATION> (1,430)
<TOTAL-ASSETS> 87,452
<CURRENT-LIABILITIES> 18,719
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,002
<TOTAL-LIABILITY-AND-EQUITY> 87,452
<SALES> 36,356
<TOTAL-REVENUES> 36,356
<CGS> 27,300
<TOTAL-COSTS> 27,300
<OTHER-EXPENSES> 5,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,285
<INCOME-TAX> 1,692
<INCOME-CONTINUING> 2,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,593
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
