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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
MCS, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 25-1400911
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 PENN CENTER, PITTSBURGH, PA 15253
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: 412-823-7440
Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS TO BE SO REGISTERED
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None
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class)
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EXPLANATORY NOTE
[ ], 1999
Dear Fellow Stockholders:
In May 1999, the Board of Directors of Mestek, Inc. decided to merge
Mestek's wholly owned subsidiary MCS, Inc. with and into Simione Central
Holdings, Inc. ("Simione") pursuant to an Agreement and Plan of Merger (the
"Original Merger Agreement"). Prior to the closing of the Original Merger
Agreement, Simione acquired all of the stock of CareCentric Solutions, Inc.
("CareCentric") pursuant to a Merger that was consummated on August 12, 1999.
Thereafter, the Mestek Board of Directors considered, on a preliminary basis,
the distribution of all of the capital stock of MCS to the Mestek stockholders.
The Mestek Board of Directors determined that a distribution (Spinoff) of all
of the capital stock of MCS to the Mestek stockholders would benefit Mestek by
allowing its management to focus exclusively on the operation and growth of its
HVAC, metals and metal forming segments. The Mestek Board of Directors also
found that the distribution would benefit MCS by providing MCS with greater
access to the capital markets to develop its home health information and
services business and by allowing MCS to be better able to attract and retain
top quality professionals.
In September 1999, the Board of Directors of Mestek resolved to distribute
all of the capital stock of MCS to the Mestek stockholders on a pro rata basis
prior to the Merger of MCS into Simione. Accordingly, all common stockholders of
record of Mestek on [ ], 1999 (the "Record Date") will receive one
share of the common stock of MCS for each share of the common stock of Mestek
they own on the Record Date (the "Spinoff"). Mestek intends to distribute the
shares of common stock of MCS on [ ].
The business of MCS is primarily related to the sales and service of
business applications software for the home health services information systems
marketplace. On September 1, 1999, MCS transferred its business relating to its
ProfitWorks software, used primarily by the building supply industry, to Mestek,
and this business will not be included in the Spinoff.
You do not have to take any action for the Spinoff to occur. You do not
have to pay for the uncertificated shares of MCS common stock that you will
receive in the Spinoff, nor do you have to surrender or exchange shares of
common stock of Mestek in order to receive shares of MCS common stock. The
number of shares of Mestek common stock that you own will not change as a result
of the Spinoff.
Immediately after the Spinoff, you will own a pro-rata portion of MCS and
you will continue to own your shares of Mestek. Mestek will continue to trade on
the NYSE but there are no plans to list the MCS shares on any exchange. The MCS
shares will not be transferable for 125 days from the Record Date, except in the
event of a merger between MCS and another company.
On September 9, 1999, MCS, Mestek and Simione signed an Amended and
Restated Agreement and Plan of Merger (as amended, the "Merger Agreement"). In
the Merger Agreement, MCS and Simione agreed to a Merger of MCS with and into
Simione (the "Merger") subject to certain conditions, including, without
limitation, the completion of the Spinoff and the affirmative vote of the common
stockholders of MCS after the Spinoff. The proposed Merger, including the risks
involved and the conditions precedent, is described in the Joint Proxy
Statement/Prospectus of Simione and MCS which is being sent to you
simultaneously with this Registration Statement on Form 10. If the Merger is
approved by the shareholders of both companies and proceeds to closing, you will
receive in regular certificate form shares of Simione common stock in exchange
for your uncertificated shares of MCS acquired in the Spinoff. The Simione
shares will be subject to certain transferability restrictions for a period of
two years, as further described in the Joint Proxy Statement/Prospectus. The
Merger Agreement was subsequently further amended on October 25, 1999 to make
certain changes that conform to the proposed structure of the Merger. Simione
common stock is listed on the Nasdaq National Market and is traded under the
symbol "SCHI".
For your information, I intend to vote the MCS common stock that I will
acquire in the Spinoff, either in my own name or as trustee, in favor of the
Merger.
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You should read this Registration Statement on Form 10 and the accompanying
Joint Proxy Statement/Prospectus carefully.
Sincerely,
John E. Reed
Chairman of the Board of Directors
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MCS, INC.
ITEM 1. BUSINESS
OVERVIEW
The business of MCS is primarily related to the sales and service of
business applications software for the home health services marketplace.
Services to customers include:
- preparation of computer programs and software to meet customer needs,
- providing computer hardware when required,
- installing the system at the customer's business,
- providing continuing support services, and
- providing classroom and computer-based training on its software.
MCS' primary product is MestaMed(TM), a third-party billing, accounting and
inventory control system for providers of home medical equipment, home health
care, infusion therapy, rehabilitation programs, and hospice services. (1) MCS
also develops and offers for sale computer-based training materials for the
MestaMed system and for other home health issues. In addition, MCS Management
Services division offers management services to home health providers to assist
them with billing and reimbursement and the efficient management and utilization
of their systems.
MESTAMED
MCS' primary product is MestaMed, a third-party billing, accounting and
inventory control system for providers of home medical equipment, home health
care, infusion therapy, rehabilitation programs, and hospice services. MCS'
customers are home health care providers who use MestaMed to track the provision
of home medical equipment and services to patients and to meet the complex
requirements necessary to obtain reimbursement from Medicare/Medicaid and other
third-party payors. MCS believes MestaMed is the only system which integrates
information for operational and financial management for all of these
disciplines for providers of home health services.
MestaMed is comprised of approximately 4-6 core modules (such as billing)
and up to 18 additional modules covering specific functions desired by the
customer. The configuration of each customer's installation is customized by
selecting only the necessary modules and setting the applicable parameters.
MestaMed is available on a variety of hardware platforms and operating systems
including Open VMS, UNIX, Windows NT, AIX and various Intel, Alpha and RS 6000
platforms. One of MCS' customers uses MestaMed Plus, a customized version of
MestaMed.
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(1)In addition, MCS developed ProfitWorks, a computer system utilized by
building supply, lumber, electrical, plumbing, and hardware suppliers and
outlets and manufacturer's representatives to manage order entry, inventory,
purchasing, accounts receivable, and reporting. The business of ProfitWorks,
including its assets and liabilities, was transferred to Mestek on September 1,
1999.
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Customers also sign maintenance agreements which provide them with access
to customer support, updates to respond to changes in reimbursement and
regulatory policies, and product enhancements. These maintenance agreements are
typically for one year. The software in installations which do not have
maintenance agreements rapidly becomes obsolete.
MestaMed originally was designed for providers of home medical equipment
such as hospital beds, wheel chairs and oxygen and respiratory equipment. Over
time, MestaMed has expanded to include additional modules covering the provision
of other home care services such as home health agency (commonly referred to in
the industry as "HHA") services (including clinical documentation) and infusion
therapy.
MestaMed has also been expanded and improved by requests from customers.
These features have been incorporated into upgrades of MestaMed.
REGULATION
Many of the services provided by the home-health care industry are paid for
by the Federal Government under the Medicare and Medicaid programs or by third
parties such as traditional health insurance companies or HMOs. While Medicare
is administered by the federal government, each state administers the Medicaid
program in its state using its own regulations. Each of these organizations has
elaborate regulations regarding the provision of and payment for services. In
addition, the rules for different types of services such as HHA, home medical
equipment and infusion therapy are substantially different.
Changes in regulations on reimbursement plans require reprogramming to
update the relevant MestaMed modules. In 1997, the federal Health Care Financing
Agency ("HCFA") released its interim payment system (commonly referred to in the
industry as "IPS") rules and is scheduled to release its proposed prospective
payment system (commonly referred to in the industry as "PPS") rules in October
1999. The final PPS rules are scheduled to be released in late 2000. While the
IPS rules did not require extensive reprogramming of MestaMed, they represented
a significant change for MCS' customers that have significant Medicare business.
MCS estimates it spent no more than $50,000 in modifying MestaMed to incorporate
the IPS regulations. The impact of these changes is discussed under "--
Customers." MCS believes that the PPS rules could require extensive
reprogramming of MestaMed. Management cannot predict how much it will cost to
update MestaMed to incorporate the PPS rules as these rules have not yet been
released. Modifying MestaMed to incorporate regulatory mandates often requires
MCS to divert development personnel and other resources from scheduled program
enhancements and product improvements, and MCS expects that incorporation of the
new PPS rules will also divert resources.
PROGRAMMING
MestaMed was developed in what are today regarded as "legacy" environments
(i.e., utilizing software code that is now considered outdated and development
tools common to those outdated software platforms). Nevertheless, by the
continual application and utilization of tools developed by others, MCS has been
able to sustain and improve the utility of its legacy products and offer those
products on a variety of hardware and operating systems platforms, including
Windows NT.
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During 1996, 1997, 1998 and the first nine months of 1999, MCS spent
approximately $1.3 million, $1.6 million, $2.0 million and $1.7 million
respectively for software development. These costs related primarily to product
improvements and customer requested enhancements to existing products, as well
as to remediation of the Year 2000-related issues in certain of MCS' products,
as more fully described under the heading "Item 2 -- Financial
Data -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
MCS is limited by its programming resources. As of September 30, 1999, MCS
had 30 employees in its development department. On average MCS' programmers
have been with MCS for 6.5 years. Currently, development and support of MestaMed
requires the use of Synergy, a set of legacy oriented tools based on DIBOL. It
is increasingly difficult to find programmers who are skilled in these
languages. The MestaMed Plus customer has a full-time programmer dedicated to
supporting and enhancing custom software for that customer.
MestaMed uses older "green-screen" technology instead of a graphical user
interface ("GUI") now common on many Windows-based consumer and business
programs. "Green-screens" require the operator to use the arrow keys and control
keys to navigate. Trained operators can efficiently use MestaMed to input data.
However, an operator requires more training to work in a "green-screen"
environment than in a GUI environment.
In the fourth quarter of 1998, MCS began to update MestaMed to use a GUI
for certain application modules. As of the second quarter of 1999, all file
maintenance functions (such as adding a new doctor or patient to a client's
database) have been converted to use a GUI.
The MestaMed system uses a proprietary data base which restricts access to
the information from other products and tools. Access to this information within
the current version of MestaMed will be available with the use of an ODBC tool.
MCS expects to add data warehousing and mining capabilities to MestaMed in 2000.
Certain deficiencies that exist with the current development tools, the need to
re-design the underlying data base, and the desire of the market to have
internet enabled access to the application has led MCS to limit its MestaMed GUI
conversion efforts in favor of developing a next generation product. MCS has
initiated the design phase of such a product. In the interim, management expects
to support, enhance and upgrade the existing versions of MestaMed.
In addition, MCS is working to develop a new generation of MestaMed which
will use modern program architecture and software languages. This new version of
MestaMed will be capable of operating in client-server, server-centric and
Internet-based operating environments. To fully replicate the features and
functions of MestaMed and to update the modules to address the new home
healthcare environment expected and the PPS rules and managed care will take
many years and resources. In connection with this project, MCS has elected to
use an outside software development company because MCS' programmers are needed
for on-going updating and customization of MestaMed and because MCS' programmers
are less knowledgeable about modern programming languages and structures.
Reliance on an outside software developer subjects MCS to risks that this
supplier may not be able, for whatever reason, to supply the necessary software
in a timely and cost-efficient
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manner, and/or may not be available after installation of the software for
adequate maintenance and support. Currently the outside software developer is
developing a full set of specifications and screen layouts for the new version
of MestaMed in conjunction with MCS' product management team. Upon receipt of
the full specifications and screen layouts, MCS can elect to have the software
code necessary to implement the specifications and layouts developed by the
outside software developer or by other programmers, including possibly
programmers in countries with lower labor costs than the United States. In
August 1999, MCS received the first portion of the specifications and layouts
from the developer. The cost of the development of the specifications for the
new basic version of MestaMed was approximately $200,000 through August 1999,
and should not exceed $300,000 in total. The cost of implementing the
specifications and the actual software coding has not yet been determined, but
could amount to several million dollars.
CUSTOMERS
MCS' customers are typically home health care providers. MCS only counts
customers with maintenance contracts as active customers. As of September 30,
1999, MCS had approximately 570 active customers. Almost all of MestaMed users
purchase core functional modules and additional modules related to the business
or businesses of the customer. As of September 30, 1999, approximately 80% of
existing MestaMed customers had purchased the home medical equipment modules,
25% purchased infusion therapy modules and 15% purchased home health agency
modules of one or more types. In 1998 and the first nine months of 1999, no
single customer accounted for more than 5% of MCS' total revenues and its five
biggest customers represented less than 10% of its total revenues.
In the last two years, there has been significant reduction in the
aggregate number of home health care providers due to consolidation in the
industry and the departure of many home health care providers as a result of the
adoption of the IPS reimbursement regulations. In 1997, there were approximately
10,000 Medicare certified home health care providers as reported by the National
Association for Home Care on its Internet web site at www.nahc.org. By 1998,
there were only approximately 9,000. MCS had approximately 800 active customers
at December 31, 1997, approximately 750 active customers at December 31, 1998
and approximately 570 active customers at September 30, 1999. An active MCS
customer is one who is current on its payments under its maintenance contract
and has logged at least one telephone call with the MCS telephone support
center within the last six months.
As of September 30, 1999, MCS' backlog was approximately $1,010,000,
compared to approximately $840,000 as of September 30, 1998.
MCS' inventory consists primarily of computer hardware and related
equipment, which is sold together with applications software as a turnkey
solution, and a supply of third-party software licenses. MCS attempts to
maintain a thirty-day supply of many hardware items so that delivery of
completed systems can be made on a timely basis.
COMPETITION
The market for computer software to support the home health services
information services industry is intensely and increasingly competitive. Because
of the breadth of its overall product offering, MCS competes with many companies
offering alternative solutions for home health services industry needs. Some of
these firms have greater financial, marketing and technical resources than MCS.
They may be able to adapt more quickly to new or emerging technologies and
standards or changes in customer requirements, and they may be able to devote
greater resources to the promotion and sale of their products than can MCS.
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MCS believes that the principal competitive factors affecting the home
health information technology market include technical performance and product
attributes such as:
- features and functionality,
- portability,
- reliability,
- ease of use,
- adaptability and scalability,
- product technology platform,
- product reputation,
- product quality,
- customer service and support,
- price,
- ability to integrate with products produced by other vendors,
- quality and development assurance,
- the effectiveness of sales and marketing efforts, and
- company reputation and financial strength.
Partly as a consequence of recent consolidation in the home health care
industry, home health care providers tend to offer a wider variety of services.
MCS believes that its integrated MestaMed system offers an advantage in terms of
convenience and lifetime service costs to such providers over competitors'
stand-alone software designed to address single types of services. Unlike
stand-alone systems, MestaMed's integrated system does not require re-keying
patient, insurance and other data if a provider wishes to offer additional
services to an existing patient. However, the initial cost of MestaMed for a
single use is higher than the cost of many of its stand-alone competitors.
MCS believes that the home health care services industry is increasingly
being dominated by hospital based "integrated delivery networks" (IDN's). MCS
has not established a relationship at this time with a supplier of information
systems to hospital-based delivery systems. It has, however, recently entered
into an agreement with the Volunteer Hospital Association (commonly referred to
in the industry as "VHA") whereby its products are recommended to the
Association's members as the preferred solution for their home health services
information systems needs. The VHA has 1,500 member hospitals of whom 600 have
home health agencies, 150 are home medical equipment providers and 130 are home
infusion providers.
There can be no assurance that MCS will be successful in competing in the
future with respect to these or other factors.
SALES AND MARKETING
MCS markets MestaMed through its 19 person sales and marketing department.
MCS' sales force is split geographically into east and west divisions. Sales
people specialize
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in selling primarily to home medical equipment and infusion providers or home
health care agencies. Sales people from both areas work together to sell to
integrated providers. Sales people work from their homes. A small headquarters
sales staff sells add-on software modules, accessories, supplies and training to
existing customers.
MCS markets its products through advertisements in two national home health
care journals, attendance at 30-40 trade shows per year and direct mail. Word of
mouth from satisfied customers is an important part of MCS' marketing. MCS'
foreign sales are not significant.
TRAINING
MCS offers its customers training at its Pittsburgh location, at its new
training facility in Pleasanton, California and on-site at the customer's
offices. MestaMed addresses the complex needs of the home health care market.
There is substantial effort to train operators. The "green-screen" technology
used by current versions of MestaMed requires substantial training of operators.
Initial training is often included in the purchase price of new systems.
On-going training is billed separately. MCS expects that the next generation of
MestaMed will result in lower training costs based on the intuitive capabilities
of GUI interfaces and integrated help features of modern development tools. As
of September 30, 1999 MCS had approximately 38 support service analysts that are
available to provide training to customers. MCS offers three types of classroom
training:
- Installation and initial training,
- On-site training services, and
- Training seminars.
In 1999, MCS will offer nearly 50 seminars to its customers. These range
from classes on network communications to making HHA businesses more efficient.
In February 1998, MCS acquired a company that specializes in computer-based
training ("CBT"). CBT offers customers the opportunity to lower their training
costs, especially for small numbers of employees such as new hires, by
purchasing a reusable CD-ROM. As of the second quarter of 1999, MCS is
refocusing this division to provide more generic industry-wide content in
addition to its product specific content for Internet and CBT training. CBT
training generated revenues of approximately $128,000 in 1998 and approximately
$76,000 through September 30, 1999.
CUSTOMER SERVICE
Customers who have signed a maintenance agreement have access to MCS'
customer service center at MCS' headquarters in Pittsburgh. The customer service
center provides telephone assistance to customers. As of September 30, 1999, MCS
had 68 support service analysts (including the 38 training analysts described
above). MCS is installing an improved voice mail and telephone communication
system and reorganizing its customer service department to deliver "real-time"
customer support so to improve customer service and operating efficiency. MCS
expects to have the reorganization completed in early 2000.
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CONSULTING
MCS Management Services division offers customers consulting services
relating to improving accounts receivables, collection and reimbursement
functions and generally improving the efficiency of home medical equipment
businesses. This division has four employees with many years of experience in
validating and collecting accounts receivable generated by home medical
equipment providers and generated revenues of approximately $808,000 in 1998 and
approximately $543,000 through August 31, 1999.
PROPRIETARY RIGHTS AND LICENSES
MCS depends upon a combination of copyrights and restrictions on access to
its trade secrets to protect its proprietary rights. MCS distributes its
products under software license agreements tied to specific computer units which
grant customers a non-exclusive license to MCS products and contain terms and
conditions prohibiting the unauthorized reproduction or transfer of those
products. Generally, MCS products are furnished to customers in both object and
source code form under an obligation of confidentiality. In addition, MCS
generally enters into confidentiality agreements with its management and
programming staff and limits access to and distribution of its proprietary
information.
While MCS has not federally registered any of its copyrights, it generally
includes copyright notices in its software. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of MCS products or to
obtain information that MCS regards as proprietary. Unregistered copyrights are
still protected under both federal and state law, although a copyright holder
must first register a copyright to sue another person for infringement of that
copyright under federal law. This may be done immediately prior to bringing a
suit. Obtaining registered copyrights on software often requires disclosure of
at least portions of the underlying software code. In addition, software code
changes so frequently that constant updates would be required to keep a useful
copyright current. Therefore, MCS has elected not to register its copyrights at
this time, although it is free to do so at any time.
MCS believes that, due to the rapid pace of innovation within the software
industry, factors such as its domain knowledge, the technological and creative
skills of its personnel and ongoing reliable product maintenance and support are
more important in establishing and maintaining a leadership position within the
industry than are the various legal protections of its technology.
All trademarks and registered trademarks used herein are the property of
their respective owners.
EMPLOYEES
Because of the importance of systems development to MCS, programming, sales
and support personnel are a primary resource. As of September 30, 1999, MCS had
a total of 137 employees nationwide, consisting of 19 in sales and marketing, 30
in programming and development, 6 in computer-based training, 4 in the
management services division, 68 in support training and education, and 10 in
executive, finance and administration. These figures do not include 9 employees
who worked on ProfitWorks and who were transferred to Mestek on September 1,
1999.
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MCS' success is highly dependent on its ability to attract and retain
qualified employees. Competition for employees is intense in the software
industry, and an inability to attract and retain qualified development and sales
personnel, in particular, could postpone product release schedules and adversely
affect MCS' ability to generate revenue.
None of MCS' employees is represented by a labor union or is the subject of
a collective bargaining agreement with respect to his or her employment with
MCS. MCS has never experienced a work stoppage and believes its relations with
its employees are good.
EXECUTIVE OFFICES
MCS' principal executive offices are located at 400 Penn Center,
Pittsburgh, Pennsylvania 15235 and the telephone number is 412-823-7440.
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ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The selected financial data shown below summarizes MCS' financial
operations only.
The following selected financial data have been derived from and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the MCS Financial Statements and notes
thereto included in this Form 10. For a description of the basis of presentation
of the historical financial data of MCS, see note 1 to the Financial Statements.
The statement of operations data set forth below for each of the three
years in the period ended December 31, 1998 and the balance sheet data at
December 31, 1998 and 1997 are derived from the MCS Financial Statements and
notes thereto included in this Form 10. The MCS Financial Statements for the
years 1998, 1997 and 1996 have been audited by Grant Thornton, LLP. The
statement of operations data set forth for the years ended December 31, 1995 and
1994, and the nine months ended September 30, 1999 and 1998, and the balance
sheet data at December 31, 1995 and 1994, and at September 30, 1999 and 1998,
are unaudited as are the balance sheet data at December 31, 1996.
Because MCS operated as a wholly owned subsidiary of Mestek during the five
year period reflected in the following selected financial data, it may have
recorded different results had it been operated independently of Mestek.
Therefore, the financial information presented below is not necessarily
indicative of the results of operations or financial position that would have
resulted if MCS had been a separate, stand-alone business during the periods
shown, or of its future performance as a separate, stand-alone business.
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NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
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1999 1998 1998 1997 1996 1995 1994
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(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
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STATEMENT OF
OPERATIONS DATA:
Revenue.............. $13,521 $12,144 $16,630 $17,029 $16,114 $15,255 $14,461
Net income........... 628 918 1,429 2,009 1,857 1,653 1,353
BALANCE SHEET DATA:
Cash and cash
equivalents and
short-term
investments........ 33 38 60 40 34 251 160
Working capital...... (1,097) (1,499) (1,745) (2,110) (1,754) (1,092) (607)
Total assets......... 5,316 5,146 5,279 4,895 4,489 4,650 4,865
Total long-term
liabilities........ -- -- -- -- -- -- --
Stockholders'
equity............. (273) (723) (981) (1,640) (1,312) (866) (397)
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MCS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
This Registration Statement on Form 10 contains forward-looking statements,
which are subject to inherent uncertainties. These uncertainties include, but
are not limited to, changes in the healthcare regulatory environment, changes in
information technology, the broad economic effect of the Year 2000 problem,
customer preferences, general economic conditions and increased competition. All
of these uncertainties are difficult to predict, and are beyond the ability of
MCS to control.
Certain statements contained herein constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
are not historical facts but rather reflect MCS' current expectations concerning
future results and events. The words "believes", "expects", "intends", "plans",
"anticipates", "likely", "will", "results", "estimates", "projects" or similar
expressions are intended to identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of MCS or industry results, to differ materially from future
results, performance or achievements expressed or implied by such
forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view and speak only as of the date of this
report. MCS undertakes no obligation to release publicly the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof to reflect the occurrence of
anticipated or unanticipated events, conditions or circumstances.
OVERVIEW
The business of MCS is primarily related to the sales and service of
business applications software for the home health services information systems
marketplace. Services to customers include:
- preparation of computer programs and software to meet customer needs,
- providing computer hardware when required,
- installing the system at the customer's business,
- providing continuing support services, and
- providing classroom and computer-based training on its software.
MCS' principal products, MestaMed and ProfitWorks, do not typically
require significant customization or lengthy implementation periods.
Accordingly, MCS invoices its customers for software licenses and related
hardware sales after both hardware and software have been delivered and accepted
and related contracts, including software licenses, have been executed. MCS
recognizes such revenues at the same time they are invoiced.
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MCS invoices its customers for software maintenance and telephone support
(other than first year maintenance and support) on an annual basis. Such
billings are treated as deferred revenues on MCS's balance sheet and are
thereafter amortized off to revenue over twelve months using the straight-line
method.
In addition to software licenses, software maintenance and support, and
related hardware, MCS also provides a number of ancillary services including
training, consulting and after-hours support. Revenues from such services are
recognized monthly as such services are performed and billed.
Unbilled receivables represent revenues earned in the current period but
not billed until future dates, usually within one month.
RESULTS OF OPERATIONS(1)
MCS as a whole reported reduced revenues, margins and operating profits in
1998 compared to 1997 as indicated in the following table:
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1998 % 1997 %
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($000) ($000)
<S> <C> <C> <C> <C>
Net Sales................................... $16,630 100.00% $17,029 100.00%
Gross Profit................................ 6,578 39.56 7,238 42.50
Operating Income............................ 2,336 14.04 3,290 19.31
</TABLE>
MCS' MestaMed segment also reported reduced revenues, margins and operating
profits in 1998 compared to 1997 as indicated in the following table:
<TABLE>
<CAPTION>
1998 % 1997 %
------- ------ ------- ------
($000) ($000)
<S> <C> <C> <C> <C>
Net Sales................................... $14,901 100.00% $15,433 100.00%
Gross Profit................................ 5,698 38.24 6,554 42.47
Operating Income............................ 1,831 12.28 3,071 19.89
</TABLE>
Reimbursement restrictions imposed upon Medicare providers, MCS' customer
base, in 1998 by the Balanced Budget Amendment adversely affected the home
health care information systems marketplace and resulted in reduced revenues
both industry-wide and for MCS. In addition, costs incurred by MCS in its
efforts to address Year 2000 functionality in certain of its products, and in
other product development initiatives, adversely impacted operating profits in
1998.
MCS' ProfitWorks segment reported improved revenues, margins and operating
profits in 1998 compared to 1997 as indicated in the following table:
<TABLE>
<CAPTION>
1998 % 1997 %
------ ------ ------ ------
<S> <C> <C> <C> <C>
($ 000) ($ 000)
Net Sales...................................... $1,729 100.00% $1,596 100.00%
Gross Profit................................... 880 50.90 684 42.86
Operating Income............................... 505 29.21 219 13.72
</TABLE>
- ---------------
(1) Except as noted, these results of operations include results from MCS's
ProfitWorks segment, which was transferred to Mestek on September 1, 1999.
14
<PAGE> 15
MCS' selling expenses, as a percentage of total revenues, increased from
12.39% in 1997 to 14.38% in 1998 due to reduced sales in 1998, as more fully
discussed above, and increases in sales personnel. MCS' general and
administrative expenses, as a percentage of total revenues, decreased from 10.8%
in 1997 to 9.74% in 1998 due to a reduction in MCS' bonus provision for 1998.
MCS as a whole reported improved revenues, margins and operating profits in
1997 compared to 1996 as indicated in the following table:
<TABLE>
<CAPTION>
1997 % 1996 %
------- ------ ------- ------
($000) ($000)
<S> <C> <C> <C> <C>
Net Sales ......................... $17,029 100.00% $16,114 100.00%
Gross Profit ...................... 7,239 42.50 6,865 42.60
Operating Income .................. 3,290 19.31 3,063 19.00
</TABLE>
MCS' MestaMed segment also reported improved revenues, margins and operating
profits in 1997 compared to 1996 as indicated in the following table:
<TABLE>
<CAPTION>
1997 % 1996 %
------- ------ ------- ------
($000) ($000)
<S> <C> <C> <C> <C>
Net Sales ......................... $15,433 100.00% $14,636 100.00%
Gross Profit ...................... 6,554 42.47 6,293 43.00
Operating Income .................. 3,071 19.89 2,994 20.46
</TABLE>
MCS' ProfitWorks segment reported improved revenues, margins and operating
profits in 1997 compared to 1996 as indicated in the following table:
<TABLE>
<CAPTION>
1997 % 1996 %
------- ------ ------- ------
($000) ($000)
<S> <C> <C> <C> <C>
Net Sales ......................... $ 1,596 100.00% $ 1,478 100.00%
Gross Profit ...................... 685 42.92 572 38.70
Operating Income .................. 219 13.72 69 4.67
</TABLE>
MCS' selling expenses as a percentage of total revenues decreased from 12.63%
in 1996 to 12.39% in 1997 due to increased sales in 1997, as more fully
discussed above. MCS' general and administrative expenses, as a percentage of
total revenues, decreased from 10.96% in 1996 to 10.75% in 1997 for the same
reason.
15
<PAGE> 16
RESULTS OF OPERATIONS (UNAUDITED INTERIM DATA)
In the nine-month period ended September 30, 1999, MCS as a whole reported
increased revenues and margins, but reduced operating income compared to the
nine-month period ended September 30, 1998 as indicated in the following table:
<TABLE>
<CAPTION>
NINE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % SEPTEMBER 30, 1998 %
------------------ ------ ------------------ ------
<S> <C> <C> <C> <C>
($ 000) ($ 000)
Net Sales.............................. $13,521 100.00% $12,144 100.00%
Gross Profit........................... 5,316 39.31 4,550 37.46
Operating Income....................... 1,036 7.66 1,537 12.66
</TABLE>
In the nine-month period ended September 30, 1999, MCS' MestaMed segment
also reported increased revenues and margins, but reduced operating income
compared to the nine-month period ended September 30, 1998, as indicated in the
following table:
<TABLE>
<CAPTION>
NINE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % SEPTEMBER 30, 1998 %
------------------ ------ ------------------ ------
<S> <C> <C> <C> <C>
($ 000) ($ 000)
Net Sales.............................. $12,579 100.00% $10,962 100.00%
Gross Profit........................... 4,926 39.16 4,002 36.51
Operating Income....................... 953 7.58 1,279 11.67
</TABLE>
Sales of MCS' core MestaMed product increased significantly in the first
nine months of 1999, accounting for most of this segment's revenue growth.
Significant product development and product support related costs were also
incurred during this period resulting in decreased operating income for the
segment despite the growth in revenues. MCS is pursuing a number of product
development initiatives designed to assist with the migration of its core
products to more modern operating system environments. MCS is also undertaking a
redesign of its product support infrastructure with a view to improving the
quality and timeliness of the support function.
MCS' ProfitWorks segment reported revenues, margins and operating profits
for the nine-month periods ended September 30, 1999 and September 30, 1998 as
follows:
<TABLE>
<CAPTION>
NINE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 % SEPTEMBER 30, 1998 %
------------------ ------ ------------------ ------
<S> <C> <C> <C> <C>
($ 000) ($ 000)
Net Sales.............................. $ 942 100.00% $1,182 100.00%
Gross Profit........................... 390 41.40 548 46.36
Operating Income....................... 83 8.81 258 21.82
</TABLE>
MCS' selling expenses, as a percentage of total revenues, increased from
14.24% in the first nine months of 1998 to 16.73% in the first nine months of
1999 due to the cost
16
<PAGE> 17
associated with engaging an outside marketing consultant to conduct market
research and create strategic planning initiatives for MCS. MCS' general and
administrative expenses, as a percentage of total revenues, decreased from 9.50%
in the first nine months of 1998 to 8.98% in the first nine months of 1999
reflecting the effect of increased revenues.
YEAR 2000 DISCLOSURE
The following information is being provided as a Year 2000 Readiness
Disclosure Statement, and is subject to the provisions of the Year 2000
Information and Readiness Disclosure Act.
MCS released a Year 2000 compliant version of its principal product,
MestaMed, in September 1998, known as the MestaMed Version II.8. Version II.8 is
capable of accurately processing calendar date information, including
calculating, comparing and sequencing to or from dates in the twentieth and the
twenty-first centuries. Many of the users of MestaMed have installed the
upgrade, and a number of users remain to be installed.
MestaMed runs on a number of different software operating systems across a
wide variety of hardware platforms. MCS believes that nearly all of the
operating systems environments presently running in conjunction with its
products are represented by their suppliers to be Year 2000 compliant. A small
percentage of MCS' users, however, are running operating systems that are not
Year 2000 compliant. MCS has encouraged these users to upgrade to MestaMed
Version II.8 prior to December 31, 1999 in order to avoid Year 2000 problems.
MCS' STATE OF READINESS. Relative to its internal business applications
systems and hardware, MCS believes that from a Year 2000 readiness perspective
it has only two important areas to address: its telephone system and financial
accounting systems. MCS has placed an order for a fully compliant telephone/
IVR/voice system that will address the Year 2000 issue, and that system will be
fully installed and operational before year end. In light of the proposed
Merger, MCS plans to integrate its accounting system with Simione's accounting
system. In the event the Merger is delayed or does not occur, MCS would upgrade
its general ledger, accounts payable and payroll to MestaMed Version II.8 and
look to other sources for its order entry and accounts receivable systems. There
is no assurance that it can accomplish this plan before the end of 1999 due to
limited technical resources or other implementation challenges. Accordingly the
risk of MCS' operations being disrupted after December 31, 1999 cannot be
discounted.
COSTS INCURRED RELATIVE TO YEAR 2000 SOLUTIONS. MCS estimates that its
total cost of addressing Year 2000 functionality will be approximately $750,000
over the two-year period ending on December 31, 1999 (assuming that the Merger
is consummated on schedule). Of this total, MCS had incurred approximately
$598,000 as of December 31, 1998. For the period ending September 30, 1999 MCS
has additionally incurred approximately $102,000.
LIQUIDITY AND CAPITAL RESOURCES
MCS is a wholly owned subsidiary of Mestek, Inc., a public company traded
on the New York Stock Exchange. As such, MCS has historically distributed
substantially all of its free cash flow to Mestek in the form of an annual
dividend. MCS' historical access to capital has been through an unrestricted
intercompany account with Mestek. MCS has
17
<PAGE> 18
historically generated positive cash flow for Mestek each year and, as such, MCS
owed no intercompany debt to Mestek, or other long-term debt, as of December 31,
1998 or December 31, 1997. Accordingly, MCS reported no interest expense in
either 1998 or 1997.
After the Spinoff, MCS will no longer have unrestricted access to capital
from Mestek. Consequently, MCS' cost of capital will likely be substantially
higher than prior to the Spinoff. There can be no assurance that capital will be
available to MCS after the Spinoff on terms that are acceptable to MCS.
ITEM 3. PROPERTIES
MCS leases office space in Pittsburgh (Monroeville), Pennsylvania, which
houses its principal offices and computer facility used in the computer software
development and system design business. MCS recently extended the term of this
lease until September 30, 2005, with the consent of Simione. MCS has also
recently leased office space in Pleasanton, California to provide more
convenient training facilities and support for its West Coast customers.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Mestek owns all of the capital stock of MCS prior to the Spinoff.
Immediately after the Spinoff, the Mestek stockholders as of the record date of
the Spinoff will own all of the common stock of MCS pro rata in proportion to
their respective holdings of Mestek common stock. As of September 30, 1999,
there were 8,879,505 shares of Mestek common stock outstanding.
Under the proxy rules of the Securities and Exchange Commission, a person
who directly or indirectly has or shares voting power and/or investment power
with respect to a security is considered a beneficial owner of the security.
Shares as to which voting power and/or investment power may be acquired within
60 days are also considered as beneficially owned under these proxy rules. The
table below sets forth certain information that MCS has received from or on
behalf of the persons named concerning the beneficial ownership of Mestek's
common stock by each person who beneficially owns Mestek common stock, each of
the MCS directors, each of MCS' executive officers and all of MCS' directors and
executive officers as a group. The only persons known by MCS to be the
beneficial owners of more than 5% of Mestek common stock as of September 30,
1999 are John E. Reed and Stewart B. Reed, both of whom are directors of Mestek
and MCS. The address of each of Messrs. J.E. Reed and S.B. Reed is 260 North Elm
Street, Westfield, Massachusetts 01085. The amount and nature of their
beneficial ownership is included in the table below. Assuming that the number of
outstanding shares of Mestek common stock does not change and the holdings of
the persons listed below do not change prior to the Spinoff, the persons listed
below will own the same number and percentage of
18
<PAGE> 19
MCS shares of common stock immediately after the Spinoff and, if applicable,
immediately prior to the Merger.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED PERCENT OF CLASS
------------------------ -------------------------- ----------------
<S> <C> <C>
5% STOCKHOLDERS:
John E. Reed(1)........................ 3,298,393 37.15%
Stewart B. Reed(2)..................... 2,209,387 24.88
DIRECTORS AND EXECUTIVE OFFICERS:
John E. Reed........................... 3,298,393 37.15
Stewart B. Reed........................ 2,209,387 24.88%
Winston R. Hindle, Jr.................. 9,000 *
Nick Kakavis........................... 9,520 *
William A. Thomasmeyer................. -- *
Michael L. Quinn....................... 3,600 *
Stephen M. Shea........................ 3,000 *
DIRECTORS & EXECUTIVE OFFICERS
COMBINED:
All combined (7 persons)............... 5,532,900 62.3%
</TABLE>
- -------------------------
* less than 1%
(1) Excludes 13,307 shares of common stock held by his wife and 13,307 shares of
common stock held by a family trust for which he is not trustee, to which he
disclaims ownership. Excludes 1,712,691 shares of common stock held by John
E. Reed as trustee for various family trusts, but for which he disclaims
beneficial ownership. 1,325,833 of such common shares are, however, included
in the shares listed as beneficially owned by Stewart B. Reed per note (5)
below. Includes 524,994 shares of common stock owned by Sterling Realty
Trust, a Massachusetts business trust of which John E. Reed is the trustee
and of which he and a family trust are the beneficiaries.
(2) Includes 1,325,833 shares of common stock owned by the Stewart B. Reed
Trust, of which Stewart B. Reed is the beneficiary and John E. Reed is the
trustee.
(3) Excludes 137,500 shares of common stock held by a spousal trust, to which
Mr. Burk disclaims ownership.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Currently, MCS' directors are John E. Reed, Stewart B. Reed, Winston R.
Hindle, Jr., Nick Kakavis, Michael L. Quinn and William A. Thomasmeyer. Mestek
elected all of the directors as MCS' sole stockholder. Immediately after the
Spinoff, the MCS board of directors and the executive officers of MCS are not
expected to change.
19
<PAGE> 20
The following table sets forth the names, ages and positions of the
directors and executive officers of MCS.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John E. Reed........................ 83 Chairman of the Board of Directors
Stewart B. Reed..................... 51 Director
Winston R. Hindle, Jr............... 68 Director
Nick Kakavis........................ 63 Director
William A. Thomasmeyer.............. 45 Director, President & CEO
Michael L. Quinn.................... 46 Director, Vice
President -- Operations
Stephen M. Shea..................... 42 Senior Vice President -- Finance and
Treasurer
</TABLE>
John E. Reed has been the Chairman of the Board of Directors of MCS since
1986. Mr. Reed is also a director of Mestek, a position he has held since 1989,
and Mr. Reed has served as the President and Chief Executive Officer of Mestek
since 1989. Prior to the 1986 Merger of Mestek and Reed National Corp., Mr. Reed
served as the President and Chief Executive Officer of Reed National Corp. since
he founded it in 1946. Mr. Reed is also a director of Wainwright Bank & Trust
Company of Boston, Massachusetts.
Stewart B. Reed has been a director of MCS since 1987. Mr. Reed is also a
director of Mestek, a position he has held since 1986. Mr. Reed served as
Executive Vice President of Mestek from 1986 to 1996. Prior to the 1986 Merger
of Mestek, Inc. and Reed National Corp., Mr. Reed had been Executive Vice
President of Reed National Corp. in charge of corporate development. Mr. Reed
had been employed by Reed National Corp. since 1970. Mr. Reed is the son of John
E. Reed, Chairman of the Board, President and Chief Executive Officer of Mestek
and a director of MCS.
Winston R. Hindle, Jr. has been a director of MCS since 1994. Mr. Hindle is
also a director of Mestek, a position he has held since 1994, and he has also
served on Mestek's Executive Committee since 1997. Mr. Hindle retired from
Digital Equipment Corporation as a Senior Vice President in July 1994. Mr.
Hindle currently serves as a director of National Northeast Corporation, a
subsidiary of Mestek. He is also a director of Keane, Inc. of Boston,
Massachusetts and CP Claire Corporation of Beverly, Massachusetts.
Nick Kakavis has been a director of MCS since its inception in 1981. Mr.
Kakavis served as MCS' President and Chief Executive Officer from 1981 until
January 1, 1999, and is currently President Emeritus. Mr. Kakavis worked in
various engineering and controls related functions for Mestek from 1958 until
the inception of MCS in 1981.
William A. Thomasmeyer has been a director and President and Chief
Executive Officer of MCS since January 1999. From September 1997 until December
of 1998, Mr. Thomasmeyer was President of Mestek Technology, a Mestek subsidiary
founded to pursue the acquisition of software companies in markets complementary
to MCS. Prior to 1997, Mr. Thomasmeyer served as the President and Chief
Executive Officer of Virtual Microsystems, Inc. and Logicraft Information
Systems.
Michael L. Quinn has served as Vice President -- Operations of MCS since
1985, supervising sales, product development and support, and as a director of
MCS since 1992. From 1977 to 1985, Mr. Quinn worked in various programming and
sales capacities for MCS and its parent company.
Stephen M. Shea has been Senior Vice President-Finance of MCS since 1994
and was Vice President-Finance of MCS prior to 1994. Mr. Shea has been employed
in various financial roles by Mestek since 1985 and served as Chief Financial
Officer of Mestek since 1990, and as Senior Vice President -- Finance since
1994. Mr. Shea was a Certified Public
20
<PAGE> 21
Accountant with the Hartford, Connecticut accounting firm of Spitz, Sullivan,
Wachtel & Falcetta from 1979 to 1985.
ITEM 6. EXECUTIVE COMPENSATION
The non-employee directors of MCS will be entitled to receive cash and
other compensation as described below.
CASH COMPENSATION
Prior to the Spinoff, non-employee directors of MCS (excluding directors
who were employed by Mestek, the corporate parent of MCS) were entitled to
receive compensation for service on the Board of Directors of MCS in the amount
of $1,500 for each meeting of the Board of Directors attended by such director.
Employee directors and directors employed by Mestek are not paid any fees or
additional compensation for service as members of MCS in connection with
attending MCS' Board and committee meetings. As of the Spinoff, compensation of
MCS directors is not expected to change.
Prior to the Spinoff, generally, MCS compensation for executive officers
and other key employees of MCS consisted of annual base salary and annual bonus
awards in amounts calculated in accordance with the MCS Bonus Plans that may be
determined from time to time by the Compensation Committee of Mestek and the
Board of Directors of MCS. As of the Spinoff, the compensation for executive
officers and other key employees of MCS is not expected to change. As of the
Merger, the compensation of or executive officers and other key employees of MCS
will be established by the Compensation Committee and Board of Directors of
Simione.
COMPENSATION SUMMARY
The following table summarizes compensation awarded or paid by MCS during
the years ended December 31, 1998, 1997, and 1996 to MCS' current Chief
Executive Officer, MCS' former Chief Executive Officer and the three most highly
compensated other executive officers of MCS. No other executive officers of MCS
received compensation in excess of $100,000. Messrs. Thomasmeyer and Quinn are
expected to be employees of Simione following the closing of the Merger.
21
<PAGE> 22
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
NUMBER OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL
------------------- OPTIONS OTHER
SALARY BONUS GRANTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)(5) ($)(1)
--------------------------- ---- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William Thomasmeyer............ 1998 $125,000 $ -- -- $ --
Director, Chief Executive 1997 33,653 -- -- --
Officer and President(2) 1996 -- -- -- --
Nick Kakavis................... 1998 83,004 217,653 -- 5,599
Former President and 1997 83,004 306,872 -- 6,022
Chief Executive Officer(3) 1996 83,004 156,571 -- 6,318
Michael L. Quinn............... 1998 73,200 156,782 -- 3,498
Vice President, Operations 1997 73,200 227,223 -- 3,420
1996 73,200 217,284 -- 3,337
John E. Reed(4)................ 1998 262,000 668,000 -- 7,656
Chairman of the Board 1997 262,000 623,000 -- 7,740
1996 262,000 540,000 -- 7,119
Stephen M. Shea(4)............. 1998 119,890 66,800 -- 17,525
Senior Vice President -- 1997 108,000 77,300 -- 16,494
Finance and Treasurer 1996 104,000 69,000 25,000 8,546
</TABLE>
- -------------------------
(1) Figures include company contributions to 401(k) and target benefit plans,
group life insurance and disability insurance premium payments.
(2) Mr. Thomasmeyer became Chief Executive Officer and President of MCS on
January 1, 1999. The amounts listed for him on this table were paid by his
former employer, Mestek Technology, Inc., an affiliate of MCS. Mr.
Thomasmeyer continued his then current salary level upon becoming Chief
Executive Officer and President of MCS.
(3) Mr. Kakavis resigned as President and Chief Executive Officer of MCS
effective on January 1, 1999. He is currently a director and the President
Emeritus of MCS.
(4) These officers are also employees of Mestek and are paid by Mestek. Only a
portion of their time is spent on MCS matters. The figures here represent
all of the compensation paid to such officers by Mestek.
(5) Refers to shares of Mestek common stock.
MCS BONUS PLAN
The Chairman of the Board of Directors, based on the recommendations of the
President, selects officers and employees eligible to participate in the MCS
Bonus Plan, and establishes their respective participation percentage, as well
as the targets for the specified return on tangible net assets employed. Each of
the officers' or employees' respective participation percentage is established
by reference to his or her level of performance, responsibility and contribution
to the profitability of the Corporation. The participation by an officer or
employee in the MCS Bonus Plan is based on their participation percentage in the
operating profits of MCS in excess of a specified return on
22
<PAGE> 23
tangible net assets employed in MCS. The specified return targets for the MCS
Bonus Plan varies year by year, but was generally a 20% return.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MCS has been and will be a wholly-owned subsidiary of Mestek prior to the
Spinoff. As such, MCS has historically distributed substantially all of its free
cash flow to Mestek in the form of an annual dividend. These dividends were
$770,000 in 1998 and $2,337,000 in 1997. MCS' historical access to capital has
been through an open intercompany account with Mestek. MCS has historically
generated positive cash flow to Mestek each year, and, as such, has no
outstanding intercompany debt to Mestek, or other long-term debt, as of December
31, 1998, 1997 or 1996 and accordingly, reported no interest expense in 1998,
1997 or 1996. MCS' results of operations reflect intercompany management fee
charges from Mestek of $74,000 in 1998, $78,000 in 1997, $84,000 in 1996, and
its results of operations for the nine month period ended September 30, 1999
include a management fee charge from Mestek of $74,000.
On September 1, 1999, MCS transferred to Mestek the Profit Works line of
business, including its assets and liabilities.
In late 1999 or early 2000, MCS expects to lease from Mestek or an
affiliated company of Mestek certain equipment to be purchased for MCS' use at
MCS' request. The aggregate purchase price for the equipment is expected to be
approximately $550,000. The terms for the lease of such equipment have not yet
been determined, and there is no assurance that the lease arrangement will be
consummated.
ITEM 8. LEGAL PROCEEDINGS
MCS is not presently involved in any litigation which it believes will
materially and adversely affect its financial condition or results of
operations.
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MCS is a wholly owned subsidiary of Mestek, and consequently there is no
public market for the shares of MCS common stock. MCS shares will not be
transferable for a period of 125 days from the record date for the Spinoff,
except in the event of a merger between MCS and another company. Dividends are
payable from MCS' surplus if and to the extent authorized by the Board of
Directors. MCS does not anticipate paying any dividends in the foreseeable
future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Prior to the Spinoff, MCS will issue a stock dividend on its common stock
to increase the number of shares outstanding to have enough shares to allow the
Spinoff.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following description of the capital stock of MCS is subject to and
qualified in its entirety by reference to MCS' Amended and Restated Articles of
Incorporation, which have been filed as an exhibit to this Form 10.
COMMON STOCK
MCS is authorized to issue up to 10 million shares of $1.00 par value
common stock. Immediately after the Spinoff, MCS will have [ ] million
issued and outstanding shares of common stock. The holders of the common stock
are entitled to one vote per share on all matters to be voted upon by the
stockholders and do not have preemptive rights to acquire additional shares. In
the event of the dissolution and liquidation of MCS, the available proceeds
remaining after the payment of debts and liquidation expenses are to be
distributed pro rata to the holders of MCS common stock. MCS' transfer agent
and registrar is EquiServe.
23
<PAGE> 24
PENNSYLVANIA BUSINESS COMBINATION STATUTE
Chapter 25 of the Pennsylvania Business Corporation Law ("PBCL") contains
several anti-takeover provisions which apply to "registered" corporations,
including MCS.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS. Section 2538 of the PBCL
provides that if (i) an "interested stockholder" (as such term is defined in the
PBCL) of a "registered" corporation(1)(together with others acting jointly or in
concert therewith and affiliates thereof) is to be a party to a merger or
consolidation, a share exchange or certain sales of assets involving such
corporation or a subsidiary thereof; (ii) such interested stockholder is to
receive a disproportionate amount of any of the securities of any corporation
surviving or resulting from a division of such corporation: (iii) such
interested stockholder is to be treated differently from others holding shares
of the same class in a voluntary dissolution of such corporation; or (iv) such
interested stockholder's percentage of voting or economic share interest in such
corporation is materially increased relative to substantially all other
stockholders in a reclassification; then the transactions being proposed must be
approved by the affirmative vote of the holders of shares representing at least
a majority of the votes that all stockholders (other than the interested
stockholder) are entitled to cast with respect to such transaction, excluding
all such voting shares beneficially owned by such interested stockholder. Such
special voting requirement does not apply if the transaction being proposed has
been approved in a prescribed manner by such corporation's board of directors or
certain other conditions (including the amount of consideration to be paid to
certain stockholders) are satisfied or the transaction involves certain
subsidiaries.
Section 2555 of the PBCL may apply to a transaction between a registered
corporation and an interested stockholder thereof, notwithstanding that Section
2538 is also applicable. Section 2555 prohibits such a corporation from engaging
in a "business combination" (as such term is defined in the PBCL) with an
interested stockholder unless: (i) the board of directors of such corporation
gives prior approval to the proposed transaction or gives prior approval to the
interested stockholder's acquisition of 20% of the shares entitled to vote in an
election of directors of such corporation, (ii) the interested stockholder owns
at least 80% of the stock of such corporation entitled to vote in an election of
directors and, no earlier than three months after such interested stockholder
reaches such 80% level, the majority of the remaining stockholders approve the
proposed transaction and stockholders receive a minimum "fair price" for their
shares in the transaction, and the other conditions of Section 2556 of the PBCL
are met, (iii) holders of all outstanding common stock approve the transaction,
(iv) no earlier than 5 years after the interested stockholder acquired the 20%,
a majority of the remaining shares entitled to vote in an election of directors
approve the transaction, or (v) no earlier than 5 years after the interested
stockholder acquired the 20%, a majority of all the shares approve the
transaction, all stockholders receive a minimum "fair price" for their shares
(as set forth in Section 2556 of the PBCL), and certain other conditions are
met.
STOCKHOLDER "PUT" IN CONTROL TRANSACTIONS. Under Sections 2542 through
2554 of the PBCL, when a person or group of persons acting in concert holds 20%
of the shares of a registered corporation entitled to vote in the election of
directors (a "control group"), on the occurrence of the transaction that makes
the group a control group, any other stockholder of the registered corporation
who objects can, under procedures set forth in the
- ---------------
(1) Under Pennsylvania law, MCS is a "registered corporation."
24
<PAGE> 25
statute, require the control group to purchase his or her shares at "fair value"
as defined in the PBCL.
CERTAIN SHARE ACQUISITIONS. The PBCL also contains certain provisions
applicable to a "registered" corporation such as MCS which, under certain
circumstances, permit a corporation to redeem Control Shares (as defined in the
PBCL), remove the voting rights of Control Shares and require the disgorgement
of profits by a Controlling Person (as defined in the PBCL).
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MCS' certificate of incorporation does not provide for the indemnification
of directors or officers of MCS. MCS' bylaws provide that directors and officers
of MCS shall be indemnified as of right to the fullest extent permitted by
Pennsylvania law in connection with any actual or threatened civil, criminal,
administrative or investigative action, suit or proceeding, whether brought in
the name of MCS or otherwise, arising out of the director's or the officer's
service to MCS or another organization at MCS' request. MCS' bylaws permit MCS
to maintain insurance to protect itself and its directors and officers against
any liability, cost or expense incurred in connection with actual or threatened
civil, criminal, administrative or investigative actions, suits or proceedings
arising out of service to MCS or other organizations at MCS' request. Currently,
MCS's directors and officers have a contractual right to indemnification under
an agreement with Mestek funded by a trust.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the "Index to
Financial Statements" on page 26 and in the financial statements continuing
thereafter. This Form 10 includes the following financial statements of MCS: (i)
audited balance sheets as of December 31, 1998 and 1997, and the unaudited
balance sheet as of September 30, 1999; (ii) audited statements of income for
the fiscal years ending December 31, 1996, December 31, 1997 and December 31,
1998, and unaudited statements of income for the nine month periods ended
September 30, 1999 and September 30, 1998; (iii) audited statement of
stockholders' equity (deficit) for the fiscal years ending December 31, 1996,
December 31, 1997 and December 31, 1998, and the unaudited statement of
stockholders' equity (deficit) for the nine month period ended September 30,
1999, and (iv) audited statement of cash flows for the fiscal years ending
December 31, 1996, December 31, 1997 and December 31, 1998 and the unaudited
statement of cash flows for the nine months ended September 30, 1999 and
September 30, 1998.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 26
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS.
Index to Financial Statements
Report of Grant Thornton, LLP
Audited balance sheet as of December 31, 1997 and December 31, 1998 and
the unaudited balance sheet as of September 30, 1999;
Audited statements of income for the fiscal years ending December 31,
1996, December 31, 1997 and December 31, 1998 and the unaudited
statements of income for the nine months ended September 30, 1999 and
September 30, 1998;
Audited statement of stockholder's equity (deficit) for the fiscal years
ending December 31, 1996, December 31, 1997 and December 31, 1998 and
the unaudited period ended September 30, 1999;
Audited statement of cash flows sheet for the fiscal years ending
December 31, 1996, December 31, 1997 and December 31, 1998 and the
unaudited cash flows for the nine months ending September 30, 1999 and
September 30, 1998.
Notes to the Financial Statements
B. EXHIBITS.
<TABLE>
<C> <C> <S>
2.1 -- Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement, dated as of October 25, 1999 by and
among MCS, Inc., Mestek, Inc., Simione Central Holdings,
Inc., John E. Reed, Stewart B. Reed and E. Herbert Burk.
3.1 -- Amended and Restated Articles of Incorporation of MCS, Inc.
3.2 -- By-Laws of MCS, Inc.
10.1 -- Standard form sales contract
10.2 -- Form of Employment Agreement, dated at November 1998, between
MCS, Inc. and Nick Kakavis
</TABLE>
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, there unto duly authorized.
MCS, INC.
By: /s/ WILLIAM A. THOMASMEYER
--------------------------------------
Name: William A. Thomasmeyer
Title: President and
Chief Executive Officer
Date: October 26, 1999
27
<PAGE> 28
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENT PAGE
------------------- ----
<S> <C>
Report of Grant Thornton, LLP, Independent Certified Public
Accountants................................................. 29
MCS, Inc. Balance Sheets.................................... 30
MCS, Inc. Statements of Income.............................. 31
MCS, Inc. Statements of Stockholder's Equity (Deficit)...... 32
MCS, Inc. Statement of Cash Flows........................... 33
Notes to Financial Statements............................... 34
</TABLE>
28
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MCS, INC.
We have audited the accompanying balance sheets of MCS, Inc. as of December
31, 1998 and 1997, and the related statements of income, stockholder's equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 in 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 MCS, Inc. as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Boston, Massachusetts
July 9, 1999 (except for Note 11
as to which the date
is September 9, 1999)
29
<PAGE> 30
MCS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
---------- ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................... $ 33 $ 60 $ 40
Accounts Receivable -- net.................. 3,666 3,837 3,734
Unbilled Accounts Receivable................ 247 286 248
Inventories................................. 222 264 393
Other Current Assets........................ 324 68 10
------ ------ ------
Total Current Assets...................... 4,492 4,515 4,425
Property and Equipment -- net............... 599 501 315
Capitalized Software -- net................. 187 240 93
Other Assets................................ 38 23 62
------ ------ ------
Total Assets.............................. $5,316 $5,279 $4,895
====== ====== ======
LIABILITIES AND STOCKHOLDER
CURRENT LIABILITIES:
Accounts Payable............................ $ 673 $ 856 $1,10
Deferred Revenue............................ 2,775 3,150 3,205
Customer Deposits........................... 487 689 659
Accrued Commissions......................... 444 787 874
Payable to Parent Company................... 476 -- --
Other Accrued Liabilities................... 734 778 690
------ ------ ------
Total Current Liabilities................. 5,589 6,260 6,535
------ ------ ------
STOCKHOLDERS' EQUITY:
Common Stock -- par value $1 per share,
1,000 shares issued....................... 1 1 1
Paid in Capital............................. 230 230 230
Retained Earnings (Deficit)................. (504) (1,212) (1,871)
------ ------ ------
Total Stockholders' Equity (Deficit)...... (273) (981) (1,640)
------ ------ ------
Total Liabilities and Stockholders' Equity
(Deficit).............................. $5,316 $5,279 $4,895
====== ====== ======
</TABLE>
See Accompanying Notes to Financial Statements.
30
<PAGE> 31
MCS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- ---------------------------
1999 1998 1998 1997 1996
------ ------ ------- ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Service Revenues........................ $13,521 $12,144 $16,630 $17,029 $16,114
Cost of Service Revenues.................... 8,205 7,594 10,052 9,790 9,249
------ ------ ------- ------- -------
Gross Profit................................ 5,316 4,550 6,578 7,239 6,865
Selling Expense............................. 2,262 1,730 2,392 2,110 2,036
General and Administrative Expense.......... 1,215 1,154 1,619 1,839 1,766
New Product Development..................... 831 163 231 -- --
------ ------ ------- ------- -------
Operating Profit............................ 1,008 1,503 2,336 3,290 3,063
Other Income (Expense), Net................. 28 34 47 74 52
------ ------ ------- ------- -------
Income Before Taxes......................... 1,036 1,537 2,383 3,364 3,115
Income Taxes................................ 408 619 954 1,355 1,258
------ ------ ------- ------- -------
Net Income.................................. $ 628 $ 918 $ 1,429 $ 2,009 $ 1,857
====== ====== ======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
31
<PAGE> 32
MCS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON PAID IN RETAINED CUMULATIVE
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance (Deficit) December 31, 1995........ $1 $230 $(1,074) $ (843)
Net Income............................... 1,857 1,857
Dividends Paid........................... (2,326) (2,326)
------- -------
Balance (Deficit) December 31, 1996........ $1 $230 $(1,543) $(1,312)
Net Income............................... 2,009 2,009
Dividends Paid........................... (2,337) (2,337)
------- -------
Balance (Deficit) December 31, 1997........ 1 230 (1,871) (1,640)
Net Income............................... 1,429 1,429
Dividends Paid........................... (770) (770)
------- -------
Balance (Deficit) December 31, 1998........ 1 230 (1,212) (981)
Net Income............................... 488 488
------- -------
Balance (Deficit) September 30, 1999
(unaudited).............................. $1 $230 $ (724) $ (493)
== ==== ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
32
<PAGE> 33
MCS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEARS
MONTHS ENDED ENDED
SEPT 30, DECEMBER 31,
------------- --------------------------
1999 1998 1998 1997 1996
----- ----- ------ ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income...................................... $ 628 $ 619 $1,429 $ 2,009 $ 1,857
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities Depreciation
and Amortization.............................. 151 121 194 119 94
Provision for losses on Accounts Receivable, net
of write-offs................................. 163 85
Changes in assets and liabilities net of effects
of acquisitions and dispositions:
Accounts Receivable........................... 419 70 (266) (455) 9
Unbilled Accounts Receivable.................. 39 (50) (38) (74) (35)
Inventory..................................... 41 36 129 37 131
Accounts Payable.............................. (183) (336) (251) 288 265
Other Liabilities............................. 132 402 89 120 10
Deferred Revenue.............................. (376) (191) (55) 306 (5)
Customer Deposits............................. (201) 188 30 (111)
Accrued Commissions........................... (344) (371) (87) 76 126
Other......................................... (127) 5 (19) (2) (28)
----- ----- ------ ------- -------
Net Cash Provided by Operating
Activities............................... 179 493 1,318 2,509 2,313
----- ----- ------ ------- -------
Cash Flows from Investing Activities:
Capital Expenditures............................ (206) (495) (528) (166) (204)
----- ----- ------ ------- -------
Net Cash (Used In) Investing Activities....... (206) (495) (528) (166) (204)
----- ----- ------ ------- -------
Cash Flows from Financing Activities:
Dividends Paid.................................. -- -- (770) (2,337) (2,326)
----- ----- ------ ------- -------
Net Cash (Used In) Financing Activities....... -- -- (770) (2,337) (2,326)
----- ----- ------ ------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents................................. (27) (2) 20 6 (217)
Cash and Cash Equivalents -- Beginning of
Period........................................ 60 40 40 34 251
----- ----- ------ ------- -------
Cash and Cash Equivalents -- End of Period...... $ 33 $ 38 $ 60 $ 40 $ 34
===== ===== ====== ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
33
<PAGE> 34
MCS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF SEPTEMBER 30, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
MCS, Inc. (the Company) provides information systems and services to the
home health care industry under the name MestaMed. The Company also provides
information systems and services to building supplies distributors under the
name ProfitWorks. MestaMed and ProfitWorks, which are sold exclusively in the
United States are distinct reportable segments as defined under Statement of
Financial Accounting Standards No. 131 (See Note 9).
The Company is a wholly owned subsidiary of Mestek, Inc., a public company
traded on the New York Stock Exchange. Inter-company transactions between Mestek
and the Company are generally limited to management fees, federal income tax
allocations, cash advances and cash distributions. The net effect of cash flows
between Mestek and the Company, whether net contributions from Mestek or net
distributions to Mestek, are reflected at year-end in the Stockholder's Equity
section of the Company's balance sheet as paid in capital or inter-company
dividends, respectively. At interim periods, the net effect of such cash flows
are recorded as an open intercompany account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
In 1998, the Company adopted the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1 and is effective for transactions
entered into for fiscal years beginning after December 31, 1997. The adoption of
SOP 97-2 did not have a material impact on the Company's Financial Statements.
The Company's principal products, MestaMed and ProfitWorks, do not
typically require significant customization or lengthy implementation periods.
Accordingly, the Company invoices its customers for software licenses and
related hardware sales after both hardware and software have been delivered and
accepted and related contracts, including software licenses, have been executed.
The Company recognizes such revenues at the time they are invoiced.
34
<PAGE> 35
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company invoices its customers for software maintenance and telephone
support (other than first year maintenance and support) on an annual basis,
thereafter. Such billings are treated as deferred revenues on the Company's
balance sheet and are thereafter amortized off to revenue over twelve months
using the straight-line method.
In addition to software licenses, software maintenance and support, and
related hardware, the Company also provides a number of ancillary services
including training, consulting and after-hours support. Revenues from such
services are recognized monthly as such services are performed and billed.
Unbilled receivables represent revenues earned in the current period but
not billed until future dates, usually within one month.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income for the period.
SOFTWARE DEVELOPMENT EXPENSES
SFAS No. 86 requires that software development costs incurred subsequent to
the establishment of technological feasibility for the product be capitalized.
The Company has no capitalized development costs.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income" established standards for the reporting and display of
comprehensive income. For the years ended December 31, 1998, December 31, 1997
and December 31, 1996, respectively, the components of other comprehensive
income were not material.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 131, which was effective for fiscal years beginning
after December 15, 1997. SFAS 131 requires, in general, a "management approach"
rather than an "industry approach" to the disclosure of segment information. The
Company adopted SFAS 131 in 1998 and prepared its segmental reporting
accordingly as reflected in Note 9 to the Financial Statements.
RECLASSIFICATION
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
35
<PAGE> 36
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The Financial Statements as of, and for the nine months ended,
September 30, 1999 and 1998 are unaudited and, in the opinion of management,
include all material adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows. The results for interim periods
are not necessarily indicative of results for the entire year.
2. INVENTORIES
Inventories consist principally of computer equipment held for resale and
related operating system licenses. Inventories are valued at the lower of cost
or market.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DEPRECIATION AND
September 30, --------------------------------- AMORTIZATION EST.
1999 1998 1997 1996 USEFUL LIVES
----------- ---------- --------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Furniture & Fixtures........... $ 299,000 $ 180,000 $ 153,000 $143,000 10 years
Computer Equipment............. 1,108,000 1,021,000 734,000 578,000 5 years
---------- ---------- --------- --------
1,407,000 1,201,000 887,000 721,000
Accumulated Depreciation....... (807,000) (700,000) (542,000) (481,000)
---------- ---------- --------- --------
$ 600,000 $ 501,000 $ 315,000 $240,000
========== ========== ========= ========
</TABLE>
Depreciation expense was $128,000, $100,000 and $76,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Depreciation expense was $116,000 and $73,000 for the nine-month periods
ended September 30, 1999 and 1998, respectively.
4. CAPITALIZED SOFTWARE
Included in capitalized software is a significant software product acquired
by acquisition under the name Mentor/CBT. Mentor/CBT is a computer based
training tool and content set acquired in February 1998 at a cost of
approximately $213,000, which is being amortized over sixty months using the
straight-line method. Mentor/CBT is used by the Company to develop and organize
training programs and other CBT content to assist in the implementation of
MestaMed and other software applications.
5. INCOME TAXES
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of
36
<PAGE> 37
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
temporary differences between the financial statement carrying amount and the
tax bases of assets and liabilities.
Income Tax Expense consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current Federal Income Tax..................... $742 $1061 $ 962
Current State Income Tax....................... 212 294 296
---- ----- -----
$954 $1355 $1258
==== ===== =====
</TABLE>
Total Income Tax Expense was essentially equal to "expected" income tax
expense computed by applying the U. S. Federal Income Tax rate of 35 percent,
and related state corporate income tax rates, to earnings before income tax.
Deferred income tax assets and liabilities were not material at
December 31, 1998, December 31, 1997, December 31, 1996 or September 30, 1999.
For Federal Income Tax purposes, the Company files a consolidated return
with its parent, Mestek, Inc. The Company's income tax provision,
notwithstanding, is computed on a stand-alone basis.
6. STOCKHOLDER'S EQUITY (DEFICIT)
The Company has authorized common stock of 1,000 shares with a par value of
$1 per share. One thousand shares are issued and outstanding and are held by
Mestek, Inc. as of December 31, 1998, 1997 and 1996, and September 30, 1999 and
1998.
7. LEASES
The Company leases office space in suburban Pittsburgh, Pennsylvania on an
operating lease basis. In addition to a basic annual rental of $ 349,000, the
Company is obligated to pay property taxes on the premises to the extent they
exceed those in effect in 1990. No such excess occurred in either 1998, 1997 and
1996.
Rent expense under the lease totaled $ 302,000, $ 252,000 and $ 277,000 for
the years ended December 31, 1998, 1997 and 1996 respectively. These amounts are
less than the basic annual rental for 1999 as less space was in use in these
years.
Future minimum lease payments under the lease agreement as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ ---------
<S> <C>
1999........................................................ $349,000
2000........................................................ 262,000
--------
Total minimum lease payments.............................. $611,000
========
</TABLE>
37
<PAGE> 38
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified defined contribution target benefit
pension plan, which covers substantially all of its employees. Pension costs
are accrued annually based on contributions earned by participants under plan
provisions. The total expense related to this plan for the twelve months ended
December 31, 1998, 1997 and 1996 was $88,000, $65,000 and $70,000,
respectively. The total expense related to this plan for the nine months ended
September 30, 1999 and 1998 was $59,000 and $59,000, respectively.
The Company maintains bonus plans for its officers and other key employees.
The plans generally allow for annual bonuses for individual employees based upon
the operating results of related profit centers in excess of a percentage of the
Company's investment in the respective profit centers.
The Company maintains a qualified 401(k) Plan for its employees who
choose to participate. Participants may elect to have up to fifteen percent
(15%) of their compensation withheld, up to the maximum allowed by the Internal
Revenue Code. Participants may also elect to make nondeductible voluntary
contributions up to an additional ten percent (10%) of their gross earnings
each year within the legal limits. The Company contributes $0.25 of each $1.00
deferred by participants and deposited to the Plan not to exceed one and five
tenths percent (1.5%) of an employee's compensation. The Company does not match
any amounts for withholdings from participants in excess of six percent (6%) of
their compensation or for any nondeductible voluntary contributions.
Contributions are funded on a current basis. Employer contributions to the Plan
were $66,704, $60,004, and $54,490 for the years ended December 1998, 1997, and
1996, respectively. Employer contributions to the Plan were $61,479 for the
nine month period ended September 30, 1999.
9. SEGMENT INFORMATION
The Company has two reportable segments: (1) MestaMed, which develops
computer software for the home health care and durable medical equipment
marketplaces and (2) ProfitWorks, which develops computer software for the
building supplies distribution marketplace.
The Company evaluates performance and allocates resources based on profit
or loss from operations before interest expense and income taxes, (EBIT) not
including non-operating gains and losses. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales are not material. Shared
administrative overhead expenses are allocated among the Company's segments on
the basis of specific cost drivers where identifiable and otherwise on the basis
of a composite of relative historical net sales, relative projected net sales
and relative personnel costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 MESTAMED PROFITWORKS TOTALS
- ---------------------------- -------- ----------- -------
<S> <C> <C> <C>
Revenues from External Customers................. $14,901 $1,729 $16,630
Interest Expense................................. -- -- --
Depreciation Expense............................. 118 10 128
Amortization Expense............................. 67 -- 67
Segment Operating Profit......................... 1,831 505 2,336
Segment Assets................................... 4,845 434 5,279
Expenditure for Long-Lived Assets................ 527 1 528
LONG LIVED ASSETS:
United States.................................... 732 10 742
Foreign Countries................................ -- -- --
------- ------ -------
732 10 742
======= ====== =======
</TABLE>
38
<PAGE> 39
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MESTAMED PROFITWORKS TOTALS
-------- ----------- -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Revenues from External Customers................. $15,433 $1,596 $17,029
Interest Expense................................. -- -- --
Depreciation Expense............................. 93 7 100
Amortization Expense............................. 19 -- 19
Segment Operating Profit......................... 3,071 219 3,290
Segment Assets................................... 4,545 350 4,895
Expenditure for Long-Lived Assets................ 158 8 166
LONG LIVED ASSETS:
United States.................................... 397 11 408
Foreign Countries................................ -- -- --
------- ------ -------
Total.......................................... $ 397 $ 11 $ 408
======= ====== =======
YEAR ENDED DECEMBER 31, 1996
Revenues from External Customers................. $14,636 $1,478 $16,114
Interest Expense................................. -- -- --
Depreciation Expense............................. 79 7 86
Amortization Expense............................. 18 -- 18
Segment Operating Profit......................... 2,994 69 3,063
Segment Assets................................... 4,153 336 4,489
Expenditure for Long-Lived Assets................ 198 6 204
LONG LIVED ASSETS:
United States.................................... 354 7 361
Foreign Countries................................ -- -- --
------- ------ -------
Total.......................................... 354 7 361
======= ====== =======
NINE-MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Revenues from External Customers................. $12,579 $ 942 $13,521
Interest Expense................................. -- -- --
Depreciation Expense............................. 109 7 116
Amortization Expense............................. 53 -- 53
Segment Operating Profit......................... 953 83 1,036
Segment Assets................................... 5,316 0 5,316
Expenditure for Long-Lived Assets................ 206 -- 206
LONG LIVED ASSETS:
United States.................................... 786 -- 786
Foreign Countries................................ -- -- --
------- ------ -------
Total.......................................... 786 -- 786
======= ====== =======
NINE-MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
Revenues from External Customers................. $10,962 $1,182 $12,144
Interest Expense................................. -- -- --
Depreciation Expense............................. 69 7 76
Amortization Expense............................. 50 -- 50
Segment Operating Profit......................... 1,279 258 1,537
Segment Assets................................... 5,080 215 5,295
Expenditure for Long-Lived Assets................ 494 1 495
</TABLE>
The segment information related to Profitworks for 1999 represents the eight
month period ending 8/31/99. Under the terms of the Agreement (see note 10)
Profitworks was distributed to Mestek on September 1, 1999.
39
<PAGE> 40
MCS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY
The Company is a wholly owned subsidiary of Mestek, Inc. (the Parent) a
public company traded on the New York Stock Exchange. As such, the Company has
historically distributed substantially all of its free cash flow to the Parent
in the form of an annual dividend. The Company's historical access to capital
has been through an open intercompany account with the Parent. The Company has
historically generated positive cash flow to the Parent each year and, as such,
had no outstanding intercompany debt to the Parent, or other long-term debt, as
of December 31, 1998, December 31, 1997 or December 31, 1996 and accordingly,
reported no interest expense in 1998, 1997 or 1996. The Company's results of
operations for 1998, 1997 and 1996 reflect intercompany management fee charges
from the Parent of $74,000, $78,000 and $84,000 respectively. As described in
Note 1, at interim dates the Company reports its net cash flow activity to or
from the Parent as an open intercompany payable or receivable as appropriate.
11. SUBSEQUENT EVENT
On May 26, 1999, Mestek entered into a definitive agreement, (the
Agreement), to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione
Central Holdings, Inc. (Simione). Under the terms of the Agreement, for every
share of outstanding Simione common stock, Simione will issue approximately .85
shares of its common stock to Mestek in the exchange. As a result, Mestek will
own approximately 46% of outstanding Simione common stock after the merger is
completed. Under the terms of the Agreement, MCS's ProfitWorks segment will be
distributed to Mestek prior to the merger.
Simione is a provider of information systems and services to the Home
Health Care industry. Simione provides information systems, consulting and
agency support services to customers nationwide. Simione provides freestanding,
hospital based and multi-office Home Health Care Providers (including certified,
private duty, staffing, HME, IV therapy, and hospice) with information solutions
that address all aspects of home care operations. Simione maintains offices
nationwide and is headquartered in Atlanta, Georgia.
Under the terms of the Agreement, if either party terminates the Agreement
in favor of an alternative acquisition proposal the terminating party shall be
obligated to pay the other party up to $1,700,000 in termination fees. The
Agreement is subject to regulatory and stockholder approvals and is expected by
the parties to close prior to the end of 1999.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had entered
into an amendment to the Agreement, whereby the shares of common stock of MCS
shall be distributed to the Mestek common stock stockholders in a spin-off
transaction, MCS shall then be merged with and into SCHI, and MCS' stockholders
will receive approximately .85 shares of Simione common stock for each share of
MCS common stock.
In connection with the Amendment, Mestek loaned to SCHI the sum of
$3,000,000 on a short-term basis. Upon the closing of the above-mentioned
merger, the $3,000,000 loan will be canceled, and Mestek shall contribute an
additional $3,000,000 to the capital of SCHI in return for newly issued Series B
Preferred Stock of SCHI. The Series B Preferred Stock issued to Mestek will have
voting rights equivalent to 11.2 million shares of SCHI common stock. Mestek
will also receive as part of its capital contribution to SCHI a warrant for the
subsequent purchase of 2 million shares of SCHI common stock.
40
<PAGE> 1
EXHIBIT 2.1
SECOND AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER AND INVESTMENT AGREEMENT
Dated as of October 25, 1999
Among
MCS, INC.,
MESTEK, INC.,
SIMIONE CENTRAL HOLDINGS, INC.,
JOHN E. REED, STEWART B. REED
AND E. HERBERT BURK
<PAGE> 2
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND
INVESTMENT AGREEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS.......................................................2
1.1 Defined Terms..............................................................2
1.2 Loan.......................................................................7
1.3 Spinoff....................................................................7
1.4 Parent Investment..........................................................7
1.5 Mestek Warrant.............................................................8
ARTICLE 2 THE MERGER........................................................8
2.1 The Merger.................................................................8
2.2 Effective Time.............................................................8
2.3 Effect of the Merger.......................................................8
2.4 Subsequent Actions.........................................................8
2.5 Certificate of Incorporation; Bylaws; Directors and Officers...............9
2.6 Stockholders' Meeting.....................................................10
2.7 Tax Consequence...........................................................11
ARTICLE 3 MERGER CONSIDERATION.............................................11
3.1 Conversion of Company Capital Stock.......................................11
3.2 Fractional Shares.........................................................11
3.3 Stock Options and Warrants................................................11
3.4 Delivery of Merger Shares.................................................12
3.5 Closing...................................................................12
ARTICLE 4 ADDITIONAL COVENANTS.............................................13
4.1 Registration Rights.......................................................13
4.2 Stockholders' Meeting.....................................................17
4.3 Best Efforts to List Shares and Maintain S-3 and NASDAQ NMS Status........17
4.4 ProfitWorks Agreement.....................................................17
4.5 Parent Plan and Company Plan..............................................17
4.6 Company Financial Statements..............................................18
4.7 Conduct of Business by Purchaser and the Company Pending Merger...........18
4.8 Expenses..................................................................19
4.9 Tax Matters...............................................................20
4.10 Notification of Certain Matters...........................................22
4.11 Public Announcements......................................................23
4.12 Tax Free Reorganization...................................................23
4.13 Access and Inspection.....................................................23
</TABLE>
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<TABLE>
<S> <C> <C>
4.14 Ongoing Business..........................................................23
4.15 Certain Filings, Consents and Arrangements................................23
4.16 No Solicitation...........................................................24
4.17 Registration..............................................................25
4.18 Affiliates................................................................27
4.19 Dissenters Rights.........................................................27
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF................................28
5.1 Organization and Authority................................................28
5.2 Corporate Power and Authority; Due Authorization..........................28
5.3 Ownership of Assets.......................................................28
5.4 No Conflict; Required Consents............................................29
5.5 Capitalization............................................................29
5.6 Compliance with Laws; Filings with the SEC................................30
5.7 Licenses and Permits......................................................30
5.8 Liabilities and Obligations of the Company................................31
5.9 Taxes.....................................................................32
5.10 Contracts, Agreements and Instruments Generally...........................33
5.11 Customer Contracts........................................................34
5.12 Intellectual Property; Computer Software..................................34
5.13 Labor Matters.............................................................35
5.14 Work-in-Process, Orders and Returns.......................................36
5.15 Absence of Certain Changes................................................36
5.16 Leases....................................................................37
5.17 Litigation................................................................38
5.18 Employee Benefit Plans: Employees.........................................38
5.19 Accuracy of Representations...............................................41
5.20 Brokers Fees and Expenses.................................................41
5.21 Bank Accounts.............................................................41
5.22 Business Practices........................................................41
5.23 Insurance.................................................................41
5.24 Tax Free Reorganization...................................................42
5.25 No Existing Discussion....................................................42
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER......................42
6.1 Organization of Purchaser.................................................42
6.2 Corporate Power and Authority; Due Authorization..........................42
6.3 No Conflict; Consents.....................................................43
6.4 Ownership of Assets.......................................................43
6.5 Capitalization............................................................43
6.6 Compliance with Laws......................................................44
6.7 Licenses and Permits......................................................44
6.8 Liabilities and Obligations of Purchaser..................................45
6.9 Taxes.....................................................................45
6.10 Contracts, Agreements and Instruments Generally...........................46
</TABLE>
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<TABLE>
<S> <C> <C>
6.11 Customer Contracts........................................................47
6.12 Intellectual Property; Computer Software..................................47
6.13 Labor Matters.............................................................48
6.14 Work-in-Process, Orders and Returns.......................................48
6.15 Absence of Certain Changes................................................49
6.16 Leases....................................................................50
6.17 Litigation................................................................50
6.18 Employee Benefit Plans: Employees.........................................51
6.19 Brokers Fees and Expenses.................................................53
6.20 Bank Accounts.............................................................54
6.21 Business Practices........................................................54
6.22 Insurance.................................................................54
6.23 Tax Free Reorganization...................................................54
6.24 No Existing Discussion....................................................54
6.25 Shares to be Delivered....................................................54
6.26 Accuracy of Securities Filings; Financial Statements......................54
6.27 Approvals.................................................................55
6.28 Accuracy of Representations...............................................56
6.29 NASDAQ Rules..............................................................56
ARTICLE 7 INDEMNIFICATION..................................................56
7.1 Indemnification by Parent.................................................56
7.2 Indemnification by Surviving Corporation..................................56
7.3 Provisions Regarding Indemnification......................................57
7.4 Survival..................................................................57
7.5 Limitations...............................................................57
7.6 No Recourse Against the Company...........................................58
7.7 Effect of Insurance.......................................................58
ARTICLE 8 CONDITIONS TO OBLIGATIONS........................................58
8.1 Representations and Warranties True at Closing............................58
8.2 Obligations Performed.....................................................59
8.3 Consents..................................................................59
8.4 Closing Deliveries........................................................59
8.5 No Challenge..............................................................60
8.6 No Material Adverse Consequence...........................................60
8.7 Revised Schedules.........................................................60
8.8 Repayment of Debts........................................................60
8.9 Releases..................................................................60
8.10 Spinoff...................................................................60
8.11 Registration Statement....................................................60
ARTICLE 9 CONDITIONS TO OBLIGATIONS........................................60
9.1 Representations and Warranties True at Closing............................61
</TABLE>
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<TABLE>
<S> <C> <C>
9.2 Obligations Performed.....................................................61
9.3 Consents..................................................................61
9.4 Closing Deliveries........................................................61
9.5 No Challenge..............................................................62
9.6 Revised Schedules.........................................................62
9.7 No Material Adverse Consequence...........................................62
9.8 Spinoff...................................................................62
9.9 Registration Statement....................................................62
ARTICLE 10 TERMINATION......................................................62
10.1 Termination...............................................................62
10.2 Effect of Termination.....................................................63
ARTICLE 11 MISCELLANEOUS PROVISIONS.........................................63
11.1 Severability..............................................................63
11.2 Modification..............................................................63
11.3 Assignment, Survival and Binding Agreement................................63
11.4 Counterparts..............................................................63
11.5 Notices...................................................................63
11.6 Entire Agreement; No Third Party Beneficiaries............................64
11.7 Governing Law.............................................................64
11.8 Arbitration...............................................................64
11.9 Headings..................................................................65
11.10 Incorporation of Exhibit and Schedules....................................65
11.11 Waiver....................................................................65
11.12 Time of Essence...........................................................65
11.13 Appointment of Agent......................................................65
11.14 Provision of Assistance...................................................65
</TABLE>
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<PAGE> 6
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AND INVESTMENT AGREEMENT
This SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND
INVESTMENT AGREEMENT, dated as of the 25th day of October, 1999 (the
"Agreement"), is by and among MCS, INC., a Pennsylvania corporation (the
"Company"), MESTEK, INC., a Pennsylvania corporation ("Parent"), SIMIONE
CENTRAL HOLDINGS, INC., a Delaware corporation ("Purchaser"), JOHN E. REED,
STEWART B. REED and E. HERBERT BURK.
W I T N E S S E T H:
WHEREAS, the Company, Parent and Purchaser entered into that certain
Agreement and Plan of Merger dated as of May 26, 1999 (the "Original
Agreement") under which the parties contemplated the acquisition by Purchaser
of the Company pursuant to the merger of the Company with and into Purchaser in
accordance with the terms and conditions set forth in the Original Agreement
("Merger");
WHEREAS, Purchaser acquired the stock of CareCentric Solutions, Inc.
("CareCentric") pursuant to a merger that was consummated on August 12, 1999
(the "CareCentric Acquisition");
WHEREAS, subsequent to the execution of the Original Agreement, the
parties decided that, in order to fulfill the original business plan underlying
the Original Agreement and to fully realize the benefits of the CareCentric
Acquisition, it was necessary to amend the Original Agreement to provide for
additional financial investment in Purchaser by Parent (to satisfy certain
CareCentric liabilities and other business needs) (the Original Agreement, as
amended and restated as of September 9, 1999, is referred to hereafter as the
"First Amended Agreement");
WHEREAS, in connection with the First Amended Agreement, the parties
decided that it is was necessary for Parent and its shareholders to
collectively control Purchaser after the Merger in order to reflect Parent's
additional financial investment in Purchaser and to ensure that the business
plan for Purchaser after the Merger envisioned by the parties can be
implemented;
WHEREAS, contemporaneously with the execution and delivery of the
First Amended Agreement, Parent made a $3 million loan to Purchaser ("Loan");
WHEREAS, prior to Closing, Parent intends to effect a spinoff under
Section 355 of the Code pursuant to which Parent will distribute its Company
Capital Stock to its stockholders pro rata in accordance with their respective
ownership interests in Parent's common stock ("Spinoff");
WHEREAS, at Closing Parent intends to purchase from Purchaser
newly-issued Series B Preferred Stock of Purchaser ("Purchaser Series B
Preferred") for a total consideration of $6 million ("Mestek Investment");
<PAGE> 7
WHEREAS, the Loan shall be deemed repaid upon the closing of the
Mestek Investment;
WHEREAS, Purchaser shall issue Parent a warrant ("Mestek Warrant") to
purchase 2,000,000 shares of Purchaser Common Stock ("Warrant Shares") upon the
closing of the Mestek Investment; and
WHEREAS, the parties desire to amend and restate the First Amended
Agreement to make certain changes that conform to the proposed structure of the
Merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS; LOAN AND INVESTMENT
1.1. DEFINED TERMS. As used in this Agreement:
"Acquisition Proposal" shall have the meaning ascribed to it in
Section 4.16(a) hereof.
"Affiliate" shall have the meaning ascribed to it in Paragraphs (c)
and (d) of Rule 145 under the Securities Act.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504(a) of the Code or any similar group defined under a similar
provision of state, local or foreign law.
"Agreement" means the Agreement and Plan of Merger, and all Schedules
and Exhibits hereto.
"Assets" means all of the assets of the Company (other than those
assets relating to the Company's ProfitWorks applications software system and
related product line, which shall be disposed of by the Company prior to the
Closing Date) or of Purchaser (as the context shall require), of every kind and
nature.
"CareCentric" shall have the meaning ascribed to it in the Recitals
hereof.
"CareCentric Acquisition" shall have the meaning ascribed to it in the
Recitals hereof.
"Certificate" and "Certificates" shall have the meanings set forth in
Section 3.4 hereof.
"Certificate of Designations" shall have the meaning ascribed to it in
Section 1.4 hereof.
"Closing" and "Closing Date" shall have the meaning ascribed to such
terms in Section 3.5 hereof.
"Closing Balance Sheet" shall mean the Company's balance sheet to be
dated as of September 30, 1999.
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<PAGE> 8
"Closing Documents" means this Agreement and all other documents to be
executed and delivered either simultaneously herewith or at Closing in
connection with the Transactions.
"COBRA" shall have the meaning ascribed to it in Section 5.18(e)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Capital Stock" shall have the meaning ascribed to it in
Section 3.1 hereof.
"Company Employees" shall have the meaning ascribed to it in Section
5.18(a) hereof.
"Company Financial Statements" shall have the meaning ascribed to it
in Section 5.8(a) hereof.
"Company Information" shall have the meaning ascribed to it in Section
4.17(a) hereof.
"Company Software" shall have the meaning ascribed to it in Section
5.12(d) hereof.
"Company Stockholder Approval" means with respect to the Company the
requisite approval by holders of the Company's capital stock of this Agreement,
the Merger and the Certificates of Merger.
"Company Stockholders" means the holders of all of the issued and
outstanding Company Capital Stock, after giving effect to the consummation of
the Spinoff.
"Confidentiality Agreement" shall mean that certain Confidentiality
and Nondisclosure Agreement dated as of February 8, 1999 by and among
Purchaser, Parent and the Company.
"Customer Contract" shall have the meaning ascribed to it in Section
5.11 hereof, and shall apply with respect to Purchaser in Section 6.11 hereof.
"Delaware Act" means the General Corporation Law of the State of
Delaware.
"Disqualification" shall have the meaning ascribed to it in Section
2.5 hereof.
"DOL" shall have the meaning ascribed to it in Section 5.18(b) hereof.
"Effective Time" shall have the meaning ascribed to it in Section 2.2
hereof.
"Employee Benefit Plan" shall have the meaning ascribed to it in
Section 5.18(a) hereof, and shall apply with respect to Purchaser in Section
6.18 hereof.
"Environmental Laws" shall have the meaning ascribed to it in Section
5.6(c) hereof.
"ERISA" shall have the meaning ascribed to it in Section 5.18(a)
hereof.
"ERISA Affiliate" shall have the meaning ascribed to it in Section
5.18(a) hereof, and shall apply with respect to Purchaser in Section 6.18
hereof.
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<PAGE> 9
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and all regulations promulgated pursuant thereto.
"Exchange Ratio" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" shall include any and all governmental or
quasi-governmental bodies, agencies, bureaus, departments, boards, commissions,
instrumentalities or other entities having or asserting jurisdiction over
Purchaser, Parent or the Company, as applicable.
"HSR" shall have the meaning ascribed to it in Section 4.15 hereof.
"Immigration Laws" shall have the meaning ascribed to it in Section
5.13 hereof.
"IRS" shall have the meaning ascribed to it in Section 5.18(b) hereof.
"knowledge" or "known" means or refers to the actual knowledge of the
president, chief financial officer or general counsel as to Purchaser and as to
Parent, and the president or chief financial officer, as to the Company.
"Licensed Software" shall have the meaning ascribed to such term in
Section 5.12(c) hereof, and shall apply with respect to Purchaser in Section
6.12(c) hereof.
"Loan" shall have the meaning ascribed to it in the Recitals hereof.
"Lockup Period" shall have the meaning ascribed to it in Section
3.4(b) hereof.
"Material Adverse Consequence" means a material adverse effect upon,
or in, or circumstances likely to result in, a material adverse change in the
business, assets, liabilities, operations, results of operations, properties
(including intangible properties), regulatory status or condition (financial or
otherwise) of the Company or Purchaser, as the case may be, taken as a whole,
the effect of which is equal to or greater than $2,000,000.
"Material Adverse Effect" means a material adverse effect upon, or in,
or circumstances likely to result in, a material adverse change in (i) the
business, assets, liabilities, operations, results of operations, properties
(including intangible properties), regulatory status or condition (financial or
otherwise) of the Company or Purchaser, as the case may be, taken as a whole,
the effect of which is equal to or greater than $100,000, (ii) the legality,
validity, binding effect or enforceability of this Agreement, or (iii) the
ability of the Company or Purchaser, as the case may be, to perform its
respective obligations under this Agreement.
"Material Contracts" shall have the meaning ascribed to it in Section
5.10 hereof, and shall apply with respect to Purchaser in Section 6.10 hereof.
"MCS Major Stockholders" means any of John E. Reed, Stewart B. Reed
and E. Herbert Burk.
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<PAGE> 10
"Merger" shall have the meaning ascribed to it in the preamble.
"Merger Option Agreement" shall have the meaning ascribed to it in
Section 3.3(a) hereof.
"Merger Options" shall have the meaning ascribed to it in Section
3.3(a) hereof.
"Merger Shares" shall have the meaning ascribed to it in Section
3.1(a) hereof.
"Mestek Investment" shall have the meaning ascribed to it in the
Recitals hereof.
"Mestek Warrant" shall have the meaning ascribed to it in the Recitals
hereof.
"Note" shall have the meaning ascribed to it in Section 1.2 hereof.
"Options" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
"Owned Software" shall have the meaning ascribed to it in Section 5.11
hereof, and shall apply with respect to Purchaser in Section 6.11 hereof.
"PBGC" shall have the meaning ascribed to it in Section 5.18(b)
hereof.
"Parent Affiliated Group" shall have the meaning ascribed to it in
Section 5.9(f) hereof.
"Parent Designee" shall have the meaning ascribed to it in Section
2.5(c) hereof.
"Parent Plan" shall have the meaning ascribed to it in Section 4.5
hereof.
"Pennsylvania Act" means the Pennsylvania Business Corporation Law.
"Person" means an individual, corporation, limited liability company,
limited liability partnership, limited partnership, trust, joint venture,
association or unincorporated organization or a Governmental Authority.
"Pre-Closing Tax Periods" shall have the meaning ascribed to it in
Section 4.9(a) hereof.
"ProfitWorks Business" shall have the meaning ascribed to it in
Section 4.4 hereof.
"Public Reports" has the meaning set forth in Section 5.6(d) hereof.
"Purchaser Common Stock" shall have the meaning ascribed to it in
Section 3.1 hereof.
"Purchaser Conversion Rights" shall have the meaning ascribed to it in
Section 6.5 hereof.
"Purchaser Employees" shall have the meaning ascribed to it in Section
6.18(a) hereof.
"Purchaser Financial Statements" shall have the meaning ascribed to it
in Section 6.8(a) hereof.
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<PAGE> 11
"Purchaser Plan" shall have the meaning ascribed to it in Section 4.5
hereof.
"Purchaser Series B Preferred" shall have the meaning ascribed to it
in the Recitals hereof.
"Purchaser Software" shall have the meaning ascribed to it in Section
6.12(d).
"Purchaser Stockholder Approval" means with respect to the Purchaser
the requisite approval by holders of Purchaser's capital stock of this
Agreement, the Merger, the Mestek Investment, the Mestek Warrant and the
Certificates of Merger.
"Registrable Shares" means the Merger Shares, the Option Shares (as
defined in the Merger Option Agreement), the Mestek Warrant, the Warrant Shares
and any shares of Purchaser Common Stock to be issued pursuant to the
indemnification provisions of Article 7 hereof.
"Registration Rights Agreements" shall have the meaning ascribed to it
in Section 4.1.
"Registration Statement" shall have the meaning ascribed to it in
Section 4.17(a) hereof.
"Revised Schedules" shall have the meaning ascribed to it in Section
8.7 hereof.
"Rights Holder" and "Rights Holders" shall have the meaning ascribed
to such terms in Section 4.1(l) hereof.
"Rule 145 Letter" shall have the meaning ascribed to it in Section
4.18 hereof.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and all regulations promulgated thereunder.
"Securities Filings" shall mean all filings made by Purchaser with the
SEC from and after January 1, 1996 pursuant to the Securities Act and the
Exchange Act.
"Security Agreement" shall have the meaning ascribed to it in Section
1.2 hereof.
"Spinoff" shall have the meaning ascribed to it in the Recitals
hereof.
"Spinoff Date" means the date of the consummation of the Spinoff.
"Surviving Corporation" shall have the meaning ascribed to it in
Section 2.1 hereof.
"Tax" or "Taxes" means all taxes, charges, fees, interest, fines,
penalties, additions to tax or other assessments imposed by any Tax Authority,
including without limitation, income, excise, environmental, property, sales,
gross receipts, gains, transfer, occupation, privilege, employment (including
social security and unemployment), use, value added, capital stock or surplus,
franchise, advance corporate, withholding, unemployment, estimated and customs
duties taxes.
"Tax Authority" means any United States federal, foreign, national,
state, county or municipal or other local government, any subdivision, agency,
commission or authority thereof, or
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<PAGE> 12
any quasi-governmental body exercising any taxing authority or any other
authority exercising tax regulatory authority.
"Tax Return" means any return, declaration, report, claim for refund
or information return filed or to be filed with any Tax Authority in connection
with the determination, assessment, collection or administration of any Tax,
including any schedule or attachment thereto and any amendment thereof.
"Termination Date" means the date on which this Agreement may be
terminated pursuant to Section 10.1 hereof.
"Transaction Documents" shall have the meaning ascribed to such term
in Section 7.1 hereof.
"Transactions" means the transactions contemplated by this Agreement.
"Warrant Shares" shall have the meaning ascribed to it in the Recitals
hereof.
"Warrants" shall have the meaning ascribed to it in Section 3.3(a)
hereof.
1.2. LOAN. Simultaneously with the execution and delivery of this
Agreement, Parent is making the Loan to Purchaser. The Loan is evidenced by
that certain secured promissory note from Purchaser in favor of Parent of even
date herewith in the original principal amount of $3,000,000 attached hereto as
Exhibit 1.2(a) (the "Note"). The Note is secured by the grant of a security
interest from Purchaser to Parent pursuant to a security agreement of even date
herewith attached hereto as Exhibit 1.2(b) ("Security Agreement"). Purchaser
shall execute any Uniform Commercial Code financing statements or other
documents reasonably required by Parent in order to perfect its security
interest in Purchaser's assets granted under the Security Agreement. The
parties hereto acknowledge and agree that Parent's security interest under the
Security Agreement is expressly subordinated to the lien on Purchaser's assets
currently held by Silicon Valley Bank.
1.3. SPINOFF. Parent and the Company shall consummate the Spinoff
on or before the Closing. The closing of the Spinoff shall be an express
condition to the closing of the Merger.
1.4. PARENT INVESTMENT. Simultaneously with the Closing, Parent
shall purchase from Purchaser 5,600,000 shares of Purchaser Series B Preferred
in consideration for the payment in immediately available funds of (x)
$6,000,000, less (y) the outstanding principal balance and all accrued but
unpaid interest under the Note. The Note, Security Agreement and any Uniform
Commercial Code financing statements and any other documents executed by
Purchaser in connection with the Loan shall be marked "cancelled" or terminated
upon the closing of the Mestek Investment. Immediately prior to the Closing,
Purchaser shall cause to be filed with the Delaware Secretary of State's office
a Certificate of Designation, Rights and Preferences setting forth the relative
rights and preferences of the Series B Preferred ("Certificate of
Designations"). The form of the Certificate of Designations is set forth as
Exhibit 1.4 attached hereto. As additional consideration for the Mestek
Investment, Parent shall receive the Merger Options, as described in Section
3.3(a) hereof.
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<PAGE> 13
1.5. MESTEK WARRANT. At Closing, Purchaser shall deliver the
Mestek Warrant to Parent in the form attached hereto as Exhibit 1.5. Purchaser
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Purchaser Common Stock for delivery upon exercise of the
Mestek Warrant. In addition, Purchaser will cause the Warrant Shares to be
listed on the NASDAQ National Market, if not previously listed.
ARTICLE 2.
THE MERGER
2.1. THE MERGER. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Agreement, the
Pennsylvania Act and the Delaware Act, the Company shall be merged into
Purchaser, the separate corporate existence of the Company shall cease, and
Purchaser shall continue as the surviving corporation. Purchaser as the
surviving corporation after the Merger shall be governed by the Delaware Act,
and is hereinafter sometimes referred to as the "Surviving Corporation".
2.2. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article 8 and Article 9,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of each of Pennsylvania and
Delaware in such form as required by, and executed in accordance with, the
relevant provisions of the Pennsylvania Act and the Delaware Act (the effective
time of the last such filing being the "Effective Time"). At the Effective
Time, Purchaser shall deliver to the Company Stockholders in the manner
provided in this Article 2 the certificates evidencing the Merger Shares issued
in the Merger.
2.3. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the
Pennsylvania Act and Delaware Act. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all property, rights,
privileges, powers and franchises of the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company immediately
prior to the Effective Time shall become the debts, liabilities and duties of
the Surviving Corporation.
2.4. SUBSEQUENT ACTIONS.
(a) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurance or any other actions or things are necessary or
desirable to (i) vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or (ii)
otherwise to carry out this Agreement, then the officers and directors of the
Surviving Corporation shall be authorized to (x) execute and deliver, in the
name and on behalf of the Company, all such deeds, bills of sale, assignments
and assurances and (y) to take and do, in the name of and on behalf of each
such corporation or otherwise, all such other actions and things as may be
necessary or desirable, to vest, perfect or confirm any and all right,
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title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
(b) If, at any time after the Effective Time, Parent shall
consider or be advised that any assignments, conveyances, assurance or any
other actions or things are necessary or advisable to (i) vest, perfect or
confirm of record or otherwise in the Company Stockholders their right, title
or interest in the Merger Shares, or (ii) otherwise to carry out this
Agreement, then the officers and directors of Parent shall be authorized to (x)
execute and deliver, in the name and on the behalf of the Surviving
Corporation, all such assignments, conveyances and assurances, and (y) to take
and do all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest to the Merger
Shares in the Company Stockholders or otherwise to carry out this Agreement.
2.5. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS.
(a) Unless otherwise determined by Purchaser, Parent and
the Company before the Effective Time, at the Effective Time the Certificate of
Incorporation of Purchaser, as in effect immediately before the Effective Time,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of Purchaser, as in effect immediately
before the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation
of the Surviving Corporation and such Bylaws.
(c) The directors of Purchaser in office immediately
before the Effective Time shall, by virtue of the approval of this Agreement by
the stockholders and directors of Purchaser and the Company, be the directors
of the Surviving Corporation, all of whom shall hold their directorships until
the election and qualification of their respective successors or until their
tenure is otherwise terminated by law, or in accordance with the Bylaws of the
Surviving Corporation. Purchaser shall submit for approval by its stockholders
in the joint proxy statement/prospectus included in the Registration Statement
a proposal to elect six (6) directors to its Board of Directors, two (2) of
whom shall be designees of CareCentric. For a period of eighteen (18) months
after the Effective Time, Purchaser shall submit for approval by its
stockholders in any subsequent proxy statement of the Surviving Corporation
relating to an annual or special meeting of stockholders at which Directors
will be elected a proposal to elect six (6) directors to its Board of
Directors. Upon consummation of the Merger, the directors of Purchaser shall
appoint six designees of the MCS shareholders (each, an "MCS Designee," which
term shall include any successor designee, or any replacement designee selected
by the remaining MCS Designees), as designated by the MCS stockholders prior to
the Effective Time and named in the Registration Statement, to be elected to
the Board of Directors of the Surviving Corporation. For a period of eighteen
(18) months after the Effective Time, (a) Purchaser will use its best efforts
to cause the MCS Designees to be named as nominees for election to the Board of
Directors in each proxy statement of the Surviving Corporation relating to an
annual or a special meeting of stockholders at which Directors will be elected,
and (b) the MCS Major Stockholders will vote their Merger Shares in favor of
all nominees selected in accordance with the provisions hereof and recommended
by the Surviving Corporation Board of Directors in any
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<PAGE> 15
such proxy statement. Notwithstanding the foregoing, the Surviving Corporation
may decline to name an MCS Designee as a nominee for any of the following
reasons (each a "Disqualification"):
(i) the MCS Designee has been convicted of a
felony;
(ii) the MCS Designee has been named as a target
in an SEC investigation due to alleged misconduct in connection with the MCS
Designee's service as a director of any publicly held company (including but
not limited to Purchaser);
(iii) the SEC has barred the MCS Designee from
service on the Board;
(iv) the presence of the MCS Designee will cause
the Surviving Corporation's Directors and Officers' insurance carrier to
decline to provide coverage at standard rates, unless such coverage may be
obtained from the same carrier and the Company agrees to pay for the additional
premiums related to such MCS Designee's service on the Board; or
(v) based on a written opinion from legal
counsel, it cannot nominate MCS Designee without breaching its duties to its
stockholders.
Likewise, the Company's stockholders (including the MCS Major
Stockholders) may decline to vote for any nominee to the Board of Directors who
is subject to a Disqualification for any of the reasons stated above.
Upon the appointment of the MCS Designees to the Surviving Corporation
Board of Directors immediately after the Effective Time, a majority of the MCS
Designees during such eighteen (18) month period may remove any MCS Designee
from the list of MCS Designees to be voted upon at a subsequent stockholders
meeting of the Surviving Corporation, provided, however, that such MCS Designee
may not be removed from his office as a director before the end of his term. If
any MCS Designee is removed or resigns from the Surviving Corporation Board of
Directors during the eighteen (18) month period after the Effective Time, the
remaining MCS Designees shall fill such vacancy.
2.6. STOCKHOLDERS' MEETING. Purchaser and the Company, acting
through their respective Boards of Directors, shall:
(a) promptly furnish a copy of the proxy
statement/prospectus included in the Registration Statement to each of their
stockholders after the Registration Statement has become effective with the
SEC;
(b) duly call, give notice of, convene and hold a
special joint meeting of their stockholders and submit this Agreement and the
Merger and any related matters, as appropriate, to a vote of the Purchaser's
and Company's stockholders as soon as practicable for the purpose of
considering and taking action upon this Agreement and any such related matters;
and
(c) use their reasonable best efforts, subject to the
provisions of Section 4.16 of this Agreement, to obtain the necessary approval
of the Merger by their stockholders.
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2.7. TAX CONSEQUENCES. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
shall constitute a "plan of reorganization" for the purposes of Section 368 of
the Code. The business purpose of the Merger is to combine the business
operations of Purchaser and Company so as to give the Surviving Corporation the
critical mass and resources necessary to compete in an ever-changing
marketplace and to deliver software and service solutions that meet customers'
requirements.
ARTICLE 3.
MERGER CONSIDERATION
3.1. CONVERSION OF COMPANY CAPITAL STOCK. The manner and basis of
converting shares of the capital stock of the Company (the "Company Capital
Stock") into shares of common stock of Purchaser, $0.01 par value ("Purchaser
Common Stock"), shall be as follows:
(a) Except as provided in Section 3.2, each share of
Company Capital Stock which shall be outstanding immediately prior to the
Effective Time shall at the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into only the right
to receive a number of shares of Purchaser Common Stock to be computed as set
forth on Schedule 3.1(a) (the "Exchange Ratio"). The shares to be issued with
respect to previously outstanding Company Capital Stock are hereinafter
referred to as "Merger Shares". No Company Capital Stock shall be deemed to be
outstanding or to have any rights other than those set forth above in this
Section 3.1 after the Effective Time.
(b) Each share of Company Capital Stock, if any, held in
the treasury of the Company shall automatically be canceled and extinguished
without any conversion thereof and no payment will be made with respect
thereto.
3.2. FRACTIONAL SHARES. No scrip or fractional shares of Purchaser
Common Stock shall be issued in the Merger, nor will any outstanding fractional
share interest entitle the owner thereof to vote, to receive dividends or to
exercise any other right of a stockholder of Purchaser. All fractional shares
of Purchaser Common Stock to which a Company Stockholder immediately prior to
the Effective Time would otherwise be entitled at the Effective Time shall be
aggregated. If a fractional share results from such aggregation, such Company
Stockholder shall be entitled, at the Effective Time, to recover cash in lieu
of such fractional shares, with the cash amount due to be computed based on the
closing sales prices of the Purchaser Common Stock as reported on the NASDAQ
National Market on the business day next preceding the day the Merger is
consummated.
3.3. STOCK OPTIONS AND WARRANTS.
(a) All stock options of Purchaser (the "Options")
outstanding at the Effective Time, as identified on Schedule 3.3(a), shall
remain outstanding following the Effective Time. All warrants of Purchaser
("Warrants") outstanding at the Effective Time, as identified on Schedule
3.3(a) (including the Mestek Warrant and the Merger Options, whether or not
included on Schedule 3.3(a)), shall remain outstanding following the Effective
Time. As part of the consideration for entering into the Merger, Parent shall
receive options to purchase additional
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<PAGE> 17
shares of Purchaser Common Stock (the "Merger Options") equal to .8518518
multiplied by the aggregate number of shares of Purchaser Common Stock issuable
upon exercise of the Options and Warrants (other than the Mestek Warrant) and
issuable in connection with the Purchaser Conversion Rights, as set forth in an
agreement in the form of Exhibit 3.3(a) attached hereto (the "Merger Option
Agreement"). As part of the consideration for entering into the Mestek
Investment, Parent shall receive the Mestek Warrant.
(b) Purchaser shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Purchaser Common Stock
for delivery upon exercise of the Merger Options. In addition, Purchaser will
cause such shares to be listed on the NASDAQ National Market, if not previously
listed.
(c) Approval by the stockholders of Purchaser of this
Agreement shall constitute authorization and approval of any and all of the
actions described in this Section 3.3.
3.4. DELIVERY OF MERGER SHARES.
(a) At the Closing (as defined herein), each Company
Stockholder's certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock
("Certificate" or "Certificates") shall be cancelled, and each Company
Stockholder shall be issued the appropriate number of Merger Shares as set
forth in Section 3.1(a) hereof.
(b) The Merger Shares will be subject to a restriction
on transfer such that each Company Stockholder receiving Merger Shares may not,
directly or indirectly, without the prior written consent of, or notice of
waiver by, Parent (i) from the date hereof through the date that is two years
after the effective date of the Merger (the "Lockup Period") offer, sell,
contract to sell, pledge, grant any option for the sale of, or otherwise
dispose, contract to dispose of or cause the disposition of, any Merger Shares,
except to Parent or any Person which was a stockholder of Parent on the record
date set in connection with the Spinoff, or (ii) during the Lockup Period
exercise any registration rights, whether held by the recipient of Merger
Shares on the Closing Date or thereafter acquired, with respect to any Merger
Shares or any securities convertible into or exchangeable or exercisable for
any Merger Shares. The stock certificates representing the Merger Shares will
include a legend reflecting the Lockup Period restriction, and a stop transfer
order shall be placed with the Purchaser's transfer agent.
(c) The Merger Shares shall be registered pursuant to
the Registration Statement. The Merger Shares issuable to the MCS Major
Stockholders shall also have registration rights in accordance with Section 4.1
of this Agreement.
3.5. CLOSING. The closing of the Transactions (the "Closing")
shall take place on or before January 7, 2000, at the offices of Purchaser's
counsel in Atlanta, or another mutually agreed upon location as soon as
practicable following compliance or waiver of the terms, conditions and
contingencies contained herein or such other date as is mutually agreed upon by
the parties hereto (such date to be herein referred to as the "Closing Date").
All computations, adjustments, and transfers for the purposes hereof shall be
effective as of the close of business on the Closing Date. Each of the parties
will take all lawful actions as may be necessary or
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<PAGE> 18
appropriate in order to effectuate the Merger as promptly as possible subject
to the satisfaction of the closing conditions set forth in Articles 8 and 9.
ARTICLE 4.
ADDITIONAL COVENANTS
4.1. REGISTRATION RIGHTS.
(a) Upon request by one (1) or more of the Rights
Holders, Purchaser will use its best efforts to file within 45 days of a
request from such Rights Holders a registration statement with the SEC
(utilizing Form S-3 or a successor form thereto and Rule 415 to the extent
available) to register Registrable Shares as requested by such Rights Holders.
Purchaser shall not be required to file more than three such registration
statements (excluding any registration statement which is delayed pursuant to
clause (e) below and through which the Rights Holders are unable to register
eighty percent (80%) or more of the amount of Registrable Shares that they
originally requested to register in such registration statement), and no such
filing shall be made prior to the date which is six months after the Closing
Date.
(b) If Purchaser at any time proposes to register an
offering of its securities under the Securities Act, either for its own account
or for the account of or at the request of one or more Persons holding
securities of Purchaser, Purchaser will:
(i) give written notice thereof to each of the
Rights Holders (which shall include a list of the jurisdictions in which
Purchaser intends to attempt to qualify such securities under the applicable
blue sky or other state securities laws) within 10 days of its receipt of a
request from one or more Persons holding securities of Purchaser to register
securities, or from its decision to effect a registration of securities for its
own account, whichever first occurs; and
(ii) use its best efforts to include in such
registration and in any underwriting involved therein, all the Registrable
Shares specified in a written request by any Rights Holder made within 30 days
after receipt of such written notice from Purchaser, except as set forth in
Section 4.1(e) below and subject to the currently existing piggyback rights
referenced in Section 4.1(g).
(c) Without regard to whether the registration statement
relating to the proposed sale of the Registrable Shares is made effective or
the proposed sale of such shares is carried out, Purchaser shall pay the fees
and expenses in connection with any such registration including, without
limitation, legal, accounting and printing fees and expenses in connection with
such registration statements, the registration filing and examination fees paid
under the Securities Act and state securities laws and the filing fees paid to
the National Association of Securities Dealers, Inc. Notwithstanding the
foregoing, each Rights Holder shall be responsible for the payment of
underwriting discounts and commissions, if any, and applicable transfer taxes
relating to the Registrable Shares sold by such Rights Holder and for the fees
and charges of any attorneys or other advisers retained by such Rights Holder.
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<PAGE> 19
(d) If and whenever pursuant to the provisions of this
Section 4.1 Purchaser effects registration of Registrable Shares under the
Securities Act of 1933 and state securities laws, Purchaser shall:
(i) Prepare and file with the SEC a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for a
period not to exceed two years after the filing (but which period shall be
extended by the duration of any delay periods under clause (e) below);
(ii) Use its best efforts to register or qualify
the securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as any Rights Holder shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable (in the reasonable opinion of such Rights Holder) to enable such
Rights Holder to consummate the disposition thereof; provided, however, that in
no event shall Purchaser be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to the service of process in suits other than those arising out of
the offer or sale of the securities covered by such registration statement in
any jurisdictions where it is not now so subject.
(e) Anything in this Section 4.1 to the contrary
notwithstanding:
(i) Purchaser shall not be obligated pursuant
to Section 4.1(a) or Section 4.1(b) to effect any registration with respect to
any Registrable Shares that have been sold by a Rights Holder pursuant to Rule
144.
(ii) Purchaser may defer the filing ("Filing")
of any registration statement or suspend the use of a prospectus under a
currently effective registration statement under Section 4.1(a) at its
discretion for "Good Cause." "Good Cause" means either if (1) Purchaser is
engaged in active negotiations with respect to the acquisition of a
"significant subsidiary" as defined in Regulation S-X promulgated by the SEC
under the Exchange Act and the Securities Act which would in the opinion of
counsel for Purchaser be required to be disclosed in the Filing; or (2) in the
opinion of counsel for Purchaser, the Filing would require the inclusion
therein of certified financial statements other than those in respect of
Purchaser's most recently ended full fiscal year and any preceding full fiscal
year, and Purchaser may then, at its option, delay the imposition of its
obligations pursuant to Section 4.1(a) hereof until the earlier of (A) the
conclusion or termination of such negotiations, or the date of availability of
such certified financial statements, whichever is applicable, or (B) 60 days
from the date of the registration request.
In the event Purchaser has deferred a requested Filing, pursuant to
the preceding paragraph, such deferral period shall end if Purchaser registers
shares for resale by another stockholder of Purchaser. In the event Purchaser
undertakes an underwritten public offering to issue Purchaser securities for
cash during any period in which a requested Filing has been deferred or if the
registration of which Purchaser gives notice under Section 4.1(b)(i) is for an
underwritten public offering to issue Purchaser securities for cash, Purchaser
shall include the Registrable Securities in such underwritten offering subject
to (A) the right of the managing underwriters to object to including such
shares, (B) Section 4.1(g), and (C) the condition that the Rights Holders
selling
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<PAGE> 20
Registrable Shares in such underwritten offering shall cooperate in the
registration process in all material respects, including execution by such
Rights Holders of the underwriting agreement agreed to by Purchaser and the
underwriters.
If the managing underwriter elects to limit the number or amount of
securities to be included in any registration referenced in the preceding
paragraph or in Section 4(b)(ii), all Persons holding securities of the
Purchaser (including the Rights Holders) who hold registration rights and who
have requested registration (collectively, the "Security Holders") shall
participate in the underwritten public offering pro rata based upon the ratio
of the total number or amount of securities to be offered in the offering by
the total number or amount of securities held by each Security Holder
(including the number or amount of securities which each such Security Holder
may then be entitled to receive upon the exercise of any option or warrant, or
the exchange or conversion of any security, held by each Security Holder). If
any such Security Holder would thus be entitled to include more securities than
such Security Holder requested to be registered, the excess shall be allocated
among the other Security Holders pro rata in a manner similar to that described
in the previous sentence. Notwithstanding the foregoing, the holders of
registration rights under the Registration Rights Agreements (as defined in
Section 4.1(g)) shall have priority in accordance with the terms of such
agreements, if applicable, but only to the extent that such rights have not
been waived or amended.
(iii) Purchaser may amend any registration
statement to withdraw registration of a Rights Holder's Registrable Shares if
that Rights Holder shall fail or refuse to cooperate in full and in a timely
manner with all reasonable requests relating to such registration and the
public offering generally made by Purchaser, the underwriters (if any), their
respective counsel and Purchaser's auditors.
(f) (i) Notwithstanding anything contained to the
contrary in, and in addition to the indemnification provisions of Section 7.1
hereof, with respect to any registration statement relating to any Registrable
Shares sold by any Rights Holder, such Rights Holder will indemnify Purchaser
and each person, if any, who controls Purchaser within the meaning of the
Securities Act, in writing, in form and substance acceptable to counsel for
Purchaser, against any and all expenses, claims, damages or liabilities to
which Purchaser may become subject under the Securities Act, Exchange Act, any
applicable state securities laws, or otherwise, insofar as such expenses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary prospectus, registration statement, final prospectus or any
amendment or supplement thereto, or any filing made pursuant to the Exchange
Act, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make statements contained therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made therein in reliance upon and in
conformity with written information furnished to Purchaser by such Rights
Holder expressly for use in the preparation thereof.
(ii) With respect to any registration statement
relating to any Registrable Shares held by any Rights Holder, Purchaser will
indemnify such Rights Holder, each underwriter of the Registrable Shares, and
each person, if any, who controls such Rights Holder or any such underwriter
within the meaning of the Securities Act, against all expenses, claims, damages
or liabilities to which such Rights Holder, any such underwriter, or any such
controlling person may become subject, under the Securities Act, the Exchange
Act, any applicable state securities law, or otherwise, insofar as such
expenses, claims, damages or
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<PAGE> 21
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any preliminary prospectus,
registration statement, final prospectus or any amendment or supplement
thereto, or any filing under the Exchange Act, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading; provided, however, that (x) Purchaser shall not be liable to any
Rights Holder or to any controlling person of such Rights Holder in any such
case to the extent that such expenses, claims, damages or liabilities arise out
of or are based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to Purchaser by such Rights Holder expressly
for use in the preparation thereof; and (y) Purchaser shall not be liable to
any underwriter or any controlling person of such underwriter in any such case
to the extent that such expenses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with
written information furnished to Purchaser by such underwriter expressly for
use in the preparation thereof.
(g) The parties hereto acknowledge that the rights to
registration contained herein shall (i) be subject to the prior rights of
holders under those certain Registration Rights Agreements ("Registration
Rights Agreements") dated October 6, 1996 by and among InfoMed Holdings, Inc.
(as predecessor in interest to the Purchaser) and certain shareholders of
Purchaser named therein, copies of which have been provided to Parent, the
Right Holders and the Company, but only to the extent that such rights have not
been waived or amended, and (ii) be equal in priority to the rights of certain
parties as described in Section 4.1(g) of that certain Agreement and Plan of
Merger dated as of July 12, 1999 by and among Purchaser, Simione Acquisition
Corporation and CareCentric.
(h) Purchaser shall as promptly as practicable prepare
and file with the SEC such amendments and supplements to any registration
statement and prospectus used pursuant to or in connection with this Section
4.1 as may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until such
time as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement or for such shorter period as may be required
herein.
(i) Purchaser shall furnish to each selling Rights
Holder such number of conformed copies of its registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits, such number of copies of the prospectus comprised in such
registration statement (including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the Securities Act, and
such other related documents) as such Rights Holder may reasonably request in
order to facilitate the disposition of the Registrable Shares to be registered.
(j) Purchaser will not grant any right of registration
under the Securities Act relating to any of its equity securities to any person
or entity other than pursuant to this
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<PAGE> 22
Agreement unless the Rights Holders shall be entitled to have included in such
registration all Registrable Shares requested by the Rights Holders to be so
included prior to the inclusion of any securities requested to be registered by
the persons or entities entitled to any such other registration rights, other
than securities subject to the Registration Rights Agreements, which shall have
priority (but only to the extent that such prior rights have not been waived or
amended).
(k) For so long as the Rights Holders collectively own
securities representing 20% or more of the voting power of Purchaser on a fully
diluted basis, and except as expressly set forth in Section 4(g) hereof, no
other Person shall be entitled to "piggyback" or participate in any of the
demand registrations that any Rights Holder initiates pursuant to Section
4.1(a) without such Rights Holder's prior written consent.
(l) For purposes of this Section 4.1, "Rights Holder"
shall mean any MCS Major Stockholder or Parent, and "Rights Holders" shall mean
the MCS Major Stockholders and Parent.
4.2. STOCKHOLDERS' MEETING. Purchaser, acting through its Board of
Directors, shall duly call, give notice of, convene and hold a meeting of its
stockholders and submit this Agreement and the Merger and any related matters,
as appropriate, to a vote of Purchaser's stockholders as soon as practicable
for the purpose of considering and taking action upon this Agreement and any
such related matters, and shall use its reasonable best efforts to obtain the
necessary approval of the Merger by its stockholders.
4.3. BEST EFFORTS TO LIST SHARES AND MAINTAIN S-3 AND NASDAQ NMS
STATUS. Purchaser shall use all of its efforts to ensure that, prior to the
Effective Time, the Registrable Shares will be approved for trading on the
NASDAQ National Market System subject to official notice of issuance. After the
Closing, Purchaser shall use its best efforts to ensure that it shall remain
eligible to (i) register the Registrable Shares on Form S-3 under the
Securities Act or any successor form thereof, and (ii) maintain approval for
trading of the Registrable Shares on the NASDAQ National Market System.
4.4. PROFITWORKS AGREEMENT. Prior to the Effective Time, Parent
and the Company shall consummate a transaction pursuant to which Parent shall
acquire from the Company all of the assets, and assume all of the liabilities,
of the Company's ProfitWorks applications software and related product line
("ProfitWorks Business"). Such acquisition by Parent shall expressly provide
that the Company shall have no further obligation to provide service, pay
monies or otherwise have any future obligations (other than obligations in
respect of the Company's warranties to Parent regarding title to its assets
transferred to Parent) with respect to the ProfitWorks Business.
4.5. PARENT PLAN AND COMPANY PLAN. Parent agrees that it will
cause the account balance, if any, of each Company Employee (as defined in
Section 5.18) under the Mestek, Inc. Savings & Retirement Plan (the "Parent
Plan") to be fully vested as of the Spinoff Date. Subject to and in accordance
with Code Section 401(k) and other applicable law, Company Employees shall be
eligible to receive a distribution of their vested account balances under the
Parent Plan within a reasonable time period following the Spinoff Date, and
Purchaser and Parent agree to
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<PAGE> 23
cooperate with respect to the timing of such distribution, including
distribution of plan loan offset amounts. Purchaser agrees that it will timely
loan funds to Company Employees who have participant loans outstanding under
the Parent Plan as of the Spinoff Date, who become participants in The Simione
Central Holdings, Inc. 401(k) Retirement Plan (the "Purchaser Plan"), and who
elect direct rollovers of their entire remaining account balances under the
Parent Plan (net of outstanding loan balances) to the Purchaser Plan, to permit
such Company Employees to roll over their outstanding participant loan balances
in full to the Purchaser Plan within 60 days of the date the plan loan offset
amount is distributed from the Parent Plan. As of the Spinoff Date, the Company
shall cease to be an adopting employer under the Parent Plan and under any
other Employee Benefit Plan sponsored by Parent. Parent and the Company agree
to take all actions necessary to terminate the participation of the Company in
the Parent Plan as of the Spinoff Date. On or prior to the Closing Date, the
Company shall terminate the Employees' Retirement Plan of MCS, Inc., with the
manner of such termination to be conducted in accordance with applicable law.
4.6. COMPANY FINANCIAL STATEMENTS. Parent has delivered to
Purchaser audited Company financial statements for the Company's fiscal years
ended December 31, 1997 and December 31, 1998 and an unaudited balance sheet
for the Company as of June 30, 1999 and the Company's related statement of
income, stockholder's equity and cash flow for the period from January 1, 1999
through June 30, 1999. By no later than November 15, 1999, Parent or the
Company will deliver to Purchaser an unaudited balance sheet for the Company as
of September 30, 1999 and the Company's related statements of income,
stockholder's equity and cash flows for the period from January 1, 1999 through
September 30, 1999.
4.7. CONDUCT OF BUSINESS BY PURCHASER AND THE COMPANY PENDING
MERGER. Except as set forth on Schedule 4.7, and except in connection with the
Spinoff, each of Purchaser and the Company covenants and agrees that, unless
the other party shall otherwise consent in writing or except as otherwise set
forth herein, between the date hereof and the Closing, the businesses of the
Company and Purchaser shall be conducted only in, and the Company and Purchaser
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice; and the Company and Purchaser will use
respective best efforts to preserve intact respective business organizations,
to keep available the services of their present officers, employees and
consultants and to preserve respective present relationships with customers,
suppliers and other persons with which they have significant business
relations; provided, however, that nothing herein shall obligate Purchaser or
the Company to pay any additional compensation to any such persons. Each of the
Company and Purchaser covenants that, between the date hereof and the Closing,
it will not, directly or indirectly, do any of the following without the prior
written consent of the other party:
(a) except in connection with the Spinoff, (i) issue,
sell (other than upon exercise of outstanding Options or Warrants, whose terms
shall not be changed) pledge, dispose of, encumber, authorize, or propose the
issuance, sale, pledge, disposition, encumbrance or authorization of any shares
of its capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of its capital
stock; (ii) amend or propose to amend its Certificate or Articles of
Incorporation or Bylaws; (iii) split, combine or reclassify any outstanding
share of its capital stock, or declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to its
capital stock;
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(iv) redeem, purchase or otherwise acquire or offer to redeem, purchase or
otherwise acquire any shares of its capital stock; or (v) authorize or propose
or enter into any contract, agreement, commitment or arrangement with respect
to any of the matters set forth in this Section 4.7(a);
(b) (i) acquire (by merger, consolidation, or
acquisition of stock or assets) directly or indirectly, any Person or any
business owned by such Person; (ii) except in the ordinary course of business
and in a manner consistent with past practices, sell, pledge, dispose of, or
encumber or authorize or propose the sale, pledge, disposition or encumbrance
of any of its assets; (iii) enter into any material contract or agreement,
except in the ordinary course of business; (iv) authorize any capital
expenditure in excess of $50,000 or outside the ordinary course of business; or
(v) enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the matters prohibited by this Section 4.7(b);
(c) take any action other than in the ordinary course of
business and in a manner consistent with past practice (none of which actions
shall be unreasonable or unusual) with respect to increasing compensation of
any officer, director, stockholder or employee or with respect to the grant of
any severance or termination pay (otherwise than pursuant to policies in effect
on the date hereof and fully disclosed to the other parties hereto prior to the
date hereof) or with respect to any increase of benefits payable under its
severance or termination pay policies in effect on the date hereof;
(d) make any payments except in the ordinary course of
business and in amounts and in a manner consistent with past practice (none of
which payments shall be unreasonable or unusual), under any employee benefit
plan or otherwise to any of its employees, independent contractors or
consultants, enter into any employee benefit plan, any employment or consulting
agreement, grant or establish any new awards under any such existing employee
benefit plan or agreement, or adopt or otherwise amend any of the foregoing,
except as otherwise required by applicable law;
(e) except in the ordinary course of business or as
permitted herein, take any action to incur or increase prior to Closing any
indebtedness for borrowed money from banks or other financial institutions or
cancel, without payment in full, any notes, loans or receivables except in the
ordinary course of business;
(f) directly or indirectly loan or advance monies to any
Person under any circumstance whatsoever except for credit transactions with
customers on terms consistent with past practices; or
(g) fail to pay, perform or discharge as they become due
any of its liabilities or obligations, the failure of which to pay, perform or
discharge would have a Material Adverse Effect; or
(h) do any act or omit to do any act which might
reasonably be expected to cause a breach of any contract, commitment or
obligation.
4.8. EXPENSES. All of the expenses previously incurred by
Purchaser in connection with the authorization, preparation, execution and
performance of the Original Agreement and other agreements referred to therein,
including, without limitation, all fees and expenses of
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agents, representatives, brokers, counsel, financial printers and accountants
for Purchaser, shall be paid by Purchaser. All of the expenses incurred by
Purchaser in connection with the authorization, preparation, execution and
performance of this Agreement, the Note, the Security Agreement, the
Certificate of Designations, the Mestek Warrant, or otherwise incurred by
Purchaser as a result of the Spinoff including, without limitation, expenses
relating to revising the proxy statement relating to the Merger previously
filed with the SEC and converting such filing into the Registration Statement,
and all fees and expenses of agents, representatives, financial printers,
brokers, counsel and accountants for Purchaser in connection therewith, shall
be paid by Parent regardless of whether or not the Merger is consummated. All
reasonable expenses incurred by the Company and/or Parent in connection with
the authorization, preparation, execution and performance of this Agreement on
behalf of the Company and/or Parent and the other agreements referred to
herein, including without limitation, all reasonable fees and expenses of
advisors, agents, representatives, brokers, counsel and accountants, shall be
paid by Parent or the Company if the Merger is not consummated, and shall be
paid by Parent if the Merger is consummated; provided, however, that Parent
shall not be required to pay costs incurred by Company personnel in connection
with the Transactions; and provided, further, that Purchaser shall be
responsible for one-half (1/2) of all expenses incurred by the Company
(including, without limitation, the expenses of the Company's accountants,
Grant Thornton, LLP) in connection with the preparation of financial statements
required for filing in the Registration Statement and any valuation reports not
yet produced that Purchaser and Parent reasonably determine are necessary in
connection with the Transactions.
4.9. TAX MATTERS.
(a) Parent shall prepare or cause to be prepared and
file or cause to be filed all Tax Returns for the Company for all periods
ending on or prior to the Closing Date which are filed after the Closing Date
("Pre-Closing Tax Periods"). Parent shall permit Purchaser to review and
comment on each such Tax Return described in the preceding sentence prior to
filing. Parent shall reimburse Purchaser for Taxes of the Company with respect
to such Pre-Closing Tax Periods within fifteen (15) days after payment by
Purchaser of such Taxes to the extent such Taxes exceed in the aggregate the
reserve for Tax liability (other than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. Purchaser will remit to Parent within
fifteen (15) days of receipt any refunds it may receive from any Tax Authority
with respect to Pre-Closing Tax Periods.
(b) The parties anticipate that the Merger will
terminate all Tax periods for the Company. With respect, however, to any Tax
periods of the Company which are determined to begin before the Closing Date
and end after the Closing Date, Purchaser shall prepare or cause to be prepared
and file or cause to be filed any Tax Returns of the Company. Parent will remit
to Purchaser within fifteen (15) days after the date on which Taxes are paid
with respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such Taxable period ending on the Closing Date to the
extent such Taxes exceed in the aggregate the reserve for Tax liability (other
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Closing Balance Sheet.
Purchaser shall reimburse Parent for any refund of Taxes of the Company with
respect to such periods within fifteen (15) days after receipt by Purchaser of
such refund. For purposes of this Section, in the case of any Taxes that are
imposed on a periodic basis and are payable for a Tax
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period that includes (but does not end on) the Closing Date, the portion of
such Tax which relates to the portion of such Tax period ending on the Closing
Date shall (i) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Tax period multiplied by a fraction the numerator of which is the number of
days in the Tax period ending on the Closing Date and the denominator of which
is the number of days in the entire Tax period, and (ii) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Tax period ended on the Closing Date. Any
credits relating to a Tax period that begins before and ends after the Closing
Date shall be taken into account as though the relevant Tax period ended on the
Closing Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice of the
Company. This Section 4.9(b) shall not apply to the federal income taxes
associated with the Parent Affiliated Group.
(c) With respect to the Parent Affiliated Group:
(i) Parent and the Company have allocated, and
will continue to allocate through the Closing Date, Federal income taxes in
accordance with consolidated return regulations. Such Federal income tax
allocations shall be set forth on the Closing Balance Sheet. Any tax sharing
agreement between Parent and the Company shall be terminated as of the Closing
Date and will have no further effect for any taxable period. Parent will not
elect to retain any net operating loss carryovers or capital loss carryovers of
the Company under Treasury Reg. ss. 1.1502-20(g).
(ii) Parent will include the income of the
Company (including any deferred income triggered into income by Treasury Reg.
ss. 1.1502-13 and Treasury Reg. ss. 1.1502-14 and any excess loss accounts taken
into income under Treasury Reg. ss. 1.1502-19) on the Parent's consolidated
federal income Tax Returns for all periods through the Closing Date and pay any
federal income Taxes attributable to such income. Purchaser will furnish Tax
information within ninety (90) days after the Closing Date concerning the
Company to Parent for inclusion in Parent's federal consolidated income Tax
Return for the period which includes the Closing Date in accordance with the
Company's past custom and practice. Parent will allow the Purchaser an
opportunity to review and comment upon such Tax Returns (including any amended
returns) to the extent that they relate to the Company. Parent will take no
position on such Tax Returns that relate to the Company that would adversely
affect the tax liability of Purchaser after the Closing Date. The income of the
Company will be apportioned to the period up to and including the Closing Date
and the period after the Closing Date by closing the books of the Company as of
the end of the Closing Date.
(iii) Parent will allow Purchaser and its counsel
to participate in any audits of Parent consolidated federal income Tax Returns
to the extent that such returns relate to the Company. Parent will not settle
any such audit in a manner which could adversely affect the tax liability of
Purchaser after the Closing Date without the prior written consent of
Purchaser, not to be unreasonably withheld. Parent will not file an amended
consolidated federal income Tax Return with respect to any income Tax matters
of the Company that could adversely affect the tax liability of Purchaser
without the prior written consent of Purchaser, not to be unreasonably
withheld.
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(iv) Purchaser and Parent shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns pursuant to this Section and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Purchaser and Parent agree (i) to retain all books
and records with respect to Tax matters pertinent to the Company relating to
any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Purchaser or Parent,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any Tax Authority, and (ii) to
give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, Purchaser or Parent, as the case may be, shall allow the other party
to take possession of such books and records.
(v) For federal income Tax purposes, the
parties intend that the Merger shall be treated as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code. None of the parties hereto shall
take a position on any Tax Return which is inconsistent with such Tax
treatment.
4.10. NOTIFICATION OF CERTAIN MATTERS.
(a) Purchaser shall give prompt notice to Parent and the
Company of the following:
(i) the occurrence or nonoccurrence of any
event whose occurrence or nonoccurrence would be likely to cause either (A) any
representation, warranty or agreement of Purchaser contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Closing, or (B) directly or indirectly, any Material Adverse
Effect; or
(ii) any material failure of Purchaser, any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(b) Parent and the Company shall give prompt notice to
Purchaser of the following:
(i) the occurrence or nonoccurrence of any
event whose occurrence or nonoccurrence would be likely to cause either (A) any
representation or warranty of Parent or the Company contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Closing, or (B) directly or indirectly, any change in or effect
on the business of the Company that is or will be materially adverse to the
business, operations, properties (including intangible properties), condition
(financial or otherwise), assets, liabilities or regulatory status of the
Company, or (C) a material adverse effect upon the legality, validity, binding
effect or enforceability of this Agreement, or the ability of Parent or the
Company to perform its respective obligations hereunder; or
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(ii) Any material failure of Parent or the
Company, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder.
(c) Notwithstanding the foregoing, the delivery of any
notice pursuant to this Section shall not waive or release Parent, the Company
or Purchaser from its covenants, representations or warranties under this
Agreement.
4.11. PUBLIC ANNOUNCEMENTS.
(a) Except for and to the extent of any public
announcement or disclosures relating to the Transactions previously made by any
of the parties hereto, as may be required by law or stock exchange
requirements, or as provided in this Section, each of the Company, Purchaser
and Parent agree that until the consummation of the Transactions, each of such
parties will not, and will direct its directors, officers, employees,
representatives and agents who have knowledge of the Transactions not to,
disclose to any Person who is not a participant in discussions concerning the
Transactions (other than Persons whose consent is required to be obtained
hereunder), any of the terms, conditions or other facts with respect to the
Transactions.
(b) The Company and Parent shall obtain the prior oral
or written consent of Purchaser, and Purchaser shall obtain the prior oral or
written consent of the Company and Parent, before issuing any press release or
otherwise making any public statements with respect to the Transactions and
shall not issue any such press release or make any such public statement prior
to receiving such consent, except as may be, in the good faith belief of the
party issuing such press release, required by law or stock exchange
requirements. The parties acknowledge and agree that Purchaser and Parent
expect to issue press releases with respect to the Transactions immediately
after execution of this Agreement, as well as after the Closing.
4.12. TAX FREE REORGANIZATION. After the Closing, Parent and
Purchaser shall use their best efforts to protect the parties' intended tax
treatment of the Merger as a tax free reorganization, as provided in Section
2.7 hereof. Purchaser will continue after the Closing the historical business
operation of the Company pursuant to Regulation 1.368-1(d) of the Code.
4.13. ACCESS AND INSPECTION. On reasonable notice, each party
hereto shall provide the other party (or parties) full access during normal
business hours from and after the date hereof until the Closing to all of the
books and records of such party as they relate to the business and affairs of
Purchaser or the Company (or, as to Parent only, the business and affairs of
the Company) as may be requested, in each case for the purpose of making such
continuing investigation of such party and its respective predecessors as it
may desire. Each party shall cause appropriate personnel to assist the other
party (or parties) in such continuing investigation and shall cause personnel,
counsel, accountants and other non-employee representatives to be reasonably
available to such party (or parties) in connection with its continuing
investigation.
4.14. ONGOING BUSINESS. Prior to Closing, neither Purchaser nor the
Company will engage in any activities outside the ordinary course of business,
except as contemplated herein.
4.15. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Subject to
compliance with applicable law, Purchaser, Parent and the Company will (a)
cooperate with one another (i) in
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promptly determining whether in connection with this Agreement any filings,
including qualifications to conduct business as a foreign corporation, are
required to be made with, or consents, approvals, permits or authorizations are
required to be obtained from, any Governmental Authority under any federal,
state or foreign law or regulation or from any other third party under any
Material Contract (as defined herein) and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, approvals, permits or authorizations and
(b) provide one another with copies of all filings made by such party with any
Governmental Authority in connection with this Agreement. In the event that the
parties determine that a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR") is required to consummate the
Transactions, Purchaser and Parent shall each bear one-half (1/2) of the cost
of the filing fee.
4.16. NO SOLICITATION.
(a) In consideration of the expenses to be incurred by
each of the parties hereto in negotiating toward this Agreement and in
conducting its due diligence investigation, each of the parties hereto shall
not, directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent of such party, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale or transfer of substantial assets, sale of any shares of
capital stock (including without limitation by way of a tender offer),
acquisition of shares of capital stock or assets, or similar transaction
involving it or any of its subsidiaries, other than the Transactions (any of
the foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), or (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or agree to or recommend any Acquisition
Proposal; PROVIDED, HOWEVER, that nothing contained in this Section 4.16(a)
shall prevent any of the parties hereto or its respective Board of Directors,
from (A) furnishing non-public information, or entering into discussions or
negotiations, with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity or agreeing to or
recommending an unsolicited bona fide written Acquisition Proposal to its
stockholders, if and only to the extent that (1) the Board of Directors of such
party believes in good faith (after consultation with its advisors) that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to
be derived from the Acquisition Proposal, would, if consummated, result in a
transaction more favorable to such party over the long term than the
transaction contemplated by this Agreement, and such Board of Directors
determines in good faith after receipt of an opinion from outside legal counsel
to the effect that such action is likely necessary for such Board of Directors
to comply with its fiduciary duties to stockholders under applicable law and
(2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of
Directors receives from such person or entity an executed confidentiality
agreement with terms no more favorable to such party than those contained in
the Confidentiality Agreement; or (B) complying with rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal.
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(b) Notwithstanding the foregoing, nothing in this
Agreement shall prohibit Parent from soliciting, negotiating, agreeing to or
consummating any Acquisition Proposals involving subsidiaries or divisions of
Parent other than the Company.
(c) If either Purchaser or the Company enters into a
definitive agreement pursuant to an Acquisition Proposal, such party shall be
deemed to have terminated this Agreement and shall pay the non-terminating
party a termination fee within three business days of its entering into such a
definitive agreement. The termination fee shall be the sum of (i) the
non-terminating party's out-of-pocket costs incurred in connection with the
Transactions through the date of termination, not to exceed $500,000 in the
aggregate, and (ii) $1,200,000. The payment of a termination fee pursuant to
this subsection, which is agreed to be a fair estimate of the expenses and
damages which would be suffered by the non-terminating party in such event,
shall be the sole and exclusive remedy of the non-terminating party against the
terminating party and its respective directors, officers, employees, attorneys,
agents, advisors or other representatives (including its stockholders), with
respect to the occurrences giving rise to such payment. Should any court of
competent jurisdiction determine that, consistent with applicable law, the
termination fee set forth above is unenforceable or otherwise contrary to
public policy, the parties hereto agree to any reformation of this Agreement by
a court that would result in such termination fee being upheld and given
effect.
(d) Parent and the Company hereby consent to Purchaser's
negotiation, but not consummation, of potential acquisitions that Purchaser has
disclosed in writing to Parent at or prior to the date hereof.
4.17. REGISTRATION.
(a) The Company shall furnish to Purchaser such
information, (including information about the Company and its affiliates), as
may be necessary to enable Purchaser to prepare and file with the SEC a
registration statement on Form S-4 under the Securities Act, and the rules and
regulations promulgated thereunder, in respect of the Purchaser Common Stock to
be issued by reason of the Merger, the Mestek Warrant, and the Purchaser Common
Stock reserved for issuance under the Mestek Warrant (such registration
statement, including the proxy statement/prospectus included therein which is
to be furnished to the holders of the Company Capital Stock and/or to the
holders of Purchaser Common Stock, in each case together with any amendments or
supplements thereto, being referred to in this Agreement as the "Registration
Statement"). The Company covenants that the Company Information (as defined
below) included in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the proxy
statement/prospectus contained therein is first mailed to the Company's
stockholders, or at the time of the meeting of the Company's stockholders held
to approve the Merger Agreement, contain any statement which, at the time and
in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omit to state a material fact necessary
in order to make the statements therein not false or misleading. If at any time
prior to the Effective Time any event or circumstance should come to the
attention of the Company with respect to the Company Information that is
required to be set forth in an amendment or supplement to the Registration
Statement, the Company shall promptly notify Purchaser and shall assist
Purchaser in appropriately amending or supplementing the Registration Statement
in the manner contemplated in Section 4.17(d) below. An amendment or
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supplement may be accomplished, to the extent permitted by law, rule or
regulation, by including such information in a filing under the Exchange Act
that is incorporated by reference into the Registration Statement. The Company
covenants that the Registration Statement insofar as it relates to information
concerning the Company, or any of its businesses, assets, directors, officers,
or stockholders or any other affiliates or other matters pertaining to the
Company that is supplied by the Company for inclusion in the Registration
Statement, including by incorporation by reference to SEC filings (the "Company
Information") shall comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder; except that the Company shall have no liability or obligation for
any information other than the Company Information.
(b) The Company shall instruct its accountants, Grant
Thornton, LLP, to deliver and shall use its reasonable best efforts to cause
such accountants to deliver to Purchaser letters dated at the time the
Registration Statement becomes effective and as of the Closing Date, addressed
to Purchaser, each containing such matters as are customarily contained in
auditors' letters regarding information about the Company included in the
Registration Statement, which auditors' letters shall be in form and substance
reasonably satisfactory to Purchaser.
(c) Purchaser shall file the Registration Statement and
use its reasonable best efforts to have it declared effective by the SEC as
promptly as practicable, and shall use its reasonable best efforts to take any
action required to be taken to comply in all material respects with any
applicable federal or state securities laws in connection with the issuance of
Purchaser Common Stock in the Merger, the Mestek Warrant, and the Purchaser
Common Stock reserved for issuance under the Mestek Warrant; except that such
covenant of Purchaser is made, as to those portions of the Registration
Statement containing or required to contain Company Information, assuming and
relying solely on timely and full compliance with Sections 4.17(a) and 4.17(b).
Purchaser will, in a timely manner, provide the Company with copies of any
written communications to or from the SEC and notify the Company of any
material oral communications to or from the SEC with respect to the
Registration Statement or the transactions contemplated thereby.
(d) Purchaser covenants that the information included in
the Registration Statement shall not, at the time the Registration Statement is
declared effective, at the time the proxy statement/prospectus contained
therein is first mailed to the Company's stockholders, or at the time of the
meeting of the Company's stockholders held to approve the Merger, contain any
statement which, at the time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state a material fact necessary in order to make the statements therein not
false or misleading; except that Purchaser makes no covenant as to those
portions of the Registration Statement containing or required to contain
Company Information. If at any time prior to the Effective Time any event or
circumstance should come to the attention of Purchaser that is required to be
set forth in an amendment or supplement to the Registration Statement,
Purchaser shall use its reasonable efforts to amend or supplement appropriately
the Registration Statement. An amendment or supplement may be accomplished, to
the extent permitted by law, rule or regulation, by including such information
in a filing under the Exchange Act that is incorporated by reference into the
Registration Statement.
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(e) The Registration Statement and all other documents
required to be filed by Purchaser with the SEC in connection with the
Transactions shall comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder; except that Purchaser shall have no liability or obligation for any
failure to comply with such requirements arising out of the Company
Information.
(f) Purchaser shall use all reasonable efforts to take
such action as may be necessary to ensure that the requirements of Rule 144(c)
under the Securities Act are satisfied so as to enable any Affiliates of the
Company to offer or sell the Purchaser Stock received by them in the Merger
pursuant to paragraph (d) of Rule 145 (subject to compliance with the
provisions of paragraphs (e), (f) and (g) of Rule 144).
(g) Each party will provide to the other parties, or
their counsel, drafts of the information related to or customarily provided by
such party to be included in the Registration Statement on Form S-4 and will
generally cooperate with each other in the preparation thereof.
4.18. AFFILIATES. The Company shall use its reasonable best efforts
to cause each person that is an Affiliate of the Company on the date
immediately preceding the date of the filing of the Registration Statement to
deliver to Purchaser on such date a written agreement substantially in the form
attached hereto as Exhibit 4.18 ("Rule 145 Letter"), and, in the event that any
other person becomes an affiliate of the Company thereafter, to cause such
person to provide a Rule 145 Letter to Purchaser at the Closing.
4.19. DISSENTERS RIGHTS. In the event that, in obtaining Company
Stockholder Approval, holders of five percent (5%) or more of the aggregate
number of shares of issued and outstanding Company Capital Stock shall have
exercised (and not withdrawn) dissenters rights under the Pennsylvania Act, the
parties shall negotiate in good faith to amend this Agreement to provide for
the payment of cash amounts to Company Stockholders who perfect (and do not
withdraw) their dissenters rights under the Pennsylvania Act, and the payment
of related legal expenses and court costs, in a manner mutually satisfactory to
Purchaser and Parent.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND PARENT
In order to induce Purchaser to enter into this Agreement and
consummate the Transactions, each of the Company and Parent represents and
warrants to Purchaser as follows, each of which warranties and representations
is material to and relied upon by Purchaser:
5.1. ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Pennsylvania. The states in which the Company is qualified to do business are
set forth on Schedule 5.1. The Company has all necessary corporate power and
authority to own, lease and operate its properties and conduct its business as
it is currently being conducted. The Company does not own, directly or
indirectly, any equity interest in any corporation, partnership, joint venture,
or other entity and does not have any subsidiaries, which for purposes of this
Agreement means any corporation or other legal entity of which the Company
(either alone or through or together with any other Affiliate of the Company)
owns, directly or indirectly, more than 20% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
5.2. CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. The Company
has full corporate power and authority to execute and deliver this Agreement
and each of the Closing Documents to which the Company is or will be a party
and to consummate the Transactions. The Board of Directors of the Company at a
meeting duly called and held has determined that the Merger is advisable and in
the best interest of the Company and has approved it, and has recommended it to
the Company's stockholders. The directors of the Company have also duly
approved and authorized the execution and delivery of this Agreement and each
of the Closing Documents to which the Company is or will be a party and the
consummation of the Transactions, and, other than the requisite stockholder
vote, no other corporate proceeding on the part of the Company is necessary to
approve the Transactions. Assuming that this Agreement and each of the Closing
Documents to which Purchaser is a party constitutes a valid and binding
agreement of Purchaser, this Agreement and each of the Closing Documents to
which the Company or Parent is or will be a party constitutes, or will
constitute when executed and delivered, a valid and binding agreement of the
Company or Parent, as the case may be, in each case enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency or other similar laws relating to the
enforcement of creditors' rights generally and by the application of general
principles of equity. The duly elected officers and directors of the Company
are set forth on Schedule 5.2 attached hereto. Copies of the Articles of
Incorporation, the Bylaws and all minutes of the Company are contained in the
minute books of the Company. True, correct and complete copies of the minute
books of the Company have been delivered to Purchaser.
5.3. OWNERSHIP OF ASSETS. The Company has title to all of its
properties and assets, other than leased or licensed property, in each case
free and clear of any liens, security interests, claims, charges, options
rights of tenants or other encumbrances, except as disclosed or reserved
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against in Schedule 5.3 or reserved against in the Company Financial Statements
(as defined in Section 5.8(a) (to the extent and in the amounts so disclosed or
reserved against)) and except for liens arising from current Taxes not yet due
and payable and other liens not having a Material Adverse Effect. All
buildings, machinery and equipment owned or leased by the Company are in good
operating condition and reasonable state of repair, subject only to ordinary
wear and tear. The Company has not received any notice of violation of any
applicable zoning regulation, ordinance or other law, regulation or requirement
relating to its operations and properties, whether owned or leased. All of the
accounts receivable of the Company as of the Effective Time will reflect actual
transactions and will have arisen in the ordinary course of business.
5.4. NO CONFLICT; REQUIRED CONSENTS. Schedule 5.4 lists all third
party consents or approvals required with respect to the Company for
consummation of the Transactions, which consents the Company agrees to use its
best reasonable efforts to obtain. Assuming all such consents, approvals,
authorizations and other actions have been obtained or taken and assuming the
appropriate filings are made by Purchaser, Parent and the Company to effectuate
the Merger under the Pennsylvania Act and the Delaware Act, and under the
Securities Act and the Exchange Act, the execution and delivery by the Company
of this Agreement and the Closing Documents and the consummation by the Company
of the Transactions do not and will not (a) require the consent, approval or
action of, or any filing or notice to, any corporation, firm, Person or other
entity or any public, governmental or judicial authority (except for such
consents, approvals, actions, filings or notices the failure of which to make
or obtain will not in the aggregate have a Material Adverse Effect); (b)
violate the terms of any instrument, document or agreement to which the Company
is a party, or by which the Company or the property of the Company is bound, or
be in conflict with, result in a breach of or constitute (upon the giving of
notice or lapse of time or both) a default under any such instrument, document
or agreement, or result in the creation of any lien upon any of the property or
assets of the Company except for such violations, conflicts, breaches and
defaults which, individually or in the aggregate, would not have a Material
Adverse Effect; (c) violate the Company's Articles of Incorporation or Bylaws;
or (d) violate any order, writ, injunction, decree, judgment, ruling, law, rule
or regulation of any federal, state, county, municipal, or foreign court or
Governmental Authority applicable to the Company, or the business or assets of
the Company, except for such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. The Company is not subject to, or a
party to, any mortgage, lien, lease, agreement, contract, instrument, order,
judgment or decree or any other material restriction of any kind or character
which would prevent or hinder the continued operation of the business of the
Company after the Closing on substantially the same basis as theretofore
operated.
5.5. CAPITALIZATION. The authorized and outstanding capital stock
of the Company is set forth on Schedule 5.5, which shall be updated at or prior
to Closing to reflect the Spinoff, and no shares of the Company's Capital Stock
are held in the treasury of the Company. All outstanding Company Capital Stock
has been duly authorized, and is validly issued, fully paid and nonassessable.
No party has any preemptive (whether statutory or contractual) rights in any
capital stock of the Company. The Company has no convertible securities,
options, warrants, or other contracts, commitments, agreements, understandings,
arrangements or restrictions by which it is bound to issue any additional
shares of its capital stock or other securities. All securities of the Company
were offered and sold in compliance with applicable Federal and state
securities laws. Each and every dividend of the Company, if any, whether paid
in cash or other
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property, has been declared and paid in compliance with applicable law, and the
Company has no further obligation with respect to such payment.
5.6. COMPLIANCE WITH LAWS; FILINGS WITH THE SEC.
(a) The Company is in compliance with, and the Company
operated any businesses previously owned by it in compliance with all
applicable laws, orders, rules and regulations of all Governmental Authorities,
including applicable Environmental Laws, except for such noncompliance as would
not, individually or in the aggregate, have a Material Adverse Effect. The
Company has not received notice of any noncompliance with the foregoing.
(b) Neither the Company nor any other Persons providing
services for the Company have, to the knowledge of the Company or Parent,
engaged in any activities which would be a basis for exclusion from any
otherwise available Medicare, Medicaid or other federally funded programs under
Section 1320a - 7a of Title 42 of the United States Code, or prohibited under
any applicable portions of Section 1320a - 7b of such Title 42, or regulations
promulgated thereunder, or related state or local statutes or regulations,
including any "fraud and abuse" provisions, except where such noncompliance has
and will have, individually and in the aggregate, no Material Adverse Effect.
(c) Without limiting the foregoing, the Company and any
other person or entity for whose conduct the Company is legally held
responsible are in compliance with all applicable federal, state, regional,
local or provincial laws, statutes, ordinances, judgments, rulings and
regulations relating to any matters of pollution, protection of the
environment, health or safety, or environmental regulation or control
(collectively, "Environmental Laws"), except where such noncompliance has and
will have, individually or in the aggregate, no Material Adverse Effect.
Neither the Company, nor any other person or entity for whose conduct the
Company is legally responsible has received any notice, demand, request for
information, or administrative inquiry relating to any violation of an
Environmental Law or the institution of any suit, action, claim, or proceedings
alleging such violation or investigation by any Governmental Authority or any
third party of any such violation.
(d) Parent has made all filings with the SEC that it has
been required to make under the Securities Act and the Exchange Act since
January 1, 1996 (collectively, the "Public Reports"), and has done so in a
timely manner. Each of the Public Reports has complied with the Securities Act
and the Exchange Act in all material respects. None of the Public Reports, as
of their respective dates, to the Parent's knowledge, contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.7. LICENSES AND PERMITS. The Company holds and is in compliance
with all licenses, permits, concessions, grants, franchises, approvals and
authorizations necessary or required for the use or ownership of its assets and
the operation of its business, except where the failure to hold such license,
permit, concession, grant, franchise, approval or authorization has and will
have, individually or in the aggregate, no Material Adverse Effect. The Company
has not received notice of any violations in respect of any such licenses,
permits, concessions, grants, franchises, approvals or authorizations, which
violations, individually or in the aggregate, would
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have a Material Adverse Effect. No proceeding is pending or, to the knowledge
of the Company, threatened, which seeks revocation or limitation of any such
licenses, permits, concessions, grants, franchises, approvals or
authorizations, nor is there any basis therefor, the revocation or limitation
of which, individually or in the aggregate, would have a Material Adverse
Effect.
5.8. LIABILITIES AND OBLIGATIONS OF THE COMPANY.
(a) Attached hereto as Schedule 5.8 are true, correct
and complete copies of the Company's unaudited balance sheets as of December
31, 1997 and December 31, 1998, and unaudited balance sheet as of June 30,
1999, and the related statements of income, stockholders' equity and cash flows
for the years and six months then ended, together, except in the case of the
financial statements dated June 30, 1999, with the reports of Grant Thornton
thereon (collectively, the "Company Financial Statements"). The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, fairly present in all material
respects the financial condition of the Company as of the respective dates
thereof, and disclose all liabilities of the Company, whether absolute,
contingent, accrued or otherwise, existing as of the date thereof that are of a
nature required to be reflected in financial statements prepared in accordance
with generally accepted accounting principles, except for liabilities that,
individually or in the aggregate, would not have a Material Adverse Effect;
provided, however, that the interim financial statements are subject to normal
year-end adjustments which are not expected to be material in amount.
(b) The Company has no liability or obligation (whether
accrued, absolute, contingent or otherwise) including, without limitation, any
liability that might result from an audit of its Tax Returns by any Tax
Authority, except for (i) liabilities that, individually or in the aggregate,
would not have a Material Adverse Effect, (ii) the liabilities and obligations
of the Company that are disclosed or reserved against in the Company Financial
Statements or Schedule 5.8 hereto, to the extent and in the amounts so
disclosed or reserved against, and (iii) liabilities incurred or accrued in the
ordinary course of business since June 30, 1999 and liabilities incurred in
connection with the Transactions.
(c) Except as disclosed in the Company Financial
Statements or Schedule 5.8, the Company is not in default with respect to any
liabilities or obligations, except for defaults that, individually or in the
aggregate, would not have a Material Adverse Effect and all such liabilities or
obligations shown or reflected in the Company Financial Statements or Schedule
5.8 and such liabilities incurred or accrued subsequent to June 30, 1999 were
incurred in the ordinary course of business except as indicated in Schedule
5.8, except for liabilities and obligations that, individually or in the
aggregate, would not have a Material Adverse Effect.
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5.9. TAXES.
Except as to any noncompliance with any of the following
provisions that would not, individually or in the aggregate, have a Material
Adverse Effect:
(a) The Company has timely filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
respects. Except as set forth in Schedule 5.9, the Company currently is not the
beneficiary of any extension of time within which to file any Tax Return. There
are no liens or other security interests on any of the assets of any of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax, other than liens, if any, for Taxes not yet due and payable.
(b) The Company has timely paid, withheld and/or
remitted to the appropriate Tax Authority all Taxes required to be paid,
withheld and/or remitted on or before the Closing Date. The reserves for Taxes
to be reflected on the Closing Balance Sheet (other than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) will be adequate to cover all Tax liabilities, contingent or otherwise,
as of the Closing Date.
(c) No employee of the Company or any of its
subsidiaries responsible for Tax matters has received notice that any Tax
Authority proposes to assess any additional Taxes against the Company for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax liability of the Company either (i) claimed or raised by any
Tax Authority in writing, or (ii) as to which any employee of the Company or
the Parent responsible for Tax matters has knowledge based upon personal
contact with any agent of such Tax Authority.
(d) Except as set forth in Schedule 5.9, the Company has
not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(e) The Company has not filed a consent under Section
341(f) of the Code concerning collapsible corporations. The Company has not
made any payments which have not yet been reported on any Tax Return, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate the Company to make any payments that will
not be deductible under Section 280G of the Code. The Company has disclosed on
its federal income Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code.
(f) The Company is not a party to any Tax allocation or
sharing agreement other than concerning federal income taxes for an Affiliated
Group the common parent of which is Parent (such group, the "Parent Affiliated
Group"). The Company has not been a member of an Affiliated Group or filed or
been included in a combined, consolidated or unitary Tax Return other than a
consolidated federal income Tax Return for the Parent Affiliated Group. The
Company has no contractual obligation to indemnify any other person with
respect to the
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payment of any Taxes of the other person which could have a Material Adverse
Effect. With respect to the Parent Affiliated Group:
(i) The Parent Affiliated Group has filed all
federal income Tax Returns that it was required to file for each taxable period
during which the Company was a member of the group. All such Tax Returns were
correct and complete in all material respects in so far as they relate to the
Company. All income Taxes owed by such Affiliated Group (whether or not shown
on any Tax Return) have been paid for each taxable period during which the
Company was a member of the group; provided however, that Taxes for the taxable
year which includes the Closing Date shall be paid when due.
(ii) No employee of any of Parent and any of its
subsidiaries responsible for Tax matters expects any authority to assess any
additional income Taxes against the Parent Affiliated Group for any taxable
period during which the Company was a member of the group. There is no dispute
or claim concerning any income Tax liability of the Parent Affiliated Group for
any taxable period during which the Company was a member of the group either
(A) claimed or raised by any authority in writing or (B) as to which any
employees of any of Parent and its subsidiaries responsible for Tax matters has
knowledge based upon personal contact with any agent of such authority. Except
as set forth on Schedule 5.9, the Parent Affiliated Group has not waived any
statute of limitations in respect of any income Taxes or agreed to any
extension of time with respect to an income Tax assessment or deficiency for
any taxable period during which the Company was a member of the group.
5.10. CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY. Schedule
5.10 hereto consists of a true and complete list of all contracts, agreements,
commitments and other instruments (identified by title, date and parties)
(whether oral or written) to which the Company is a party that involve a
receipt or an expenditure by the Company or require the performance of services
or delivery of goods to, by, through, on behalf of or for the benefit of the
Company, which in each case relates to a contract, agreement, commitment or
instrument that requires (or is reasonably expected to require) payments or
provides (or is reasonably expected to provide) for receipts in excess of
$25,000 from the Closing Date until the first (1st) anniversary thereof.
The contracts, agreements, commitments and other instruments listed or
required to be listed on Schedule 5.10 or listed on a Schedule referred to in
Section 5.12 hereof are herein referred to as the "Material Contracts". All of
the Material Contracts are in full force and effect.
None of the Company, and, to the knowledge of the Company and Parent,
any other party to any such contract, commitment or arrangement has breached
any provision of, or is in default under, the terms thereof, the breach of or
default under which would, individually or in the aggregate, have a Material
Adverse Effect; and there are no existing facts or circumstances known to the
Company or Parent that would prevent the work in process of the Company or its
contracts and agreements from maturing upon performance by the Company into
collectible accounts receivable in the aggregate in amounts consistent with
historical experience. Except as set forth on Schedule 5.10 or as reserved
against in the Company Financial Statements, there are no contracts or
commitments that require the performance of services or provision of goods by
the Company at a direct cost for each such contract or commitment known by the
Company to be in excess of the revenue to be derived pursuant to the terms of
such contract or commitment, which, individually, or in the
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aggregate, would have a Material Adverse Effect. Except for terms specifically
described in Schedule 5.10, the Company has not received any payment from any
contracting party in connection with or as an inducement for entering into any
contract, agreement, policy or instrument except for payment for actual
services rendered or to be rendered by the Company consistent with amounts
historically charged for such services.
5.11. CUSTOMER CONTRACTS. With respect to each contract, agreement,
commitment or other instrument in effect to which the Company is a party with
any customer of the Company (each, a "Customer Contract") all performance
warranties with respect to computer software represented in writing as owned by
or proprietary to the Company ("Owned Software") made by the Company in any
Customer Contract, including warranties with respect to capacity, availability,
downtime and response time, and Year 2000 compliance have been satisfied in all
material respects upon the terms and conditions and to the extent provided for
in such Customer Contract, except for failures to satisfy which, individually
or in the aggregate, would not have a Material Adverse Effect.
5.12. INTELLECTUAL PROPERTY; COMPUTER SOFTWARE.
(a) Schedule 5.12(A) hereto sets forth (i) a complete
and correct list of all trademarks, trade names, service marks, service names,
and brand names (whether or not any of the same are registered), and all
patents and registered copyrights and all applications for the foregoing, if
any, (setting forth the registration, issue or serial number of the patents and
registered copyrights and a description of the same) applicable to or used in
the business of the Company; (ii) the owner of such intellectual property and
any registration thereof or application thereof; and (iii) a complete list of
all licenses granted by or to the Company with respect to any of the above
(identified by title, date and parties) (not inclusive of Customer Contracts).
All such trademarks, trade names, service marks, service names, brand names,
copyrights and patents are owned by the Company free and clear of all liens,
claims, security interests and encumbrances, except for such liens, claims,
security interests and encumbrances as would, individually or in the aggregate,
not have a Material Adverse Effect. Except as set forth on Schedule 5.12(A),
the Company is not currently in receipt of any notice of any violation of, and,
to the Company's and Parent's knowledge, the Company is not violating the
rights of others in any trademark, trade name, service mark, copyright, patent,
trade secret, know-how or other intangible asset, except such violations as,
individually or in the aggregate, would not have a Material Adverse Effect.
(b) Schedule 5.12(B) contains a complete and accurate
list of all Owned Software. Except as set forth on Schedule 5.12(B), the
Company has title to the Owned Software, free and clear of all claims,
including claims or rights of employees, agents, consultants, inventors,
customers, licensees or other parties involved in the development, creation,
marketing, maintenance, enhancement or licensing of such computer software.
Except as set forth on Schedule 5.12(B) and except for commercially available,
over-the-counter "shrink-wrap" software, the Owned Software is not dependent on
any Licensed Software (as defined in subsection (c) below) in order to operate
fully in the manner in which it is intended. The source code to the Owned
Software has not been published or disclosed to any other parties, except as
set forth in the Customer Contracts or as set forth on Schedule 5.12(B), and
except pursuant to contracts requiring such other parties to keep the Owned
Software confidential. To
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the knowledge of the Company and Parent, no such other party has breached any
such obligation of confidentiality.
(c) Schedule 5.12(C) contains a complete and accurate
list of all software (other than commercially available over-the-counter
"shrink-wrap" software) under which the Company is a licensee, lessee or
otherwise has obtained the right to use (the "Licensed Software"). The Company
has the right and license to use, sublicense, modify and copy Licensed Software
to the extent set forth in the respective license, lease or similar agreement
pursuant to which the Licensed Software is licensed to the Company, free of any
other limitations or encumbrances, and the Company is in compliance with all
applicable provisions of such agreements, except for failures to comply which,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as disclosed on Schedule 5.12(C), none of the Licensed Software has been
incorporated into or made a part of any Owned Software or any other Licensed
Software. The Company has not published or disclosed any Licensed Software to
any other party except in accordance with and as permitted by any license,
lease or similar agreement relating to the Licensed Software and except
pursuant to contracts requiring such other parties to keep the Licensed
Software confidential. No party to whom the Company has disclosed Licensed
Software has, to the knowledge of the Company and Parent, breached such
obligation of confidentiality, except for such publications and disclosures
that, individually or in the aggregate, would not have a Material Adverse
Effect.
(d) The Owned Software and Licensed Software and
commercially available over-the-counter "shrink-wrap" software constitute all
software used in the businesses of the Company (collectively, the "Company
Software"). The Transactions will not cause a breach or default under any
licenses, leases or similar agreements relating to the Company Software or
impair Purchaser's ability to use the Company Software in the same manner as
such computer software is currently used by the Company. To the knowledge of
the Company and Parent, (i) the Company is not infringing any intellectual
property rights of any other person or entity with respect to the Company
Software, and (ii) no other person or entity is infringing any intellectual
property rights of the Company with respect to the Company Software, except for
infringements that, individually or in the aggregate, would not have a Material
Adverse Effect.
5.13. LABOR MATTERS. Except as set forth on Schedule 5.13, within
the last three (3) years the Company has not been the subject of any known
union activity or labor dispute, nor has there been any strike of any kind
called or, to the knowledge of the Company or Parent, threatened to be called
against the Company. The Company has not violated any applicable federal or
state law or regulation relating to labor or labor practices, except where such
violation has and will have, individually or in the aggregate, no Material
Adverse Effect. Schedule 5.13 sets forth a true, correct and complete list of
employer loans or advances from the Company to their respective employees. The
Company is in compliance with all applicable requirements of the Immigration
and Nationality Act of 1952, as amended by the Immigration Reform and Control
Act of 1986 and the regulations promulgated thereunder (hereinafter
collectively referred to as the "Immigration Laws"), except where such
noncompliance has and will have, individually or in the aggregate, no Material
Adverse Effect.
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5.14. WORK-IN-PROCESS, ORDERS AND RETURNS.
(a) Except as set forth on Schedule 5.14(A), as of the
date hereof, except for any claims specifically disclosed on other Schedules
hereto, to the Company's and the Parent's knowledge, there are no claims nor
does the Company reasonably expect to make or receive any claims to terminate
Customer Agreements, or material licenses, services, or other orders, or for
refunds relating to Customer Agreements, licenses, maintenance agreements, or
other fees by reason of alleged dissatisfaction with the Company's capabilities
or performance (including those related to Company Software), or defective or
unsatisfactory services or products, except as would not result in,
individually or in the aggregate, a Material Adverse Effect.
(b) Except as set forth on Schedule 5.14(B), neither the
Company nor Parent has been notified that the consummation of the Transactions
will result in any cancellations or withdrawals of accepted and unfilled orders
for services or Company Software, or maintenance or other services and the
Company will inform Purchaser promptly upon receipt of any notification to that
effect received after the date hereof, except for cancellations or withdrawals
that, individually or in the aggregate, would not have a Material Adverse
Effect. To the knowledge of the Company and Parent, neither the execution of
this Agreement nor the consummation of the Transactions will result in any
material cancellations or withdrawals of accepted and unfilled orders for the
license or sales of Company Software, services or merchandise, except for
cancellations or withdrawals that, individually or in the aggregate, would not
have a Material Adverse Effect.
5.15. ABSENCE OF CERTAIN CHANGES. Except as reflected on Schedule
5.15, or elsewhere in this Agreement or specifically identified on any
Schedules hereto, and since June 30, 1999, the Company has not and at the
Closing Date will not have:
(a) Suffered a Material Adverse Effect, or become aware
of any circumstances which might reasonably be expected to result in such a
Material Adverse Effect; or suffered any material casualty loss to the Assets
(whether or not insured), except for losses that, individually or in the
aggregate, would not have a Material Adverse Effect;
(b) Incurred any obligations specifically related to the
Assets (including Customer Agreements), except in the ordinary course of
business consistent with past practices;
(c) Permitted or allowed any of the Assets to be
mortgaged, pledged, or subjected to any lien or encumbrance, except for liens
for Taxes not yet due and payable and liens and encumbrances that, individually
or in the aggregate, would not have a Material Adverse Effect;
(d) Written down the value of any inventory, contract or
other intangible asset, or written off as uncollectible any notes or accounts
receivable or any portion thereof, except for write-downs and write-offs in the
ordinary course of business, consistent with past practice and at a rate no
greater than during the latest complete fiscal year; cancelled any other debts
or claims, or waived any rights of substantial value, or sold or transferred
any of its material properties or assets, real, personal, or mixed, tangible or
intangible, except in the
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ordinary course of business and consistent with past practice, and except for
those that, individually or in the aggregate, would not have a Material Adverse
Effect;
(e) Sold, licensed or transferred or agreed to sell,
license or transfer, any of the Assets, except in the ordinary course of
business and consistent with past practice;
(f) To the Company's and Parent's knowledge, received
notice of any pending or threatened adverse claim or an alleged infringement of
proprietary material, whether such claim or infringement is based on trademark,
copyright, patent, license, trade secret, contract or other restrictions on the
use or disclosure of proprietary materials;
(g) Incurred obligations to refund money to customers,
except in the ordinary course of business, all of which will have no Material
Adverse Effect;
(h) Become aware of any event, condition or other
circumstance relating solely to the Assets (as opposed to any such event,
condition, or circumstance which is, for example, national or industry-wide in
nature) which might reasonably be expected to materially adversely affect the
Assets;
(i) Made any capital expenditures or commitments, any
one of which is more than $50,000, for additions to property, plant, or
equipment;
(j) Made any material change in any method of accounting
or accounting practice;
(k) Paid, loaned, guaranteed, or advanced any material
amount to, or sold, transferred, or leased any material properties or assets
(real, personal, or mixed, tangible or intangible) to, or entered into any
agreement, arrangement, or transaction with any of the Company's officers or
directors, or any business or entity in which any officer or director of the
Company, or any affiliate or associate of any of such Persons has any direct or
indirect interest; or
(l) Agreed to take any action described in this Section
5.15.
5.16. LEASES. Schedule 5.16 contains a list of all leases pursuant
to which the Company leases real or personal property, and copies of all such
leases have been delivered to Purchaser. All such leases are in full force and
effect, and except as set forth on Schedule 5.16, no event has occurred which
is a default or which with the passage of time will constitute a default by the
Company thereunder, nor has any such event occurred to the knowledge of the
Company or Parent which is a default by any other party to such lease. All
property leased by the Company or Parent as lessee is in the possession of the
Company. Except as indicated in Schedule 5.16, no consent of any lessor is
required in connection with the Transactions.
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5.17. LITIGATION. Except as set forth in Schedule 5.17, (i) there
are no actions, proceedings or regulatory agency investigations against the
Company or, to the Company or Parent's knowledge, involving the Assets pending
(served) or threatened against the Company or against Parent, (ii) neither the
Company nor Parent knows of any such action, proceeding or investigation
against the Company, and (iii) no such action, proceeding, or regulatory agency
investigation has been pending (served) during the three-year period preceding
the date of this Agreement.
5.18. EMPLOYEE BENEFIT PLANS: EMPLOYEES.
Except as to any noncompliance with any of the following provisions
that would not, individually, or in the aggregate, have a Material Adverse
Effect:
(a) Schedule 5.18 sets forth a list of each "employee
benefit plan" (as defined by Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and any other bonus, profit
sharing, pension, compensation, deferred compensation, stock option, stock
purchase, fringe benefit, severance, scholarship, disability, sick leave,
vacation, bonus, retention, or other plan, agreement, or arrangement (each such
plan, agreement or arrangement is referred to herein as an "Employee Benefit
Plan", and collectively, the "Employee Benefit Plans") that is currently in
effect for the benefit of (i) directors or employees of the Company, (ii)
former directors or employees of the Company, or (iii) beneficiaries of anyone
described in (i) or (ii) (collectively, "Company Employees") or with respect to
which the Company or any "ERISA Affiliate" (hereby defined to include any trade
or business, whether or not incorporated, other than the Company, which has
employees who are treated pursuant to Section 4001(a)(14) of ERISA and/or
Section 414 of the Code as employees of a single employer which includes the
Company) has any obligation on behalf of any Company Employee. Except as
disclosed on Schedule 5.18 attached hereto, there are no other benefits to
which any Company Employee is entitled for which the Company has any
obligation.
(b) Parent has delivered to Purchaser, with respect to
each Employee Benefit Plan, true and complete copies of (i) the documents
embodying the plan, including, without limitation, the current plan documents
and documents creating any trust maintained pursuant thereto, all amendments,
group annuity contracts, insurance contracts, the most recent summary plan
description, if any, and employee handbooks, (ii) annual reports including but
not limited to Forms 5500, 990 and 1041 for the last two (2) years for the plan
and any related trust; (iii) any communication involving the plan or any
related trust to or from the Internal Revenue Service ("IRS"), Department of
Labor ("DOL"), Pension Benefit Guaranty Corporation ("PBGC") or any other
governmental authority since January 1, 1998, but excluding any IRS
determination letter submission; and (iv) the most recent determination letter
received from the IRS pertaining to any Employee Benefit Plan intended to
qualify under Sections 401(a) or 501(c)(9) of the Code.
(c) The Company has no obligation to contribute to or
provide benefits pursuant to, and has no other liability of any kind with
respect to, (i) a "multiple employer welfare arrangement" (within the meaning
of Section 3(40) of ERISA), or (ii) a "plan maintained by more than one
employer" (within the meaning of Section 413(c) of the Code).
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(d) Except as otherwise set forth on Schedule 5.18
attached hereto, the Company is not liable for, and neither the Company nor
Purchaser will be liable for, any contribution, tax, lien, penalty, cost,
interest, claim, loss, action, suit, damage, cost assessment or other similar
type of liability or expense of any ERISA Affiliate (including predecessors
thereof) with regard to any Employee Benefit Plan maintained, sponsored or
contributed to by an ERISA Affiliate (if a like definition of Employee Benefit
Plan were applicable to the ERISA Affiliate in the same manner as it applies to
the Company), including, without limitation, withdrawal liability arising under
Title IV, Subtitle E, Part 1 of ERISA, liabilities to the PBGC, or liabilities
under Section 412 of the Code or Section 302(a) of ERISA.
(e) The Company has complied in all respects with the
applicable requirements of Section 4980B of the Code and Section 601 et seq. of
ERISA (such statutory provisions and predecessors thereof are referred to
herein collectively as "COBRA").
(f) With respect to each Employee Benefit Plan and
except as otherwise set forth on Schedule 5.18 attached hereto:
(i) each Employee Benefit Plan that is intended
to be qualified under Section 401(a) of the Code has received a determination
letter from the IRS to the effect that the Employee Benefit Plan is qualified
under Section 401 of the Code and that any trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code, and nothing
has occurred or, to the knowledge of the Company and Parent, is expected to
occur that caused or could reasonably be expected to cause the loss of such
qualification or exemption or the imposition of any penalty or tax liability;
(ii) all payments required by the Employee
Benefit Plan or by law (including all contributions, insurance premiums,
premiums due the PBGC or intercompany charges) with respect to all periods
through the date hereof have been made;
(iii) there are no violations of or failures to
comply with ERISA and the Code with respect to the filing of applicable
reports, documents, and notices regarding the Employee Benefit Plan with DOL,
the IRS, the PBGC or any other governmental authority, or any of the assets of
the Employee Benefit Plan or any related trust;
(iv) no claims, lawsuit, arbitration or other
action has been asserted or instituted or, to the knowledge of the Company and
Parent, threatened in writing against the Employee Benefit Plan, any trustee or
fiduciaries thereof, the Company or any ERISA Affiliate, any director, officer
or employee thereof, or any of the assets of the Employee Benefit Plan or any
related trust, except for routine claims for benefits;
(v) any bonding required with respect to the
Employee Benefit Plan in accordance with the applicable provisions of ERISA has
been obtained and is in full force and effect;
(vi) the Employee Benefit Plan complies in all
respects with and has been maintained and operated in all respects in
accordance with its respective terms and the terms and the provisions of
applicable law, including, without limitation, ERISA and the Code (including
rules and regulations thereunder);
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(vii) no "prohibited transaction" (within the
meaning of Section 4975 of the Code and Section 406 of ERISA) has occurred or
is reasonably expected to occur with respect to the Employee Benefit Plan (and
the transactions contemplated by this Agreement will not constitute or directly
or indirectly result in such a "prohibited transaction") which has subjected
or, to the knowledge of Company and Parent, could reasonably be expected to
subject the Company, any ERISA Affiliate or Purchaser, or any officer, director
or employee of the Company, any ERISA Affiliate or Purchaser, or the Employee
Benefit Plan trustee, administrator or other fiduciary, to a tax or penalty on
prohibited transactions imposed by either Section 502 of ERISA or Section 4975
of the Code or any other liability with respect thereto, which tax, penalty or
liability could have a Material Adverse Effect;
(viii) to the knowledge of the Company and Parent,
the Employee Benefit Plan is not under audit or investigation by the IRS or the
DOL or any other governmental authority and no such completed audit, if any,
has resulted in the imposition of any tax, interest or penalty.
(g) The Company is not subject to any liens, excise or
other taxes under ERISA, the Code or other applicable law relating to any
Employee Benefit Plan.
(h) None of the Employee Benefit Plans is subject to
Title IV of ERISA.
(i) In the case of any Employee Benefit Plan that is a
Multiemployer Plan, the Company has no withdrawal liability under Part 1 of
Subtitle E of Title IV of ERISA as a result of either a "complete withdrawal"
(as defined in Section 4203 of ERISA) or a "partial withdrawal" (as defined in
Section 4205 of ERISA) by the Company from such Employee Benefit Plan occurring
on or prior to the date hereof.
(j) The consummation of the Transactions will not give
rise to any liability for any employee benefits, including, without limitation,
liability for severance pay, unemployment compensation, termination pay or
withdrawal liability, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any Company Employee.
(k) No amounts payable under any Employee Benefit Plan
will fail to be deductible for federal income tax purposes by virtue of Section
280G of the Code as such Section of the Code is currently in effect.
(l) Except as set forth on Schedule 5.18, attached
hereto, no Employee Benefit Plan provides for any health benefits (other than
under COBRA, the Federal Social Security Act or any Employee Benefit Plan
qualified under Section 401(a) of the Code) to any Company Employee who, at the
time the health benefit is to be provided, is a former director or former
employee of the Company (or a beneficiary of any such person), nor, to the
knowledge of the Company and Parent, have any representations, agreements,
covenants or commitments been made to provide such health benefits.
(m) Since June 30, 1999 and through the date hereof,
except as set forth on Schedule 5.18 attached hereto or as required by
applicable law or consistent with past practice, neither the Company nor any
ERISA Affiliate has, nor will it, (i) institute or agree to institute
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<PAGE> 46
any new employee benefit plan or practice for any Company Employee, (ii) make
or agree to make any change in any Employee Benefit Plan, (iii) make or agree
to make any increase in the compensation payable or to become payable by the
Company or any ERISA Affiliate to any Company Employee, other than regularly
scheduled increases, or (iv) except pursuant to this Agreement and except for
contributions required to provide benefits pursuant to the provisions of the
Employee Benefit Plans, pay or accrue or agree to pay or accrue any bonus,
percentage of compensation, or other like benefit to, or for the credit of, any
Company Employee.
(n) Any contribution, insurance premium, excise tax,
interest charge or other liability or charge imposed or required with respect
to any Employee Benefit Plan which is attributable to any period or any portion
of any period prior to the Closing shall, to the extent required by GAAP, be
reflected as a liability on the Closing Balance Sheet, including, without
limitation, any portion of the matching contribution required with respect to
the Parent Plan for the plan year ending after the Closing which is
attributable to elective contributions made by Company Employees in such plan
prior to the Closing.
5.19. ACCURACY OF REPRESENTATIONS. No representation or warranty by
the Company or Parent contained in this Agreement and no statement contained in
any certificate or schedule furnished to Purchaser pursuant to the provisions
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein not misleading.
To the knowledge of the Company and Parent, there is no current event or
condition of any kind or character pertaining to the Company that may
reasonably be expected to have a Material Adverse Effect, except as disclosed
herein.
5.20. BROKERS FEES AND EXPENSES. Neither the Company nor Parent or
any affiliate thereof has retained or utilized the services of any advisor,
broker, finder or intermediary, or paid or agreed to pay any fee or commission
to any other Person or entity for or on account of the Transactions, or had any
communications with any Person or entity which would obligate Purchaser to pay
any such fees or commissions.
5.21. BANK ACCOUNTS. Schedule 5.21 contains a true, complete and
correct list showing the name and location of each bank or other institution in
which the Company has any deposit account or safe deposit box, together with a
listing of account numbers and names of all Persons authorized to draw thereon
or have access thereto.
5.22. BUSINESS PRACTICES. Neither the Company nor anyone acting on
its behalf has made any payment of funds of the Company prohibited by law, and
no funds of the Company have been set aside to be used for any payment
prohibited by law.
5.23. INSURANCE. Schedule 5.23 lists all of the insurance policies
maintained by the Company, which Schedule includes the name of the insurance
company, the policy number, a description of the type of insurance covered by
such policy, the dollar limit of the policy, and the annual premiums for such
policy. The Company shall maintain such insurance policies in full force and
effect at least through the Closing Date.
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5.24. TAX FREE REORGANIZATION. To the knowledge of the Company
there is no fact pertaining to it that would prevent the Merger from qualifying
as a tax-free reorganization under the Code.
5.25. NO EXISTING DISCUSSION. As of the date hereof, the Company is
not engaged directly or indirectly, in any discussion or negotiations with any
other party with respect to an Acquisition Proposal.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce the Company and Parent to enter into this Agreement
and consummate the Transactions, Purchaser represents and warrants to the
Company and Parent as follows, each of which representations and warranties is
material to and relied upon by the Company and Parent:
6.1. ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Delaware. The
states in which Purchaser is qualified to do business are set forth on Schedule
6.1. Purchaser has all necessary corporate power and authority to own, lease
and operate its properties and conduct its business as it is currently being
conducted. Except as set forth on Schedule 6.1, Purchaser does not own,
directly or indirectly, any equity interest in any corporation, partnership,
joint venture, or other entity and does not have any subsidiaries.
6.2. CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. Purchaser
has full corporate power and authority to execute and deliver this Agreement
and each of the Closing Documents to which Purchaser is or will be a party and
to consummate the Transactions. The Board of Directors of Purchaser has duly
approved and authorized the execution and delivery of this Agreement and each
of the Closing Documents to which it is or will be a party and the consummation
of the Transactions and has resolved to submit the Merger to and recommend
approval of the Merger by the stockholders of Purchaser, and, except for
shareholder approval, no other corporate proceedings on the part of Purchaser
are necessary to approve and authorize the execution and delivery of this
Agreement and such Closing Documents and the consummation of the Transactions.
Assuming that this Agreement and each of the Closing Documents to which
Purchaser is a party constitutes a valid and binding agreement of Company
and/or Parent, as the case may be, this Agreement and each of the Closing
Documents to which Purchaser is a party constitutes, or will constitute when
executed and delivered, a valid and binding agreement of Purchaser in each case
enforceable against Purchaser in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency or
other similar laws relating to the enforcement of creditors' rights generally
and by the application of general principles of equity.
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6.3. NO CONFLICT; CONSENTS. Except as set forth on Schedule 6.3
hereto, and except for the applicable requirements of the Securities Act, the
Exchange Act, state blue sky laws and the rules of the NASDAQ Stock Market,
Inc., the execution and delivery by Purchaser of this Agreement, the Closing
Documents to which it is or will be a party and the consummation by Purchaser
of the Transactions do not and will not (a) require the consent, approval or
action of, or any filing or notice to, any corporation, firm, Person or other
entity or any public, governmental or judicial authority; (b) violate the terms
of any instrument, document or agreement to which Purchaser is a party, or by
which Purchaser or the property of Purchaser is bound, or be in conflict with,
result in a breach of or constitute (upon the giving of notice or lapse of
time, or both) a default under any such instrument, document or agreement or
result in the creation of any lien upon any of the property or assets of
Purchaser, except for such violations, conflicts, breaches and defaults which,
individually or in the aggregate, would not have a Material Adverse Effect; (c)
violate Purchaser's Certificate of Incorporation or Bylaws; or (d) violate any
order, writ, injunction, decree, judgment, ruling, law, rule or regulation of
any federal, state, county, municipal, or foreign court or Governmental
Authority applicable to Purchaser, the business or assets of Purchaser, or the
Merger, except for such violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Purchaser is not subject to, or a
party to, any mortgage, lien, lease, agreement, contract, instrument, order,
judgment or decree or any other material restriction of any kind or character
which would prevent or hinder the continued operation of the business of
Purchaser after the Closing on substantially the same basis as theretofore
operated.
6.4. OWNERSHIP OF ASSETS. Purchaser has title to all of its
properties and assets, other than leased or licensed property, in each case
free and clear of any liens, security interests, claims, charges, options
rights of tenants or other encumbrances, except as disclosed or reserved
against in Schedule 6.4 or reserved against in Purchaser's financial statements
(as described in Section 6.8(a) (to the extent and in the amounts so disclosed
or reserved against)) and except for liens arising from current Taxes not yet
due and payable and other liens not having a Material Adverse Effect. All
buildings, machinery and equipment owned or leased by Purchaser are in good
operating condition and reasonable state of repair, subject only to ordinary
wear and tear. Purchaser has not received any notice of violation of any
applicable zoning regulation, ordinance or other law, regulation or requirement
relating to its operations and properties, whether owned or leased. All of the
accounts receivable of Purchaser as of the Effective Time will reflect actual
transactions and will have arisen in the ordinary course of business.
6.5. CAPITALIZATION. The authorized capital stock of Purchaser
consists of 10,000,000 shares of preferred stock, $.001 par value per share, of
which 3,034,521 shares of Series A Preferred Stock are outstanding, and
20,000,000 shares of common stock, $.001 par value per share, of which
8,741,713 shares are outstanding as of the date hereof. In addition, rights to
receive 32,392 shares of Purchaser Common Stock, relating to unconverted shares
from Purchaser's 1997 reverse stock split ("Purchaser Conversion Rights"), are
outstanding as of the date hereof. All outstanding shares of Purchaser Common
Stock and Purchaser's Series A Preferred Stock have been duly authorized, and
are validly issued, fully paid and nonassessable.. Except as set forth in
Schedule 6.5, no party has any preemptive (whether statutory or contractual)
rights in any capital stock of Purchaser. Except for the Purchaser Conversion
Rights, and the Options and the Warrants identified on Schedule 3.3(a),
Purchaser has no
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convertible securities, options, warrants, or other contracts, commitments,
agreements, understandings, arrangements or restrictions by which it is bound
to issue any additional shares of its capital stock or other securities. All
securities of Purchaser were offered and sold in compliance with applicable
Federal and state securities laws. Each and every dividend of the Purchaser, if
any, whether paid in cash or other property, has been declared and paid in
compliance with applicable law, and the Purchaser has no further obligation
with respect to such payment.
6.6. COMPLIANCE WITH LAWS.
(a) Purchaser is in compliance with, and Purchaser
operated any businesses previously owned by it in compliance with all
applicable laws, orders, rules and regulations of all Governmental Authorities,
including applicable Environmental Laws, except for such noncompliance as would
not, individually or in the aggregate, have a Material Adverse Effect.
Purchaser has not received notice of any noncompliance with the foregoing.
(b) Neither Purchaser nor any other Persons providing
services for Purchaser have, to the knowledge of Purchaser, engaged in any
activities which would be a basis for exclusion from any otherwise available
Medicare, Medicaid or other federally funded programs under Section 1320a - 7a
of Title 42 of the United States Code, or prohibited under any applicable
portions of Section 1320a - 7b of such Title 42, or regulations promulgated
thereunder, or related state or local statutes or regulations, including any
"fraud and abuse" provisions, except where such noncompliance has and will
have, individually and in the aggregate, no Material Adverse Effect.
(c) Without limiting the foregoing, Purchaser and any
other person or entity for whose conduct Purchaser is legally held responsible
are in compliance with all Environmental Laws, except where such noncompliance
has and will have, individually or in the aggregate, no Material Adverse
Effect. Neither Purchaser, nor any other person or entity for whose conduct
Purchaser is legally responsible has received any notice, demand, request for
information, or administrative inquiry relating to any violation of an
Environmental Law or the institution of any suit, action, claim, or proceedings
alleging such violation or investigation by any Governmental Authority or any
third party of any such violation.
6.7. LICENSES AND PERMITS. Purchaser holds and is in compliance
with all licenses, permits, concessions, grants, franchises, approvals and
authorizations necessary or required for the use or ownership of its assets and
the operation of its business, except where the failure to hold such license,
permit, concession, grant, franchise, approval or authorization has and will
have, individually or in the aggregate, no Material Adverse Effect. Purchaser
has not received notice of any violations in respect of any such licenses,
permits, concessions, grants, franchises, approvals or authorizations, which
violations, individually or in the aggregate, would have a Material Adverse
Effect. No proceeding is pending or, to the knowledge of Purchaser, threatened,
which seeks revocation or limitation of any such licenses, permits,
concessions, grants, franchises, approvals or authorizations, nor is there any
basis therefor, the revocation or limitation of which, individually or in the
aggregate, would have a Material Adverse Effect.
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6.8. LIABILITIES AND OBLIGATIONS OF PURCHASER.
(a) Attached hereto as Schedule 6.8 are true, correct and
complete copies of Purchaser's balance sheets as of December 31, 1997 and
December 31, 1998, and unaudited balance sheet as of June 30, 1999, and the
related statements of income, stockholders' equity and cash flows for the years
and six months then ended, together (except in the case of the financial
statements dated June 30, 1999) with the reports of independent public
accountants thereon (collectively, the "Purchaser Financial Statements"). The
Purchaser Financial Statements are complete, have been prepared in accordance
with generally accepted accounting principles, consistently applied, fairly
present in all material respects the financial condition of Purchaser as of the
respective dates thereof, and disclose all liabilities of Purchaser, whether
absolute, contingent, accrued or otherwise, existing as of the date thereof that
are of a nature required to be reflected in financial statements prepared in
accordance with generally accepted accounting principles, and except for
liabilities that, individually or in the aggregate, would not have a Material
Adverse Effect; provided, however, that the interim financial statements are
subject to normal year-end adjustments which are not expected to be material in
amount.
(b) Purchaser has no liability or obligation (whether accrued,
absolute, contingent or otherwise) including, without limitation, any liability
that might result from an audit of its Tax Returns by any Tax Authority, except
for (i) liabilities that, individually or in the aggregate, would not have a
Material Adverse Effect, (ii) the liabilities and obligations of Purchaser that
are disclosed or reserved against in the Purchaser Financial Statements or
Schedule 6.8 hereto, to the extent and in the amounts so disclosed or reserved
against, and (iii) liabilities incurred or accrued in the ordinary course of
business since June 30, 1999 and liabilities incurred in connection with the
Transactions.
(c) Except as disclosed in the Purchaser Financial Statements
or Schedule 6.8, Purchaser is not in default with respect to any liabilities or
obligations, except for defaults that, individually or in the aggregate would
not have a Material Adverse Effect, and all such liabilities or obligations
shown or reflected in the Purchaser Financial Statements or Schedule 6.8 and
such liabilities incurred or accrued subsequent to June 30, 1999 were incurred
in the ordinary course of business except as indicated in Schedule 6.8, and
except for liabilities and obligations, that, individually or in the aggregate,
would not have a Material Adverse Effect.
6.9. TAXES.
Except as to any noncompliance with any of the following provisions
that would not, individually or in the aggregate, have a Material Adverse
Effect:
(a) All Tax Returns required to be filed by Purchaser and/or
its Affiliated Group on or before the date hereof have been timely filed with
the appropriate Tax Authorities in all jurisdictions in which such Tax Returns
are required to be filed and all amounts shown as owing thereon have been paid.
All Taxes which have become due or payable on or prior to the date hereof,
whether disputed or not, have been paid in full. All Taxes which are required to
be collected or withheld by Purchaser and its Affiliated Group on or prior to
the date hereof have been so collected or withheld. All deposits required by law
to be made by Purchaser and its Affiliated Group on or prior to the date hereof
with respect to employees' withholding Taxes
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have been duly made. No employee of Purchaser or any member of its Affiliated
Group responsible for Tax matters (i) has received notice from any Tax Authority
of the assessment or proposed assessment of Tax liabilities, disallowances, or
assessments which remain unpaid and, (ii) has knowledge of any fact or facts
which exist(s) or has existed which would constitute grounds for the assessment
of any Tax liability. There is no examination currently in progress of the Tax
Returns of Purchaser or its Affiliated Group by any Taxing Authority for which
any employee of Purchaser or any of its Affiliated Group has received any
notice, and, to the knowledge of employees of Purchaser or any member of its
Affiliated Group responsible for Tax matters based upon personal contact with
any agent of such Tax Authority, no such examination has been threatened by any
Taxing Authority.
(b) Purchaser has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations. Purchaser has not made any
payments which have not yet been reported on any Tax Return, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate the Purchaser and its Affiliated Group to make any
payments that will not be deductible under Section 280G of the Code. Purchaser
and its Affiliated Group has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code.
(c) Neither Purchaser nor its Affiliated Group has any
contractual obligation to indemnify any other person with respect to the payment
of any Taxes of the other person which could have a Material Adverse Effect.
(d) Purchaser and its Affiliated Group's financial statements
for the year ended December 31, 1998 and the unaudited interim quarter ending
June 30, 1999 reflect an adequate reserve for deferred taxes established for
timing differences between book and tax accounting income/asset basis. Purchaser
and its Affiliated Group have not recognized a net tax asset for the future
benefit of net operating loss carryovers and research and experimentation tax
credit carryovers.
6.10. CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY Schedule 6.10
hereto consists of a true and complete list of all contracts, agreements,
commitments and other instruments (identified by title, date and parties)
(whether oral or written) to which Purchaser is a party that involve a receipt
or an expenditure by Purchaser or require the performance of services or
delivery of goods to, by, through, on behalf of or for the benefit of Purchaser,
which in each case relates to a contract, agreement, commitment or instrument
that requires (or is reasonably expected to require) payments or provides (or is
reasonably expected to provide) for receipts in excess of $25,000 from the
Closing Date until the first (1st) anniversary thereof.
The contracts, agreements, commitments and other instruments listed or
required to be listed on Schedule 6.10 or listed on a Schedule referred to in
Section 6.12 hereof are herein referred to as the "Material Contracts". All of
the Material Contracts are in full force and effect.
None of the Company, and, to the knowledge of Purchaser, any other
party to any such contract, commitment or arrangement has breached any provision
of, or is in default under, the terms thereof, the breach of or default under
which would, individually or in the aggregate, have
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<PAGE> 52
a Material Adverse Effect; and there are no existing facts or circumstances
known to Purchaser that would prevent the work in process of Purchaser or its
contracts and agreements from maturing upon performance by Purchaser into
collectible accounts receivable in the aggregate in amounts consistent with
historical experience. Except as set forth on Schedule 6.10 or as reserved
against in the Purchaser Financial Statements, there are no contracts or
commitments that require the performance of services or provision of goods by
Purchaser at a direct cost for each such contract or commitment known by
Purchaser to be in excess of the revenue to be derived pursuant to the terms of
such contract or commitment, which, individually or in the aggregate, would have
a Material Adverse Effect. Except for terms specifically described in Schedule
6.10, Purchaser has not received any payment from any contracting party in
connection with or as an inducement for entering into any contract, agreement,
policy or instrument except for payment for actual services rendered or to be
rendered by Purchaser consistent with amounts historically charged for such
services.
6.11. CUSTOMER CONTRACTS With respect to each Customer Contract, all
performance warranties with respect to Owned Software made by Purchaser in any
Customer Contract, including warranties with respect to capacity, availability,
downtime and response time, and Year 2000 compliance have been satisfied in all
material respects upon the terms and conditions and to the extent provided for
in such Customer Contract, except for failures to satisfy which, individually or
in the aggregate, would not have a Material Adverse Effect.
6.12. INTELLECTUAL PROPERTY; COMPUTER SOFTWARE.
(a) Schedule 6.12(A) hereto sets forth (i) a complete and
correct list of all trademarks, trade names, service marks, service names, and
brand names (whether or not any of the same are registered), and all patents and
registered copyrights and all applications for the foregoing, if any, (setting
forth the registration, issue or serial number of the patents and registered
copyrights and a description of the same) applicable to or used in the business
of Purchaser; (ii) the owner of such intellectual property and any registration
thereof or application thereof; and (iii) a complete list of all licenses
granted by or to Purchaser with respect to any of the above (identified by
title, date and parties) (not inclusive of Customer Contracts). All such
trademarks, trade names, service marks, service names, brand names, copyrights
and patents are owned by Purchaser free and clear of all liens, claims, security
interests and encumbrances, except for such liens, claims, security interests
and encumbrances as would, individually or in the aggregate, not have a Material
Adverse Effect. Except as set forth on Schedule 6.12(A), Purchaser is not
currently in receipt of any notice of any violation of, and, to Purchaser's
knowledge, Purchaser is not violating the rights of others in any trademark,
trade name, service mark, copyright, patent, trade secret, know-how or other
intangible asset, except such violations as, individually or in the aggregate,
would not have a Material Adverse Effect.
(b) Schedule 6.12(B) contains a complete and accurate list of
all Owned Software. Except as set forth on Schedule 6.12(B), Purchaser has title
to the Owned Software, free and clear of all claims, including claims or rights
of employees, agents, consultants, inventors, customers, licensees or other
parties involved in the development, creation, marketing, maintenance,
enhancement or licensing of such computer software. Except as set forth on
Schedule 6.12(B) and except for commercially available, over-the-counter
"shrink-wrap" software, the Owned Software is not dependent on any Licensed
Software (as defined in
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subsection (c) below) in order to operate fully in the manner in which it is
intended. The source code to the Owned Software has not been published or
disclosed to any other parties, except as set forth in the Customer Contracts or
as set forth on Schedule 6.12(B), and except pursuant to contracts requiring
such other parties to keep the Owned Software confidential. To the knowledge of
Purchaser, no such other party has breached any such obligation of
confidentiality.
(c) Schedule 6.12(C) contains a complete and accurate list of
all Licensed Software. Purchaser has the right and license to use, sublicense,
modify and copy Licensed Software to the extent set forth in the respective
license, lease or similar agreement pursuant to which the Licensed Software is
licensed to Purchaser, free of any other limitations or encumbrances, and
Purchaser is in compliance with all applicable provisions of such agreement,
except for failures to comply which, individually or in the aggregate, would not
have a Material Adverse Effect. Except as disclosed on Schedule 6.12(C), none of
the Licensed Software has been incorporated into or made a part of any Owned
Software or any other Licensed Software. Purchaser has not published or
disclosed any Licensed Software to any other party except in accordance with and
as permitted by any license, lease or similar agreement relating to the Licensed
Software and except pursuant to contracts requiring such other parties to keep
the Licensed Software confidential. No party to whom Purchaser has disclosed
Licensed Software has, to the knowledge of Purchaser, breached such obligation
of confidentiality, except for such publications and disclosures that,
individually or in the aggregate, would not have a Material Adverse Effect.
(d) The Owned Software and Licensed Software and commercially
available over-the-counter "shrink-wrap" software constitute all software used
in the businesses of Purchaser (collectively, the "Purchaser Software"). The
Transactions will not cause a breach or default under any licenses, leases or
similar agreements relating to Purchaser Software or impair Purchaser's ability
to use Purchaser Software in the same manner as such computer software is
currently used by Purchaser. To the knowledge of Purchaser, (i) Purchaser is not
infringing any intellectual property rights of any other person or entity with
respect to Purchaser Software, and (ii) no other person or entity is infringing
any intellectual property rights of Purchaser with respect to Purchaser
Software, except for infringements that, individually or in the aggregate, would
not have a Material Adverse Effect.
6.13. LABOR MATTERS. Except as set forth on Schedule 6.13, within
the last three (3) years Purchaser has not been the subject of any known union
activity or labor dispute, nor has there been any strike of any kind called or,
to the knowledge of Purchaser, threatened to be called against Purchaser.
Purchaser has not violated any applicable federal or state law or regulation
relating to labor or labor practices, except where such violation has and will
have, individually or in the aggregate, no Material Adverse Effect. Schedule
6.13 sets forth a true, correct and complete list of employer loans or advances
from Purchaser to its employees. Purchaser is in compliance with all applicable
requirements of the Immigration Laws, except where such noncompliance has and
will have, individually or in the aggregate, no Material Adverse Effect.
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6.14. WORK-IN-PROCESS, ORDERS AND RETURNS.
(a) Except as set forth on Schedule 6.14(A), as of the date
hereof, except for any claims specifically disclosed on other Schedules hereto,
to Purchaser's knowledge, there are no claims nor does Purchaser reasonably
expect to make or receive any claims to terminate Customer Agreements, or
material licenses, services, or other orders, or for refunds relating to
Customer Agreements, licenses, maintenance agreements, or other fees by reason
of alleged dissatisfaction with Purchaser's capabilities or performance
(including those related to Purchaser Software), or defective or unsatisfactory
services or products, except as would not result in, individually or in the
aggregate, a Material Adverse Effect.
(b) Except as set forth on Schedule 6.14(B), Purchaser has not
been notified that the consummation of the Transactions will result in any
material cancellations or withdrawals of accepted and unfilled orders for
services or Purchaser Software, or maintenance or other services and Purchaser
will inform Purchaser promptly upon receipt of any notification to that effect
received after the date hereof, except for cancellations or withdrawals that,
individually or in the aggregate, would not have a Material Adverse Effect. To
the knowledge of Purchaser, neither the execution of this Agreement nor the
consummation of the Transactions will result in any material cancellations or
withdrawals of accepted and unfilled orders for the license or sales of
Purchaser Software, services or merchandise, except for cancellations or
withdrawals that, individually or in the aggregate, would not have a Material
Adverse Effect.
6.15. ABSENCE OF CERTAIN CHANGES Except as reflected on
Schedule 6.15, or elsewhere in this Agreement or specifically identified on any
Schedules hereto, and since June 30, 1999, Purchaser has not and at the Closing
Date will not have:
(a) Suffered a Material Adverse Effect, or become aware of any
circumstances which might reasonably be expected to result in such a Material
Adverse Effect; or suffered any material casualty loss to the Assets (whether or
not insured), except for losses that, individually or in the aggregate, would
not have a Material Adverse Effect;
(b) Incurred any obligations specifically related to the
Assets (including Customer Agreements), except in the ordinary course of
business consistent with past practices;
(c) Permitted or allowed any of the Assets to be mortgaged,
pledged, or subjected to any lien or encumbrance, except for liens for Taxes not
yet due and payable and liens and encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect;
(d) Written down the value of any inventory, contract or other
intangible asset, or written off as uncollectible any notes or accounts
receivable or any portion thereof, except for write-downs and write-offs in the
ordinary course of business, consistent with past practice and at a rate no
greater than during the latest complete fiscal year; cancelled any other debts
or claims, or waived any rights of substantial value, or sold or transferred any
of its material properties or assets, real, personal, or mixed, tangible or
intangible, except in the ordinary course of business and consistent with past
practice and except for those that, individually or in the aggregate, would not
have a Material Adverse Effect;
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(e) Sold, licensed or transferred or agreed to sell, license
or transfer, any of the Assets, except in the ordinary course of business and
consistent with past practice;
(f) To Purchaser's knowledge, received notice of any pending
or threatened adverse claim or an alleged infringement of proprietary material,
whether such claim or infringement is based on trademark, copyright, patent,
license, trade secret, contract or other restrictions on the use or disclosure
of proprietary materials;
(g) Incurred obligations to refund money to customers, except
in the ordinary course of business, all of which will have no Material Adverse
Effect;
(h) Become aware of any event, condition or other circumstance
relating solely to the Assets (as opposed to any such event, condition, or
circumstance which is, for example, national or industry-wide in nature) which
might reasonably be expected to materially adversely affect the Assets;
(i) Made any capital expenditures or commitments, any one of
which is more than $50,000, for additions to property, plant, or equipment;
(j) Made any material change in any method of accounting or
accounting practice;
(k) Paid, loaned, guaranteed, or advanced any material amount
to, or sold, transferred, or leased any material properties or assets (real,
personal, or mixed, tangible or intangible) to, or entered into any agreement,
arrangement, or transaction with any of Purchaser's officers or directors, or
any business or entity in which any officer or director of Purchaser, or any
affiliate or associate of any of such Persons has any direct or indirect
interest; or
(l) Agreed to take any action described in this Section 6.15.
The Company and Parent acknowledge and agree that a decrease in the
market price of Purchaser Common Stock is not a material adverse change.
6.16. LEASES Schedule 6.16 contains a list of all leases pursuant
to which Purchaser leases real or personal property, and copies of all such
leases have been delivered to the Company and Parent. All such leases are in
full force and effect, and except as set forth on Schedule 6.16, no event has
occurred which is a default or which with the passage of time will constitute a
default by Purchaser thereunder, nor has any such event occurred to the
knowledge of Purchaser which is a default by any other party to such lease. All
property leased by Purchaser as lessee is in the possession of Purchaser. Except
as indicated in Schedule 6.16, no consent of any lessor is required in
connection with the Transactions.
6.17. LITIGATION. Except as set forth in Schedule 6.17, (i) there
are no actions, proceedings or regulatory agency investigations against
Purchaser or, to Purchaser's knowledge, involving the Assets pending (served) or
threatened against Purchaser, (ii) Purchaser does not know of any such action,
proceeding or investigation against Purchaser, and (iii) no such action,
proceeding, or regulatory agency investigation has been pending (served) during
the three-year period preceding the date of this Agreement.
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6.18. EMPLOYEE BENEFIT PLANS: EMPLOYEES.
Except as to any noncompliance with any of the following provisions
that would not, individually, or in the aggregate, have a Material Adverse
Effect.
(a) Schedule 6.18 sets forth a list of each Employee Benefit
Plan that is currently in effect for the benefit of (i) directors or employees
of Purchaser, (ii) former directors or employees of Purchaser, or (iii)
beneficiaries of anyone described in (i) or (ii) (collectively, "Purchaser
Employees") or with respect to which Purchaser or any ERISA Affiliate has any
obligation on behalf of any Purchaser Employee. Except as disclosed on Schedule
6.18 attached hereto, there are no other benefits to which any Purchaser
Employee is entitled for which Purchaser has any obligation.
(b) Purchaser has delivered to Parent and the Company, with
respect to each Employee Benefit Plan, true and complete copies of (i) the
documents embodying the plan, including, without limitation, the current plan
documents and documents creating any trust maintained pursuant thereto, all
amendments, group annuity contracts, insurance contracts, the most recent
summary plan description, if any, and employee handbooks, (ii) annual reports
including but not limited to Forms 5500, 990 and 1041 for the last two (2) years
for the plan and any related trust; (iii) any communication involving the plan
or any related trust to or from the IRS, DOL, PBGC or any other governmental
authority since January 1, 1998, but excluding any IRS determination letter
submission; and (iv) the most recent determination letter received from the IRS
pertaining to any Employee Benefit Plan intended to qualify under Sections
401(a) or 501(c)(9) of the Code.
(c) Purchaser has no obligation to contribute to or provide
benefits pursuant to, and has no other liability of any kind with respect to,
(i) a "multiple employer welfare arrangement" (within the meaning of Section
3(40) of ERISA), or (ii) a "plan maintained by more than one employer" (within
the meaning of Section 413(c) of the Code).
(d) Except as otherwise set forth on Schedule 6.18 attached
hereto, Purchaser is not liable for any contribution, tax, lien, penalty, cost,
interest, claim, loss, action, suit, damage, cost assessment or other similar
type of liability or expense of any ERISA Affiliate (including predecessors
thereof) with regard to any Employee Benefit Plan maintained, sponsored or
contributed to by an ERISA Affiliate (if a like definition of Employee Benefit
Plan were applicable to the ERISA Affiliate in the same manner as it applies to
Purchaser), including, without limitation, withdrawal liability arising under
Title IV, Subtitle E, Part 1 of ERISA, liabilities to the PBGC, or liabilities
under Section 412 of the Code or Section 302(a) of ERISA.
(e) Purchaser has complied in all respects with COBRA.
(f) With respect to each Employee Benefit Plan and except as
otherwise set forth on Schedule 6.18 attached hereto:
(i) each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has received a determination letter
from the IRS to the effect that the Employee Benefit Plan is qualified under
Section 401 of the Code and that any trust maintained
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pursuant thereto is exempt from federal income taxation under Section 501 of the
Code, and nothing has occurred or, to the knowledge of Purchaser, is expected to
occur that caused or could reasonably be expected to cause the loss of such
qualification or exemption or the imposition of any penalty or tax liability;
(ii) all payments required by the Employee Benefit
Plan or by law (including all contributions, insurance premiums, premiums due
the PBGC or intercompany charges) with respect to all periods through the date
hereof have been made;
(iii) there are no violations of or failures to
comply with ERISA and the Code with respect to the filing of applicable reports,
documents, and notices regarding the Employee Benefit Plan with DOL, the IRS,
the PBGC or any other governmental authority, or any of the assets of the
Employee Benefit Plan or any related trust;
(iv) no claims, lawsuit, arbitration or other action
has been asserted or instituted or, to the knowledge of Purchaser, threatened in
writing against the Employee Benefit Plan, any trustee or fiduciaries thereof,
Purchaser or any ERISA Affiliate, any director, officer or employee thereof, or
any of the assets of the Employee Benefit Plan or any related trust, except for
routine claims for benefits;
(v) any bonding required with respect to the Employee
Benefit Plan in accordance with the applicable provisions of ERISA has been
obtained and is in full force and effect;
(vi) the Employee Benefit Plan complies in all
respects with and has been maintained and operated in all respects in accordance
with its respective terms and the terms and the provisions of applicable law,
including, without limitation, ERISA and the Code (including rules and
regulations thereunder);
(vii) no "prohibited transaction" (within the meaning
of Section 4975 of the Code and Section 406 of ERISA) has occurred or is
reasonably expected to occur with respect to the Employee Benefit Plan (and the
transactions contemplated by this Agreement will not constitute or directly or
indirectly result in such a "prohibited transaction") which has subjected or, to
the knowledge of Purchaser, could reasonably be expected to subject Purchaser,
any ERISA Affiliate or the Company, or any officer, director or employee of
Purchaser, any ERISA Affiliate, or the Company, or the Employee Benefit Plan
trustee, administrator or other fiduciary, to a tax or penalty on prohibited
transactions imposed by either Section 502 of ERISA or Section 4975 of the Code
or any other liability with respect thereto, which tax, penalty or liability
could have a Material Adverse Effect;
(viii) to the knowledge of Purchaser, the Employee
Benefit Plan is not under audit or investigation by the IRS or the DOL or any
other governmental authority and no such completed audit, if any, has resulted
in the imposition of any tax, interest or penalty.
(g) Purchaser is not subject to any liens, excise or other
taxes under ERISA, the Code or other applicable law relating to any Employee
Benefit Plan.
(h) None of the Employee Benefit Plans is subject to Title IV
of ERISA.
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(i) In the case of any Employee Benefit Plan that is
a Multiemployer Plan, Purchaser has no withdrawal liability under Part 1 of
Subtitle E of Title IV of ERISA as a result of either a "complete withdrawal"
(as defined in Section 4203 of ERISA) or a "partial withdrawal" (as defined in
Section 4205 of ERISA) by Purchaser from such Employee Benefit Plan occurring on
or prior to the date hereof.
(j) The consummation of the Transactions will not
give rise to any liability for any employee benefits, including, without
limitation, liability for severance pay, unemployment compensation, termination
pay or withdrawal liability, or accelerate the time of payment or vesting or
increase the amount of compensation or benefits due to any Purchaser Employee.
(k) No amounts payable under any Employee Benefit
Plan will fail to be deductible for federal income tax purposes by virtue of
Section 280G of the Code, as such Section of the Code is currently in effect.
(l) Except as set forth on Schedule 6.18 attached
hereto, no Employee Benefit Plan provides for any health benefits (other than
under COBRA, the Federal Social Security Act or any Employee Benefit Plan
qualified under Section 401(a) of the Code) to any Purchaser Employee who, at
the time the health benefit is to be provided, is a former director or former
employee of Purchaser (or a beneficiary of any such person), nor, to the
knowledge of Purchaser, have any representations, agreements, covenants or
commitments been made to provide such health benefits.
(m) Since June 30, 1999 and through the date hereof,
except as set forth on Schedule 6.18 attached hereto or as required by
applicable law or consistent with past practice, neither Purchaser nor any ERISA
Affiliate has, nor will it, (i) institute or agree to institute any new employee
benefit plan or practice for any Purchaser Employee, (ii) make or agree to make
any change in any Employee Benefit Plan, (iii) make or agree to make any
increase in the compensation payable or to become payable by Purchaser or any
ERISA Affiliate to any Purchaser Employee, other than regularly scheduled
increases, or (iv) except pursuant to this Agreement and except for
contributions required to provide benefits pursuant to the provisions of the
Employee Benefit Plans, pay or accrue or agree to pay or accrue any bonus,
percentage of compensation, or other like benefit to, or for the credit of, any
Purchaser Employee.
(n) Any contribution, insurance premium, excise tax,
interest charge or other liability or charge imposed or required with respect to
any Employee Benefit Plan which is attributable to any period or any portion of
any period prior to the Closing shall, to the extent required by GAAP, be
reflected as a liability on the Purchaser Financial Statements, including,
without limitation, any portion of the matching contribution required with
respect to the Purchaser Plan for the plan year ending after the Closing which
is attributable to elective contributions made by Purchaser Employees in such
plan prior to the Closing.
6.19. BROKERS FEES AND EXPENSES. Neither Purchaser nor any affiliate
thereof has retained or utilized the services of any advisor, broker, finder, or
intermediary, or paid or agreed to pay any fee or commission to any other Person
or entity for or on account of the Transactions,
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or had any communications with any Person or entity which would obligate the
Company or Parent to pay any such fees or commissions.
6.20. BANK ACCOUNTS. Schedule 6.20 contains a true, complete and
correct list showing the name and location of each bank or other institution in
which Purchaser has any deposit account or safe deposit box, together with a
listing of account numbers and names of all Persons authorized to draw thereon
or have access thereto.
6.21. BUSINESS PRACTICES. Neither Purchaser nor anyone acting on its
behalf has made any payment of funds of Purchaser prohibited by law, and no
funds of Purchaser have been set aside to be used for any payment prohibited by
law.
6.22. INSURANCE. Purchaser maintains property, fire, casualty,
general liability insurance and other forms of insurance relating to its assets
and the operation of its business against risks of the kind customarily insured
against and in amounts customarily insured (and, where appropriate, in amounts
not less than the replacement cost of the assets). Purchaser shall maintain such
insurance policies in full force and effect at least through the Closing Date.
Schedule 6.22 lists all of the insurance policies maintained by Purchaser, which
Schedule includes the name of the insurance company, the policy number, a
description of the type of insurance covered by such policy, the dollar limit of
the policy, and the annual premiums for such policy.
6.23. TAX FREE REORGANIZATION. To the knowledge of Purchaser there
is no fact pertaining to it that would prevent the Merger from qualifying as a
tax-free reorganization under the Code. Purchaser has no present intention to
redeem or reacquire any of its stock to be issued pursuant to the Merger.
Purchaser has no present intention to dispose of any of the assets of the
Company acquired in the Merger, except for dispositions made in the ordinary
course of business or transfers described in Code Section 368(a)(2)(C).
6.24. NO EXISTING DISCUSSION. As of the date hereof, Purchaser is
not engaged directly or indirectly, in any discussion or negotiations with any
other party with respect to an Acquisition Proposal.
6.25. SHARES TO BE DELIVERED. The Merger Shares to be issued with
respect to previously outstanding Company Capital Stock when issued and
delivered to Company Stockholders pursuant to this Agreement will be duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
of Purchaser. Upon delivery of the Merger Shares after the Closing, Company
Stockholders will receive good and unencumbered title to the Merger Shares, free
and clear of all liens, restrictions, charges, encumbrances and other security
interests of any kind or nature whatsoever, except for restrictions existing
under applicable securities laws regarding transferability of the Merger Shares,
and except for any restrictions set forth on the legends of the stock
certificates evidencing the Merger Shares.
6.26. ACCURACY OF SECURITIES FILINGS; FINANCIAL STATEMENTS.
(a) Except as set forth in Schedule 6.26, Purchaser has made
all filings with the SEC that it has been required to make under the Securities
and Exchange Act, and has done so in a timely manner. Purchaser has furnished,
or otherwise made available, the Securities
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Filings to the Company and Parent. Each of the Securities Filings has complied
with the Securities Act and the Exchange Act in all material respects. None of
the Securities Filings, as of their respective dates, to Purchaser's knowledge,
contain any untrue statement of any material fact or omit to state a material
fact required therein to be stated or omit to state a material fact in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by or
on behalf of Purchaser for inclusion in the Proxy Statement will, at the date of
the filing of the Proxy Statement with the SEC, contain any untrue statement of
a material fact or omit to state any 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.
(b) The financial statements of Purchaser included and/or
incorporated by reference into the Securities Filings (including the related
notes and schedules) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of Purchaser as of the indicated dates and the results of
operations of Purchaser for the indicated periods, are consistent with the books
and records of Purchaser and, except as disclosed on Schedule 6.26, do not
contain any material item of special or non-recurring or other income not earned
in the ordinary course of business; provided, however, that the interim
financial statements are subject to normal year-end adjustments which are not
expected to be material in amount.
(c) Except as and to the extent specifically disclosed in this
Agreement, on the date hereof, there are, and prior to Closing will be, no
liabilities or obligations of Purchaser of any nature, whether liquidated,
accrued, absolute, continued or otherwise except for those (i) that are
specifically reflected or reserved against as to amount in the latest balance
sheet contained in the Securities Filings, or (ii) that arose thereafter in the
ordinary course of business, or (iii) that it specifically set forth on Schedule
6.8 attached hereto; and at the Closing, there will be no liabilities or
obligations of Purchaser of any nature, whether liquidated or unliquidated,
accrued, absolute, contingent or otherwise which are material individually or in
the aggregate, except for those (A) that are specifically reflected or reserved
against as to amount in the latest balance sheet contained in the Securities
Filings, or (B) that arise after the date of such balance sheet in the ordinary
course of business (and are immaterial) or (C) that are specifically set forth
on Schedule 6.26.
6.27. APPROVALS. The execution and delivery of this Agreement and
the consummation of the Transactions by Purchaser will not require the consent,
approval, order or authorization of any governmental entity or regulatory
authority or any other Person under any statute, law, rule, regulation (other
than applicable federal and state securities laws), permit, license, agreement,
indenture or other instrument to which Purchaser is a party or to which any of
its properties are subject, except for such consents, approvals, actions,
filings or notices the failure of which to make or obtain will not have a
Material Adverse Effect on Purchaser, and except for any federal or state
filings required by applicable securities laws (such as the Registration
Statement), and the filing of the listing application for the Merger Shares with
NASDAQ National Market, no declaration, filing or registration with any
governmental entity or regulatory authority is required by Purchaser in
connection with the execution and delivery of this Agreement, the consummation
of the Transactions, or the performance by Purchaser of its obligations
hereunder.
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6.28. ACCURACY OF REPRESENTATIONS. No representation or warranty by
Purchaser contained in this Agreement and no statement contained in any
certificate or schedule furnished to the Company or Parent pursuant to the
provisions hereof contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein not
misleading. To the knowledge of Purchaser, there is no current event or
condition of any kind or character pertaining to Purchaser that may reasonably
be expected to have a Material Adverse Effect, except as disclosed herein.
6.29. NASDAQ RULES. The consummation of the Transactions will not
result in violation by Purchaser of any applicable NASDAQ rules or requirements.
ARTICLE 7.
INDEMNIFICATION
7.1. INDEMNIFICATION BY PARENT. Parent hereby indemnifies and holds
harmless Purchaser and each of its affiliates, directors, officers, employees,
advisors and agents from and against all claims, liabilities, lawsuits, costs,
damages or expenses (including, without limitation, reasonable attorneys' fees
and expenses incurred in litigation or otherwise) arising out of and sustained
by any of them due to (a) any misrepresentation or breach of any representation,
warranty, covenant or agreement of Company or Parent contained in this Agreement
or any document executed and delivered by Parent or the Company in connection
with the Transactions ("Transaction Documents"); (b) the ownership or use of the
Assets, including, without limitation, any and all claims, liabilities, Taxes,
debts, contracts, agreements, obligations, damages, costs and expenses, known or
unknown, fixed or contingent, claimed or demanded by third parties against the
Surviving Corporation arising out of the operation of the Company's business
prior to the Closing Date or as a result of the Transactions, which were not
specifically disclosed herein or in the Schedules attached hereto; or (c) the
Spinoff (collectively all claims described in this Section 7.1, being "Section
7.1 Indemnified Claims").
7.2. INDEMNIFICATION BY SURVIVING CORPORATION. The Surviving
Corporation, hereby indemnifies and holds harmless Parent and each of its
affiliates, directors, officers, employees, advisors and agents from and against
all claims, liabilities, lawsuits, costs, damages or expenses (including,
without limitation, reasonable attorneys' fees and expenses incurred in
litigation or otherwise) arising out of and sustained by any of them due to (a)
any misrepresentation or breach of any representation, warranty, covenant or
agreement of Purchaser contained in this Agreement or any of the Transaction
Documents; or (b) the ownership or use of the Assets, including, without
limitation, any and all claims, liabilities, Taxes, debts, contracts,
agreements, obligations, damages, costs and expenses, known or unknown, fixed or
contingent, claimed or demanded by third parties against the Parent arising out
of the operation of the Purchaser's business prior to or after the Closing Date
(except as to Purchaser's business previously owned and operated by the Company,
only after the Closing Date) or as a result of the Transactions, which were not
specifically disclosed herein or in the Schedules attached hereto (collectively
all claims described in this Section 7.2, being "Section 7.2 Indemnified
Claims").
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7.3. PROVISIONS REGARDING INDEMNIFICATION. The indemnified party
(or parties) shall promptly notify the indemnifying party (or parties) of any
claim, demand, action or proceeding for which indemnification will or may be
sought under Section 7.1 or 7.2 of this Agreement and, if such claim, demand,
action or proceeding is a third party claim, demand, action or proceeding, the
indemnifying party will have the right, at its expense, to assume the defense
thereof using counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate in at its own expense, but
not control, the defense of any such third party claim, demand, action or
proceeding. In connection with any such third party claim, demand, action or
proceeding, Parent and Purchaser shall cooperate with each other. No such third
party claim, demand, action or proceeding shall be settled without the prior
written consent of the indemnified party provided, however, that if a firm,
written offer is made to settle any such third party claim, demand, action or
proceeding (which offer does not involve the admission of guilt or wrongdoing by
any indemnified party) and the indemnifying party proposes to accept such
settlement and the indemnified party refuses to consent to such settlement,
then: (i) the indemnifying party shall be excused from, and the indemnified
party shall be solely responsible for, all further defense of such third party
claim, demand, action or proceeding; and (ii) the maximum liability of the
indemnifying party relating to such third party claim, demand, action or
proceeding shall be the amount of the proposed settlement if the amount
thereafter recovered from the indemnified party on such third party claim,
demand, action or proceeding is greater than the amount of the proposed
settlement.
7.4. SURVIVAL. The representations and warranties contained in this
Agreement and in the Transaction Documents delivered at the Closing shall
survive the Closing for a period ending on the first (1st) anniversary date of
the Closing and shall thereafter cease to be of any force and effect, except for
(a) claims as to which notice has been given in accordance with Section 7.3
hereof prior to such date and which are pending on such date and (b)
representations and warranties relating to: (i) title to the Assets (Sections
5.3 and 6.4 hereof), (ii) ownership of stock of the Company and Purchaser
(Sections 5.5 and 6.5 hereof), (iii) Taxes (Sections 5.9 and 6.9 hereof) and
(iv) employee benefits (Sections 5.18 and 6.18 hereof), each of which shall
survive until the end of the statute of limitations applicable to the underlying
claim for which indemnification is sought.
7.5. LIMITATIONS.
(a) Notwithstanding anything to the contrary contained herein,
Purchaser will not assert a claim against Parent under this Article 7 until the
total of all Section 7.1 Indemnified Claims exceeds in the aggregate $1,000,000
(the "Base Amount"), at which time all Section 7.1 Indemnified Claims in excess
of such Base Amount may be claimed in full and, if indemnifiable under this
Article 7, shall be indemnified in full.
(b) Notwithstanding anything to the contrary contained herein,
Parent will not assert a claim against Purchaser under this Article 7 until the
total of all Section 7.2 Indemnified Claims exceeds the Base Amount, at which
time all Section 7.2 Indemnified Claims in excess of such Base Amount may be
claimed in full and, if indemnifiable under this Article 7, shall be indemnified
in full.
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(c) All Section 7.1 or Section 7.2 Indemnified Claims shall be
satisfied by delivery from the indemnifying to the indemnified party of a number
of shares of Purchaser Common Stock having a value equal to the amount of the
Section 7.1 or Section 7.2 Indemnified Claims, based on the market price of
Purchaser Common Stock as of the date the indemnified party paid the amount(s)
giving rise to the Section 7.1 Indemnified Claim or Section 7.2 Indemnified
Claim.
(d) Any indemnification claims of Purchaser or Parent pursuant
to Section 4.1 hereof shall not be subject to any of the terms or limitations
described in this Article 7.
(e) The satisfaction of all Section 7.1 Indemnified Claims and
Section 7.2 Indemnified Claims shall be deemed to constitute adjustments to the
aggregate consideration paid by Purchaser pursuant to the Merger.
7.6. NO RECOURSE AGAINST THE COMPANY. Parent hereby irrevocably
waives any and all right to recourse against the Company with respect to any
breach of any representation, warranty, covenant, or noncompliance with any
conditions or covenants, given or made by Parent or the Company in this
Agreement or any document, certificate or agreement entered into or delivered
pursuant hereto. Parent shall not be entitled to contribution from, subrogation
to or recovery against the Company with respect to any liability of Parent or
the Company that may arise under or pursuant to this Agreement or the
Transactions.
7.7. EFFECT OF INSURANCE. With respect to any indemnifiable claim
hereunder, the amount recoverable by the party seeking indemnification shall
take into account any reimbursements realized by such party from insurance
policies or other indemnification sources, arising from the same incident or set
of facts or circumstances giving rise to the claim for indemnification. Upon the
payment of the indemnified claim from the indemnifying party to the indemnified
party, the indemnifying party shall have a right of subrogation with respect to
any insurance proceeds or other rights to third party reimbursement for such
claims held by the indemnified party.
ARTICLE 8.
CONDITIONS TO OBLIGATIONS
OF PURCHASER TO CLOSE
Each and every obligation of Purchaser under this Agreement to be
performed on or prior to the Closing shall be subject to the fulfillment, on or
prior to the Closing, of each of the following conditions, which conditions each
of the Company and Parent agrees to use best efforts to satisfy:
8.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by the Company and Parent in or pursuant to
the Agreement or given on their behalf hereunder shall be true and correct in
all respects on and as of the Closing Date, in each case with the same effect as
though such representations and warranties had been made or given on and as of
the Closing Date (except to the extent expressly made as of an earlier date, in
which
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case such representations and warranties shall be true and correct as of such
date), except where the failure of such representations and warranties to be so
true and correct does not have, and is not likely to have, individually or in
the aggregate, a Material Adverse Consequence.
8.2. OBLIGATIONS PERFORMED. The Company shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing, except where the
failure to perform or comply does not have, and is not likely to have,
individually, or in the aggregate, a Material Adverse Consequence.
8.3. CONSENTS. Purchaser shall have obtained Purchaser Stockholder
Approval, and the Company shall have obtained Company Stockholder Approval, and
any waiting period applicable to this Agreement, the Merger and the Transactions
under HSR shall have expired or early termination thereof shall have been
granted.
8.4. CLOSING DELIVERIES. The Company shall have delivered to
Purchaser each of the following:
(a) a certificate of the President of the Company certifying
as to the matters set forth in Sections 8.1, 8.2 and 8.3 hereof and as to the
satisfaction of all other conditions set forth in this Article 8;
(b) Certificates of Merger duly executed by an officer of the
Company for filing in accordance with the provisions of Section 2.2 hereof;
(c) the corporate minute books, seals and stock transfer books
of the Company certified by the corporate secretary of the Company as true,
correct and complete, including minutes authorizing the Merger and the
Transactions;
(d) an executed agreement reasonably satisfactory to Purchaser
pursuant to which the Company has disposed of certain assets of its ProfitWorks
applications software and related product line, consistent with the provisions
of Section 4.4 hereof;
(e) the audited Company financial statements, as more fully
described in Section 4.6 hereof, and an unaudited Closing Balance Sheet;
(f) an opinion of counsel to the Company and Parent reasonably
satisfactory to Purchaser and addressing only the issues of incorporation in
Pennsylvania, qualification in other states, corporate power and authority to
execute this Agreement and the Merger Option Agreement and to consummate the
Transactions, the enforceability of this Agreement and the Merger Option
Agreement, and no conflicts with the Articles of Incorporation or By-Laws of the
Company or Parent;
(g) the Merger Option Agreement duly executed by an officer of
Parent;
(h) a shareholder voting agreement executed by holders of at
least sixty percent (60%) of the Merger Shares as required pursuant to Section 3
of that certain Shareholder Voting Agreement dated as of August 12, 1999 by and
among Parent, Purchaser and Daniel J. Mitchell, as designated agent of certain
shareholders of CareCentric;
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<PAGE> 65
(i) receipt in immediately available funds of $6,000,000 less
the outstanding principal balance and all accrued but unpaid interest due under
the Note as of the Closing Date; and
(j) evidence of termination of the Note and Security
Agreement, and executed Uniform Commercial Code UCC-3 termination statements.
8.5. NO CHALLENGE. There shall not be pending or threatened any
action, proceeding or investigation before any court or administrative agency or
any pending action by any other Person, challenging or seeking damages in
connection with the Merger and having a Material Adverse Consequence on
Purchaser.
8.6. NO MATERIAL ADVERSE CONSEQUENCE. Since the date of execution
of this Agreement, there shall have been no Material Adverse Consequence as to
the Company.
8.7. REVISED SCHEDULES. The Company shall have provided Purchaser
with revised Schedules dated as of the Closing Date (the "Revised Schedules"),
with all material changes through such date duly noted thereon, and the Revised
Schedules will not contain any disclosures which (i) should have been but were
not disclosed on the Schedules attached hereto or (ii) set forth material
changes which in the opinion of Purchaser, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Consequence as to the
Company unless such disclosures are approved in writing by Purchaser.
8.8. REPAYMENT OF DEBTS. At the Closing, all officers, directors,
stockholders and employees of the Company shall repay to the Surviving
Corporation in full any outstanding indebtedness, if any, owed to the Company by
them or their families.
8.9. RELEASES. Each of the officers and directors of the Company
shall have executed releases in favor of the Company in form reasonably
satisfactory to Purchaser and its counsel.
8.10. SPINOFF. The Spinoff shall have been consummated in compliance
in all material respects with the Exchange Act and any other applicable federal
or state securities laws or regulations.
8.11. REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
ARTICLE 9.
CONDITIONS TO OBLIGATIONS
OF THE COMPANY AND PARENT TO CLOSE
Each and every obligation of the Company and Parent under this
Agreement to be performed on or prior to the Closing, shall be subject to the
fulfillment, on or prior to the Closing, of each of the following conditions,
which conditions Purchaser agrees to use best efforts to satisfy:
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9.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by Purchaser in or pursuant to the Agreement
or given on its behalf hereunder shall be true and correct in all respects on
and as of the Closing Date, in each case with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except to the extent expressly made as of an earlier date, in which case
such representations and warranties shall be true and correct as of such date),
except where the failure of such representations and warranties to be so true
and correct does not have, and is not likely to have, individually or in the
aggregate, a Material Adverse Consequence.
9.2. OBLIGATIONS PERFORMED. Purchaser shall have performed and
complied with all of its obligations under this Agreement which are to be
performed or complied with by it prior to or at the Closing, except where the
failure to perform or comply does not have, and is not likely to have,
individually, or in the aggregate, a Material Adverse Consequence.
9.3. CONSENTS. Purchaser shall have obtained Purchaser Stockholder
Approval, and the Company shall have obtained Company Stockholder Approval; any
waiting period applicable to this Agreement, the Merger and the Transactions
under HSR shall have expired or early termination thereof shall have been
granted; and the Registrable Shares shall have been listed and eligible for
trading on the NASDAQ National Market System subject only to official notice of
issuance.
9.4. CLOSING DELIVERIES. Purchaser shall have delivered to the
Company Stockholders and the Company each of the following:
(a) delivery of the Merger Shares to Parent;
(b) certified copies of the corporate resolutions of Purchaser
authorizing the execution, delivery and performance of this Agreement by
Purchaser, together with an incumbency certificate with respect to the
respective officers of Purchaser executing documents or instruments on behalf of
Purchaser;
(c) a certificate of the President or any Senior Vice
President of Purchaser certifying as to the matters set forth in Sections 9.1,
9.2 and 9.3 hereof and as to the satisfaction of all other conditions set forth
in this Article 9;
(d) an opinion of counsel to Purchaser reasonably satisfactory
to Parent and the Company and addressing only the issues of incorporation in
Delaware, qualification in other states, corporate power and authority to
execute and deliver this Agreement and consummate the Transactions, the
enforceability of this Agreement and the Merger Option Agreement, and no
conflicts with the Certificate of Incorporation or By-Laws of Purchaser;
(e) Certificates of Merger duly executed by an officer of
Purchaser for filing in accordance with Section 2.2, or evidence of such filing;
(f) the Merger Option Agreement duly executed by an officer of
Purchaser;
(g) evidence that the Certificate of Designations was duly
filed with the Delaware Secretary of State;
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(h) a certificate for 5,600,000 shares of Purchaser Series B
Preferred issued to Parent; and
(i) the Mestek Warrant, duly executed by an officer of
Purchaser.
9.5. NO CHALLENGE. There shall not be pending or threatened any
action, proceeding or investigation before any court or administrative agency by
any government agency or any pending action by any other Person, challenging or
seeking damages from Parent or the Company in connection with the Merger and
having a Material Adverse Consequence on the Company or Purchaser.
9.6. REVISED SCHEDULES. Purchaser shall have provided the Company
and Parent with Revised Schedules dated as of the Closing Date, with all
material changes through such date duly noted thereon, and the Revised Schedules
will not contain any disclosures which (i) should have been but were not
disclosed on the Schedules attached hereto or (ii) set forth material changes
which in the opinion of the Parent and the Company, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Consequence
as to Purchaser, unless such disclosures are approved in writing by Parent and
the Company.
9.7. NO MATERIAL ADVERSE CONSEQUENCE. Since the date of execution
of this Agreement, there shall have been no Material Adverse Consequence as to
Purchaser.
9.8. SPINOFF. The Spinoff shall have been consummated in compliance
in all material respects with the Exchange Act and any other applicable federal
or state securities laws or regulations.
9.9. REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
ARTICLE 10.
TERMINATION
10.1. TERMINATION This Agreement may be terminated at any time (the
"Termination Date") before the Closing Date:
(a) by mutual written consent of Purchaser, Parent and the
Company;
(b) by Purchaser upon the occurrence or upon its discovery of
a Material Adverse Consequence as to the Company;
(c) by Parent or the Company upon the occurrence or upon their
discovery of a Material Adverse Consequence as to Purchaser;
(d) by Purchaser or the Company pursuant to Section 4.16
hereof; or
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(e) by Purchaser, Parent or the Company if the Closing is not
consummated on or before January 7, 2000, unless the failure to close by such
date is attributable to actions or omissions of the party seeking to terminate
this Agreement under this subsection.
10.2. EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Sections 10.1(a), 10.1(b), 10.1(c) or 10.1(e) above, no
party shall have any obligations to the others hereunder except for those
obligations with respect to confidentiality and the return of confidential
information set forth below and in the Confidentiality Agreement. If this
Agreement is terminated pursuant to Section 10.1(d), the remedies available to
the non-terminating party set forth in Section 4.16(c) hereof shall apply. If
this Agreement is terminated, each party shall promptly return to each other all
copies of the due diligence materials previously provided to such party or their
representatives, and the obligations in respect of confidentiality set forth in
the Confidentiality Agreement shall remain in effect.
ARTICLE 11.
MISCELLANEOUS PROVISIONS
11.1. SEVERABILITY. If any provision of this Agreement is prohibited
by the laws of any jurisdiction as those laws apply to this Agreement, that
provision shall be ineffective to the extent of such prohibition and shall, to
the extent possible, be modified to conform with such laws, without invalidating
the remaining provisions hereto.
11.2. MODIFICATION. This Agreement may not be changed or modified
except in writing specifically referring to this Agreement and signed by each of
the parties hereto.
11.3. ASSIGNMENT, SURVIVAL AND BINDING AGREEMENT. Except as provided
pursuant to the Spinoff, this Agreement and the Closing Documents may not be
assigned by Purchaser and may not be assigned by the Company or Parent without
the prior written consent of Purchaser. The terms and conditions hereof shall
survive the Closing as provided herein and shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns. By their execution and delivery of this
Agreement, the MCS Major Stockholders hereby covenant and agree to vote their
shares of Parent's common stock, and Company Capital Stock to be issued to them
after the Spinoff, in favor of the Merger.
11.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5. NOTICES. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below.
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If to Company or Parent: Mestek, Inc.
260 North Elm Street
Westfield, Massachusetts 01085
Attention: Chief Executive Officer
Telefax: (413) 568-7428
with a copy to: Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Attn: Marc R. Paul, Esq.
Telefax: (202) 452-7074
If to Purchaser: Simione Central Holdings, Inc.
6600 Powers Ferry Road
Atlanta, Georgia 30339
Attention: Chief Executive Officer
Telefax: (770) 644-6558
with a copy to: Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Attention: Sherman A. Cohen, Esq.
Telefax: (404) 873-8631
or at such other address as any party hereto notifies the other parties hereof
in writing.
11.6. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except for the
Confidentiality Agreement, the restrictions and obligations of which shall
survive according to its terms, this Agreement, together with the Exhibits and
Schedules attached hereto, constitutes the entire agreement and supersedes any
and all other prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, is not intended to confer upon
any Person other than Purchaser, the Company, and Parent, any rights or remedies
hereunder. No provision of this Agreement shall be construed against any party
on the ground that such party drafted the provision or caused it to be drafted
or the provision contains a covenant of such party.
11.7. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
excluding those relating to conflicts of laws.
11.8. ARBITRATION. Any claim arising out of or related to this
Agreement or the alleged breach of a representation, warranty or covenant
thereof or arising out of any of the Transactions, which has not been resolved
by mutual agreement of the parties after a sixty (60) day negotiation period in
which the parties try to resolve the claim, shall be finally settled by
arbitration. Such arbitration shall be conducted in Wilmington, Delaware in
accordance with the Commercial Rules of the American Arbitration Association
then in effect, as modified or supplemented
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herein, or as the parties mutually agree otherwise. Notwithstanding the rules of
the arbitral body, the parties hereto agree (a) that any arbitration shall be
presided over by a single arbitrator, who shall have been admitted to the
practice of law, and be in good standing or on retirement status in any of the
fifty United States or the District of Columbia, (b) that the arbitrator shall
base his decision on the facts as presented into evidence, and (c) that the
arbitrator shall prepare a written memorandum of decision setting forth the
findings of fact and conclusions of law. The arbitrator shall be selected by
Purchaser and Parent. If they cannot agree on such selection within a thirty
(30) day period, they shall ask the American Arbitration Association to appoint
an arbitrator. The decision of the arbitrator shall be final, and judgment may
be entered upon it in accordance with the applicable law in any court having
jurisdiction. Any claim for relief made pursuant to this Agreement shall be made
within one (1) year from the date upon which the party claiming relief knew or
should have known of the cause of action constituting such claim. All costs of
the arbitration shall be borne by the party determined to be the losing party by
the arbitrator. For purposes of determining the prevailing and losing party, the
arbitrator may consider offers of settlement by either Purchaser or Parent, or
both of them.
11.9. HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10. INCORPORATION OF EXHIBIT AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
11.11. WAIVER. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived by
any other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
11.12. TIME OF ESSENCE. Time is of the essence in this Agreement.
11.13. APPOINTMENT OF AGENT. By operation of this Agreement and upon
the approval of this Agreement by the holders of Company Capital Stock, Parent
shall be appointed as the designated agent of the Company Stockholders for the
purpose of enforcing the rights of the Company Stockholders pursuant to Section
7.2 of this Agreement. The Company Stockholders shall be bound by any actions
taken by Parent on their behalf pursuant to Section 7.2 or otherwise under this
Agreement.
11.14. PROVISION OF ASSISTANCE.
(a) After the date of the Amendment Agreement and prior to the
Closing Date, upon reasonable request from the Purchaser, Parent will use its
commercially reasonable efforts to make Parent's and the Company's employees
available to Purchaser on a consulting basis. The cost of such assistance will
be equal to Parent's and the Company's out-of-pocket expenses plus a per
employee consulting fee based on the employee's skill, experience and workload,
to be determined by Parent or the Company after consultation with Purchaser.
Notwithstanding Section 4.8, the cost of such assistance will be billed to
Purchaser at the earlier
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of the Closing Date or the Termination Date and shall be due and payable by
Purchaser upon Purchaser's receipt of such bills.
(b) Purchaser, Parent and the Company will negotiate in good
faith to enter into, on or prior to the Closing Date, an agreement for services
such as those described in Section 11.14(a) to be provided after the Closing
Date; provided, however, that such services agreement shall not be a condition
to the Closing.
[Signatures Appear on the Following Page]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
COMPANY: PURCHASER:
MCS, INC. SIMIONE CENTRAL HOLDINGS, INC.
By: By:
------------------------------- ---------------------------------
Name: Name:
---------------------------- -------------------------------
Title: Title
PARENT:
MESTEK, INC.
By:
--------------------------------
Name:
------------------------------
Title
------------------------------
MCS MAJOR STOCKHOLDERS
-----------------------------------
John E. Reed
-----------------------------------
Stewart B. Reed
-----------------------------------
E. Herbert Burk
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<PAGE> 73
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND INVESTMENT AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Schedules* Description
- ---------- -----------
<S> <C>
Schedule 3.1(a) Exchange Ratio
Schedule 3.3(a) Options and Warrants
Schedule 4.7 Exceptions to conduct of Purchaser and Company pending Merger
Schedule 5.1 States of Qualification - Company
Schedule 5.2 Officers and Directors - Company
Schedule 5.3 Encumbrances - Company
Schedule 5.4 Required Consents and Approvals - Company
Schedule 5.5 Capitalization of the Company
Schedule 5.8 Company Financial Statements; Liabilities not disclosed on
Financials - Company
Schedule 5.9 Taxes
Schedule 5.10 Material Contracts - Company
Schedule 5.12(A) Intellectual Property - Company
Schedule 5.12(B) Owned Software - Company
Schedule 5.12(C) Licensed Software - Company
Schedule 5.13 Labor Matters - Company
Schedule 5.14(A) Work-in-Process, Orders and Returns - Company
Schedule 5.14(B) Cancellations Arising from Transactions - Company
Schedule 5.15 Exceptions to Absence of Certain Changes - Company
Schedule 5.16 Leases - Company
Schedule 5.17 Litigation - Company
Schedule 5.18 Employee Benefit Plans of All Kinds - Company
Schedule 5.21 Bank Accounts - Company
Schedule 5.23 Insurance - Company
Schedule 6.1 States of Qualification - Purchaser
Schedule 6.3 Purchaser Consents
Schedule 6.4 Encumbrances - Purchaser
Schedule 6.5 Capitalization - Purchaser
Schedule 6.8 Purchaser Financial Statements; Liabilities not disclosed on
Financials - Purchaser
Schedule 6.10 Material Contracts - Purchaser
Schedule 6.12(A) Intellectual Property - Purchaser
Schedule 6.12(B) Owned Software - Purchaser
Schedule 6.12(C) Licensed Software - Purchaser
Schedule 6.13 Labor Matters - Purchaser
Schedule 6.14(A) Work-in-Process, Orders and Returns - Purchaser
Schedule 6.14(B) Cancellations Arising from Transactions - Purchaser
Schedule 6.15 Exceptions to Absence of Certain Changes - Purchaser
Schedule 6.16 Leases - Purchaser
Schedule 6.17 Litigation - Purchaser
Schedule 6.18 Employee Benefit Plans of All Kinds - Purchaser
Schedule 6.20 Bank Accounts - Purchaser
Schedule 6.22 Insurance - Purchaser
Schedule 6.26 Exceptions regarding Securities Filings - Purchaser
</TABLE>
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<PAGE> 74
<TABLE>
<CAPTION>
Exhibits Descriptions
- -------- ------------
<S> <C> <C>
Exhibit 1.2(a) (1) Note
Exhibit 1.2(b) (2) Security Agreement
Exhibit 1.4 (3) Certification of Designations
Exhibit 1.5 (4) Mestek Warrant
Exhibit 3.3(a) (5) Merger Option Agreement
</TABLE>
* In accordance with Item 601(b)(2) of Regulation S-K, the schedules have been
omitted. There is a list of schedules at the end of the Exhibit, briefly
describing them. The Registrant will furnish supplementary a copy of any omitted
schedule to the Commission upon request.
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<PAGE> 1
EXHIBIT 3.1
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
MCS, INC.
1. The name of the corporation is:
MCS, Inc.
2. The location and post office address of the registered office
of the corporation in this Commonwealth is:
400 Penn Center Boulevard
Pittsburgh, PA 15235
3. The corporation is incorporated under the Business Corporation
Law of the Commonwealth of Pennsylvania for the following purposes:
To engage in any lawful act or activity for which corporations
may be organized under the Pennsylvania Business Corporation
Law.
4. The term for which the corporation is to exist is: Perpetual.
5. The aggregate number of shares which the corporation shall
have authority to issue is:
10,000,000 shares, Common - Par Value $1.00 each
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
of
MESTA COMPUTER SERVICES COMPANY
(a Pennsylvania corporation)
Adopted: May 7, 1981
<PAGE> 2
Index to By-Laws
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE I
SHAREHOLDERS
1.01 Annual Meetings ........................................ 1
1.02 Special Meetings ....................................... 1
1.03 Organization ........................................... 2
1.04 Meetings by Telephone .................................. 2
ARTICLE II
DIRECTORS
2.01 Number, Election and Term of Office .................... 2
2.02 Regular Meetings; Notice ............................... 3
2.03 Annual Meeting of the Board ............................ 3
2.04 Special Meetings; Notice ............................... 4
2.05 Organization ........................................... 4
2.06 Meetings by Telephone .................................. 5
2.07 Presumption of Assent .................................. 5
2.08 Catastrophe ............................................ 6
2.09 Resignations ........................................... 6
2.10 Committees ............................................. 7
ARTICLE III
OFFICERS AND EMPLOYEES
3.01 Officers ............................................... 7
3.02 Additional Officers; Other Agents and Employees ........ 8
3.03 The President .......................................... 8
3.04 The Vice Presidents .................................... 9
3.05 The Secretary and Assistant Secretaries ................ 9
3.06 The Treasurer and Assistant Treasurers ................. 10
3.07 Vacancies .............................................. 12
3.08 Delegation of Duties ................................... 12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE IV
SHARES OF CAPITAL STOCK
<S> <C> <C>
4.01 Share Certificates ..................................................... 12
4.02 Transfer of Shares .............................. ...................... 13
4.03 Lost, Stolen, Destroyed or Mutilated Certificates ...................... 13
4.04 Regulations Relating to Shares ......................................... 13
4.05 Holder of Record ....................................................... 13
ARTICLE V
MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS
5.01 Notes, Checks, etc. .................................................... 14
5.02 Execution of Instruments Generally ..................................... 14
5.03 Voting Securities Owned by Corporation ................................. 15
ARTICLE VI
GENERAL PROVISIONS
6.01 Offices ................................................................ 15
6.02 Corporate Seal ......................................................... 15
6.03 Fiscal Year ............................................................ 16
6.04 Financial Report to Shareholders ....................................... 16
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS
7.01 16
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
8.01 17
ARTICLE IX
AMENDMENTS
9.01 18
</TABLE>
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<PAGE> 4
MESTA COMPUTER SERVICES COMPANY
By-Laws
ARTICLE I
SHAREHOLDERS
Section 1.01. Annual Meetings. Annual meetings of the shareholders shall
be held on the third Tuesday of March in each year at three o'clock P.M., at the
principal business office of the Corporation, or at such other date, time and
place as may be fixed by the Board of Directors. Written notice of the annual
meeting shall be given at least seven days prior to the meeting to each
shareholder entitled to vote thereat. Any business may be transacted at the
annual meeting irrespective of whether or not the notice calling such meeting
shall contain a reference thereto, except as otherwise expressly required
herein or by law.
Section 1.02. Special Meetings. Special meetings of the shareholders may
be called at any time, for the purpose or purposes set forth in the call, by
the President, the Board of Directors, or the holders of at least one-fifth of
all the shares outstanding and entitled to vote thereat, by delivering a
written request to the Secretary. Special meetings shall be held at the
registered office of the Corporation or at such other place as may be fixed by
the Board of Directors. Written notice of special meetings shall be given at
least five days prior to the
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meeting to each shareholder entitled to vote thereat. No business may be
transacted at any special meeting other than that stated in the notice of
meeting and business which is germane thereto.
Section 1.03. Organization. The President, or in his absence the Vice
President having the greatest seniority, shall preside, and the Secretary, or
in his absence any Assistant Secretary, shall take the minutes at all meetings
of the shareholders.
Section 1.04. Meetings by Telephone. One or more of the shareholders may
participate in any annual or special meeting of the shareholders by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting are able to hear each other. Participation
in a meeting in this manner by a shareholder will be considered to be
attendance in person for all purposes under these By-Laws.
ARTICLE II
DIRECTORS
Section 2.01. Number, Election and Term of Office. The number of
Directors which shall constitute the full Board of Directors shall be fixed by
the Board of Directors but shall not be less than the number required by the
Pennsylvania Business
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Corporation Law. A full Board of Directors shall be elected at each annual
meeting of shareholders. Each Director shall hold office from the time of his
election but shall be responsible as a director from such time only if he
consents to his election; otherwise from the time he accepts office or attends
his first meeting of the Board. Each Director shall serve until the next annual
meeting of shareholders and thereafter until his successor is duly elected and
qualifies or until his earlier death, resignation or removal.
Section 2.02. Regular Meetings; Notice. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated by the
Board of Directors from time to time. Notice of such regular meetings of the
Board shall not be required to be given, except as otherwise expressly required
herein or by law. However whenever the time or place of regular meetings shall
be initially fixed and then changed, notice of such action shall be given
promptly by telephone or otherwise to each Director not participating in such
action. Any business may be transacted at any regular meeting.
Section 2.03. Annual Meeting of the Board. The annual meeting of the Board
of Directors each year shall be held immediately after and at the same place as
the annual meeting of the shareholders, and such Board of Directors meeting
shall be the organization meeting of the Directors-elect at which meeting the
new Board shall organize itself and elect the officers of the Corporation for
the ensuing year and may transact any other business.
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Section 2.04. Special Meetings; Notice. Special meetings of the Board may
be called at any time by the Board itself by vote at a meeting, by the
President, or any Director to be held at such place, day, and hour as shall be
specified by the person calling the meeting. Notice of every special meeting of
the Board of Directors stating the place, day, and hour thereof shall be given
at least 24 hours before the time at which the meeting is to be held to each
Director by mail, sent by telex or telegraph or given personally by telephone.
Any business may be transacted at any special meeting.
Section 2.05. Organization. At all meetings of the Board of Directors,
the presence of at least a majority of the Directors at the time in office
shall be necessary and sufficient to constitute a quorum for the transaction of
business. If a quorum is not present at any meeting, the meeting may be
adjourned from time to time by a majority of the Directors present until a
quorum as aforesaid shall be present; but notice of the time and place to which
such meeting is adjourned shall be given to any Directors not present either by
being sent by telegraph or given personally or by telephone at least 8 hours
prior to the hour of reconvening. Resolutions of the Board shall be adopted,
and any action of the Board at a meeting upon any matter shall be valid and
effective, with the affirmative vote of
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at least a majority of the Directors present at a meeting duly convened. The
President shall preside at each meeting of the Board. In the absence of the
President the Directors present shall designate one of their number to preside
at the meeting. The Secretary, or in his absence any Assistant Secretary, shall
take the minutes at all meetings of the Board of Directors. In the absence of
the Secretary and an Assistant Secretary the presiding officer shall designate
any person to take the minutes of the meeting.
Section 2.06. Meetings by Telephone. One or more of the Directors may
participate in any regular or special meeting of the Board of Directors or of a
committee of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting are able to hear each other. Participation in a meeting in this manner
by a Director will be considered to be attendance in person for all purposes
under these By-Laws.
Section 2.07. Presumption of Assent. Minutes of each meeting of the Board
shall be made available to each Director at or before the next succeeding
meeting. Each Director shall be presumed to have assented to such minutes and
agreed to the action taken thereat unless his objection thereto shall be made to
the Secretary within two days after such meeting.
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Section 2.08. Catastrophe. Notwithstanding any other provisions of law,
the Articles or these By-Laws, during any emergency period caused by a national
catastrophe or local disaster, a majority of the surviving members (or the sole
survivor) of the Board of Directors who have not been rendered incapable of
acting because of incapacity or the difficulty of communication or
transportation to the place of meeting shall constitute a quorum for the sole
purpose of electing directors to fill such emergency vacancies, and a majority
of the directors present at such a meeting may act to fill such vacancies.
Directors so elected shall serve until such absent directors are able to attend
meetings or until the shareholders act to elect directors for such purpose.
During such an emergency period, if the Board is unable to or fails to meet, any
action appropriate to the circumstances may be taken by such officers of the
Corporation as may be present and able. Questions as to the existence of a
national catastrophe or local disaster and the number of surviving members
capable of acting shall be conclusively determined at the time by the Board of
Directors or the officers so acting.
Section 2.09. Resignations. Any director may resign by submitting to the
President or the Secretary, his resignation which shall become effective upon
its receipt by such officer or as otherwise specified therein.
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Section 2.10. Committees. Standing or temporary committees may be
appointed from its own number by the Board of Directors from time to time, and
the Board may from time to time invest committees with such power and
authority, subject to such conditions as it may see fit. An Executive Committee
may be appointed by a majority of the full Board; it shall have all the powers
and exercise all the authority of the Board in the management of the business
and affairs of the Corporation except as specially limited by the Board. The
Board may designate one or more Directors as alternate members of any committee
to replace any absent or disqualified member at any meeting; and in the event
of such absence or disqualification, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member. Any action
taken by any committee shall be subject to alteration or revocation by the
Board of Directors; provided, however, that third parties shall not be
prejudiced by such alteration or revocation.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 3.01. Officers. The Officers of the Corporation shall be the
President, the Secretary, the Treasurer, and one or more Vice Presidents as the
Board may from time to time determine,
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all of whom shall be elected by the Board of Directors. Any two or more offices
may be held by the same person. Each Executive Officer shall hold office until
the next succeeding annual meeting of the Board of Directors and thereafter
until his successor is duly elected and qualifies or until his earlier death,
resignation or removal.
Section 3.02. Additional Officers; Other Agents and Employees. The Board
of Directors may from time to time appoint or hire such additional officers,
assistant officers, agents, employees and independent contractors as the Board
deems advisable; and the Board or the President shall prescribe their duties,
conditions of employment and compensation. Subject to the power of the Board,
the President may employ from time to time such other agents, employees, and
independent contractors as he may deem advisable for the prompt and orderly
transaction of the business of the Corporation, and he may prescribe their
duties and the conditions of their employment, fix their compensation and
dismiss them, without prejudice to their contract rights, if any.
Section 3.03. The President. The President shall be the Chief executive
officer of the Corporation. Subject to the control of the Board of Directors,
the President shall have general policy supervision of and general management
and executive powers over all the property, business operations, and affairs of
the Corporation and shall see that the policies and
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programs adopted or approved by the Board are carried out. The President shall
exercise such further powers and duties as from time to time may be prescribed
in these By-Laws or by the Board of Directors.
Section 3.04. The Vice Presidents. The Vice Presidents may be given by
resolution of the Board general executive powers, subject to the control of the
President, concerning one or more or all segments of the operations of the
Corporation. The Vice Presidents shall exercise such further powers and duties
as from time to time may be prescribed in these By-Laws or by the Board of
Directors or by the President. At the request of the President, or in his
absence or disability, the senior Vice President shall exercise all the powers
and duties of the President.
Section 3.05. The Secretary and Assistant Secretaries. It shall be the
duty of the Secretary (a) to keep or cause to be kept at the registered office
of the Corporation an original or duplicate record of the proceedings of the
shareholders and the Board of Directors and a copy of the Articles and of the
By-Laws; (b) to attend to the giving of notices of the Corporation as may be
required by law or these By-Laws; (c) to be custodian of the corporate records
and of the seal of the Corporation and see that the seal is affixed to such
documents as may be necessary or advisable; (d) to have charge of and keep at
the registered office of the Corporation, or cause to be kept at the office of a
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transfer agent or registrar within the Commonwealth of Pennsylvania, the stock
books of the Corporation and an original or duplicate share register, giving
the names of the shareholders in alphabetical order and showing their
respective addresses, the number and classes of shares held by each, the number
and date of certificates issued for the shares, and date of cancellation of
every certificate surrendered for cancellation; and (e) to exercise all powers
and duties incident to the office of Secretary and such other powers and duties
as may be prescribed by the Board of Directors or by the President from time to
time. The Assistant Secretaries shall assist the Secretary in the performance
of his duties and shall also exercise such further powers and duties as from
time to time may be assigned to them by the Board of Directors, the President
or the Secretary. At the direction of the Secretary or in his absence or
disability, an Assistant Secretary shall perform the duties of the Secretary.
Section 3.06. The Treasurer and Assistant Treasurers. The Treasurer shall
(a) have custody of the Corporation's contracts, insurance policies, leases,
deeds and other business records; (b) see that the lists, books, reports,
statements, tax returns, certificates and other documents and records required
by law are properly prepared, kept and filed; (c) be the principal officer in
charge of tax and financial matters, budgeting and accounting of the
Corporation; (d) have charge and custody of and
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be responsible for the corporate funds, securities and investments; (e) receive
and give receipts for checks, notes, obligations, funds and securities of the
Corporation, and deposit monies and other valuable effects in the name and to
the credit of the Corporation in such depositories as shall be designated by
the Board of Directors; (f) subject to the provisions of Section 5.01 of the
By-Laws, cause to be disbursed the funds of the Corporation by payment in cash
or by checks or drafts upon the authorized depositories of the Corporation, and
cause proper vouchers to be taken and preserved for such disbursements; (g)
render to the President and the Board of Directors whenever they may require it
an account of all his transactions as Treasurer and reports as to the financial
position and operations of the Corporation; (h) cause to be kept appropriate,
complete and accurate books or records of account of all its business and
transactions; and (i) exercise all powers and duties incident to the office of
Treasurer and such other duties as may be prescribed by the Board of Directors
or by the President from time to time. The Assistant Treasurers shall assist the
Treasurer in the performance of his duties and shall also exercise such further
powers and duties as from time to time may be assigned to them by the Board of
Directors, the President or the Treasurer. At the direction of the Treasurer or
in his absence or disability, an Assistant Treasurer shall perform the duties
of the Treasurer.
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Section 3.07. Vacancies. Vacancy in any office or position by reason of
death, resignation, removal, disqualification, disability or other cause, shall
be filled in the manner provided in this Article III for regular election or
appointment to such office.
Section 3.08. Delegation of Duties. The Board of Directors may in its
discretion delegate for the time being the powers and duties, or any of them,
of any officer to any other person whom it may select.
ARTICLE IV
SHARES OF CAPITAL STOCK
Section 4.01. Share Certificates. Every holder of fully-paid stock of the
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors may from time to time prescribe, and signed (in
facsimile or otherwise, as permitted by law) by the President or a Vice
President and the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer which shall represent and certify the number of shares of
stock owned by such holder. The Board may authorize the issuance of
certificates for fractional shares or, in lieu thereof, scrip or other evidence
of ownership, which may (or may not) as determined by the Board entitle the
holder thereof to voting, dividends or other rights of shareholders.
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Section 4.02. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the books of the Corporation only upon surrender to
the Corporation of the certificate or certificates for such shares properly
endorsed by the shareholder or by his assignee, agent or legal representative,
who shall furnish proper evidence of assignment, authority or legal succession,
or by the agent of one of the foregoing thereunto duly authorized by an
instrument duly executed and filed with the Corporation in accordance with
regular commercial practice.
Section 4.03. Lost, Stolen, Destroyed or Mutilated Certificates. New
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such conditions as the Board of Directors
may from time to time determine.
Section 4.04. Regulations Relating to Shares. The Board of Directors shall
have power and authority to make all such rules and regulations not inconsistent
with these By-Laws as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the Corporation.
Section 4.05. Holders of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock of the Corporation as
the holder and owner in
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fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Pennsylvania.
ARTICLE V
MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS
Section 5.01. Notes, Checks, etc. All notes, bonds, drafts, acceptances,
checks, endorsements (other than for deposit), guarantees, and all evidences of
indebtedness of the Corporation whatsoever, shall be signed by such officers or
agents of the Corporation, subject to such requirements as to countersignature
or other conditions, as the Board of Directors from time to time may determine.
Facsimile signatures on checks may be used if authorized by the Board of
Directors.
Section 5.02. Execution of Instruments Generally. Except as provided in
Section 5.01, all deeds, mortgages, contracts and other instruments requiring
execution by the Corporation may be signed by the President, any Vice President
or the Treasurer; and authority to sign any such contracts or instruments, which
may be general or confined to specific instances, may be conferred by the Board
of Directors upon any other person or persons. Any person having authority to
sign on behalf of the Corporation may delegate from time to time by
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instrument in writing all or any part of such authority to any person or
persons if authorized so to do by the Board of Directors.
Section 5.03. Voting Securities Owned by Corporation. Securities having
voting power in any other corporation owned by this Corporation shall be voted
by the President, unless the Board confers authority to vote with respect
thereto, which may be general or confined to specific investments, upon some
other person. Any person authorized to vote securities shall have the power to
appoint proxies with general power of substitution.
ARTICLE VI
GENERAL PROVISIONS
Section 6.01. Offices. The principal business office of the Corporation
shall be c/o Mesta Machine Company, West Homestead, PA 15120. The Corporation
may also have offices at such other places within or without the Commonwealth
of Pennsylvania as the business of the Corporation may require.
Section 6.02. Corporate Seal. The Board of Directors shall prescribe the
form of a suitable corporate seal which shall contain the full name of the
Corporation and the year and state of incorporation.
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Section 6.03. Fiscal Year. The fiscal year of the Corporation shall begin
the first day of January in each year.
Section 6.04. Financial Reports to Shareholders. The Board shall have
discretion to determine whether financial reports shall be sent to
shareholders, what such reports shall contain, and whether they shall be
audited or accompanied by the report of an independent or certified public
accountant.
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS
Section 7.01. No contract or other transaction between the Corporation
and another person shall be invalidated or otherwise adversely affected by the
fact that any one or more shareholders, directors or officers of the
Corporation --
(i) is pecuniarily or otherwise interested in, or is a shareholder,
director, officer, or member of, such other person; or
(ii) is a party to, or is in any other way pecuniarily or otherwise
interested in, the contract or other transaction; or
(iii) is in a way connected with any person pecuniarily or otherwise
interested in such contract or other transaction,
provided the fact of such interest shall be disclosed or known to the
Board of Directors or the shareholders, as the case may be; and in any
action of the shareholders or of the Board of Directors of the Corporation
authorizing or
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approving any such contract or other transaction, any and every shareholder
or director may be counted in determining the existence of a quorum, and in
determining the effectiveness of action taken, with like force and effect
as though he were not so interested, or were not such a shareholder,
director, member or officer, or were not such a party, or were not so
connected. Such director, shareholder or officer shall not be liable to
account to the Corporation for any profit realized by him from or through
any such contract or transaction approved or authorized as aforesaid. As
used herein, the term "person" includes a corporation, partnership, firm,
association or other legal entity.
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.01. Directors and officers of the Corporation shall be
indemnified as of right to the fullest extent now or hereafter permitted by law
in connection with any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the name of
the Corporation or otherwise) arising out of their service to the Corporation
or to another organization at the Corporation's request. Persons who are not
directors or officers of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board of
Directors. The Corporation may maintain insurance to protect
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itself and any such director, officer or other person against any liability,
cost or expense incurred in connection with any such action, suit or proceeding.
ARTICLE IX
AMENDMENTS
Section 9.01. Amendments. These By-Laws may be amended, altered and
repealed, and new By-Laws may be adopted, by the shareholders or the Board of
Directors of the Corporation at any regular or special meeting. No provision of
these By-Laws shall vest any property or contract right in any shareholder.
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EXHIBIT 10.1
COMPUTER SERVICES AGREEMENT
* * * * * * * * * *
BETWEEN
<>
<>
<>
AND
MCS, INCORPORATED
400 PENN CENTER BOULEVARD
PITTSBURGH, PENNSYLVANIA 15235
[DATE]
CUSTOMER CONTACT: TELEPHONE NUMBER:
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. MESTAMED SYSTEM
II. SOFTWARE LICENSE
III. SUPPORT SERVICE CONTRACT
IV. TERMS AND CONDITIONS
V. AGREEMENT
</TABLE>
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 3
MESTAMED SYSTEM
Included with the MestaMed software system are:
* Getting Started with MestaMed - Installation Guide
* Comprehensive User Manual
* Software Installation
The User Manual and Installation Guide contain the necessary information to
assist your staff in building your database. Step-by-step procedures, as well as
complete file descriptions and input worksheets permit an organized approach to
system implementation. Your staff participates in periodic progress reviews and
question and answer sessions that are initiated by the MestaMed Educational
Services Department. These sessions are designed to complement our normal
support services by providing regularly scheduled, dedicated telephone support,
in a conference call format to your staff.
The operational phase of training takes place at your facility. All operational
features of MestaMed are reviewed.
Travel expenses and telephone connect charges in conjunction with our software
support services and training will be invoiced at cost.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 4
SAMPLE MESTAMED SYSTEM QUOTATION
- - UNIX Operating System License - 5 Users
Synergex Run Time License - 4 Users
- - MestaMed Software Module - 3 User License
- HME Software License
. Equipment Order Processing
. Rental Equipment System
- Billing and Accounts Receivable Module
- Claims Management Module
- Supporting Document Control Module
- Inventory Management Module
- Management Reporting Module
- User Security System
LAYERED PRODUCTS
- - Med-Write Plus Report Writer Software License
ECS Module - DMERC Region D Cigna Software License
ECS Module - CA
Medi-Cal (DME)
HARDWARE
MestaMed UNIX 450 System including:
Pentium II 450 Mhz Processor
96 MB MOS Memory
4.3 GB SCSI Disk Drive
4/8 GB QIC SCSI Tape Drive
Color Monitor and Keyboard
18 Line Interface Units
1 - 333 CPS Printer with Stand
Video Terminal
Three (3) 100 foot cables/ (from PC to Digiboard) 9F connectors
High Speed Software Support Modem
5 Tape Cartridges
One Year On-Site Hardware Warranty
- - One Year Software Support Services
- 800 Number Telephone Support
- MestaMed Software Updates
- - MestaMed Services
- Getting Started Training Module for HME
Installation Planning
Master File Data Base Requirements
- 5 Days On-Site Services - Weekday - Support Analyst
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 5
SAMPLE MESTAMED SYSTEM QUOTATION (CONTINUED)
- - Software Installation
Sub-Total
Less Packaged System Allowance
Less September Discount
TOTAL
MISCELLANEOUS CHARGES
Freight/In-Transit Insurance
Sales Tax (if applicable)
Travel Expenses Associated with On-Site Training
Telephone connect charges in conjunction with our software support
services and training will be invoiced at cost.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 6
SOFTWARE LICENSE
1. LICENSE
MCS Inc. (hereinafter called MCS), by its acceptance hereof, does
hereby grant to a Licensee a paid up, non-exclusive and
non-transferrable license, subject to the terms and conditions and
premises herein set forth, to use computer software programs which are
either proprietary products of MCS or of a Third Party for which MCS is
a licensed distributor. Software program titles and the proprietary
status of each are clearly defined in Section 1a and all software is
hereinafter collectively referred to as "Licensed Software," having the
characteristics and capabilities as described herein.
a. Licensed Software
-MestaMed/HME
-Synergex Run Time License
(Copyright 1978, 1981, 1984, 1985, 1986, an
unpublished work of Digital Information Systems
Corporation (DISC). All rights reserved.
-UNIX Operating System - from Santa Cruz Operations, Inc.
(SCO)Registered trademark of Microsoft Corporation.
-Med-Write Plus Report Writer Software License
-ECS Module - DMERC Region D Cigna Software License
-ECS Module - CA Medi-Cal (DME)
2. DEFINITIONS
The term "Software" as used in this Agreement is defined as the
totality of the processes and routines used in processing the kind of
information to which the Licensed Software refers. The term "Licensee"
for purposes of this Agreement is: a company, firm or individual whose
business is not the sale or production of computer software, nor one in
the business of consulting others regarding computers or computer
software, nor one whose intention it is to resell, trade or barter in
software, but one whose only purpose in obtaining a license for the
Software is for its own in-house use.
3. TERM
This License shall be in effect from the date of MCS's acceptance of
this Agreement and shall remain in force until Licensee discontinues
use of the Licensed Software or the License is otherwise terminated as
provided herein.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
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4. SCOPE OF LICENSE
In implementation of this License, MCS shall furnish Licensee with a
copy of the Licensed Software on machine readable media and with
associated user instructions and reference documentation; all of which
material shall be marked with a trade secret notation such as: "The
information herein are trade secrets and proprietary properties of MCS
or the specified Third Party." Licensee understands and agrees that any
revisions or updates to the Licensed Software which MCS or the
specified Third Party may from time to time furnish Licensee (whether
or not additional fees are charged for such revisions or upgrades) also
fall within the scope of this License.
5. LICENSE RIGHTS GRANTED
For the fee, Licensee has the following rights:
(1) To exercise the processes of the Licensed Software in
conjunction with its own in-house administration and
accounting on one specifically designated CPU. The Software
License granted herein cannot be transferred by Licensee to a
new or additional CPU. A new and separate License is required
from MCS for each additional CPU.
(2) To make backup copies of Licensed Software as needed
to implement item 1 only, provided that such copies made
include the same trade secrets and proprietary property
notices that appear on the materials Licensee receives from
MCS, DISC and SCO.
6. COVENANTS OF LICENSE
Licensee covenants and agrees as follows:
(1) That by acceptance of the License, Licensee
acknowledges that Licensed Software constitutes trade secrets
and proprietary property and agrees to include on any copies
made of the materials furnished the same notices or legends
that appear on the materials Licensee receives, and to protect
those materials and the information they contain from
transfer, disclosure or use by any other person without the
express authorization of MCS, DISC and SCO.
(2) That the license merely authorizes Licensee to
exercise or practice the processes of the Licensed Software on
the CPU prepared by MCS, and particularly does not authorize
Licensee to grant licenses for, assign or transfer in any
manner the Licensed Software to any other person.
7. TITLE TO SOFTWARE - MCS
Licensee understands and agrees that all proprietary rights in MCS
Licensed Software shall at all times remain with MCS, and that no
proprietary rights are hereby transferred to Licensee. The software
includes machine readable binaries, and reference documentations.
Further, Licensee agrees that the programs will not be used to provide
a data processing service to any other person or company without the
express written consent of MCS.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
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8. TITLE TO SOFTWARE - THIRD PARTY
Licensee understands and agrees that all proprietary rights to the
specified Third Party Software shall remain the sole property of that
Third Party. Licensee has a non-exclusive license to use the Licensed
Software. The right to use the Licensed Software is limited to one
machine located on customer's premises and may only be used to process
the customer's own data. Customer will safeguard and keep confidential
all programs and will not permit them to be copied, loaned or otherwise
made available to any other person or organization. The software
includes machine readable (binaries) and reference documentation.
Further, Licensee agrees that the programs will not be used to provide
a data processing service to any other person or company without the
express written consent of the Third Party.
9. CONDITIONS OF LICENSE
Licensee is responsible for the supervision, management and control of
their exercise of the processes of the Licensed Software, including,
without limitation, providing all reasonable check points, control
techniques, and other measures for detecting promptly and minimizing
the effects of any errors, failures or interruptions that might occur
in the use or exercise of the Licensed Software.
Except as provided otherwise in this Agreement, Licensee agrees: to not
reveal any information contained in the Licensed Software, or any part
thereof, or provide any copies thereof, in any form, to any third
party; to take all reasonable precautions to hold in confidence the
design and documentation of the Licensed Software; to not assign or
otherwise transfer same, by operation of law or otherwise, in whole or
in part, directly or indirectly, including but not limited to any joint
venture or combination arrangement between Licensees; to not exhibit,
donate, barter, loan or otherwise communicate said Licensed Software to
any other firm or person without the express written consent of MCS.
Licensee also agrees to take all appropriate action by instruction,
agreement or otherwise with its employees or other persons permitted
access to the Licensed Software to satisfy its obligations under this
Agreement with respect to use, protection and security of the Licensed
Software. From time to time, MCS may inquire concerning Licensee's
compliance and may require Licensee to take responsible protective
measures.
10. TERMINATION OF LICENSEE AND REMEDIES OF MCS, DISC AND SCO
MCS may terminate this License effective on a specified date if
Licensee neglects or fails to perform or observe any of the terms or
obligations set forth by this Agreement. In such event, Licensee shall
return all Software to MCS and make no further use of it. In the event
this License Agreement is terminated, Licensee agrees to provide MCS
with a signed and dated notice that Licensee has destroyed all of its
copies of the Licensed Software. Such notices must be received by MCS
within fifteen (15) calendar days following notice of termination.
In the event Licensee becomes insolvent or voluntarily or involuntarily
bankrupt, or if a receiver, assignee or other liquidating officer is
appointed for all or substantially all of the business of Licensee or
if Licensee makes an assignment for the benefit of creditors, then MCS
at its option may immediately terminate this License by notice to
Licensee to that effect. In no event shall this License be assigned or
assignable by operation of law or by voluntary or involuntary
bankruptcy proceedings or otherwise, and in no event shall this License
or any rights or privileges hereunder be an asset of Licensee under any
bankruptcy, insolvency or reorganization proceedings.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 9
Since unauthorized transfer of the Licensed Software or any information
contained therein will diminish substantially the value to MCS of the
trade secrets and proprietary properties that are the subject of this
License, if Licensee breaches any of its obligations with respect to
non-disclosure of the Licensed Software, or if such a breach is likely
to occur, MCS shall be entitled to equitable relief (including orders
for specific performance and injunctions) as well as money damages.
The rights and remedies of MCS set forth in this Agreement are not
exclusive and are in addition to any other rights and remedies provided
by statute, at law or equity, including injunctive relief.
11. LIMITATIONS OF LIABILITIES
Except as expressly provided otherwise in this Agreement, MCS shall not
be liable for any loss or damage claimed to have resulted from the use
of the Licensed Software or claimed to be related in any way to the
Licensed Software regardless of the form of action, and Licensee shall
indemnify MCS for and hold MCS harmless for any loss, cost or expense
suffered or incurred if any such claims are made. In no event shall MCS
be held liable for any special, indirect, or consequential damages in
any way resulting from the use of the Licensed Software by Licensee.
MCS's liability for damages regardless of the form of action, shall not
exceed the total amount paid for the Licensed Software.
12. DIGITAL EQUIPMENT SOFTWARE AND HARDWARE
Warranties respecting products and software supplied by MCS which are
made or licensed by Digital Equipment Corporation are set forth in the
latter company's Standard Terms and Conditions. MCS disclaims all
warranties respecting Digital Equipment Corporation's products and
software including all implied warranties of merchantability and
fitness.
13 CONFIDENTIAL INFORMATION/DATA
MCS will exercise a reasonable degree of care, consistent with good
industry practices, to maintain confidential all information furnished
by Customer. Business and financial information (e.g., actual printed
reports) deemed to be confidential in nature which may be revealed by
Customer to MCS under this Agreement shall not be disclosed to third
parties.
14. GENERAL
No waiver of right, obligation or default shall be implied, but must be
in writing, signed by the party against whom the waiver is sought to be
enforced. One or more waivers of any right, obligation or default shall
not be construed as a waiver of any right, obligation or default.
Any provision or provisions of this Agreement which shall prove to be
invalid, void or illegal shall in no way offset, impair or invalidate
any other provision, and the remaining provisions hereof shall remain
in full force and effect.
This Agreement supersedes all prior agreements and understandings
between the parties and may not be changed or modified except by a
writing signed by the parties.
Licensee may not assign this Agreement or the License without the
express written consent of MCS.
This Agreement shall be governed by the Laws of the State of
Pennsylvania. If MCS is required to engage in any proceedings, legal or
otherwise, to enforce its rights under this Agreement, MCS shall be
entitled to recover from Licensee, in addition to any other sums due,
the reasonable attorney's fee, costs and necessary disbursements
involved in said proceedings.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 10
MESTAMED SUPPORT SERVICE CONTRACT
The MestaMed System is a product requiring long-term commitment and on-going
support. An annual contract is available to provide our customers with such
support on an equitable and reasonable basis, and at a fixed annual cost which
could be budgeted with assurance. Basically, the services covered under this
annual contract relate to:
1. Software Support Services
2. Software Upgrades
3. Peripheral Upgrades
4. Documentation
5. Consulting Services
6. Back-Up
7. Telephone and Fax Support Service
8. Extended Hours Service
9. Holiday Support Service
EXACTLY WHAT SERVICES ARE PROVIDED?
The MestaMed Support Service Contract encompasses the following basic services:
1. SOFTWARE SUPPORT SERVICES
The MestaMed software license comes with a defined warranty period during which
any user-discovered program errors are treated by MCS at no charge for labor.
Treatment involves providing a quick correction for the problem if at all
possible, or at worst providing some "workaround" procedure to be employed until
the problem can be corrected in a future release of the System.
2. SOFTWARE UPGRADES
The MestaMed System is dynamically changing over time as industry standards,
practices, and equipment change, and as new and better software ideas and
techniques are implemented. All such upgrades are automatically delivered to
MestaMed Users under contract. Charges are restricted to handling costs (media,
shipping, travel, computer connect time, etc.) and labor if on-site service is
required. Often a new release can be installed remotely with only some telephone
assistance required, and in such cases there are no labor charges.
3. PERIPHERAL UPGRADES
As your needs expand you may be required to add terminals, printers, disk drives
and other equipment. MCS will provide operating system modifications, disk file
re-allocations and ongoing support service without additional fees for all
add-on peripherals purchased from MCS.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 11
4. DOCUMENTATION
From time to time new or revised system documentation will be delivered at no
charge other than shipping expense to MestaMed Support Service Contract
Accounts. During interim periods, errata notices, addendums, and replacement
pages will be provided.
5. CONSULTING SERVICES
MCS will upon request make appropriate personnel available to MestaMed Support
Service Contract Accounts for purposes of consultation, and special-purpose
programming services that relate directly to the MestaMed System.
6. BACKUP
MCS maintains on its premises copies of all MestaMed System software. In the
event of a customer problem, we are able to recreate the MestaMed system exactly
(within the limitation that may be imposed by individual computer hardware
differences) in order to attempt to replicate and solve the problem. In the
event of a media or computer catastrophe at the customer site, we are able to
replace the MestaMed software system.
7. TELEPHONE AND FAX SUPPORT SERVICE
MestaMed contract customers may contact MCS in search of assistance with day to
day system or operational problems. In many cases, this type of assistance
relates to questions of "how to" handle a given situation or obtain a certain
result. "How to" types of questions are discouraged when the answer is readily
available in our User Guide manuals, but they are handled nonetheless. With very
few exceptions, competent and capable staff personnel are at all times in the
office or on call to handle telephone calls. Fax transmission of examples of
problems or concerns are encouraged in that they improve MCS' understanding and
thus expedite service. Within reason, there is no limit to the number of times a
customer may contact the support service group, although we much prefer written
requests when time is not of the essence. The MestaMed Support Service Contract
includes telephone and fax support Monday through Friday, from 8:30 a.m. to 5:00
p.m. (your time zone), except holidays.
8. EXTENDED HOURS OF SERVICE
MestaMed contract customers may also use the extended hours support. This
extended hour service is available as follows (except holidays):
5:00 P.M. TO 8:00 P.M. (YOUR TIME ZONE), MONDAY THROUGH FRIDAY
9:00 A.M. TO 3:00 P.M. (MCS TIME ZONE), SATURDAY
MCS support personnel have terminal and modem connections at their homes and are
accessed by our answering service paging system for extended hours support.
This support is only available for "EMERGENCY" situations and is billable per
your use at $50.00 per half hour increments (minimum charge is one-half hour).
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 12
9. HOLIDAY SUPPORT SERVICE
MCS offers to its customers Holiday Support Service. This service will be
provided on the days listed on the attached schedule.
This service is only available for "EMERGENCY" situations and is billable per
your use at $60 per half hour increments (minimum charge is one-half hour).
- --------------------------------------------------------------------------------
SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 13
MCS 1999 HOLIDAY SCHEDULE
<TABLE>
<CAPTION>
HOLIDAY DATE/DAY
<S> <C> <C>
New Year's Day (1999) January 1 Friday
Good Friday April 2 Friday
Memorial Day (Observed) May 31 Monday
Independence Day (Observed) July 5 Monday
Labor Day September 6 Monday
Thanksgiving Day November 25 Thursday
Day after Thanksgiving November 26 Friday
Christmas Eve December 24 Friday
Christmas Day December 27 Monday
New Year's Day 2000 (Observed) December 31 Friday
</TABLE>
MCS HOLIDAY SUPPORT SCHEDULE FOR 1999
<TABLE>
<CAPTION>
HOURS OF
BEEPER SERVICE
(EASTERN TIME)
---------------
<S> <C> <C>
EASTER Thursday, April 1 5:00p to 8:00p
Friday, April 2 8:30a to 3:00p
Saturday, April 3 9:00a to 3:00p
MEMORIAL DAY Friday, May 28 5:00p to 8:00p
Saturday, May 29 9:00a to 3:00p
Monday, May 31 Closed for the Holiday
INDEPENDENCE Friday, July 2 5:00p to 8:00p
DAY Saturday, July 3 9:00a to 3:00p
Monday, July 5 8:30a to 3:00p
LABOR DAY Friday, September 3 5:00p to 8:00p
Saturday, September 4 9:00a to 3:00p
Monday, September 6 Closed for the Holiday
THANKSGIVING Wednesday, November 24 5:00p to 8:00p
Thursday, November 25 Closed for the Holiday
Friday, November 26 8:30a to 3:00p
Saturday, November 27 9:00a to 3:00p
CHRISTMAS Thursday, December 23 5:00p to 8:00p
Friday, December 24 8:30a to 3:00p
Saturday, December 25 Closed for the Holiday
Monday, December 27 8:30a to 3:00p
NEW YEAR Friday, December 31 8:30a to 3:00p
</TABLE>
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 14
TERMS AND CONDITIONS
This quotation shall remain firm for thirty (30) days from the date hereof,
unless modified in writing by MCS prior to MCS's acceptance and is subject to
credit approval. This quotation supersedes all previous quotations, and all
previous quotations are null and void.
A valid contract binding upon both parties will become effective as of the date
the MCS agreement is signed by both parties.
The payment schedule is as follows:
Primary Application and Computer:
1. 20% upon execution of Agreement.
2. 80% upon delivery of computer hardware and initiation of training
for building your database.
Optional Software:
Optional Application Software Products will be invoiced in full in the
month of installation.
If Customer financing is arranged via a Leasing Company, MCS will require a 20%
deposit and a Purchase Order from the Leasing Company. Upon installation of the
computer, MCS will invoice the Leasing Company Purchase Order. Upon receipt of
payment, MCS will remit (i.e., return) to the Customer the 20% downpayment.
Terms are net thirty (30) days, except for deposit requirements. A late charge
of one and one-half (1-1/2) percent will be added to those amounts thirty days
past due. Travel expense incurred by MCS support personnel, during installation,
will be invoiced monthly at cost.
Customer hereby grants MCS a security interest in the Products as security for
its obligations hereunder until paid for and will execute any document required
to perfect this security interest.
If Customer requests to cancel any order or portion thereof or requests a
rescheduling of scheduled equipment and such request is accepted by MCS,
Customer agrees to pay MCS cancellation/rescheduling charges equal to
twenty-five (25) percent of the proposed system.
Customer's acceptance of the computer system shall occur upon delivery of
computer hardware and initial training on the Primary Software System by MCS
personnel.
All hardware maintenance is purchased from and provided by the hardware vendor.
Systems and programming charges for the optional customer programming services
will be invoiced monthly. Our current billing rate is $90 per hour. MCS reserves
the right to change this rate only upon thirty (30) days prior written notice.
In no event will MCS be liable for special, indirect or consequential damages.
Customer, MCS and their respective affiliates during the term of this Agreement
will not knowingly solicit for employment or hire any employee or former
employee of the other party without the prior written consent of the other
party.
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SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 15
AGREEMENT
* * * * * * *
This Agreement shall be governed by the Laws of the Commonwealth of
Pennsylvania and constitutes the entire agreement between Customer and MCS. Any
modifications of this Agreement shall be made by mutual agreement and supported
by written amendments signed by duly authorized representatives of Customer and
MCS.
Neither Customer nor MCS shall assign this Agreement, nor any parts,
performance or rights hereunder, without the prior written consent of the other.
In Witness thereof, this Agreement and License is made and entered into
as of the _______ day of ______________, 1999, by and between <> and MCS,
INCORPORATED.
<> MCS, INCORPORATED
- ----------------------------------- ----------------------------------
NAME NAME
- ----------------------------------- ----------------------------------
TITLE TITLE
- --------------------------------------------------------------------------------
SAMPLE MESTAMED COMPUTER SERVICES AGREEMENT
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the ______ day of November,
1998, between MCS, INC., a Pennsylvania corporation and its successors and
assigns, having a place of business at 400 Penn Center Boulevard, Pittsburgh,
Pennsylvania, 15235 (the "Company"), and NICK KAKAVIS, having an address at 1815
Mt. Royal Boulevard, Glenshaw, Pennsylvania, 15116 ("Employee").
WHEREAS, Employee is employed by the Company as its President; and
WHEREAS, Employee agrees to change his employment position to senior
employment status as President Emeritus of the Company; and
WHEREAS, Employee has extensive experience in the management of
business application software, including the ProfitWorks(TM) software; and
WHEREAS, the Company wishes to continue to employ Employee, upon the
terms and conditions set forth herein, for the transition of leadership of the
Company, the transfer of certain products of the Company to its corporate
parent, Mestek, Inc. ("Mestek"), and the completion of certain long-term,
strategic projects that are uniquely suited to Employee's qualifications;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein and other good and valuable consideration, the adequacy and
sufficiency which is hereby acknowledged, the parties intending to be legally
bound hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ Employee,
and Employee hereby agrees to continue to be employed by the Company, as
President of the Company through December 31, 1998. On January 1, 1999, Employee
shall be granted and accept the title of "President Emeritus" of the Company.
The Employee agrees to accept such change to his employment title and accept
such position, upon the terms and conditions hereinafter set forth. The
consideration provided by the Company to Employee under this Agreement is for
the services to be provided by Employee hereunder, and, in order to fulfill the
wishes of the parties to address all relevant matters, is in lieu of any
severance and any other separation benefits that may have otherwise been paid or
payable to Employee, and such consideration is by agreement of Employee and
Company adequate and sufficient for the granting of the releases set forth in
Section 7, below.
2. DUTIES. The scope of Employee's activities as President Emeritus, and
the offices, duties and assignments of Employee are as follows:
2.1 Employee shall continue to serve as a Director on the Board of
Directors of the Company until December 31, 1999, and shall as of that date
tender his resignation from the Board of Directors.
2.2 Employee shall, during the first year of this Agreement,
manage the process of and provide organization and leadership as a project
manager for the transition of certain non-medical related software
<PAGE> 2
products of the Company to the divisions and/or subsidiaries designated by
Mestek, including the following:
2.2.1 ProfitWorks(TM) software system; and
2.2.2 a Mestek license for the Mentor(TM) computer-based
training program;
(Collectively, the foregoing shall be know as the "Transition
Products.")
2.2.3 The above tasks shall include making recommendations
on all aspects of how the Transition Products will be serviced, supported,
enhanced, upgraded and developed, how personnel will be utilized and allocated,
and, if required, the creation of arrangements or contracts between the Company
and Mestek or it designees to fully address all operating issues for the
Transition Products.
2.3 Employee shall develop printed documentation in book form of
selected standard form contracts and licences that are used by the Company in
the sales, licensing and maintenance of its products, together with any
modifying addenda that are used by the Company.
2.4 Employee shall provide other transitional services to the
Company, including counsel, advice and information on historical practices and
policies, services as a witness in pending disputes or claims, if any, and the
provision of information and data assembled in, available through or gleaned by
fulfilling the duties of President of the Company.
2.5 Employee shall perform such other long-term, strategic
projects assigned by the Company and Mestek or its designees as are compatible
with Employee's position as President Emeritus and which are mutually agreeable
between the parties hereto.
2.6 Collectively, the foregoing shall be the "Duties". During the
first calendar year (commencing January 1, 1999) of this Agreement, Employee
shall devote his time and attention to the diligent performance of the Duties
and may not engage in any material business activities or services (whether or
not for compensation) that may conflict with the full and faithful execution of
the Duties without the prior written consent of the Company which shall not be
unreasonably withheld.
3. TERM. Employee's employment hereunder shall begin on the date hereof
and continue until December 31, 2001, unless earlier terminated as set forth in
Section 8 below.
4. CONSIDERATION
4.1 Compensation. For the full and faithful performance of the
Duties and in consideration of the releases and waivers set forth in Section 7
hereof, Employee shall be paid by the Company (a) during the first calendar year
(commencing January 1, 1999) of this Agreement, Two Hundred Thousand and 00/100
Dollars ($200,000.00) per annum, and (b) during each of the second and third
calendar years of this Agreement, One Hundred Thousand and 00/100 Dollars
($100,000.00) per annum.
2
<PAGE> 3
4.1.1 For each project upon which Employee agrees to be
engaged under Section 2.5, above, Employee shall receive, in addition to the
compensation set forth in Section 4.1, above, the sum of Four Hundred and 00/100
Dollars ($400.00) per day for each day that Employee is engaged in such project
as agreed between Employee and the Company. Employee shall on the 1st day of
each month furnish the Company with a statement for any sums due in respect of
the Duties provided pursuant to Section 2.5 hereof during the previous month.
4.1.2 The compensation will be paid over the course of the
calendar periods in accordance with the Company's payroll practices in effect
from time to time for the term hereof.
4.2 Additional Employee Benefits and Perquisites
4.2.1 Benefits. Employee shall be eligible to participate
during the term of this Agreement in such life insurance, health, dental,
short-term and long-term disability and medical insurance benefits, 401(k) and
pension plans, vacation, holidays, and other such employee benefit plans and
programs which are offered and maintained from time to time by the Company for
the benefit of its employees, in each case to the extent and in the manner
available to other employees of the Company, and subject to the terms (including
eligibility) and provisions of such benefit plan(s) or programs. Notwithstanding
the above, Employee shall not be eligible for, and shall not participate in, any
plans or programs that may be offered from time to time to employees or officers
of the Company and relating in any way to any bonuses, performance bonuses,
stock options, stock grants, stock appreciation rights, warrants or other rights
in respect of the stock of the Company or Mestek.
4.2.2 Automobile. As of the date of this Agreement,
Employee has the use of an automobile which is leased in the name of the
Company. Employee shall continue to have use of such automobile through the
unexpired balance of the automobile lease through June 2000, at which time
Employee shall return the vehicle or arrange at his own cost and expense for the
purchase of the automobile. From and after the date of this Agreement, Employee
shall pay to the Company $100 each month as a contribution to the cost of the
leased automobile. The Company may deduct and set off such sum from and against
any payments due to Employee under this Agreement, and by executing this
Agreement, Employee does hereby expressly authorize the Company to make such
deductions and set offs.
4.2.3 Expenses. The Company shall reimburse Employee for
the reasonable out-of-pocket expenses incurred by Employee in connection with
the business of the Company and in performance of the Duties under this
Agreement, subject to the Company's policies relating to business-related
expenses as in effect from time to time.
5. RELATIONSHIP BETWEEN THE PARTIES. Employee shall be considered a
full-time employee of the Company, subject to the limiting terms hereof.
3
<PAGE> 4
6. NON-COMPETITION; NONDISCLOSURE OF INFORMATION.
6.1 Non-Competition. Employee covenants and agrees that Employee
shall not at any time during the term of his employment with the Company and for
a period of two (2) years thereafter compete, directly or indirectly, with the
Company, or have any ownership interest in any firm, corporation, partnership,
proprietorship or other business that (a) manufactures, sells, distributes or
provides products and/or services that are directly or indirectly competitive
with the software products and services, then engaged in by the Company,
anywhere in North America, or (b) engages with third parties in the design,
testing, sale and distribution of application software or services related
thereto anywhere in North America for businesses or individuals similar to the
customers of the Company, including, without limitation, home health agencies,
private duty agencies, rehabilitation facilities, durable medical goods
providers or infusion therapy providers or the like, or manufacturers'
representatives, electrical, hardware or building material supply distributors,
lumber yards or the like.
6.2 Nondisclosure. Employee will not, during or after the term of
this Agreement, directly or indirectly, disseminate or disclose to any person,
firm, corporation or other business entity, or use for his own benefit or
account or for the benefit or account of any third party, any information
disclosed to Employee as a consequence of or through Employee's Duties under
this Agreement, including information which is not generally known in the
industry in which the Company is or may become engaged, or relating to the
Company's products, processes, or services, research, development, inventions,
engineering, purchasing, accounting, marketing, merchandising, advertising or
selling (the "Proprietary Information"). The parties hereto understand and agree
that for purposes of this Agreement, Proprietary Information does not include
information that was generally available to the public prior to disclosure to
Employee by the Company or that becomes generally available to the public after
disclosure to Employee by the Company other than through any act or omission of
Employee in breach of this Agreement.
6.3 Return of Information. Upon termination of this Agreement, all
documents, records, notebooks, and similar repositories of or containing the
Proprietary Information, including copies thereof, then in possession of
Employee, whether prepared by Employee or others, shall be returned to the
Company.
6.4 Surviving Obligations. The obligations of Employee and the
rights of the Company pursuant to this Section 6 shall survive the termination
of this Agreement.
7. WAIVER OF CLAIMS
7.1 Acknowledgment. Employee acknowledges and agrees that the
execution and delivery of this Employment Agreement confers a substantial
benefit to Employee which is in addition any other benefit to which Employee may
otherwise be entitled as of the date of this Agreement, including without
limitation the securing of a defined term of employment at significant
compensation. In consideration of the continued employment of Employee by the
Company pursuant to this Agreement and the substantial benefits inuring to
Employee hereunder, Employee shall release the Company from all claims of any
nature whatsoever relating to his employment with the Company, as set forth in
this Section 7, except such claims as may arise under the terms of this
Agreement.
4
<PAGE> 5
7.2 Release. In consideration of the undertakings, transactions
and consideration recited in this Agreement, to which Employee agrees he would
not otherwise be entitled, Employee, on behalf of himself, his agents,
representatives, attorneys, assigns, heirs, executors and administrators, does
hereby fully and forever release, remise and discharge the Company, its
directors, officers, employees, and agents, and its affiliates, successors and
assigns, and the directors, officers, employees, and agents thereof
(collectively, the "Releasees"), from any and all claims, demands, causes of
action, suits, damages, costs and expenses, whether known or unknown, liquidated
or unliquidated, choate or inchoate, and arising from or related to in any
manner whatsoever Employee's employment with the Company, including without
limitation any claims or causes of action under Title VII of the 1964 Civil
Rights Act, 42 U.S.C. ss.2000 et seq., the Age Discrimination in Employment Act
29 U.S.C. ss.521 et seq., or any analogous state law, or under any other
statutory, common law or other claims related to Employee's employment
whatsoever against any of the Releasees (the "Claims").
7.3 Covenant. Employee further represents that he has not, and
never will institute against any of the Releasees any action or other proceeding
in any court, administrative agency or other tribunal of the United States or
any State thereof with respect to any Claim or cause of action of any type
arising or which may have existed at any time prior to the date of this
Agreement. If Employee does institute such a claim, he agrees to pay the
reasonable costs incurred by the Company or the Releasees in defending such
action including reasonable attorneys' fees.
IMPORTANT
PLEASE READ CAREFULLY
7.4 Waiver of ADEA Rights. Under the Age Discrimination in
Employment Act (29 U.S.C. 521 et seq.) ("ADEA"), employees have certain rights
to protection from unequal treatment by their employer because of their age. By
executing and delivering this Agreement you will WAIVE your rights in exchange
for the benefits conferred hereunder, however, you may elect to forego executing
and delivering this Agreement and RETAIN your rights.
THIS DOCUMENT IS A WAIVER OF YOUR RIGHTS UNDER ADEA.
THE WAIVER IS COMPLETELY VOLUNTARY AND YOU DO NOT HAVE TO SIGN IT.
BEFORE YOU SIGN THIS DOCUMENT, YOU SHOULD CONSULT AN ATTORNEY.
(a) I intend to waive and do hereby waive all my legal rights
under the Age Discrimination in Employment Act.
(b) By signing this document, I do not waive any of my rights that
might arise after the date of this waiver.
(c) In exchange for signing this waiver, the Company has entered
into the Employment Agreement which will pay to me certain
sums of money and other benefits. The Employment Agreement
provides for substantial benefits to me, in the form of a
specific
5
<PAGE> 6
term of employment at a fixed salary. Such benefits are in
addition to any other consideration to which I was entitled as
a result my employment with the Company.
(d) I understand that I have up to twenty-one (21) days to
consider signing this waiver.
(e) I understand that I have up to seven (7) days after I sign
this waiver to change my mind and revoke the waiver. This
waiver will not be effective until seven (7) days after I have
signed this waiver.
7.5 No Other Benefits. The consideration provided to Employee
under this Agreement are the only benefits to which Employee is entitled as a
result of the relinquishment of the Claims, and no other benefits shall be
payable by the Company to Employee.
7.6 Acknowledgments. Employee agrees and understands that the
releases and waivers set forth in this Section 7 are (a) an abandonment,
relinquishment and giving up of a right or claim that he may have had against
the Company, and that the effect thereof is to extinguish any such claims,
rights or causes of action and (b) a settlement and compromise of a potential
claim, and that the consideration provided by the Company herein is not, in any
manner, to be construed as an admission of liability or admission against
interest by the Company and the Company expressly denies and controverts any
liability or fault.
8. TERMINATION. This Agreement will be terminated prior to the conclusion
of its term by the death or permanent disability (for purposes of this
Agreement, "permanent disability" shall be defined as Employee's inability,
through physical or mental illness or other cause, to perform the majority of
his usual duties for a period of six (6) consecutive months or more) of Employee
or termination of Employee by the Company for "cause". In the event of a
termination of this Agreement by the death or permanent disability of Employee,
the Company shall pay to Employee, or to Employee's heirs ( in the case of
death) a sum of $50,000 in full and final satisfaction of the Company's
obligations under this Agreement. In the event this Agreement is terminated for
"cause," the Company shall have no further obligation to Employee under this
Agreement, except to pay Employee the accrued and unpaid compensation and
vacation payable to Employee for services performed prior to such termination.
For purposes of this Agreement, "cause" shall mean (a) materially breaching this
Agreement, (b) engaging in fraud, theft or other acts of disloyalty causing
material damage to the Company, its assets or reputation, or, (c) committing a
felony involving dishonesty towards the Company or its vendors or customers.
9. NOTICES. All notices given hereunder shall be in writing and shall be
deemed delivered when served personally or on the second business day after
being deposited in the United States mail, certified or registered mail, postage
prepaid, addressed as follows:
If to the Company: MCS, INC.
400 Penn Center Blvd.
Pittsburgh, Pennsylvania 15235
Attn: Michael Quinn
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With copies to: Mestek, Inc.
260 North Elm St.
Westfield, Massachusetts 01085
Attn: John E. Reed, President
and R. Bruce Dewey, General Counsel
If to Employee: Nick Kakavis
1815 Mt. Royal Blvd.
Glenshaw, PA 15116
10. MISCELLANEOUS
10.1 Except as set forth in Section 10.5, any dispute arising out
of or related to the terms of this Agreement, or the performance of the parties
hereunder, shall be decided by arbitration before a single arbitrator conducted
in Pittsburgh, Pennsylvania in accordance with the rules of the American
Arbitration Association then in effect, as modified or supplemented herein, or
as the parties mutually agree otherwise. Notwithstanding the rules of the
arbitral body, the Parties agree (a) that the arbitrator shall base his/her
decision on the facts as presented into evidence and (b) that the arbitrator
shall prepare a written memorandum of decision setting forth the findings of
fact and conclusions of law. The decision of the arbitrator shall be final, and
judgment may be entered upon it in accordance with the applicable law in any
court having jurisdiction. Any claim for relief made pursuant to this Agreement
shall be made within six (6) months of the date upon which the party claiming
relief knew or should have known of the cause of action constituting such claim.
10.2 This Agreement contains the entire agreement between the
parties relating to the subject matter hereof and supersedes all previous
communications and understandings both oral and written, and no modification of
this Agreement shall be valid unless made in writing and signed by the parties
hereto.
10.3 This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns. Employee may not assign
any of his rights, duties or obligations arising hereunder without the prior
written consent of the Company. Other than an assignment to an affiliate
controlling, controlled by or under common control with the Company, the Company
may not assign this Agreement without the consent of the Employee, which consent
shall not be unreasonably withheld.
10.4 The invalidity of all or any part of any section of this
Agreement shall not render invalid the remainder of the Agreement or the
remainder of such section. If any provision of this Agreement is so broad as to
be unenforceable, such provision shall be interpreted to be only so broad as is
enforceable. If any provisions of this Agreement conflict with any statute or
rule of law, then such provision shall be deemed inoperative only to the extent
of such conflict and such provision shall be deemed to be modified to conform
with such statute or rule of law.
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10.5 Employee acknowledges that any violation of Sections 2 and 6
of this Agreement by Employee may cause injury to the Company for which an award
of money damages is insufficient relief; therefore, notwithstanding Section 10.1
above, Employee covenants and agrees with the Company that, in addition to any
remedies which the Company may have available to it, the Company may pursue
injunctive or other equitable relief to prevent or curtail any breach by
Employee of any obligation to be performed under this Agreement. If any suit,
action, or other proceeding is brought by any party hereto in order to enforce
its rights under this Agreement, then the prevailing party in such suit, action
or other proceeding, in addition to any other relief granted therein, shall be
entitled to recover the reasonable costs and expenses incurred in such suit,
action or other proceeding including attorneys' fees.
10.6 This Agreement shall be governed by and construed in
accordance with the substantive and procedural laws of the Commonwealth of
Pennsylvania excluding its conflict of laws.
IN WITNESS WHEREOF this Employment Agreement is executed as of the day and year
first set forth above.
COMPANY:
MCS, INC.
By:
---------------------------------------
Michael Quinn, Vice President
EMPLOYEE:
---------------------------------------
NICK KAKAVIS
In consideration of the execution of this Agreement by Employee,
Mestek, Inc., the sole shareholder of the Company, hereby guarantees the
performance of the obligations and payments of the Company under this Agreement.
ATTEST: MESTEK, INC.
By: By:
-------------------------- -----------------------------------
Timothy P. Scanlan R. Bruce Dewey, Sr. Vice President
Assistant Secretary
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