SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 17, 1996
QUALITY SYSTEMS, INC.
(Exact name of registrant as specified in charter)
Delaware 0-13801 95-2888568
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
17822 E. 17th Street, Suite 210, Tustin, California 92680
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 731-7171
Not Applicable
(Former name or former address, if changed since last report.)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 17, 1996, Quality Systems, ("QSI") acquired
Clinitec International, Inc. ("Clinitec"), a Pennsylvania
corporation, in a forward-triangular merger (the "Acquisition").
The Acquisition was achieved pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated May 16, 1996, by and among
QSI, Clinitec, CII Acquisition Corporation ("Sub"), a California
corporation and wholly-owned subsidiary of QSI, and certain
principal shareholders of Clinitec (as indicated in the Merger
Agreement). Pursuant to the Merger Agreement, Clinitec was
merged with and into Sub, with Sub surviving as a wholly-owned
subsidiary of QSI. In connection with the Acquisition, the
shareholders of Clinitec (other than QSI) received an aggregate
of 309,846 shares of QSI Common Stock and $4,896,000 in cash on a
pro rata basis as set forth in the Merger Agreement. In
determining the aggregate purchase price for Clinitec, QSI took
into account the value of software companies of similar industry
and size to Clinitec, comparable transactions, and the market for
software companies generally.
In April 1995, QSI acquired a 25% ownership interest in
Clinitec, and with the completion of the Acquisition acquired the
remaining 75% of Clinitec that it did not own. The shareholders'
vote of Clinitec unanimously approved the Acquisition. In
addition, Sheldon Razin, an officer, director and shareholder of
QSI and a member of the Clinitec Board of Directors, abstained
from the Clinitec Board's vote on the Acquisition.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Clinitec
Financial statements of Clinitec prepared in
accordance with Regulation S-B and required to be
filed pursuant to this section are not available
at this time. Such financial statements will be
filed by QSI as soon as practicable by an amended
Current Report on Form 8-K which will be filed
within sixty (60) days after the filing of this
Current Report on Form 8-K.
(b) Pro Forma Financial Information
The pro forma financial statements of QSI required
to be filed pursuant to this section are not
available at this time. Such Pro Forma Financial
Information will be filed by QSI as soon as
practicable by an amended Current Report on Form
8-K which will be filed within sixty (60) days
after the filing of this Current Report on Form 8-
K.
(c) Exhibits
2 Agreement and Plan of Merger, dated May 16,
1996, by and among Quality Systems, Inc., CII
Acquisition Corporation, Clinitec
International, Inc., and certain shareholders
of Clinitec, and certain exhibits.
99.1 Text of Press Release dated May 17, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
Date: May 30, 1996 QUALITY SYSTEMS, INC.
/s/ Robert McGraw
Robert McGraw, Chief Financial Officer
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Description Sequentially
Numbered
Page
99.1 Text of Press Release dated May 17, 1996.
2 Agreement and Plan of Merger, dated May
16, 1996, by and among Quality Systems,
Inc., CII Acquisition Corporation,
Clinitec International, Inc., and
certain shareholders of Clinitec, and
certain exhibits.
</TABLE>
EXHIBIT 99.1
QSI PRESS RELEASE
Quality Systems, Inc.
Meredith Financial Centre
17822 East 17th Street
Tustin, California 92680
Telephone (714) 731-7171
Fax (714) 731-9494
http://www.aboveall.com/qsi
Date: May 17, 1996
FOR IMMEDIATE RELEASE
Quality Systems, Inc. Completes Merger With Clinitec
International, Inc.
TUSTIN, Calif., May 17, 1996 Quality Systems, Inc. ("QSI")
(NASDAQ: QSII) and Clinitec International, Inc. ("Clinitec"), a
developer of electronic medical records software systems, jointly
announced today that they have completed the merger of the two
companies. Under the merger agreement, Clinitec will operate as a
wholly owned subsidiary of QSI, with Patrick Cline, Clinitec's co-
founder, continuing as President and COO of Clinitec. Mr. Cline
has also been named a director and Executive Vice President of QSI.
Sheldon Razin, QSI's Chairman and CEO, commented, "We are very
pleased to have Clinitec on our team. Clinitec's product NextGen
permits scanning, annotation, retrieval and analysis of medical
records in all formats, from documents to photographs to x-rays.
With the addition of Clinitec, QSI is able to provide its clients
with a comprehensive information management solution."
Clinitec, with headquarters in Horsham, PA, will operate as an
independent unit of QSI and will continue to develop, market and
support NextGen. "We're excited about this opportunity to leverage
QSI's broad financial resources and customer-oriented reputation,"
stated Cline.
In April 1995, QSI acquired a 25% ownership interest in
Clinitec. With the completion of this current transaction, QSI
acquired the remaining 75% that it did not previously own for
approximately $4.9 million in cash and 309,846 shares of QSI common
stock. For purposes of this acquisition, the shares were valued at
$22.25 per share, or $6.9 million, for a total purchase price of
approximately $11.8 million. The transaction will be treated as a
purchase for accounting purposes.
Quality Systems is one of the leading developers and providers
of computer-based practice management and electronic medical
records systems for medical and dental group practices, with a
customer base of more than 475 clients, currently serving
approximately 8 million patients in 45 states, Canada and Saudi
Arabia.
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
dated as of
May 16, 1996
by and among
QUALITY SYSTEMS, INC.,
CII ACQUISITION CORPORATION,
CLINITEC INTERNATIONAL, INC.,
and
THE PRINCIPAL SHAREHOLDERS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I Page
DEFINITIONS . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
THE MERGER. . . . . . . . . . . . . . . . . . . 5
2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Effective Time. . . . . . . . . . . . . . . . . . . . . 5
2.3 Conversion of Shares. . . . . . . . . . . . . . . . . . 6
2.4 Surrender and Payment . . . . . . . . . . . . . . . . . 6
2.5 Tax-Free Reorganization; Exempt Transaction . . . . . . 6
2.6 Effect of the Merger. . . . . . . . . . . . . . . . . . 6
2.7 Certificate of Incorporation. . . . . . . . . . . . . . 7
2.8 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Directors and Officers. . . . . . . . . . . . . . . . . 7
2.10 QSI Restricted Securities . . . . . . . . . . . . . . . 7
2.11 Dissenters' Shares. . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLINITEC
AND THE PRINCIPAL SHAREHOLDERS. . . . . . . . . 8
3.1 Organization, Qualification and Good Standing . . . . . 8
3.2 Clinitec Capitalization . . . . . . . . . . . . . . . . 9
3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 9
3.4 Due Authorization . . . . . . . . . . . . . . . . . . . 9
3.5 Governmental Authorization. . . . . . . . . . . . . . . 10
3.6 Absence of Conflicting Agreements or Required Consents. 10
3.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Intellectual Property . . . . . . . . . . . . . . . . . 11
3.9 Property. . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Compliance with Law and Charter Documents . . . . . . . 12
3.11 Financial Statements. . . . . . . . . . . . . . . . . . 13
3.12 Absence of Undisclosed Liabilities. . . . . . . . . . . 13
3.13 Lease Agreements. . . . . . . . . . . . . . . . . . . . 13
3.14 Officers, Employees and Consultants . . . . . . . . . . 13
3.15 Employee Matters. . . . . . . . . . . . . . . . . . . . 14
3.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . 14
3.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . 15
3.18 Environmental Matters . . . . . . . . . . . . . . . . . 16
3.19 Related Party Transactions. . . . . . . . . . . . . . . 18
3.20 Contracts and Commitments . . . . . . . . . . . . . . . 18
3.21 Suppliers . . . . . . . . . . . . . . . . . . . . . . . 19
3.22 Clinitec Sales Commitments. . . . . . . . . . . . . . . 19
3.23 Customers . . . . . . . . . . . . . . . . . . . . . . . 19
3.24 Absence of Changes. . . . . . . . . . . . . . . . . . . 19
3.25 Agreements in Full Force and Effect . . . . . . . . . . 20
3.26 Software. . . . . . . . . . . . . . . . . . . . . . . . 20
3.27 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 21
3.28 Finders' Fees . . . . . . . . . . . . . . . . . . . . . 22
3.29 Forecasts . . . . . . . . . . . . . . . . . . . . . . . 22
3.30 Burdensome Restrictions . . . . . . . . . . . . . . . . 22
3.31 Statements True and Correct . . . . . . . . . . . . . . 22
3.32 Information Regarding Clinitec. . . . . . . . . . . . . 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
QSI AND MERGER SUB. . . . . . . . . . . . . . . 23
4.1 Organization and Good Standing. . . . . . . . . . . . . 23
4.2 QSI Capitalization. . . . . . . . . . . . . . . . . . . 23
4.3 Authorization . . . . . . . . . . . . . . . . . . . . . 23
4.4 Status of Intellectual Property Rights of QSI . . . . . 23
4.5 Finder's Fees . . . . . . . . . . . . . . . . . . . . . 24
4.6 Valid Issuance. . . . . . . . . . . . . . . . . . . . . 24
4.7 SEC Filings . . . . . . . . . . . . . . . . . . . . . . 24
4.8 Statements True and Correct.. . . . . . . . . . . . . . 24
4.9 Information Regarding QSI and Merger Sub. . . . . . . . 24
ARTICLE V
COVENANTS OF CLINITEC AND THE
PRINCIPAL SHAREHOLDERS. . . . . . . . . . . . . 24
5.1 Conduct of Clinitec . . . . . . . . . . . . . . . . . . 24
5.2 Access. . . . . . . . . . . . . . . . . . . . . . . . . 26
5.3 Acquisition Proposals . . . . . . . . . . . . . . . . . 26
5.4 Compliance With Obligations . . . . . . . . . . . . . . 27
5.5 Notices of Certain Events . . . . . . . . . . . . . . . 27
5.6 Confidentiality . . . . . . . . . . . . . . . . . . . . 28
5.7 Shareholders' Consent . . . . . . . . . . . . . . . . . 28
5.8 Cooperation of Principal Shareholders . . . . . . . . . 28
5.9 Obligations of Clinitec and the Principal Shareholders. 29
ARTICLE VI
COVENANTS OF QSI AND MERGER SUB . . . . . . . . 29
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . 29
6.2 Obligations of QSI and Merger Sub . . . . . . . . . . . 29
6.3 Obligations of Merger Sub . . . . . . . . . . . . . . . 29
6.4 Nasdaq/National Market Notification . . . . . . . . . . 30
6.5 Current Public Information. . . . . . . . . . . . . . . 30
ARTICLE VII
COVENANTS OF EACH PARTY HERETO. . . . . . . . . 30
7.1 Advise of Change. . . . . . . . . . . . . . . . . . . . 30
7.2 Regulatory Approvals. . . . . . . . . . . . . . . . . . 30
7.3 Necessary Consents. . . . . . . . . . . . . . . . . . . 30
7.4 Certain Filings . . . . . . . . . . . . . . . . . . . . 30
7.5 Public Announcements. . . . . . . . . . . . . . . . . . 31
7.6 Satisfaction of Conditions Precedent. . . . . . . . . . 31
ARTICLE VIII
CONDITIONS TO THE MERGER. . . . . . . . . . . . 31
8.1 Conditions to Obligations of Each Party to Effect the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Additional Conditions to Obligations of QSI and Merger
Sub . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Additional Conditions to Obligations of Clinitec. . . . 33
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . 35
9.1 Indemnification by Clinitec and Each Principal
Shareholder . . . . . . . . . . . . . . . . . . . . . . 35
9.2 Indemnification by QSI and Merger Sub . . . . . . . . . 36
9.3 Claims for Indemnification. . . . . . . . . . . . . . . 36
9.4 Resolution of Conflicts; Arbitration; Limitation on
Damages . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X
TERMINATION . . . . . . . . . . . . . . . . . . 38
10.1 Grounds for Termination . . . . . . . . . . . . . . . . 38
10.2 Effect of Termination . . . . . . . . . . . . . . . . . 39
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . 39
11.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Amendments and Waivers. . . . . . . . . . . . . . . . . 41
11.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . 41
11.5 Successors and Assigns. . . . . . . . . . . . . . . . . 41
11.6 Governing Law . . . . . . . . . . . . . . . . . . . . . 41
11.7 Jurisdiction. . . . . . . . . . . . . . . . . . . . . . 41
11.8 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . 41
11.9 Counterparts; Third Party Beneficiaries . . . . . . . . 41
11.10 Entire Agreement . . . . . . . . . . . . . . . . . . 42
11.11 Further Assurances . . . . . . . . . . . . . . . . . 42
11.12 No Release for Fraud . . . . . . . . . . . . . . . . 42
11.13 Severability . . . . . . . . . . . . . . . . . . . . 42
11.14 Construction of Agreement. . . . . . . . . . . . . . 42
11.15 Mutual Drafting. . . . . . . . . . . . . . . . . . . 42
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A -Form of Agreement of Merger
Exhibit B -Form of Lock-Up Agreement
Exhibit C -Form of Employment Agreements and Consulting
Agreement
Exhibit D -Form of Non-Competition and Non-Disclosure
Agreement
Exhibit E -Form of Investment Letter
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.3(b)-Allocation of Consideration to Clinitec
Shareholders
Schedule 2.9 -Officers and Directors of Merger Sub
Schedule 3.1 -Organizational Documents, Good Standing
Schedule 3.2(b)-Holders of Clinitec Stock
Schedule 3.2(c)-Clinitec Rights
Schedule 3.5 -Governmental Authorization
Schedule 3.6 -Absence of Conflicting Agreements or Required
Consents
Schedule 3.7 -Litigation
Schedule 3.8(b)-Intellectual Property
Schedule 3.9(a)-Personal and Mixed, Tangible and Intangible
Property
Schedule 3.11 -Financial Statements
Schedule 3.12 -Absence of Undisclosed Liabilities
Schedule 3.13 -Lease Agreements
Schedule 3.14 -Officers, Employees & Consultants List of Salary
Schedule 3.15 -Employee Matters
Schedule 3.16 -Labor Matters
Schedule 3.17(a)-Employee Benefit Plans
Schedule 3.17(b)-Benefit Arrangements
Schedule 3.18(a)-Environmental Conditions
Schedule 3.18(b)-Environmental Costs
Schedule 3.18(d)-Reportable Releases
Schedule 3.18(e)-Transportation, Generation or Disposal of
Materials of Environmental Concern
Schedule 3.19 -
Related Party Transactions
Schedule 3.20 -Contracts and Commitments
Schedule 3.21 -Suppliers
Schedule 3.22 -Clinitec Commitments
Schedule 3.23 -Customers
Schedule 3.24 -Absence of Changes
Schedule 3.25 -Agreements in Full Force and Effect
Schedule 3.27(a)-Tax Matters
Schedule 3.27(b)-Tax Waiver or Extensions
Schedule 3.29 -Forecasts
</TABLE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is
made and entered into as of May 16, 1996 by and among QUALITY
SYSTEMS, INC., a California corporation ("QSI"), CII ACQUISITION
CORPORATION, a California corporation and wholly-owned subsidiary
of QSI ("Merger Sub"), CLINITEC INTERNATIONAL, INC., a Pennsylvania
corporation ("Clinitec"), and each individual defined in Section
1.1 hereof as a "Principal Shareholder."
RECITALS
A. The respective Boards of Directors of QSI, Merger
Sub and Clinitec are of the opinion that the transactions
contemplated by this Agreement are in the best interests of the
parties and their respective shareholders.
B. Pursuant to this Agreement, Clinitec will be merged
with and into Merger Sub. At the Effective Time (as defined
herein) of such merger, the outstanding capital stock of Clinitec
other than the capital stock of Clinitec already owned by QSI
immediately preceding the Effective Time shall be converted into
the right to receive shares of the Common Stock of QSI and cash.
As a result of the merger of Clinitec with and into Merger Sub, all
shareholders of Clinitec prior to the Effective Time other than QSI
shall become shareholders of QSI, and Merger Sub shall thereafter
conduct the business and operations of Clinitec. The Merger
contemplated herein is subject to the approval of the shareholders
of Clinitec and the satisfaction of certain other conditions
described in this Agreement.
C. The parties intend that the Merger qualify as a
"reorganization" for federal income tax purposes within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the preceding
recitals and the mutual warranties, representations, covenants and
agreements set forth herein, the parties agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in
this Article I shall have the meanings indicated, unless a
different and common meaning of the term is clearly indicated by
the context, and variants and derivatives of the following terms
shall have correlative meanings. To the extent that certain of the
definitions set forth below suggest, indicate, or express
agreements between or among parties to this Agreement, or contain
representations or warranties or covenants of a party, the parties
agree to the same by execution of this Agreement. The parties to
this Agreement agree that agreements, representations, warranties,
and covenants expressed in any part or provision of this Agreement
shall, for all purposes of this Agreement, be treated in the same
manner as other such agreements, representations, warranties, and
covenants contained elsewhere in this Agreement, and the Article or
Section of this Agreement within which such an agreement,
representation, warranty, or covenant appears shall have no
separate meaning or effect on the same.
1.1 Definitions.
(a) The following terms, as used herein, have the
following meanings:
"Affiliate" shall mean with respect to any Person, any
other Person directly or indirectly controlling, controlled by, or
under common control with such Person.
"Clinitec Right" shall mean all arrangements, calls,
commitments, agreements, options, rights to subscribe to, script,
understandings, warrants, or other binding obligations of any
character whatsoever relating to or securities or rights
convertible into or exchangeable for, shares of the capital stock
of Clinitec, or by which Clinitec is or may be bound to issue
additional shares of its capital stock or other Clinitec Rights.
"Clinitec Shareholder" shall mean any holder other than
QSI or any Affiliate of QSI of one or more shares of Clinitec Stock
as of the Effective Time.
"Clinitec Stock" shall mean the Clinitec Preferred Stock
and/or the Clinitec Common Stock.
"Consideration" shall mean (1) cash in the amount of Four
Million Eight Hundred Ninety-Five Thousand Seven Hundred Dollars
($4,895,700) payable to the Clinitec Shareholders on a pro rata
basis proportionate to their respective percentage ownership of
Clinitec immediately prior to the Effective Time ("Cash
Consideration") and (2) three hundred nine thousand eight hundred
fifty-six (309,856) shares of QSI Stock ("Equity Consideration").
"Intellectual Property Rights" shall mean all know how,
patents, patent rights, trademarks, trade names, trade secrets,
service marks and copyrights, and any applications or registrations
for any or all of the preceding therefor, maskworks, net lists,
schematics, technology, computer software programs or applications
(in both source code and object code form), and tangible or
intangible proprietary information or material (excluding
Commercial Software as defined in Paragraph 3.8(c) herein),
designs, licenses and proprietary rights.
"Lien" shall mean, with respect to any property or asset,
any mortgage, lien, pledge, charge, security interest, encumbrance
or other adverse claim of any kind in respect of such property or
asset. For the purposes of this Agreement, but without limiting
the generality of the foregoing, a Person shall be deemed to own
subject to a Lien any property or asset which it has acquired or
holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention
agreement relating to such property or asset.
"Material Adverse Effect" shall mean with respect to any
Person a material adverse effect on the condition (financial or
otherwise), business, assets, results of operations or prospects of
such Person, taken as whole.
"1933 Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
"Person" shall mean an individual, corporation,
partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Principal Shareholders" shall mean Patrick Cline, Bryan
Rosenberger and Nazir Memon, collectively, and each individually
shall be referred to as a "Principal Shareholder."
"Purchased Shares" shall mean the shares of Clinitec
Stock that have been converted as of the Effective Time into a
right to receive the Consideration.
"QSI Stock" shall mean the Common Stock, $0.01 par value,
of QSI, and which is the same class of Common Stock registered by
QSI under the 1934 Act.
"Secondary Public Offering" shall mean a registered
public offering of shares of QSI Common Stock pursuant to that
certain Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on January 11, 1996.
"Stock Price" shall mean Twenty-two Dollars and 25/100
Cents ($22.25).
"Subsidiary" shall mean, with respect to any Person, any
entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Tax" or "Taxes" shall mean any federal, state, county,
local, or foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, property, withholding, excise,
occupancy, and other taxes, assessments, charges, fares, or
impositions, including interest, penalties, and additions imposed
thereon or with respect thereto.
(b) Each of the following terms, including defined terms
defined within the definitions in Section 1.1(a), is defined in the
Section set forth opposite such term:
<TABLE>
<CAPTION>
<S> <C>
Term Section
Action. . . . . . . . . . . . . . . . . . .9.2(a)
ADR . . . . . . . . . . . . . . . . . . . .9.3(b)
Agreement . . . . . . . . . . . . . . . . Preface
Financial Statements. . . . . . . . . . . . .3.11
Benefit Arrangements. . . . . . . . . . . 3.17(b)
Cash Consideration. . . . . . . . . . Definitions
Claim . . . . . . . . . . . . . . . . . . .9.2(b)
Claim Notice. . . . . . . . . . . . . . . .9.2(b)
Clinitec. . . . . . . . . . . . . . . . . Preface
Clinitec Common Stock . . . . . . . . . . .3.2(b)
Clinitec Intellectual Property Rights . . 3.8(a)
Clinitec Persons. . . . . . . . . . . . . . . 5.6
Clinitec Preferred Stock. . . . . . . . . .3.2(a)
Clinitec Schedule . . . . . . . . . . . . . .3.25
Closing . . . . . . . . . . . . . . . . . . . 2.2
Closing Date. . . . . . . . . . . . . . . . . 2.2
COBRA . . . . . . . . . . . . . . . . . . . .3.16
Code. . . . . . . . . . . . . . . . . . . . . 2.5
Commercial Software . . . . . . . . . . . .3.8(c)
Consulting Agreement. . . . . . . . . . . .8.2(d)
Contest Notice. . . . . . . . . . . . . . .9.2(c)
Contract. . . . . . . . . . . . . . . . . . .3.20
Designated Persons. . . . . . . . . . . . . .3.14
Effective Time. . . . . . . . . . . . . . . . 2.2
Employee Plans. . . . . . . . . . . . . . 3.17(a)
Employment Agreements . . . . . . . . . . 8.2(d)
End-user Licenses . . . . . . . . . . . . .3.8(b)
Environmental Condition . . . . . . . . . 3.18(f)
Environmental Costs . . . . . . . . . . . 3.18(f)
Environmental Laws. . . . . . . . . . . . 3.18(f)
Equity Consideration. . . . . . . . . Definitions
ERISA . . . . . . . . . . . . . . . . . . . .3.15
ERISA Affiliate . . . . . . . . . . . . . 3.17(a)
Existing Refusal Rights . . . . . . . . . .3.2(c)
Financial Statements. . . . . . . . . . . . 3.11
GAAP. . . . . . . . . . . . . . . . . . . . .3.11
GCL . . . . . . . . . . . . . . . . . . . . . 2.1
Indemnification Damages . . . . . . . . . . . 9.1
Indemnified Party . . . . . . . . . . . . . . 9.1
Indemnifying Party. . . . . . . . . . . . . . 9.1
Investor Rights Agreement . . . . . . . . .3.2(c)
IRS . . . . . . . . . . . . . . . . . . . 3.17(c)
LCP . . . . . . . . . . . . . . . . . . . . . 2.1
Lease Agreements. . . . . . . . . . . . . . .3.13
Materials of Environmental Concern. . . . 3.18(f)
Merger. . . . . . . . . . . . . . . . . . . . 2.1
Merger Agreement. . . . . . . . . . . . . . . 2.1
Merger Sub. . . . . . . . . . . . . . . . Preface
Notice of Action. . . . . . . . . . . . . .9.2(a)
Principal Shareholder. . . . . . . . . . Preface
QSI . . . . . . . . . . . . . . . . . . . Preface
QSI Persons . . . . . . . . . . . . . . . . . 6.1
Related Party Transaction . . . . . . . . . .3.19
Release . . . . . . . . . . . . . . . . . 3.18(f)
Reportable Release. . . . . . . . . . . . 3.18(d)
Resolution. . . . . . . . . . . . . . . . .9.2(f)
SEC . . . . . . . . . . . . . . . . . . . . . 6.1
SEC Reports . . . . . . . . . . . . . . . . . 4.7
Surviving Corporation . . . . . . . . . . . . 2.6
Unaudited Financial Statements. . . . . . . 3.11
</TABLE>
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions
of this Agreement and the Agreement of Merger in substantially the
form of Exhibit "A" hereto (the "Merger Agreement"), Clinitec shall
be merged with and into Merger Sub (the "Merger") in accordance
with the General Corporation Law of the State of California ("GCL")
and the laws of the Commonwealth of Pennsylvania ("LCP"). The
Merger Agreement provides, among other things, the mode of
effecting the Merger and the manner and basis of converting each
issued and outstanding share of Clinitec Stock into shares of QSI
Stock.
2.2 Effective Time. Subject to the provisions of this
Agreement and the Merger Agreement, the parties hereto shall cause
the Merger to be consummated by filing a properly executed Merger
Agreement with the California Secretary of State in accordance with
the GCL and properly executed documents with the Secretary for the
Commonwealth of Pennsylvania in accordance with the LCP on the
Closing Date (as herein defined), which Merger shall become
effective on the date and at such time that such Merger Agreement
and Articles of Merger are accepted for filing in the respective
states (the "Effective Time"). The closing of the Merger (the
"Closing") shall take place at a time, date and location to be
mutually agreed to by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the
conditions set forth in Article VIII (the "Closing Date").
2.3 Conversion of Shares. At the Effective Time:
(a) Each share of Clinitec Stock held by Clinitec as
treasury stock immediately prior to the Effective Time and each
Clinitec Right outstanding at the Effective Time shall be
terminated and cancelled, and no payment shall be made with respect
thereto; and
(b) Each share of Clinitec Stock outstanding immediately
prior to the Effective Time, other than the shares of Clinitec
Stock held by QSI, shall be converted into the right to receive
that fraction of the Cash Consideration and the Equity
Consideration equal to one divided by the total number of shares of
Clinitec Stock outstanding immediately prior to the Effective Time
other than the shares of Clinitec Stock held by QSI. Schedule
2.3(b) hereto sets forth the Consideration to be received by each
Clinitec Shareholder.
(c) Each Share of Clinitec Stock held by QSI immediately
prior to the Effective Time shall be cancelled.
2.4 Surrender and Payment.
(a) Each holder of a share of Clinitec Stock that has
been converted into a right to receive the Consideration, upon
surrender of a certificate or certificates representing such
Clinitec Stock, together with a properly completed letter of
transmittal covering such Clinitec Stock, will be entitled to
receive the Consideration payable in respect of such Clinitec
Stock. Until so surrendered, each such certificate shall, after
the Effective Time, represent for all purposes, only the right to
receive such Consideration.
(b) Each Clinitec Shareholder shall receive a pro rata
share of the Cash Consideration and the Equity Consideration in
proportion to their respective equity interest in Clinitec, as set
forth on Schedule 2.3.
(c) No fraction of a share of QSI Stock will be issued
by virtue of the Merger, but in lieu thereof each holder of
Clinitec Stock who would otherwise be entitled to a fraction of a
share of QSI Stock (after aggregating all fractional shares of QSI
Stock to be received by such holder) shall receive from QSI an
amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the Stock Price.
2.5 Tax-Free Reorganization; Exempt Transaction. The Merger
is intended to be a reorganization within the meaning of Sec-
tion 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). It is intended that the QSI Stock to be issued in the
Merger will be issued in a transaction exempt from registration
under the 1933 Act, by reason of Section 4(2) thereof or Regulation
D promulgated thereunder.
2.6 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in this Agreement, the Merger
Agreement and the applicable provisions of the GCL. Without
limiting the generality of the foregoing, and subject thereto, at
the Effective Time, the separate corporate existence of Clinitec
shall cease and Merger Sub shall continue as the surviving
corporation (the "Surviving Corporation") and shall carry on the
business and operations of Clinitec and all the property, rights,
privileges, powers and franchises of Clinitec and Merger Sub shall
become the debts, liabilities and duties of the Surviving
Corporation.
2.7 Certificate of Incorporation. The certificate of
incorporation of Merger Sub in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the
Surviving Corporation until amended in accordance with applicable
law, except that the name of the Surviving Corporation shall be
changed at the Effective Time to "Clinitec International, Inc."
2.8 Bylaws. The bylaws of Merger Sub in effect immediately
prior to the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable law.
2.9 Directors and Officers. The directors and officers of
Merger Sub at the Effective Time shall be as set forth on Schedule
2.9. From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable
law, (a) the directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation, and (b) the officers of
Merger Sub at the Effective Time shall be the officers of the
Surviving Corporation.
2.10 QSI Restricted Securities. The shares of QSI Stock
issued in connection with the Merger will be "restricted
securities" under the 1933 Act, and Rule 144 promulgated
thereunder, and may only be sold or otherwise transferred pursuant
to an effective registration statement under the 1933 Act or an
exemption from the registration requirements of the 1933 Act. In
addition, each Clinitec Shareholder will enter into a Lock-Up
Agreement substantially in the form of Exhibit "B" hereto that will
restrict the sale of any shares received as Equity Consideration
for a period of two (2) years following the Closing Date. It is
understood that the certificates evidencing the shares of QSI Stock
issued in connection with the Merger will bear one or more of the
following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF EITHER (i) A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
AND ANY APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS OR (ii) AN
OPINION OF COUNSEL SATISFACTORY TO QUALITY SYSTEMS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED HAS BEEN DELIVERED TO QUALITY SYSTEMS,
INC."
(b) Any legend required to put third parties on notice
of the existence of the Lock-Up Agreement.
(c) Any legend required by applicable state law.
2.11 Dissenters' Shares. Notwithstanding the terms of
Section 2.3 hereof and subject to Section 8.2(n) hereof, shares of
Clinitec Stock outstanding immediately prior to the Effective Time
held by a holder who has not consented hereto in writing and who
has demanded appraisal for such shares (the "Dissenters' Shares")
in accordance with the LCP shall not be converted into the right to
receive the Consideration hereunder and instead shall be converted
into the right to receive payment from Merger Sub with respect
thereto in accordance with the provisions of the LCP, unless and
until such holder fails to perfect or withdraws or loses his, her
or its right to appraisal. If after the Effective Time such holder
fails to perfect or withdraws or loses his, her or its right to
appraisal, such Dissenters' Shares shall be treated as if they had
been converted as of the Effective Time into a right to receive the
Consideration. Clinitec shall give QSI prompt notice of any
demands received by any such party for appraisal of Dissenters'
Shares, and QSI shall have the right to participate in all
negotiations and proceedings with respect to such demands.
Clinitec shall not, except with the prior written consent of QSI,
make any payment with respect to, or settle or offer to settle, any
such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLINITEC
AND THE PRINCIPAL SHAREHOLDERS
As inducement to QSI and Merger Sub to enter into this
Agreement and to consummate the Merger, Clinitec and each of the
Principal Shareholders, jointly and severally, represent and
warrant to QSI and Merger Sub as of the date hereof and as of the
Effective Time as follows:
3.1 Organization, Qualification and Good Standing. Clinitec
is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania with
all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted. Clinitec is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the manner of
its activities makes such qualification necessary. Clinitec has
conducted no activities other than the development and sale of
software and the provision of services relating thereto, including
programming and training. Clinitec has the full corporate power,
authority and capacity necessary to enter into and, subject to
approval of this Agreement and the Merger by the shareholders of
Clinitec, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. Clinitec has
provided to QSI a copy of the Articles or Certificate of
Incorporation and all amendments thereto of Clinitec (certified by
the Secretary for the Commonwealth of Pennsylvania), which are
attached as part of Schedule 3.1, and copies of the Corporate
Minutes of Clinitec, which have been provided to QSI for review,
are true and complete as in effect on the date of this Agreement
and accurately reflect all material proceedings of the directors
(and all committees thereof) and shareholders of Clinitec. The
Stock Record Books of Clinitec, which have been or will be made
available to QSI for review, contain true, complete and accurate
records of the stock ownership of Clinitec and the transfer of the
shares of its capital stock.
3.2 Clinitec Capitalization. The authorized capital stock of
Clinitec consists of the following:
(a) Preferred Stock. A total of 1,000,000 authorized
shares of preferred stock, no par value (the "Clinitec Preferred
Stock"), consisting of 1,000,000 shares designated as "Series A
Convertible Preferred Stock," of which 359,382 shares are issued
and outstanding.
(b) Common Stock. A total of 3,000,000 authorized
shares of common stock, no par value ("Clinitec Common Stock"), of
which 1,078,250 shares are issued and outstanding. Schedule 3.2(b)
sets forth a current list of all holders of Clinitec Stock and the
number of shares of Preferred Stock and Common Stock owned by each
shareholder.
(c) Options, Warrants, Reserved Shares. Except for:
(i) the conversion privileges of the Clinitec Preferred Stock;
(ii) the rights of first refusal granted to QSI (the "Existing
Refusal Rights") under the Investor Rights Agreement dated May
1995, between Clinitec and QSI (the "Investor Rights Agreement"),
(iii) that certain option granted to QSI by Clinitec pursuant to
Article IX of that certain Series A Convertible Preferred Stock
Purchase Agreement, dated April 21, 1995; and (iv) only those
Clinitec Rights disclosed in Schedule 3.2(c) hereto, there are not
outstanding any Clinitec Rights. Apart from the exceptions noted
in Schedule 3.2(c), no shares of Clinitec's outstanding capital
stock, stock issuable upon exercise or exchange of any outstanding
options, warrants or rights, or other stock issuable by Clinitec,
are subject to any rights of first refusal or other rights to
purchase such stock (whether in favor of Clinitec or any other
person), pursuant to any agreement or commitment of Clinitec.
(d) Compliance with Securities Laws. All shares of the
capital stock and other securities issued by Clinitec have been
issued by Clinitec in transactions exempt from registration under
the 1933 Act, and all applicable state securities or "blue sky"
laws, and Clinitec has not violated the 1933 Act or any applicable
state securities or "blue sky" laws in connection with the issuance
of any shares of capital stock or other securities in any manner
which would give rise to any liability claim which would have a
Material Adverse Effect on Clinitec or its successor. No security
holder of Clinitec has asserted statutory rescission rights with
respect to securities sold by Clinitec.
3.3 Subsidiaries. Clinitec does not presently own or
control, directly or indirectly, any ownership interest in any
other corporation, partnership, trust, joint venture, association
or other entity.
3.4 Due Authorization. All corporate action on the part of
Clinitec, its officers, directors and shareholders necessary for
the authorization, execution and delivery of, and the performance
of all obligations of Clinitec under, this Agreement has been taken
or will be taken prior to the Closing Date. This Agreement when
executed will constitute the valid and legally binding obligations
of Clinitec, enforceable in accordance with their respective terms,
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally, (ii) the
effect of rules of law governing the availability of equitable
remedies and (iii) with respect to the indemnification provisions
in this Agreement, applicable federal or state securities laws.
The execution, delivery and performance by Clinitec of this
Agreement will not (a) violate any provision of law, statute, rule
or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental
body applicable to Clinitec or any of its properties or assets or
(b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the
creation of any Lien or encumbrance upon any of the properties or
assets of Clinitec under, the Articles of Incorporation or Bylaws
of Clinitec, or to the best knowledge of Clinitec and each
Principal Shareholder any agreement to which Clinitec is a party or
by which any of its properties or assets are bound.
3.5 Governmental Authorization. Except as set forth in
Schedule 3.5, or other than complying with the provisions of the
applicable state corporate laws regarding the approval of the
Merger and the filing of the Merger Agreement and any other
required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained by QSI or
Merger Sub, the execution, delivery and performance by Clinitec of
this Agreement and the agreements provided for herein, and the
consummation of the transactions contemplated hereby and thereby by
Clinitec (including, without limitation, to allow Merger Sub to
continue the business and operations of Clinitec following the
Effective Time) require no consent, approval, order or
authorization, or registration, qualification, designation,
declaration or filing with, any federal, state or local authority.
All consents, approvals, orders, authorizations, registrations,
qualifications, designations, declarations or filings described on
Schedule 3.5 will be effective on the Closing Date (except for
filing of the Merger Agreement or Articles of Merger pursuant to
applicable California and Pennsylvania corporate laws) and be made
within the time prescribed by law.
3.6 Absence of Conflicting Agreements or Required Consents.
Subject to approval of this Agreement and the Merger by the
shareholders of Clinitec, the execution, delivery and performance
by Clinitec and each Principal Shareholder of this Agreement and
any other documents contemplated hereby (with or without the giving
of notice, the lapse of time, or both): (i) except as set forth on
Schedules 3.5 and 3.6 hereto, does not require the consent of any
governmental body, agency, official or authority or any other third
party; (ii) will not conflict with any provision of Clinitec's
respective articles of incorporation or bylaws, (iii) will not
conflict with, result in a breach of, or constitute a default under
any law, ordinance, regulation, ruling, judgment, order or
injunction of any court or governmental instrumentality to which
Clinitec is a party or by which Clinitec or its properties are
bound; (iv) except as set forth on Schedule 3.6, will not conflict
with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate
or permit the acceleration of any performance required by the terms
of any agreement, instrument, license or permit, material to
Clinitec, to which Clinitec is a party or by which Clinitec or any
of its properties are bound; and (v) will not create any claim,
Lien, charge, encumbrance or restriction upon the Clinitec Stock or
any of the assets or properties of Clinitec.
3.7 Litigation. Except as listed in Schedule 3.7, there is
no action, claim, suit, proceeding, arbitration or governmental
investigation pending (or, to the best knowledge of Clinitec and
each Principal Shareholder, currently threatened) against Clinitec,
its activities, properties or assets or against any officer,
director or employee of Clinitec in connection with such officer's,
director's or employee's relationship with, or actions taken on
behalf of, Clinitec, and, to the best knowledge of Clinitec and
each Principal Shareholder, there is no basis for any such action
or any state of facts or occurrence of any event which might give
rise to the foregoing. There are no unsatisfied judgments against
Clinitec or, to the best knowledge of Clinitec and each Principal
Shareholder, any officer, director or employee of Clinitec or other
individual affiliated with Clinitec relating to services provided
on behalf of Clinitec or any consent decrees to which any of the
foregoing is subject.
3.8 Intellectual Property.
(a) As used in this Agreement, the "Clinitec
Intellectual Property Rights" means all know how, patents, patent
rights, trademarks, trade names, trade secrets, service marks and
copyrights, and any applications or registrations for any or all of
the preceding therefor, maskworks, net lists, schematics,
technology, computer software programs or applications (in both
source code and object code form), and tangible or intangible
confidential and proprietary information or material (excluding
Commercial Software as defined in Paragraph 3.8(c) herein),
designs, licenses and proprietary rights that are used in and are
material to the business of Clinitec as currently conducted or as
proposed to be conducted by Clinitec.
(b) Schedule 3.8(b) hereto sets forth a complete list of
all material licenses, sublicenses and other agreements as to which
Clinitec is a party and pursuant to which Clinitec or any other
person is authorized to use any Clinitec Intellectual Property
Right (including object code end-user licenses granted to end-users
in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the
same ("End-User Licenses")) or other trade secret material to
Clinitec, and includes the identity of all parties thereto.
Clinitec is not in violation of any license, sublicense or
agreement described on such list in any material respect. The
execution and delivery of this Agreement by Clinitec, and the
consummation of the transactions contemplated hereby, will not (i)
cause Clinitec to be in violation or default under any such
license, sublicense or agreement; (ii) entitle any other party to
any such license, sublicense or agreement to terminate or modify
such license, sublicense or agreement; or (iii) require Clinitec to
repay any funds already received by it from a third party. Except
as set forth on Schedule 3.8(b), Clinitec is the sole and exclusive
owner or sole and exclusive licensee of, with all right, title and
interest in and to (free and clear of any Liens), the Clinitec
Intellectual Property Rights, and has sole and exclusive rights
(and is not contractually obligated to pay any compensation to any
third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in
respect of which the Clinitec Intellectual Property Rights are
being used. No claims have been asserted or, to the best knowledge
of Clinitec and each Principal Shareholder, are threatened by any
person nor are there any valid grounds, to the best knowledge of
Clinitec and each Principal Shareholder, for any bona fide claims
(a) to the effect that the software or products manufactured, sold
or licensed or used or proposed for manufacture, use, sale or
licensing by Clinitec infringes on any Intellectual Property
Rights, (b) against the use by Clinitec of any Intellectual
Property Rights or computer software programs and applications used
in Clinitec's business as currently conducted or as proposed to be
conducted by Clinitec, or (c) challenging the ownership by
Clinitec, the validity, or the effectiveness, of any of the
Clinitec Intellectual Property Rights. To the best knowledge of
Clinitec and each Principal Shareholder, there is no unauthorized
use, infringement or misappropriation of any of the Clinitec
Intellectual Property Rights by any third party, including any
employee or former employee of Clinitec. Except as set forth on
Schedule 3.8(b), Clinitec has not entered into any agreement under
which Clinitec is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the
market. Clinitec has a policy requiring each employee to execute
a proprietary information and confidentiality agreement
substantially in the form provided to QSI. All current employees
and contractors of Clinitec, and to Clinitec's and each Principal
Shareholder's best knowledge all former employees and contractors
of Clinitec who were involved in or contributed to the development
of any Clinitec Intellectual Property Rights, have executed such an
agreement.
(c) "Commercial Software" means packaged commercially
available software programs generally available to the public
through retail dealers in computer software which have been
licensed to Clinitec pursuant to end-user licenses and which are
used in Clinitec's business but are in no way a component of or
incorporated in or specifically required to develop or support any
of Clinitec's products and related trademarks, technology and know-
how.
3.9 Property.
(a) Except as set forth on Schedule 3.9(a), Clinitec (i)
has good and marketable title to all of the personal and mixed,
tangible and intangible property, rights and assets, including,
without limitation, all Intellectual Property Rights which it
purports to own, including all the personal property and assets
reflected in the Financial Statements (as defined in Section 3.11);
and (ii) owns such rights, assets and personal property free and
clear of all title defects or objections, Liens (except for current
year ad valorem taxes and liens arising by operation of law) of any
nature whatsoever, including, without limitation, any mortgages,
leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention
arrangements.
(b) Except for the Lease Agreements listed on Schedule
3.13, Clinitec does not own or have any rights or interest in any
real property.
3.10 Compliance with Law and Charter Documents. Clinitec is
not in violation or default of any provisions of its articles or
certificate of incorporation or bylaws or other charter documents,
both as amended to date, or any material indenture, agreement or
instrument to which Clinitec is a party or by which Clinitec or any
of its properties is bound or affected which violation or default
would have a Material Adverse Effect on the business, assets,
operations, prospects or financial or other condition of Clinitec
or any successor. To the best knowledge of Clinitec and each
Principal Shareholder, Clinitec is in material compliance with all
applicable statutes, laws, regulations and executive orders of the
United States of America and all states, foreign countries or other
governmental bodies and agencies having jurisdiction over
Clinitec's business or properties. There exists no condition,
event or act which constitutes, or which after notice, lapse of
time or both, would constitute, such a violation or default under
any of the foregoing.
3.11 Financial Statements. Attached to this Agreement as
Schedule 3.11 are (a) the audited balance sheet of Clinitec as of
December 31, 1995 and related statements of income, stockholders'
equity and statements of cash flows of Clinitec for the year ended
December 31, 1995 (the "Audited Financial Statements") and (b) the
unaudited balance sheet of Clinitec as of March 31, 1996 and the
related statement of operations of Clinitec for the three-month
period ended March 31, 1996 (the "Unaudited Financial Statements").
The Audited Financial Statements and Unaudited Financial Statements
shall be collectively referred to herein as the "Financial
Statements"). Such Financial Statements (i) are in accordance with
the books and records of Clinitec, (ii) were prepared in accordance
with generally accepted accounting principles ("GAAP") (except for
the absence of the statement of cash flows for the three-month
period ended March 31, 1996 and footnotes with respect to the
Unaudited Financial Statements), and (iii) are true, correct and
complete and present fairly the financial condition of Clinitec at
the date or dates therein indicated and the results of its
operations and its cash flows for the period or periods therein
specified.
3.12 Absence of Undisclosed Liabilities. Except as set forth
on Schedule 3.12, (a) Clinitec has no material liability or
obligation (whether matured or unmatured, fixed or contingent)
which is not provided for or disclosed in the Financial Statements
and (b) all liability reserves established by Clinitec as set forth
in the Financial Statements are adequate for all such liabilities
at the applicable date thereof.
3.13 Lease Agreements. Schedule 3.13 contains a true and
complete list of all the lease agreements and license agreements to
which Clinitec is a party and pursuant to which Clinitec leases
(whether as lessor or lessee) or licenses (whether as licensor or
licensee) any real or personal property related to the operation of
its business (the "Lease Agreements"). Clinitec has delivered to
QSI true and complete copies of all of the Lease Agreements as
amended and in effect as of the Closing. Each Lease Agreement is
valid and effective in accordance with its terms, and there is not
under any of such lease (i) any existing or claimed material
default by Clinitec (as applicable) or event of material default or
event which with notice or lapse of time, or both, would constitute
a material default by Clinitec (as applicable) and, individually or
in the aggregate, would reasonably be likely to result in a
Material Adverse Effect, or (ii) to the best knowledge of Clinitec
or any Principal Shareholder, any existing material default by any
other party under any of the Lease Agreements or, to the best
knowledge of Clinitec or any Principal Shareholder, any event of
material default or event which with notice or lapse of time would
constitute a material default by any such party.
3.14 Officers, Employees and Consultants. Schedule 3.14
hereto lists each officer, director, employee and consultant of
Clinitec who received any salary, benefits and/or bonuses for 1995,
or has or who is expected to receive any salary, benefits and/or
bonuses in 1996, including a designation of such amounts paid to
such persons in 1995 and/or 1996 and a job or duty description for
each such person. Clinitec is not in breach of any agreements or
understandings (as modified by mutually agreed deferral
arrangements) with any of its officers, directors, employees or
consultants for any wages, salaries, fees, commissions, bonuses or
other direct compensation for any services performed by them to the
date hereof or amounts required to be reimbursed to such employees.
To the best knowledge of Clinitec and each Principal Shareholder,
no third party has meritorious grounds to assert any valid claim
against Clinitec or any of the Designated Persons (as defined
below) with respect to (a) the continued employment by, or
association with, Clinitec or any of the present officers, or
employees of, or consultants to Clinitec (collectively, the
"Designated Persons") or (b) the use, in connection with any
business presently conducted or proposed to be conducted by
Clinitec or any of the Designated Persons, of any information which
Clinitec or any of the Designated Persons would be prohibited from
using under any prior agreements or arrangements or any legal
considerations applicable to unfair competition, trade secrets or
proprietary information.
3.15 Employee Matters. Except as set forth on Schedule 3.15,
Clinitec is not currently a party to any employment contract
(except for oral employment agreements which are terminable at
will), consulting or collective bargaining contracts, deferred
compensation, pension (as defined in the Employee Retirement Income
Security Act of 1974, as amended, and all rules and regulations
from time to time promulgated thereunder ("ERISA") at
Section 3(2)), profit sharing, bonus, stock option, stock purchase
or other nonqualified benefit or compensation commitments, benefit
plans, arrangements or plans (whether written or oral), including
all welfare plans, as defined in Section 3(i) of ERISA, of or
pertaining to Clinitec and any of its present or former employees,
or any predecessors in interest.
3.16 Labor Matters. No work stoppage or labor strike against
Clinitec is pending or, to the best knowledge of Clinitec and each
Principal Shareholder, is threatened. Except as set forth in
Schedule 3.16, Clinitec is not involved in or, to the best
knowledge of Clinitec and each Principal Shareholder, threatened
with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in material liability to
Clinitec. Clinitec has not engaged in any unfair labor practices
within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in
a material liability to Clinitec. Clinitec is not presently, nor
has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to employees
and no collective bargaining agreement is being negotiated by
Clinitec. To the best knowledge of Clinitec and each Principal
Shareholder, no labor union has requested, sought or attempted to
represent any employee, representative or agent of Clinitec. There
are no pending material claims against Clinitec under any workers
compensation plan or policy or for long term disability. Clinitec
has complied in all material respects with all applicable
provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and has no material obligations with respect to any
former employees or qualifying beneficiaries thereunder. Clinitec
has not given to or received from any current officer, director,
employee or consultant of Clinitec notice of termination of
employment or contractor status.
3.17 Employee Benefit Plans.
(a) Schedule 3.17(a) sets forth all employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, stock
option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee
benefit plans, programs or arrangements, and any employment or
consulting or executive compensation or severance agreements,
written or otherwise, currently covering any current or former
employee of Clinitec or any trade or business (whether or not
incorporated) which is a member or which is under common control
with Clinitec (an "ERISA Affiliate") within the meaning of Section
414(b) or (c) of the Code (together, the "Employee Plans").
(b) Schedule 3.17(b) sets forth a complete and correct
list of each plan, policy or arrangement (written or oral)
providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits,
supplemental employment benefits, vacation benefits, paid days off,
material fringe benefits or other material forms of compensation or
benefits which (i) is not an Employee Plan, or (ii) is maintained,
established or contributed to by Clinitec. Such plans and
arrangements as are described above are hereinafter referred to
collectively as the "Benefit Arrangements."
(c) (i) None of the Employee Plans or Benefit
Arrangements promises or provides retiree medical or other retiree
welfare benefits to any person except as required by applicable
law, including but not limited to COBRA; (ii) all Employee Plans
and Benefit Arrangements are in compliance in all material respects
with the requirements prescribed by any and all applicable statutes
(including ERISA and the Code), orders, or governmental rules and
regulations currently in effect with respect thereto (including all
applicable requirements for notification to participants or
beneficiaries or the Department of Labor, Internal Revenue Service
(the "IRS") or Secretary of the Treasury), and Clinitec has
performed all material obligations required to be performed by it
under, is not in material default under or material violation of,
and has no knowledge of any material default or material violation
by any other party to, any of the Employee Plans or Benefit
Arrangements; (iii) each Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code either has received a favorable
determination letter with respect to each such Employee Plan from
the IRS or still has a remaining period of time under applicable
Treasury Regulations or IRS pronouncements in which to apply for
such a determination letter and to make any amendments necessary to
obtain a favorable determination; (iv) no Employee Plan or Benefit
Arrangement is or within the prior six (6) years has been subject
to, and Clinitec has not incurred and does not expect to incur any
liability under, Title IV of ERISA or Section 412 of the Code; and
(v) nothing in any Employee Plan or Benefit Arrangement precludes
or interferes with QSI's ability to cause Clinitec to terminate (or
consolidate, at QSI's option) any Employee Plan or Benefit
Arrangement after the Closing; provided that the Employee Plans and
Benefit Arrangements may be terminated prospectively, subject to
(a) rights accrued by Clinitec's employees at the time of such
termination and (b) not more than sixty days notice of termination.
(d) Each Employee Plan and Benefit Arrangement has been
maintained in material compliance with its terms, and all material
contributions, premiums or other payments due from Clinitec to (or
under) any such Employee Plan or Benefit Arrangement have been
fully paid or adequately provided for in the Financial Statements.
All accruals thereon (including, where appropriate, proportional
accruals for partial periods) have been made in accordance with
GAAP. There has been no amendment, written interpretation or
announcement (whether or not written) by Clinitec with respect to,
or change in employee participation or coverage under, any Employee
Plan or Benefit Arrangement that would increase materially the
expense of maintaining such plans or arrangements, individually or
in the aggregate, above the level of expense incurred with respect
thereto for the most recently-ended fiscal year.
(e) Clinitec has made available to QSI complete,
accurate and current copies of all Employee Plans and Benefit
Arrangements and all amendments, documents, correspondence and
filings relating thereto, including but not limited to any
statements, filings, reports or returns filed with any governmental
agency with respect to the Employee Plans and Benefit Arrangements
at any time within the three-year period ending on the date hereof.
3.18 Environmental Matters.
(a) Except as set forth in Schedule 3.18(a), to the best
knowledge of Clinitec and each Principal Shareholder as of the
Effective Time, there exists no Environmental Condition (as defined
below) relating to Clinitec or to the operation of the business of
Clinitec.
(b) Except as set forth in Schedule 3.18(b), to the best
knowledge of Clinitec and each Principal Shareholder there are no
past or present conditions, events, circumstances, facts,
activities, practices, incidents, actions, omissions or plans: (i)
that are reasonably likely to interfere with or prevent continued
compliance by Merger Sub, QSI or any of their affiliates with
Environmental Laws from and after the Effective Time as a result of
their conduct of the business previously conducted by Clinitec
prior to the Effective Time; (ii) that are reasonably likely to
constitute (or, at the time of such of the foregoing, constituted)
a violation of any Environmental Laws requiring Clinitec (or any of
its predecessors) to incur any actual or potential Environmental
Cost (as defined below); or (iii) that are reasonably likely to
form the basis of any claim, action, suit, proceeding, hearing,
investigation or inquiry against or involving Clinitec based on or
related to any Environmental Condition.
(c) Clinitec has provided QSI with copies of all
environmental audits, assessments, inspections or other studies
relating in significant part to Materials of Environmental Concern
(as defined below) in the possession of Clinitec relating to
Clinitec or the conduct of its business.
(d) Except as set forth in Schedule 3.18(d), neither
Clinitec nor any Principal Shareholder has knowledge of any
Reportable Releases of Materials of Environmental Concern at, from
or onto any real property adjacent to any portion of real property
leased by Clinitec and not noted in any prior report or study
provided to QSI. For purposes of this Agreement, "Reportable
Release" shall mean any Release of Materials of Environmental
Concern that is required under any applicable Environmental Law to
be reported to any governmental body.
(e) Except as set forth in Schedule 3.18(e), to the best
knowledge of Clinitec and each Principal Shareholder, Clinitec has
never used, transported, generated, disposed of or arranged for the
disposal of any Materials of Environmental Concern which has or
could reasonably result in an Environmental Condition.
(f) The following terms shall have the following
meanings in this Agreement:
Environmental Condition: The presence of any
Materials of Environmental Concern at levels creating any soil
or groundwater condition, atmospheric condition or other
condition requiring remediation or reporting thereof or
constituting a violation under any Environmental Laws.
Environmental Costs: With respect to any
Environmental Condition, the aggregate amount of all damages,
losses, liabilities and expenses arising out of such
Environmental Condition, including without limitation (i) the
cost of any environmental testing and remediation of such
Environmental Condition, (ii) the fees and expenses of
consultants, contractors, and legal and other advisers, and
(iii) all damages, losses, liabilities and expenses arising
out of any claim, action or proceeding resulting from such
Environmental Condition.
Environmental Laws: All federal, state and local
laws and regulations relating to pollution or protection of
the environment (including, without limitation, ambient air,
surface water, ground water, wetland, land surface and
subsurface strata), as all of the foregoing may be amended,
supplemented, reauthorized or interpreted from time to time,
including, without limitation, (a) laws and regulations
relating to Releases or threatened Releases of any Materials
of Environmental Concern, or otherwise relating to the
importation, manufacture, processing, formulation, testing,
distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern and (b) common
law principles of tort liability with respect to the
foregoing.
Materials of Environmental Concern: Chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances and hazardous wastes, radioactive materials,
asbestos, genetically modified organisms, petroleum and
petroleum products as any such category is defined in any
applicable Environmental Law.
Release: Any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping,
leaching, dumping, disposing, seeping, dispersal, releasing,
migration, transporting, placing and the like, including
without limitation, the moving of any materials through, into
or upon, any land, soil, surface water, ground water or air,
or otherwise entering into the environment, the abandonment or
discharging of barrels, containers and other closed
receptacles containing any Materials of Environmental Concern,
but excluding (i) the normal application of lawn maintenance
products and (ii) methods of disposal which are in compliance
with applicable laws.
3.19 Related Party Transactions. Except as set forth on
Schedule 3.19 and except for compensation and equity arrangements
with Clinitec's officers and employees involving services rendered
in the ordinary course of business, no current shareholder,
director, officer or employee of Clinitec, nor any "associate" (as
defined in the rules and regulations Promulgated under the 1933
Act) of Clinitec, is presently, or since the inception of Clinitec
has been, directly or indirectly, through his, her or its
affiliation with any other Person, a party to any transaction with
Clinitec, providing for the furnishing of services by or to, or
rental or sale of real or personal property from or to, otherwise
requiring payments to or by any such person. For the purposes of
this Agreement, a transaction of the type described in this
Section 3.19 is sometimes referred to herein as a "Related Party
Transaction."
3.20 Contracts and Commitments. Except as set forth in
Schedule 3.20 (specifically indicating the appropriate paragraph
below), Clinitec is not a party to nor bound by:
(a) any contract or commitment which continues for a
period of more than six (6) months from the date hereof or requires
payments or performance of services after the Effective Time,
valued in the aggregate, in excess of $10,000;
(b) any contract or agreement with any of its directors,
officers or shareholders, or with any person affiliated with any
director, officer or shareholder of Clinitec or with any company or
other organization in which anyone affiliated with Clinitec has a
direct or indirect financial interest;
(c) any contract or agreement containing covenants
limiting the freedom of Clinitec to engage in any line of business
or compete with any Person;
(d) any existing agreement for the management of
Clinitec or any of its business and Clinitec is not obligated to
become a party to any such management agreement;
(e) any agreement of indemnification or guaranty not
entered into in the ordinary course of business;
(f) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit; or
(g) any distribution agreement.
All of the agreements, contracts or commitments to which Clinitec
is a party or by which it is bound (any such agreement, contract or
commitment, a "Contract") are valid, binding, noncontingent, in
full force and effect and enforceable by Clinitec in accordance
with their respective terms, except as set forth on Schedule 3.20.
Neither Clinitec, nor to the best knowledge of Clinitec and each
Principal Shareholder, any other party to a Contract, has breached,
violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the material terms or
conditions of any Contract.
3.21 Suppliers. Schedule 3.21 sets forth a true, correct and
complete list of (i) the names and addresses of each of the
suppliers of products or services to Clinitec which accounted for
a dollar volume of purchases by Clinitec in excess of $5,000 during
the preceding 12-month period, and (ii) the present sole-source
suppliers of significant products, goods or services, other than
utilities, for any product, goods or service with respect to which
a practical alternative source of supply is not available on
comparable terms and conditions, indicating the contractual
arrangements for continued supply from any such supplier. To the
best knowledge of Clinitec and each Principal Shareholder, Clinitec
has good relations with all of its suppliers. No such supplier has
terminated or to the best knowledge of Clinitec and each Principal
Shareholder, threatened to terminate its relationship with
Clinitec. Clinitec is not more than thirty (30) days in arrears in
any trade accounts payable or other payments owing to any supplier.
To the best knowledge of Clinitec and each Principal Shareholder,
there is no pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any such supplier.
3.22 Clinitec Sales Commitments. Schedule 3.22 sets forth a
complete list and description of all commitments by Clinitec to
sell and/or to deliver its products and/or software which have not
been delivered as of April 30, 1996.
3.23 Customers. Schedule 3.23 sets forth a complete list of
Clinitec's customers and sales amounts by sales volume in
descending order since Clinitec's formation on January 31, 1994
(and for any predecessor thereto) through April 30, 1996. No such
customer has terminated or, to the best knowledge of Clinitec and
each Principal Shareholder, threatened to terminate its
relationship with Clinitec.
3.24 Absence of Changes. Except as set forth on Schedule 3.24
and except as permitted or contemplated by this Agreement, since
December 31, 1995, Clinitec has conducted its business only in the
ordinary course and has not:
(a) had any change in the business, assets, properties,
financial condition, liabilities, operations or results of
operations which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on Clinitec or Merger Sub
as its successor;
(b) paid, discharged or satisfied any material
liability, taken as a whole, other than the payment, discharge or
satisfaction of liabilities in the ordinary course of business;
(c) written off as uncollectible any receivable;
(d) except in the ordinary course of business and
consistent with past practices, canceled or compromised any debts
or waived or permitted to lapse any claims or rights or sold,
transferred or otherwise disposed of any of its properties or
assets;
(e) entered into any commitment or transaction not in
the ordinary course of business that is material to Clinitec, taken
as a whole, or made any capital expenditure or commitment in excess
of $10,000;
(f) made any change in any method of accounting or
accounting practice;
(g) incurred any liabilities or obligations (absolute,
accrued or contingent), individually or in the aggregate, in excess
of $10,000;
(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any lien, claim or
encumbrance, except for liens for current personal property taxes
not yet due and payable;
(i) sold or otherwise transferred any equity or other
interest in itself;
(j) increased any salaries, wages or any employee
benefits for any Clinitec employee;
(k) hired, committed to hire or terminated any Clinitec
employee;
(l) declared, set aside or made any payments, dividends
or other distributions to any Shareholder or any other holder of
Clinitec Stock or redeemed, retired, purchased or otherwise
acquired for value any shares of Clinitec Stock; or
(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.24.
3.25 Agreements in Full Force and Effect. Except as expressly
set forth in Schedule 3.25 hereto, all contracts, agreements,
plans, leases, policies and licenses referred to, or required to be
referred to, in any schedule delivered by Clinitec pursuant to this
Agreement (each a "Clinitec Schedule") delivered hereunder are
valid and binding, and are in full force and effect and are
enforceable in accordance with their terms, except to the extent
that the validity or enforceability thereof may be limited by
bankruptcy, insolvency, reorganization and other similar laws
affecting creditors' rights generally. To the best knowledge of
Clinitec and each Principal Shareholder, there is no pending or
threatened bankruptcy, insolvency or similar proceeding with
respect to any other party to such agreements, and no event has
occurred which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a
material default thereunder by Clinitec or, to the best knowledge
of Clinitec and each Principal Shareholder, any other party
thereto.
3.26 Software.
(a) The NextGen software product documentation
processing function has been designed and developed with reasonable
diligence and skill. Further, each Principal Shareholder will use
his best efforts to assist Clinitec in reviewing and incorporating
any and all improved methods of generating documents with respect
to the NextGen software products' document processing function.
(b) The NextGen software product is based upon
client/server architecture and is designed to be scaleable to
support up to 500 appropriately configured and connected
workstations performing typical functions. Further, for any period
or periods of time following the Effective Time during which a
Principal Shareholder is employed or retained as a consultant or
contractor by QSI or Merger Sub, such Principal Shareholder will
use his best efforts to assist Clinitec if performance problems
arise with large scale implementations of the NextGen software
product and to use their best efforts to assist Clinitec to resolve
such problems on a timely basis.
(c) Each Principal Shareholder will use his best efforts
to assist Clinitec in identifying tools and procedures and
developing appropriate NextGen software product functions which
assist with the support and updating of a large network of NextGen
users.
(d) Each Principal Shareholder will assist QSI to
design, and will use his best efforts to assist Clinitec to design
and develop NextGen software product functions that assist with
work-flow, including, without limitation, patient tracking and
provider notification methodology, automated transcription lists,
to-do lists, and message and document routing linked to patient
charts.
3.27 Tax Matters.
(a) All Tax returns required to be filed by or on behalf
of Clinitec have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended
on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, except to the extent that
all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on Clinitec, and all
returns filed are complete and accurate to the best knowledge of
Clinitec and each Principal Shareholder. All Taxes shown on filed
returns have been paid. There is no audit examination, deficiency,
or refund litigation with respect to any Taxes that is reasonably
likely to result in a determination that would have, individually
or in the aggregate, a Material Adverse Effect on Clinitec, except
as reserved against in the Clinitec Financial Statements delivered
prior to the date of this Agreement or as disclosed in Schedule
3.27(a) hereto. All Taxes and liabilities due with respect to
completed and settled examinations or concluded litigation have
been paid. Clinitec has never been audited by any local, state or
federal taxing authority and has not received any notification from
any such taxing authority regarding its intention to conduct such
an audit.
(b) Except as disclosed in Schedule 3.27(b) hereto,
Clinitec has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under
examination by the IRS or other applicable taxing authorities) that
is currently in effect.
(c) Adequate provision for any Taxes due or to become
due for Clinitec for the period or periods through and including
the date of the Clinitec Financial Statements has been made and is
reflected in such Financial Statements.
(d) Deferred Taxes of Clinitec have been provided for in
accordance with GAAP.
(e) Clinitec is in compliance with, and its records
contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state,
and local Tax laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the
Internal Revenue Code, except for such instances of noncompliance
and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
Clinitec.
(f) To the best knowledge of Clinitec and each Clinitec
Shareholder, Clinitec has never made an election under Section
341(f) of the Internal Revenue Code nor is Clinitec a United States
real property holding corporation as defined in Section 897 of the
Code.
3.28 Finders' Fees. No investment banker, broker, finder or
other intermediary has been retained by or is authorized to act on
behalf of Clinitec or any Clinitec Shareholder who is entitled to
any fee or commission upon consummation of the transactions
contemplated by this Agreement or referred to herein.
3.29 Forecasts. The forecasts provided to QSI by Clinitec on
February 13, 1996 and attached hereto as Schedule 3.29 represent
reasonable projections for the 1996 calendar year operations of
Clinitec, without giving effect to the Merger, and exclusive of
revenues generated by sales to QSI and the QSI Contribution (as
defined in Section 4.1 of the Employment Agreement, forms of which
are attached hereto as Exhibit C).
3.30 Burdensome Restrictions. No contract, lease, agreement,
license or other instrument to which Clinitec is a party or by
which Clinitec, its properties or assets is bound and, to the best
knowledge of Clinitec and each Principal Shareholder, no provision
of law or governmental regulation has a Material Adverse Effect on
the business, assets, operations, prospects or financial or other
condition of Clinitec, or insofar as Clinitec or any Principal
Shareholder can reasonably foresee, is reasonably likely to have
such an effect on Clinitec or Merger Sub as its successor.
3.31 Statements True and Correct. No representation or
warranty made herein by Clinitec or any Principal Shareholder, nor
any statement, certificate or instrument to be furnished by
Clinitec or any Principal Shareholder to QSI or Merger Sub pursuant
to this Agreement, contains or will contain as of the Effective
Time any untrue statement of material fact or omits or will omit to
state a material fact necessary to make the statements contained
herein and therein not misleading.
3.32 Information Regarding Clinitec. All information
describing Clinitec and its business and operations which is
contained in any written statement, or transmitted by Clinitec
orally, (excluding any information provided by QSI to Clinitec
specifically describing only QSI and its business and operations)
used by Clinitec to solicit the consent of the shareholders of
Clinitec to the Merger is complete and accurate and does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements or information
contained therein, in light of the circumstance under which they
were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QSI AND MERGER SUB
Each of QSI and Merger Sub hereby represents and warrants
to Clinitec as of the date hereof and as of the Closing Date as
follows:
4.1 Organization and Good Standing. Each of QSI and Merger
Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California with all
requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted.
4.2 QSI Capitalization. The authorized capital stock of QSI
consists of 20,000,000 shares of QSI Stock, 5,653,491 of which are
issued and outstanding.
4.3 Authorization. All corporate action on the part of QSI
and Merger Sub and each of its officers, directors and shareholders
necessary for the authorization, execution and delivery of, and the
performance of all respective obligations of QSI and Merger Sub
under, this Agreement has been taken or will be taken prior to the
Closing Date. This Agreement when executed will constitute QSI's
and Merger Sub's valid and legally binding obligations, enforceable
in accordance with their respective terms except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the
enforcement of creditors' rights generally, and (ii) the effect of
rules of law governing the availability of equitable remedies. QSI
represents that QSI has full power and authority to enter into this
Agreement. The execution, delivery and performance by QSI and
Merger Sub of this Agreement will not (a) violate any provision of
law, statute, rule or regulation, or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or
other governmental body applicable to QSI or Merger Sub or any of
their respective properties or assets or (b) conflict with or
result in any breach of any of the terms, conditions or provisions
of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien or
encumbrance upon any of the properties or assets of QSI or Merger
Sub under, the respective Articles of Incorporation or Bylaws of
QSI and Merger Sub, or any material agreement to which either QSI
or Merger Sub is a party or by which any of their respective
properties or assets are bound.
4.4 Status of Intellectual Property Rights of QSI. QSI has
full title and ownership of, or is duly licensed under or otherwise
authorized to use, all Intellectual Property Rights (excluding the
Clinitec Intellectual Property Rights) necessary to enable it to
carry on its business as now conducted or proposed to be conducted
with Clinitec without any conflict with or infringement of the
rights of others.
4.5 Finder's Fees. No investment broker, broker, finder or
other intermediary has been retained by or is authorized to act on
behalf of QSI who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement or
referred to herein.
4.6 Valid Issuance. All of the QSI Stock to be issued in
exchange for shares of Clinitec Stock upon consummation of the
Merger, when issued in accordance with the terms of this Agreement,
will be duly and validly issued and outstanding and fully paid and
nonassessable under the GCL.
4.7 SEC Filings. QSI has timely filed all necessary reports,
forms, proxy statements, and other documents filed or required to
be filed by QSI with the SEC (the "SEC Reports") pursuant to the
requirements of the 1933 Act and 1934 Act during QSI's fiscal year
ending March 31, 1996. The QSI SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements
of the 1933 Act and the 1934 Act, as the case may be, and (ii) did
not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, than on the date of
such filing) contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements or
information therein, in light of the circumstance under which they
were made, not misleading.
4.8 Statements True and Correct. No representation or
warranty made herein by QSI or Merger Sub nor any statement,
certificate or instrument to be furnished by QSI or Merger Sub to
Clinitec or any Principal Shareholder pursuant to this Agreement,
contains or will contain as of the Effective Time any untrue
statement of material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and
therein not misleading.
4.9 Information Regarding QSI and Merger Sub. All
information describing QSI and Merger Sub and their business and
operations which is contained in any written statement, provided to
Clinitec for use by Clinitec (excluding any information
specifically describing only Clinitec and its business and
operations) to solicit the consent of its shareholders to the
Merger is complete and accurate and does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements or information contained therein,
in light of the circumstance under which they were made, not
misleading.
ARTICLE V
COVENANTS OF CLINITEC AND THE PRINCIPAL SHAREHOLDERS
Each of Clinitec and the Principal Shareholders agrees
that:
5.1 Conduct of Clinitec. From the date hereof until the
later of the Effective Time or the Closing Date, Clinitec shall,
and each Principal Shareholder shall use his best efforts to cause
Clinitec to, in all respects conduct its business in the ordinary
and usual course consistent with past practices and:
(a) preserve intact Clinitec's business and its
relationships with customers, suppliers, vendors, employees and
others having business relations with it;
(b) maintain and keep its properties and assets in as
good repair and condition as is material to the conduct of
Clinitec's business and operations;
(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on
the date hereof.
(d) In addition, without the written consent of QSI,
Clinitec shall not:
(i) amend its articles or certificate of
incorporation or bylaws, or charter documents;
(ii) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including, but not
limited to, by way of stock split, dividend, recapitalization
or other reclassification) or any subscriptions, options,
warrants, convertible securities or other Clinitec Rights, or
enter into any agreements or commitments of any character
obligating it to issue or sell any such securities;
(iii) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(iv) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock;
(v) voluntarily sell, transfer, surrender, abandon
or dispose of any of its assets or property rights (tangible
or intangible) other than the sale of inventory in the
ordinary course of business consistent with past practices;
(vi) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any Lien of any
kind or nature, except Liens for taxes not currently due;
(vii) voluntarily incur or assume any liability
or indebtedness (contingent or otherwise), except for
liability or indebtedness (individually or in the aggregate)
less than $10,000 incurred in the ordinary course of business
consistent with past practices;
(viii) make or commit to make any capital
expenditures (contingent or otherwise), except for commitments
(individually or in the aggregate) less than $10,000 made in
the ordinary course of business consistent with past
practices;
(ix) grant any increase in the compensation payable
or to become payable to directors, officers, consultants or
employees;
(x) change in any manner any accounting principles
or methods other than changes which are consistent with GAAP;
(xi) enter into any material commitment or
transaction;
(xii) take any action which could reasonably be
expected to have a Material Adverse Effect on the business or
operations of Clinitec;
(xiii) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of Clinitec;
(xiv) agree, whether in writing or otherwise, to
do any of the foregoing; and
(xv) take any action at the Board of Directors or
stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements contemplated herein, other
than as required to discharge its or their fiduciary duties.
5.2 Access. At all times prior to the later of the Effective
Time or the Closing Date, QSI's employees, attorneys, accountants,
agents and other authorized and designated representatives will be
allowed full access during regular business hours (and at such
other times as the parties may reasonably agree) to the properties,
books and records of Clinitec, including without limitation, deeds,
title documents, leases, customer lists, insurance policies, minute
books, share certificate books, share registers, accounts, tax
returns, financial statements and all other data that, in the
reasonable opinion of Clinitec or any Principal Shareholder, are
required for QSI to make such investigation as it may desire of the
properties and business of Clinitec. QSI shall also be allowed
full access during regular business hours (and at such other times
as the parties may reasonably agree) to consult with the officers,
employees, accountants, counsel, consultants and agents of Clinitec
in connection with such investigation of the properties and
business of Clinitec. No investigation by QSI shall diminish or
otherwise affect any of the representations, warranties, covenants
or agreements of Clinitec and each Principal Shareholder under this
Agreement.
5.3 Acquisition Proposals. Neither Clinitec nor any Principal
Shareholder shall permit any of Clinitec's directors, officers,
employees, consultants or agents to, directly or indirectly:
(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal
to acquire all or a substantial portion of the business, properties
or capital stock of Clinitec, whether by merger, consolidation,
share exchange, business combination, purchase of assets or
otherwise, except for any discussions with QSI and its
representatives; or
(b) except as required by law, disclose to any person,
other than QSI or its agents, any information not customarily
disclosed concerning the business, assets, liabilities, properties
and personnel of Clinitec, or, without QSI's prior written
approval, afford to any person other than QSI and its agents access
to the properties, books or records of Clinitec. If Clinitec
receives any offer or proposal after the date hereof, written or
otherwise, of the type referred to above, Clinitec shall promptly
inform QSI of such offer or proposal and furnish QSI with a copy
thereof if such offer or proposal is in writing.
5.4 Compliance With Obligations. Prior to the later of the
Effective Time or the Closing Date, Clinitec shall comply in all
material respects with (i) all applicable federal, state, local and
foreign laws, rules and regulations; (ii) all material agreements
and obligations, including its respective articles or certificate
of incorporation, bylaws and charter documents, by which it or its
properties or its assets (real, personal or mixed, tangible or
intangible) may be bound; and (iii) all decrees, orders, writs,
injunctions, judgments, statutes, rules and regulations applicable
to Clinitec and/or its respective properties or assets.
5.5 Notices of Certain Events. Clinitec shall promptly
notify QSI of:
(a) any notice or other communication from any person or
entity alleging that the consent of such person or entity is or may
be required in connection with the transactions contemplated by
this Agreement;
(b) any employment of any new employee or consultant
hired or retained by Clinitec subsequent to March 31, 1996;
(c) any termination of employment or retention by, or
threat to terminate employment or retention received from any
consultant or employee of Clinitec;
(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated by this Agreement;
(e) any actions, suits, claims, investigations or
proceedings commenced or, to Clinitec's or any Principal
Shareholder's best knowledge, threatened against, relating to or
involving or otherwise affecting Clinitec which, if pending on the
date of this Agreement, would have been required to have been
disclosed to QSI hereunder or which relates to the consummation of
the transactions contemplated by this Agreement;
(f) any Material Adverse Change in the business or
operations of Clinitec; and
(g) any notice or other communication indicating a
material deterioration in the relationship with any supplier,
vendor, customer, consultant or employee of Clinitec and, if
requested by QSI, Clinitec and each Principal Shareholder will
exert its/his reasonable best efforts to restore the relationship.
5.6 Confidentiality. Clinitec and each Principal Shareholder
shall treat all information regarding (i) the existence and terms
of this Agreement, (ii) QSI and Merger Sub and (iii) the
Intellectual Property Rights of QSI or Merger Sub which Clinitec or
any Principal Shareholder receives as confidential and will not,
without the prior written consent of QSI, disclose any such
information to any party other than to its officers, directors,
employees, shareholders, counsel, financial advisors, financial
institutions and accountants (collectively, the "Clinitec Persons")
who have a reason to review such information in connection with the
transactions contemplated hereby, or to the employees of Clinitec
in connection with a general disclosure of the proposed Merger and
its affect with respect to such employees; provided, however, that
the obligation hereunder to maintain confidentiality does not apply
to information which (a) is or becomes generally available to the
public other than as a result of a disclosure by Clinitec, a
Principal Shareholder or a Clinitec Person, (b) was available to
Clinitec, the Principal Shareholder or the Clinitec Persons on a
non-confidential basis prior to its disclosure by QSI, (c) becomes
available to Clinitec, the Principal Shareholder or the Clinitec
Persons from a person other than QSI who is not otherwise known by
Clinitec, the Principal Shareholder or any of the Clinitec Persons
to be bound by a confidentiality agreement, or (d) is required to
be disclosed pursuant to any law, rule or regulation or pursuant to
any order or decree of any appropriate court or governmental
agency. Clinitec and each Principal Shareholder shall cause any
Clinitec Person receiving information described in items (i)-(iii)
above to execute an agreement to be bound by the same
confidentiality and disclosure provisions applicable to Clinitec
and each Principal Shareholder pursuant to this Section 5.6. This
confidentiality obligation, insofar as it relates to information in
the possession of or obtained by Clinitec, any Principal
Shareholder or any Clinitec Person related to Intellectual Property
Rights or business of QSI or Merger Sub shall survive the later of
the Effective Time or the Closing Date or any termination of this
Agreement indefinitely.
5.7 Shareholders' Consent. Notwithstanding the Principal
Shareholders' execution hereof, Clinitec and each Principal
Shareholder shall use its/his/her best efforts to obtain the
unanimous approval of the Clinitec Shareholders to the Merger. The
Board of Directors of Clinitec shall recommend the approval of the
Merger by the Clinitec Shareholders. In the event the Clinitec
Shareholders' approval is not unanimous, Clinitec shall give notice
to the nonconsenting shareholders of the action taken by the
consenting shareholders as may be required by applicable law.
5.8 Cooperation of Principal Shareholders. For any period or
periods of time following the Effective Time during which any
Principal Shareholder is employed or retained as a consultant or
contractor by QSI or Merger Sub, each such Principal Shareholder
will cooperate with QSI and use his best efforts as requested by
QSI or Merger Sub to assist QSI with improving the NextGen software
product and implementations of the product, including without
limitation, (i) reviewing and incorporating any and all improved
methods of generating documents with respect to the NextGen
software product's document processing function, (ii) identifying
and developing tools and procedures for improving the use of the
product by NextGen users, (iii) resolving any and all problems
which may arise with respect to large scale implementations of the
NextGen software product, and (iv) designing and developing NextGen
software product functions that assist with work-flow including,
without limitation, patient tracking and provider notification
methodology, automated transcription lists, to-do lists, and
message and document routing linked to patient charts.
5.9 Obligations of Clinitec and the Principal Shareholders.
Clinitec and each Principal Shareholder will take all action
reasonably necessary to cause Clinitec and each Principal
Shareholder to perform its/his/her obligations under this Agreement
and all related agreements and to consummate the Merger and other
transactions contemplated hereby on the terms and conditions set
forth in this Agreement.
ARTICLE VI
COVENANTS OF QSI AND MERGER SUB
QSI and Merger Sub agree that:
6.1 Confidentiality. Prior to the Effective Time, QSI shall
treat all information regarding (i) the existence and terms of this
Agreement and (ii) Clinitec which it receives as confidential and
will not, without the prior written consent of Clinitec, disclose
any such information to any party other than to the officers,
directors, employees, stockholders, counsel, financial advisors and
accountants of QSI (collectively, the "QSI Persons") who have a
reason to review such information in connection with the
transactions contemplated hereby; provided, however, that the
obligation hereunder to maintain confidentiality does not apply to
information which (a) is or becomes generally available to the
public other than as a result of a disclosure by QSI or the QSI
Persons, (b) was available to QSI or the QSI Persons on a non-
confidential basis prior to its disclosure by Clinitec, (c) becomes
available to QSI or the QSI Persons from a person other than
Clinitec who is not otherwise known by QSI or any of the QSI
Persons to be bound by a confidentiality agreement, or (d) is
required to be disclosed pursuant to any law, rule or regulation or
pursuant to any order or decree of any appropriate court or
governmental agency. The parties acknowledge that the terms of
this Agreement and information regarding Clinitec may be disclosed,
to the extent such information is reasonably required to be
disclosed, (i) in any filing by QSI with the Securities and
Exchange Commission (the "SEC") or other governmental authorities;
(ii) to underwriters, analysts, potential investors; or (iii) to
other third parties in furtherance of the transactions contemplated
by this Agreement.
6.2 Obligations of QSI and Merger Sub. QSI and Merger Sub
will take all action reasonably necessary to perform their
respective obligations under this Agreement and all related
agreements and to consummate the Merger and all other transactions
contemplated hereby on the terms and conditions set forth in this
Agreement. Merger Sub will not issue any shares of its capital
stock, any securities convertible into or exchangeable for its
capital stock, or any option, warrant or other right to acquire its
capital stock to any person or entity other than QSI.
6.3 Obligations of Merger Sub. From and after the Effective
Time, Merger Sub, as the surviving corporation, will assume all
obligations of Clinitec as provided under California Law and
Pennsylvania Law (as applicable).
6.4 Nasdaq/National Market Notification. QSI shall timely
file any required notification with the Nasdaq National Market
regarding the QSI Stock to be issued pursuant to the Merger.
6.5 Current Public Information. QSI agrees to use its best
efforts to file with the SEC in a timely manner all SEC Reports
required of QSI under the 1934 Act.
ARTICLE VII
COVENANTS OF EACH PARTY HERETO
QSI, Merger Sub, each Principal Shareholder and Clinitec agree
that:
7.1 Advise of Change. QSI, Merger Sub, each Principal
Shareholder and Clinitec will promptly advise the other parties in
writing of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of such
party contained in this Agreement, if made on or as of the date of
such event or the later of the Closing or the Effective Time,
untrue, inaccurate or misleading in any material respect (other
than an event so affecting a representation or warranty which is
expressly limited to a state of facts existing at a time prior to
the occurrence of such event).
7.2 Regulatory Approvals. Prior to the Effective Time, QSI,
Merger Sub, Clinitec and each Principal Shareholder (as reasonably
required) shall execute and file, or join in the execution and
filing of, any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any
governmental body, federal, state or local which may be reasonably
required, or that one of the parties may reasonably request, in
connection with the consummation of the transactions contemplated
by this Agreement. QSI, Merger Sub, Clinitec and each Principal
Shareholder shall use their reasonable efforts to obtain all such
authorizations, approvals and consents prior to the Closing Date.
In addition to the foregoing, the parties hereto agree that
following the date hereof they shall confer regarding the status of
any pending "blue sky" matters and, to the extent that it is
determined any such matter requires any further action, to take
such further action.
7.3 Necessary Consents. Prior to the Closing Date, QSI,
Merger Sub, Clinitec and each Principal Shareholder will use their
reasonable best efforts to obtain such written consents and take
such other actions as may be necessary or appropriate to allow the
consummation of the transactions contemplated hereby and to allow
the Merger Sub to carry on the business of Clinitec after the
Effective Time.
7.4 Certain Filings. The parties hereto shall cooperate with
one another:
(a) in connection with the preparation and/or filing of
any documents with any federal, state or local body, agency or
authority in connection with the consummation of the transactions
contemplated herein;
(b) in determining whether any action by or in respect
of, or filing with, any governmental body, agency or authority is
required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated
by this Agreement; and
(c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required
in connection therewith and seeking in a timely manner any such
actions, consents, approvals or waivers.
7.5 Public Announcements. The parties hereto will consult
with each other before issuing any press release or making any
public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by
applicable law, will not issue any such press release or make any
such public statement prior to such consultation, although the
foregoing shall not apply to any disclosure by QSI to investors or
in connection with any filing with the SEC.
7.6 Satisfaction of Conditions Precedent. QSI, Merger Sub,
Clinitec and each Principal Shareholder will use its reasonable
best efforts to satisfy or cause to be satisfied all of the
conditions precedent that are set forth in Article VIII, as
applicable to each of them, and to cause the transactions
contemplated by this Agreement to be consummated within the time
frames contemplated herein.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement
to effect the Merger shall be subject to the satisfaction of the
following condition:
(a) No Injunctions or Restraints; Illegality. No
provision of any applicable law or regulation and no judgment,
injunction, order or decree preventing the consummation of the
Merger shall be in effect; and
(b) Board Approval. The Merger and the transactions
contemplated by this Agreement shall have been approved by the
respective Boards of Directors of Clinitec, QSI and Merger Sub.
8.2 Additional Conditions to Obligations of QSI and Merger
Sub. The obligations of QSI and Merger Sub to consummate the
Merger and the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of each of
the following further conditions (any or all of which may be waived
by QSI in writing):
(a) Agreements and Covenants. Clinitec shall have
performed or complied with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior
to the Closing Date;
(b) Representations and Warranties. The representations
and warranties made by Clinitec contained in this Agreement shall
be true and correct on and as of the Closing Date.
(c) Third Party Consents. QSI shall have been furnished
with evidence satisfactory to it that Clinitec has obtained the
consents, approvals and waivers set forth in Schedules 3.5 and 3.6
hereto;
(d) Employment Agreements and Consulting Agreement.
Each of Patrick Cline and Bryan Rosenberger shall have delivered to
QSI an executed Employment Agreement and Nazir Memon shall have
delivered to QSI an executed Consulting Agreement, each such
agreement to be substantially in the form of Exhibit "C" hereto,
which shall be in full force and effect;
(e) Non-Competition and Non-Disclosure Agreements. Each
of Patrick Cline, Bryan Rosenberger and Nazir Memon shall have
delivered to QSI an executed Non-Competition and Non-Disclosure
Agreement substantially in the form of Exhibit "D" hereto, which
shall be in full force and effect;
(f) Lock-Up Agreements. Each Clinitec Shareholder shall
have executed and delivered to QSI a Lock-Up Agreement
substantially in the form of Exhibit "B" hereto, which shall be in
full force and effect, restricting the resale of the Equity
Consideration delivered hereunder for a period of two years
following the later of the Closing Date or the Effective Time.
(g) Due Diligence. QSI and its attorneys, accountants,
advisors and agents shall have completed to QSI's satisfaction, in
its sole discretion, its due diligence review of Clinitec;
(h) Shareholder Approval. The Merger and the
transactions contemplated by this Agreement shall have been
approved by the requisite number of Clinitec shareholders;
(i) Documentation. Each of QSI and Merger Sub shall
have received all documents they may reasonably request relating to
the existence of Clinitec and the authority of Clinitec for this
Agreement, all in form and substance reasonably satisfactory to QSI
and Merger Sub;
(j) Officers' Certificate of Clinitec. Clinitec shall
have delivered to QSI a certificate executed by each of the
Principal Shareholders in their capacity as officers of the
Company, dated the Closing Date, certifying (i) that the conditions
specified in Sections 8.1(a) and (b) have been fulfilled; (ii) and
that, except as set forth in or on the Clinitec Schedules or
changes permitted or required by this Agreement, the
representations and warranties of Clinitec and each Principal
Shareholder contained in Article III shall be true and accurate in
all material respects on and as of the Closing Date with the same
force and effect as if they had been made on the Closing Date
except to the extent such representations and warranties
specifically relate to an earlier date (in which case such
representations and warranties shall be true and correct in all
material respects on and as of such earlier date); and (iii) that
there has been no Material Adverse Change in the business,
properties, financial condition or operations of Clinitec since
December 31, 1995. The provision of a supplemental disclosure
schedule shall not serve to release any party from a breach of its
representations and warranties hereunder;
(k) Opinion of Counsel to Clinitec. QSI shall have
received an opinion dated the Closing Date from Buchanan Ingersoll,
counsel to Clinitec, in form satisfactory to QSI and its legal
counsel;
(l) Secretary's Certificate of Clinitec. QSI shall have
received a certificate of the Secretary of Clinitec certifying (i)
that attached thereto are true and complete copies of the articles
or certificate of incorporation and bylaws and charter documents of
Clinitec as in effect at the Closing; (ii) that attached thereto
are true and complete copies of the resolutions of the Board of
Directors of Clinitec authorizing the execution, delivery and
performance of this Agreement and any other documents, instruments
and certificates required to be executed by it in connection
herewith and approving the consummation of the Merger in the manner
contemplated hereby; (iii) that attached thereto is a true and
complete copy of the written consent of the Clinitec Shareholders
or minutes of a meeting of the Clinitec Shareholders reflecting the
adoption of resolutions authorizing the consummation of the Merger
upon the terms set forth in this Agreement; (iv) the names and true
signatures of the officers of Clinitec signing this Agreement and
all other documents to be delivered in connection with the Merger;
and (v) such other matters as QSI may reasonably request, including
the incumbency of the officers of Clinitec.
(m) Investment Letter. Each shareholder of Clinitec
shall have completed and delivered to QSI an Investment Letter
substantially in the form attached hereto as Exhibit "F", and shall
have responded to inquiries, if any, from counsel to QSI with
respect to the completeness and accuracy of the information
contained in such Investment Letter.
(n) Dissenting Shares. Dissenters' Shares held by
Clinitec Shareholders from whom demand has been received indicating
that they intend to seek appraisal rights in accordance with the
LCP, shall not exceed five percent (5%) of the outstanding shares
of Clinitec Common Stock.
8.3 Additional Conditions to Obligations of Clinitec. The
obligations of Clinitec to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction of the following further conditions (any or all of
which may be waived by Clinitec in writing):
(a) Agreements and Covenants. QSI and Merger Sub shall
have performed or complied with all agreements and covenants
required by this Agreement to be performed or complied with by it
on or prior to the Closing Date;
(b) Representations and Warranties. The representations
and warranties of QSI and Merger Sub contained in this Agreement
shall be true and correct on and as of the Closing Date;
(c) Board Seat. The authorized number of directors of
QSI shall have been increased by one position and, effective as of
the later of the Closing Date or the Effective Time, Patrick Cline
shall have been nominated to fill such vacant position;
(d) Documentation. Clinitec shall have received all
documents it may reasonably request relating to the existence of
QSI and Merger Sub and the authority of QSI and Merger Sub for this
Agreement, all in form and substance reasonably satisfactory to
Clinitec;
(e) Officers' Certificate of QSI. QSI shall have
delivered to Clinitec a certificate executed by duly authorized
officers, dated the Closing Date, certifying that (i) the
conditions specified in Sections 8.3(a) and (b) have been
fulfilled; (ii) and that, except as set forth on supplemental
disclosure schedules or changes permitted or required by this
Agreement, the representations and warranties of QSI and Merger Sub
contained in Article IV shall be true and accurate in all material
respects on and as of the Closing Date with the same force and
effect as if they had been made on the Closing Date, except to the
extent such representations and warranties specifically relate to
an earlier date (in which case such representations and warranties
shall be true and correct in all material respects on and as of
such earlier date); and (iii) there has been no Material Adverse
Change in the business, properties, financial condition or
operations of QSI and its subsidiaries, taken as a whole, since
December 31, 1995. The provision of a supplemental disclosure
schedule shall not serve to release any party from a breach of its
representations and warranties hereunder;
(f) Opinion of Counsel to QSI and Merger Sub. Clinitec
shall have received an opinion dated the Effective Date from
Brobeck, Phleger & Harrison LLP, legal counsel to QSI and Merger
Sub, in form satisfactory to Clinitec and its legal counsel;
(g) Secretary's Certificate of QSI. Clinitec shall have
received a certificate of the Secretary of QSI certifying (i) that
attached thereto are true and complete copies of the articles of
incorporation and bylaws of QSI; (ii) that attached thereto are
true and complete copies of the resolutions of the Board of
Directors of QSI authorizing the execution, delivery and
performance of this Agreement and any other documents, instruments
and certificates required to be executed by it in connection
herewith and approving the consummation of the Merger in the manner
contemplated hereby; (iii) the names and true signatures of the
officers of QSI signing this Agreement and all other documents to
be delivered in connection with the Merger; and (iv) such other
matters as Clinitec may reasonably request;
(h) Secretary's Certificate of Merger Sub. Clinitec
shall have received a certificate of the Secretary of Merger Sub
certifying (i) that attached thereto are true and complete copies
of the articles of incorporation and bylaws of Merger Sub; (ii)
that attached thereto are true and complete copies of the
resolutions of the Board of Directors of Merger Sub authorizing the
execution, delivery and performance of this Agreement and any other
documents, instruments and certificates required, to be executed by
it in connection herewith and approving the consummation of the
Merger in the manner contemplated hereby; (iii) that attached
thereto is a true and complete copy of the written consent of the
sole shareholder of Merger Sub authorizing the consummation of the
Merger upon the terms set forth in this Agreement; (iv) the names
and true signatures of the officers of Merger Sub signing this
Agreement and all other documents to be delivered in connection
with the Merger; and (v) such other matters as Clinitec may
reasonably request.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Clinitec and Each Principal
Shareholder. Clinitec and the Principal Shareholders, and each of
them (each an "Indemnifying Party"), shall indemnify and hold
harmless QSI, Merger Sub and any of their affiliates, and their
respective officers, directors, employees, agents, successors and
assigns (the "Indemnified Party") in respect of any and all claims,
actions, suits or other proceedings and any and all losses, costs,
expenses, liabilities, fines, penalties, interest, obligations and
damages, whether or not arising out of any claim, action, suit or
other proceeding (and including reasonable counsel and accountants'
fees and expenses and all other reasonable costs and expenses of
investigation, defense or settlement of claims and amounts paid in
settlement) incurred by, imposed on or borne by any Indemnified
Party (collectively the "Indemnification Damages") resulting from:
(a) the breach or the failure of performance by Clinitec
or any Principal Shareholder of any of the covenants that they are
to perform hereunder;
(b) the breach or inaccuracy of any of the
representations or warranties made by Clinitec or any Principal
Shareholder in this Agreement or any other document or agreement
delivered by Clinitec or any of the Principal Shareholders pursuant
to or in connection with the transactions contemplated herein;
(c) any losses related to infringements of Intellectual
Property Rights of others by the Indemnified Party including, but
not limited to, patent infringement and copyright infringement;
provided, however, that an Indemnifying Party shall not be liable
for any such losses caused directly by any action or inaction of
such Indemnified Party; and
(d) any acts or omissions, prior to the Closing Date, of
Clinitec, any Principal Shareholder or any current or former
officer, director, employee or agent of Clinitec.
The parties have agreed that Clinitec and the Principal
Shareholders, and each of them, shall be responsible for such
breach or inaccuracy described in subsection (a), (b), (c) and/or
(d) above and the Indemnification Damages resulting therefrom
regardless of whether any party hereto knew or should have known of
such breach or inaccuracy or the facts surrounding such breach,
except to the extent there is a qualifier regarding Clinitec's or
a Principal Shareholder's best knowledge or belief in a
representation or warranty made in this Agreement. Notwithstanding
the preceding, a Principal Shareholder shall not be required to pay
Indemnification Damages which result from the intentional acts or
fraud of one or more other Principal Shareholders.
9.2 Indemnification by QSI and Merger Sub. QSI and Merger
Sub, and each of them (each an "Indemnifying Party"), shall
indemnify and hold harmless Clinitec and any of their affiliates,
and their respective officers, directors, employees, agents,
successors and assigns (the "Indemnified Party") in respect of any
and all claims, actions, suits or other proceedings and any and all
losses, costs, expenses, liabilities, fines, penalties, interest,
obligations and damages, whether or not arising out of any claim,
action, suit or other proceeding (and including reasonable counsel
and accountants' fees and expenses and all other reasonable costs
and expenses of investigation, defense or settlement of claims and
amounts paid in settlement) incurred by, imposed on or borne by any
Indemnified Party (collectively the "Indemnification Damages")
resulting from:
(a) the breach or the failure of performance by QSI and
Merger Sub of any of the covenants that they are to perform
hereunder; and
(b) the breach or inaccuracy of any of the
representations or warranties made by QSI and Merger Sub in this
Agreement or any other document or agreement delivered by QSI and
Merger Sub pursuant to or in connection with the transactions
contemplated herein.
The parties have agreed that QSI and Merger Sub, and each of
them, shall be responsible for such breach or inaccuracy described
in subsection (a) and/or (b) above and the Indemnification Damages
resulting therefrom regardless of whether any party hereto knew or
should have known of such breach or inaccuracy or the facts
surrounding such breach, except to the extent there is a qualifier
regarding QSI and Merger Sub's best knowledge or belief in a
representation or warranty made in this Agreement.
9.3 Claims for Indemnification.
(a) If any lawsuit or similar action (an "Action") is
filed against a party entitled to the benefit of indemnity
hereunder, written notice thereof (the "Notice of Action") shall be
given by the Indemnified Party to the Indemnifying Party within
ninety (90) days after the filing of the Action. The Notice of
Action shall indicate the applicable sections in this Agreement
under which the claim for indemnity arises.
(b) If at any time or from time to time, the Indemnified
Party believes in good faith that it is entitled to indemnification
from the Indemnifying Party (other than in connection with an
Action), the Indemnified Party shall deliver to the Indemnifying
Party a notice (a "Claim Notice") setting forth an estimate of the
amount claimed in respect thereof (the "Claim"), and the applicable
Sections of this Agreement under which the claim for indemnity
arises. Such Claim Notice shall be delivered within twelve (12)
months following the date such party first actually learned of the
claim.
(c) Within thirty (30) days after the date of the Notice
of Action or the Claim Notice, the Indemnifying Party agrees to
deliver to the other party a notice (the "Contest Notice") stating
whether or not it agrees to be responsible for such Action or
Claim.
(d) Any and all claims for indemnification asserted in
writing in accordance with the procedures specified in this Section
9.3 before the expiration of the applicable survival periods
specified in Section 11.1 of this Agreement shall survive until
resolved.
(e) With respect to an undisputed claim made in
accordance with the procedures specified in this Section 9.3, an
Indemnifying Party shall promptly (and in any case within thirty
(30) days after the date or dates that Indemnification Damages are
ascertainable) pay such Indemnification Damages under each such
claim as they are incurred.
(f) With respect to a disputed claim made in accordance
with the procedures specified in this Section 9.3, the Indemnifying
Party shall be obligated to reimburse or indemnify the Indemnified
Party at such time as a binding arbitration award or judgment has
been entered (a "Resolution"). If such judgment or arbitration
award is entered in favor of an Indemnified Party, the Indemnifying
Party shall promptly (and in any case within thirty (30) days of
such Resolution) pay such Indemnification Damages under each such
claim plus the legal rate of interest accruing from the date of the
Claim Notice or Notice of Action.
9.4 Resolution of Conflicts; Arbitration; Limitation on
Damages.
(a) In case an Indemnifying Party shall object in
writing to any claim or claims, the Indemnified Party and the
Indemnifying Party shall attempt in good faith for fifteen (15)
days to agree upon the rights of the respective parties with
respect to each of such claims.
(b) If no agreement can be reached after good faith
negotiation during such fifteen (15)-day period, either the
Indemnified Party or the Indemnifying Party may, by written notice
to the other party, demand submission of the matter to arbitration
or to some other mutually-agreeable form of alternative dispute
resolution (together or in the alternative, "ADR"). Unless the
parties mutually agree in writing to some alternative form of ADR,
arbitration of the matter shall be conducted in accordance with the
commercial rules then in effect of the American Arbitration
Association by three arbitrators which shall be selected in
accordance with the rules and regulations of the American
Arbitration Association. The prevailing parties in such
arbitration shall be entitled to recover from the other parties all
incurred costs and expenses incurred by each such prevailing
parties (including reasonable attorneys fees) in connection with
such arbitration.
(c) Notwithstanding anything contained in this Agreement
to the contrary, (i) no Principal Shareholder shall have any
obligation hereunder to provide indemnification once such party has
paid in Indemnification Damages a dollar amount equal to the dollar
amount of Consideration received by such principal Shareholder
pursuant to the Merger (for purposed of determining the dollar
amount of Equity Consideration pursuant to this subparagraph (c),
the equity consideration shall be valued at $22.25 per share of QSI
Stock), and (ii) neither QSI nor Merger Sub shall have any
obligation to provide indemnification once such parties
(collectively) have paid an aggregate total of $8,750,000 in
Indemnification Damages.
ARTICLE X
TERMINATION
10.1 Grounds for Termination. This Agreement may be
terminated and the Merger abandoned at any time prior to the
Closing:
(a) by mutual written agreement of Clinitec and QSI;
(b) by QSI if:
(i) there has been a material breach of any
representation, warranty, covenant or agreement contained in
this Agreement on the part of Clinitec or a Principal
Shareholder and such breach has not been cured within five (5)
business days after written notice to Clinitec or a Principal
Shareholder (provided, that no cure period shall be required
for a breach which by its nature cannot be cured);
(ii) the Board of Directors of Clinitec amends,
withholds or withdraws recommendation of the Merger (provided
QSI or Merger Sub is not in material breach of the terms of
this Agreement);
(iii) if the Clinitec Shareholders do not
approve the Merger and this Agreement;
(c) by Clinitec if:
(i) there has been a material breach of any
representation, warranty, covenants or agreement contained in
this Agreement on the part of QSI or Merger Sub and such
breach has not been cured within five (5) days after written
notice to QSI (provided, that Clinitec is not in material
breach of the terms of this Agreement; and provided further,
that no cure period shall be required for a breach which by
its nature cannot be cured); or
(d) by any party hereto if:
(i) there shall be a final, non-appealable order of
a federal or state court in effect preventing the consummation
of the Merger;
(ii) there shall be any final action taken, or any
statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any local, state
or federal governmental authority which would make
consummation of the Merger illegal or which would prohibit
QSI's ownership or operation of all or a material portion of
the business of Clinitec, or compel QSI to dispose of or hold
separate all or a material portion of the business or assets
of Merger Sub or QSI as a result of the Merger;
(iii) if the Merger shall not have been
consummated by May 17, 1996, provided, that the right to
terminate this Agreement under this Section 10.1 shall not be
available to any party whose willful failure to fulfill any
material obligation under this Agreement has been the cause
of, or resulted in the failure of the Merger to have been
consummated on or before the earlier of such dates.
The party desiring to terminate this Agreement shall give
notice of such termination to the other party.
10.2 Effect of Termination. If this Agreement is terminated
as permitted by Section 10.1, termination shall be without
liability of either party (or any stockholder, director, officer,
employee, agent, consultant or representative of such party) to the
other party to this Agreement; provided that if such termination
shall result from the willful failure of either party to fulfill a
condition to the performance of the obligations of the other party,
failure to perform a covenant of this Agreement or breach by either
party hereto of any representation or warranty or agreement
contained herein, such party shall be fully liable for any and all
Indemnification Damages incurred or suffered by the other party as
a result of such failure or breach as provided in Article IX
herein. The provisions of Article IX, Sections 5.6, 6.1 and 11.1
shall survive any termination hereof pursuant to Section 10.1.
ARTICLE XI
MISCELLANEOUS
11.1 Survival. All representations and warranties made by any
party herein or in any instrument or document furnished in
connection herewith shall expire on the earlier of (a) with respect
to a Principal Shareholder, one year subsequent to the termination
by Merger Sub of such Principal Shareholder's employment with
Merger Sub without cause, or (b) on the third anniversary of the
Closing Date. Notwithstanding the preceding, the representations
and warranties of Clinitec and each Principal Shareholder pursuant
to Sections 3.8, 3.18, 3.27 and 3.32 shall survive until expiration
of the respective statute of limitations with respect to such
matters.
11.2 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,
if to QSI, to:
Quality Systems, Inc.
17822 East 17th Street
Suite 210
Tustin, California 92680
Attention: Sheldon Razin, Chief Executive Officer
Fax: (714) 731-9494
with a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attention: Bruce R. Hallett, Esq.
Richard J. Babcock, Esq.
Fax: (714) 752-7522
if to Clinitec, to:
Clinitec International, Inc.
Cedar Creek Corporate Center
195A Witmer Road
Horsham, PA 19044
Attention: Patrick Cline
Fax: (215) 957-5493
with a copy to:
Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, NJ 08540-6615
Attention: William J. Thomas, Esq.
Fax: (609) 520-0360
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if
received prior to 5 p.m. in the place of receipt and such day is a
business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
11.3 Amendments and Waivers.
(a) Any provision of this Agreement may be amended or
waived prior to the Closing Date if, but only if, such amendment or
waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies
provided by law.
11.4 Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost
or expense.
11.5 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided that
no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the written
consent of each other party hereto.
11.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of California,
without regard to the conflicts of law rules of such state.
11.7 Jurisdiction. Except as otherwise expressly provided in
this Agreement, any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated
hereby may be brought in the United States District Court for the
Central District of California or any other California State court
sitting in Orange County, and each of the parties hereby consents
to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the venue of any
such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such
court.
11.8 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.9 Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. Neither this Agreement nor
any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
11.10 Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and
understandings, both oral and written, between the parties with
respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by
either party hereto.
11.11 Further Assurances. Each party agrees to cooperate
fully with the other parties and to execute such further
instruments, documents and agreements and to give such further
written assurances as may be reasonably requested by any other
party to better evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
11.12 No Release for Fraud. Notwithstanding anything
herein to the contrary, nothing contained in this Agreement shall
relieve any Person of any liability or limit any liability that he,
she or it may have in the case of fraud in connection with the
transactions contemplated by this Agreement.
11.13 Severability. If any provision of this Agreement,
or the application thereof, shall for any reason or to any extent
be invalid or unenforceable, the remainder of this Agreement and
application of such provision to other persons or circumstances
shall continue in full force and effect and in no way be affected,
impaired or invalidated.
11.14 Construction of Agreement. A reference to an
Article, Section, Schedule or Exhibit shall mean an Article of, a
Section in, or a Schedule or Exhibit to, this Agreement unless
otherwise explicitly set forth. The titles and headings herein are
for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a
whole. The words "include," "includes," and "including" when used
herein shall be deemed in each case to be followed by the words
"without limitation."
11.15 Mutual Drafting. This Agreement is the joint
product of the parties hereto, and each provision hereof has been
subject to the mutual consultation, negotiation and agreement of
such parties, and shall not be construed for or against any party
hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
"QSI"
Quality Systems, Inc.
By: s/ Sheldon Razin
Title: President
"MERGER SUB"
CII Acquisition Corporation
By: s/ Sheldon Razin
Title: President
"CLINITEC"
Clinitec International, Inc.
By: s/ Patrick Cline
Title: President
"PRINCIPAL SHAREHOLDERS"
s/ Patrick Cline
PATRICK CLINE
s/ Bryan Rosenberger
BRYAN ROSENBERGER
s/ Nazir Memon
NAZIR MEMON
</TABLE>
Exhibit A
AGREEMENT OF MERGER
OF
CII ACQUISITION CORPORATION
AND
CLINITEC INTERNATIONAL, INC.
AND
QUALITY SYSTEMS, INC.
This AGREEMENT OF MERGER is entered into as of May 16,
1996 by CII Acquisition Corporation, a California corporation
("CII") and wholly-owned subsidiary of Quality Systems, Inc., a
California corporation ("QSI") and Clinitec International, Inc.,
a Pennsylvania corporation ("Clinitec") as approved by the Board
of Directors of each of said corporations and by the shareholders
of CII and Clinitec:
(a) Clinitec which is a corporation incorporated in
the State of Pennsylvania and which is sometimes hereinafter
referred to as the "disappearing corporation," shall be merged
(the "Merger") with and into CII, which is a corporation
incorporated in the State of California, and which is sometimes
hereinafter referred to as the "surviving corporation."
(b) The existence of the disappearing corporation
shall cease upon the Effective Time of the Merger (as defined
below) in accordance with the provisions of the Business
Corporation Law of the State of Pennsylvania. The "Effective
Time" of the Merger shall mean the time that this Merger
Agreement is accepted for filing with the Secretary of State of
the State of California.
(c) At the Effective Time of the Merger, the name of
the surviving corporation shall be changed to "Clinitec
International, Inc." pursuant to the provisions of the General
Corporation Law of the State of California.
(d) The Articles of Incorporation of CII immediately
prior to the Effective Time of the Merger shall be the Articles
of Incorporation of the surviving corporation and shall continue
in full force and effect until amended and changed in the manner
prescribed by the provisions of the General Corporation Law of
the State of California.
(e) The Bylaws of CII immediately prior to the
Effective Time of the Merger shall be the Bylaws of the surviving
corporation and shall continue in full force and effect until
changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the General Corporation Law of
the State of California.
(f) Immediately prior to the Effective Time of the
Merger, the authorized capital stock of Clinitec consisted of the
following: (a) a total of 1,000,000 authorized shares of
preferred stock, no par value (the "Clinitec Preferred Stock"),
consisting of 1,000,000 shares designated as "Series A
Convertible Preferred Stock," of which 359,382 shares were issued
and outstanding and all of which are held by QSI, and (b) a total
of 3,000,000 authorized shares of common stock, no par value
("Clinitec Common Stock"), of which 1,078,250 shares were issued
and outstanding. In connection with the Merger, QSI will issue
309,856 shares of QSI common stock ("QSI Common Stock"), $0.01
par value, and will pay $4,895,700 to the shareholders of
Clinitec on a collective basis (the "Merger Consideration"),
subject to certain exceptions. At the Effective Time (i) each
issued and outstanding share of Clinitec Common Stock shall be
converted into the right to receive that fraction of the Merger
Consideration equal to one divided by the total number of shares
of Clinitec Common Stock issued and outstanding at the Effective
Time; (ii) each share of treasury stock and each arrangement,
call, commitment, agreement, option, right to subscribe to,
script, understanding, warrant, or other binding obligation of
any character whatsoever relating to or securities or rights
convertible into or exchangeable for, shares of the capital stock
of Clinitec, or by which Clinitec is or may be bound to issue
additional shares of its capital stock or other rights shall be
automatically cancelled without consideration; and (iii) each
share of Clinitec Preferred Stock shall be automatically
cancelled.
(g) Following the Effective Time of the Merger, each
holder of a share of Clinitec Common Stock that has been
converted into a right to receive the Merger Consideration, upon
surrender of a certificate or certificates representing such
Clinitec Stock, together with a properly completed letter of
transmittal covering such Clinitec Common Stock, will be entitled
to receive the Merger Consideration payable in respect of such
Clinitec Common Stock. Until so surrendered, each such
certificate shall, after the Effective Time, represent for all
purposes, only the right to receive such Consideration. Each
Clinitec shareholder shall receive a pro rata share of the Merger
Consideration in proportion to their respective equity interest
in Clinitec. No fraction of a share of QSI Common Stock will be
issued by virtue of the Merger, but in lieu thereof each holder
of Clinitec Common Stock who would otherwise be entitled to a
fraction of a share of QSI Common Stock (after aggregating all
fractional shares of QSI Common Stock to be received by such
holder) shall receive from QSI an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) $22.25.
(h) The directors and officers in office of Clinitec
immediately prior to the effective time of the merger shall
continue to be the members of the Board of Directors and the
officers of the surviving corporation, all of whom shall hold
their directorships and offices until the election, choice, and
qualification of their respective successors or until their
tenure is otherwise terminated in accordance with the Bylaws of
the surviving corporation.
(i) The Agreement of Merger herein entered into and
approved shall be submitted to the shareholders entitled to vote
thereon of the disappearing corporation and of CII for their
approval or rejection in the manner prescribed by the provisions
of the General Corporation Law of the State of California.
(j) The disappearing corporation shall, from time to
time, as and when requested by the surviving corporation, execute
and deliver all such documents and instruments and take all such
action necessary to evidence or carry out the merger.
(k) This Agreement of Merger is intended as a plan of
reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended.
(l) The effect of the Merger and the Effective Time of
the Merger are as prescribed by the General Corporation Law of
the State of California.
Date: May 30, 1996
IN WITNESS WHEREOF, the parties have executed this
Agreement of Merger.
<TABLE>
<CAPTION>
<S>
CLINITEC INTERNATIONAL, INC.
<C>
By: s/ Patrick Cline
Its: President
By:
Its:
CII ACQUISITION CORPORATION
By: s/ Sheldon Razin
Its: Chairman and Chief
Executive Officer
By: s/ Robert G. McGraw
Its: Chief Financial Officer
QUALITY SYSTEMS, INC.
By: s/ Sheldon Razin
Its: President and Chief
Executive Officer
By: s/ Robert G. McGraw
Its: Chief Financial Officer
</TABLE>
Exhibit B
________, 1996
Quality Systems, Inc.
17822 E. Seventeenth Street, Suite 210
Tustin, California 92680
Re: Lock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that Quality Systems, Inc.,
a California corporation ("QSI"), CII Acquisition Corporation, a
California corporation and wholly-owned subsidiary of QSI
("Merger Sub"), Clinitec International, Inc., a Pennsylvania
corporation ("Clinitec") and certain principal shareholders of
Clinitec have entered into an Agreement and Plan of Merger (the
"Agreement") pursuant to which Clinitec will be merged (the
"Merger") with and into Merger Sub and the outstanding capital
stock of Clinitec will be converted into cash and shares of QSI
Stock (as defined in the Agreement) (the "QSI Shares").
In consideration of the foregoing, and in order to
induce QSI and Merger Sub to enter into the Agreement and the
Merger, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the undersigned hereby irrevocably
agrees that it will not, directly or indirectly, sell, offer,
contract for sale, make any short sale, pledge or otherwise
transfer or dispose of any of the QSI Shares received by the
undersigned pursuant to the Merger without the prior written
consent of QSI (which consent may be unreasonably withheld in
QSI's absolute and sole discretion) during the two year period
(the "Lock-Up Period") commencing on the latter to occur of the
Closing Date or the Effective Date (as such terms are defined in
the Agreement).
Notwithstanding the foregoing, this Lock-Up Agreement
does not prohibit a one-time transfer or bequest of the QSI
Shares to immediate family members or a trust established for
their benefit, provided that any such transferee executes an
agreement subjecting all such QSI Shares to this Lock-Up
Agreement for the balance of the
Lock-Up Period. For purposes of the foregoing, "immediate
family" shall mean spouse, lineal descendants, father, mother or
sibling of the undersigned. The undersigned will be solely
responsible for and pay all costs and expenses associated with
any transfer permitted above, including reasonable costs,
expenses and attorneys fees incurred by QSI as a result of such
transfer.
The undersigned understands that QSI, Merger Sub and
Clinitec will rely upon the representations set forth in this
Lock-Up Agreement in proceeding with the Merger. The undersigned
understands that this Lock-Up Agreement is irrevocable and shall
be binding upon the undersigned's heirs, legal representatives,
successors and assigns.
Very truly yours,
By:
Printed name of person/entity
Title, if applicable
Additional signature(s), if
stock jointly held
Consented To And
Acknowledged By:
Signature of spouse (if any)
Printed name of spouse
Exhibit C
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is entered into
effective as of May ___, 1996, by and between CII Acquisition
Corporation, a California corporation ("Merger Sub") and Nazir
Memon (the "Consultant"), with reference to the following facts:
Recitals
A. Quality Systems, Inc., a California corporation
("QSI"), Merger Sub, Clinitec International, Inc., a Pennsylvania
corporation ("Clinitec"), and certain principal shareholders of
Clinitec have entered into that certain Agreement and Plan of
Merger dated May __, 1996 (the "Merger Agreement"), pursuant to
which Clinitec shall merge (the "Merger") with and into Merger
Sub, a wholly-owned subsidiary of QSI;
B. Merger Sub desires to retain the services of the
Consultant to assist Merger Sub in continuing the business and
operations of Clinitec following consummation of the Merger;
C. As a condition to the closing of the Merger and
concurrently herewith, the Consultant, Merger Sub and QSI have
entered into a Non-Competition and Non-Disclosure Agreement (the
"Non-Competition Agreement") also effective as of May __, 1996,
pursuant to which the Consultant has agreed to refrain from
competing with Merger Sub and/or QSI or taking certain other
actions as outlined in the Non-Competition Agreement; and
D. It is a condition to the closing of the Merger that
Merger Sub and the Consultant enter into this Agreement.
Agreement
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
1. Consulting Services. Consultant shall make himself
available to, and shall provide consulting services to, Merger
Sub eight and one-half (8.5) business days each month during the
Term (as defined below). Consultant and Merger Sub shall, in
good faith and by mutual agreement, establish a schedule setting
forth the exact days which Consultant shall perform services
hereunder. Consultant shall assist and consult with Merger Sub
regarding the business and operations of Clinitec and QSI.
Consultant shall perform the consulting services on site at the
principal business offices of Merger Sub following the Merger at
Cedar Creek Corporate Center, 195A Witmer Road, Horsham, PA, or
at such other locations as mutually agreed to by the parties.
At all times hereunder, the Consultant will be an
independent contractor and is solely responsible for all federal,
state and local taxes, withholdings and other statutory
obligations, such as, but not limited to, contributions for
social security, disability and workers' compensation insurance
benefits, which may arise from any payments by Merger Sub to the
Consultant. The Consultant agrees that he will indemnify, defend
and hold Merger Sub harmless from any and all claims made by any
person or entity on account of an alleged failure by the
Consultant to satisfy any such tax, withholdings or insurance
obligations.
2. No Conflict. The Consultant covenants and represents
that he is not a party to any agreement or understanding which
impairs or prohibits his ability to enter into, and perform
services under, this Agreement.
3. Term. The Consultant shall be retained by Merger Sub
as provided for herein for a term of three (3) years (the
"Term"), commencing on the Closing Date (as such term is defined
in the Merger Agreement); subject, however, to earlier
termination as hereinafter provided. The Term shall terminate
upon the Consultant's death or Total Disability. For purposes of
this Agreement, "Total Disability" shall mean the Consultant's
disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from providing consulting
services to and for Merger Sub as contemplated herein.
4. Fees and Expenses. The Consultant shall be paid fees
and expenses as mutually agreed to by the parties in writing on
the basis of invoices submitted to Merger Sub by Consultant.
Merger Sub will pay or reimburse the Consultant for all
reasonable and necessary out-of-pocket expenses incurred by him
in the performance of his services under this Agreement, subject
to the prior authorization thereof or subsequent presentment of
appropriate receipts and vouchers therefore.
5. Termination by Merger Sub.
5.1 Termination Without Cause. Merger Sub may
terminate this Agreement upon fifteen (15) business days prior
written notice "without cause" (i.e., without reason or for any
reason other than pursuant to Section 5.2 below).
5.2 Termination for Cause. At any time, at its sole
option, Merger Sub shall have the right to immediately terminate
this Agreement by written notice to the Consultant upon any of
the following occurrences:
(i) the Consultant's conviction of a felony or
other serious crime;
(ii) the Consultant's gross negligence or willful
misconduct which results in material injury to QSI and/or
Merger Sub;
(iii) the Consultant's willful dishonesty towards,
fraud upon, or deliberate injury or attempted injury to, QSI
and/or Merger Sub;
(iv) a material breach by the Consultant of any of
the terms or conditions of (A) this Agreement or (B) the
Non-Competition Agreement; provided, that Merger Sub shall
not be permitted to terminate this Agreement pursuant to (A)
above without at least thirty (30) days prior written notice
specifying the breach and permitting the Consultant a
reasonable opportunity to cure such breach; or
(v) If the Consultant materially fails to provide
the consulting services as contemplated hereunder; provided
that the Consultant shall be provided with at least thirty
(30) days prior written notice specifying such failure and
permitting the Consultant a reasonable opportunity to cure
such failure;
6. Termination by the Consultant.
6.1 Termination Without Cause. The Consultant shall
have the right to terminate this Agreement without cause (i.e.,
without reason or for any reason other than pursuant to Section
6.2 below) at any time upon fifteen (15) business days prior
written notice to Merger Sub.
6.2 Termination for Cause. The Consultant shall have
the right to terminate this Agreement upon a material breach by
Merger Sub of any of the terms or conditions of this Agreement;
provided, that the Consultant shall not be permitted to terminate
this Agreement pursuant to this Section 6.2 without providing
Merger Sub at least thirty (30) days prior written notice
specifying the breach and permitting Merger Sub a reasonable
opportunity to cure such breach.
7. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and
assigns of Merger Sub, and, unless clearly inapplicable, all
references herein to Merger Sub shall be deemed to include any
such successor. In addition, this Agreement shall be binding
upon and inure to the benefit of the Consultant and his heirs,
executors, legal representatives and assigns; provided, that this
Agreement and any provision hereunder shall not be assigned,
transferred or delegated by the Consultant without the prior
written approval of the Board of Directors of Merger Sub.
8. Entire Agreement; Waivers. This Agreement and the Non-
Competition Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof. No
supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of
any of the provisions 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. No
waiver shall be binding unless executed in writing by the party
making the waiver.
9. Severability. All provisions contained herein are
severable and in the event that any of them shall be held to be
to any extent invalid or otherwise unenforceable by any court of
competent jurisdiction, such provision shall be construed as if
it were written so as to effectuate to the greatest possible
extent the parties' expressed intent; and in every case the
remainder of this Agreement shall not be affected thereby and
shall remain valid and enforceable, as if such affected provision
were not contained herein.
10. Notices. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and
shall be deemed to have been duly given upon receipt if
(i) delivered in person; (ii) given by facsimile; (iii) sent by
Federal Express or other nationally recognized overnight delivery
service, charges paid by the sender, or (iv) upon the earlier of
receipt or five (5) business days after being sent by registered
or certified mail, return receipt requested, with proper postage
prepaid, as follows:
To the Consultant at: Nazir Memon
With a copy to: Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, NJ 08540-6615
Attn: William J. Thomas, Esq.
Facsimile No. (609) 520-0360
To the Company at: Quality Systems, Inc.
17822 East 17th Street
Suite 210
Tustin, CA 92680
Attn: Sheldon Razin, Chief Executive Officer
Facsimile No. (714) 731-9494
With a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attn: Bruce R. Hallett, Esq.
Facsimile No. (714) 752-7522
11. Applicable Law. The terms of this Agreement shall be
governed by the laws of the Commonwealth of Pennsylvania
applicable to agreements entered into, to be wholly performed in
and among residents exclusively of, Pennsylvania, without regard
to the conflicts of law provisions thereof.
12. Termination of Other Agreements. Upon the effective
date of this Agreement, all other consulting, employment,
severance or other similar agreements between the Consultant and
Clinitec and/or any affiliate, subsidiary or parent company of
Clinitec, if any, shall immediately terminate and be of no
further force and effect and no payments or other provisions
regarding benefits or payment of any other amounts shall be made
thereunder, notwithstanding any provision to the contrary set
forth therein.
13. Liquidated Damages. The Consultant acknowledges and
agrees that his retention as a consultant by Merger Sub is
necessary to maintain the goodwill of Clinitec's business as
operated by Merger Sub following the Merger, and that this
Agreement is a condition to consummation of the Merger by QSI and
Merger Sub. The Consultant, Merger Sub and QSI acknowledge and
agree that the business of Clinitec, as operated by Merger Sub
subsequent to the Merger, will suffer loss of business relations
and other goodwill if (A) The Consultant terminates this
Agreement prior to its expiration or (B) this Agreement is
terminated for cause under Section 5.2, and that it will be
extremely difficult to ascertain or quantify the actual amount of
damages or loss suffered by QSI or Merger Sub as a result of such
termination. Accordingly, the Consultant agrees to pay to Merger
Sub as liquidated damages the amounts as specified below if (X)
the Consultant terminates this Agreement prior to the expiration
of its Term for any reason other than pursuant to and in
accordance with the provisions of Section 6.2 for breach of this
Agreement by Merger Sub or (Y) Merger Sub terminates this
Agreement for cause under Section 5.2 prior to the expiration of
its Term. The Consultant shall be entitled to pay up to one-half
of a required liquidated damages payment in QSI Stock (to the
extent the Consultant owns sufficient amounts of QSI Stock)
valued at the average of the closing trading price for QSI Stock
over the twenty (20) day period ending on the termination date.
Liquidated Damages
(i) $2.0 Million if terminated during the first year
of the Term;
(ii) $1.5 Million if terminated during the second
year of the Term; and
(iii) $1.0 million if terminated during the third
year of the Term.
14. Obligations of QSI. As inducement for the Consultant
to enter into this Agreement with Merger Sub, QSI guarantees the
full and prompt performance of each of Merger Sub's duties and
obligations hereunder.
15. Assignment of Inventions. All inventions, computer
programs and associated documentation, whether or not patentable,
made or conceived solely or jointly by the Consultant during the
period of the Consultant's retention hereunder, which relate in
any manner to the actual or anticipated business, including
research and development, of QSI, Merger Sub or any of their
affiliates (collectively, the "Company") or are suggested by or
result from work assigned to the Consultant or work performed by
the Consultant, shall be the property of the Company. By
executing this Agreement, the Consultant agrees as follows:
(i) The Consultant will promptly and fully
disclose in writing to the Company all such inventions,
computer programs and associated documentation.
(ii) The Consultant will cooperate with the
Company in all proper ways to protect the Company's rights
therein, including the execution of papers deemed by the
Company to be desirable or necessary to enable the Company
to apply for, secure, and maintain patent or copyright
protection thereon in the United States and in foreign
countries.
[Signature Pages to Follow]
Counterpart Signature Page to Consultant Agreement
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
CII ACQUISITION CORPORATION
By:
Its:
QUALITY SYSTEMS, INC.
By:
Its:
THE CONSULTANT
Nazir Memon
EXHIBIT C
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into
effective as of May __, 1996, by and between CII Acquisition
Corporation, a California corporation ("Merger Sub") and Patrick
Cline (the "Employee"), with reference to the following facts:
Recitals
A. Quality Systems, Inc., a California corporation
("QSI"), Merger Sub, Clinitec International, Inc., a Pennsylvania
corporation ("Clinitec"), and certain principal shareholders of
Clinitec have entered into that certain Agreement and Plan of
Merger dated May __, 1996 (the "Merger Agreement"), pursuant to
which Clinitec shall merge (the "Merger") with and into Merger
Sub, a wholly-owned subsidiary of QSI;
B. Merger Sub and the Employee desire to enter into an
employment relationship pursuant to which the Employee will be
employed by Merger Sub subsequent to the consummation of the
Merger and will perform duties similar to those performed by the
Employee for Clinitec prior to the consummation of the Merger;
C. As a condition to the closing of the Merger and
concurrently herewith, the Employee, Merger Sub and QSI have
entered into a Non-Competition and Non-Disclosure Agreement (the
"Non-Competition Agreement") also effective as of May __, 1996,
pursuant to which the Employee has agreed to refrain from
competing with Merger Sub and/or QSI or taking certain other
actions as outlined in the Non-Competition Agreement; and
D. It is a condition to the closing of the Merger that
Merger Sub and the Employee enter into this Agreement.
Agreement
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
1. Duties and Performance.
1.1 Employment and Performance. During the Term (as
defined below), Merger Sub shall employ the Employee full-time
and the Employee hereby accepts such employment. The parties
acknowledge and agree that "full-time" shall have a meaning which
is consistent with the meaning of such term in the industry in
which the Company operates and shall include, if reasonably
necessary, more than forty (40) hours per week. Employee shall
devote all of his working hours and time to performing services
for Merger Sub and shall not, during the Term hereof, hold any
position with or perform any services for or on behalf of any
other person in exchange for any form of remuneration whatsoever.
The Employee shall have duties and responsibilities as an
employee of Merger Sub that are substantially similar to those
performed by the Employee for Clinitec prior to the date hereof,
subject to such reasonable changes as determined by the Board of
Directors of Merger Sub and submitted in writing to Employee.
Notwithstanding the preceding sentence, Employee shall have a
senior executive position with Merger Sub, with such duties and
responsibilities commensurate with those of senior executive
officers with companies of similar size in the same industry. In
addition, the Employee agrees to faithfully and diligently
perform such reasonable duties and services.
1.2 Performance Location. If the principal business
office of Merger Sub is moved or relocated to a new location
which is outside of the twenty-five (25) mile radius of its
location as of the Effective Date of this Agreement, then
Employee shall be entitled to work from his principal place of
residence so long as Employee does not relocate his principal
place of residence outside of a twenty-five (25) mile radius of
the Employee's principal place of residence as of the date of
this Agreement.
2. No Conflict. The Employee covenants and represents
that he is not a party to any agreement or understanding which
impairs or prohibits his ability to enter into, and perform
services under, this Agreement.
3. Term. The Employee shall be employed by Merger Sub on
a full-time basis for a term of three (3) years (the "Term"),
commencing on the Closing Date (as such term is defined in the
Merger Agreement); subject, however, to earlier termination as
hereinafter provided. The Term shall terminate upon the
Employee's death or Total Disability. For purposes of this
Agreement, "Total Disability" shall mean the Employee's
disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties
for Merger Sub. Upon (i) the expiration of the Term or (ii) upon
Employee's early, voluntary termination of this Agreement, the
Employee shall, on a good faith basis, attempt to be available to
consult with Merger Sub or QSI regarding Merger Sub's and/or
QSI's products, and the payment for such services shall be
mutually agreeable to the Employee and Merger Sub. The
immediately preceding sentence shall survive the termination or
expiration of this Agreement.
4. Compensation.
4.1 Annual Compensation. Subject to the limitations
set forth in Section 4.2 below, Employee shall receive the
following compensation:
(i) Base Salary. Employee shall receive a base
annual salary of One Hundred Fifty-Three Thousand Dollars
($153,000) (the "Base Salary") payable in installments on
such dates consistent with Merger Sub's payroll procedures;
(ii) Additional Compensation. Employee shall be
entitled to commission and bonuses (collectively "Additional
Compensation") computed upon such formula and payable at
such times as set forth in Schedule A hereto; and
(iii) For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(a) The term "non-QSI Revenues" shall mean total
revenues of Merger Sub (following consummation of
the Merger) less revenues generated from sales to
QSI.
(b) The term "QSI Contribution" shall mean total
revenues of Merger Sub (following consummation of
the Merger) generated from sales to QSI, less
aggregate sales commissions paid on such sales to
Merger Sub's sales representatives.
4.2 Maximum Annual Compensation. Subject to Section
5.2 hereof, during the Term, the Employee's total annual
compensation hereunder (including, without limitation, Base
Salary and any Additional Compensation) shall be capped for each
successive fiscal year under the Term hereof as follows
(hereinafter, as to the maximum annual compensation for each
fiscal year, a "Cap"):
(i) for the fiscal year ending March 31, 1997:
$250,000 (the aggregate compensation received from Clinitec
by Employee from April 1, 1996 through consummation of the
Merger is deemed to have been paid by Merger Sub for
purposes of computing the Employee's total annual
compensation paid for the fiscal year ending March 31,
1997);
(ii) for the fiscal year ending March 31, 1998:
$275,000; and
(iii) for the fiscal year ending March 31, 1999:
$302,000
Notwithstanding the preceding fiscal year Caps on
annual compensation, the compensation limits applicable to the
fiscal years 1998 and 1999 shall be subject to the criteria set
forth in Schedule B hereto. Merger Sub will be entitled to
offset against any future amounts owed to Employee payments made
to Employee in excess of the Caps described above.
4.3 Employee Benefits. Employee shall be entitled to
participate, subject to the provisions, rules and regulations
applicable thereto, including provisions empowering the Board of
Directors of Merger Sub to modify and/or terminate any such plan
or programs, in all Merger Sub employee benefit plans or programs
(including vacation time, sick leave and holidays) in accordance
with the terms and conditions thereof. The benefit plans or
programs made available to Employee shall be commensurate with
those plans or programs made available to employees of QSI with
similar positions and duties.
4.4 Expenses. In accordance with Merger Sub's
policies established from time to time, Merger Sub will pay or
reimburse the Employee for all reasonable and necessary out-of-
pocket expenses incurred by him in the performance of his duties
under this Agreement, subject to the prior authorization thereof
or subsequent presentment of appropriate receipts and vouchers
therefor.
5. Termination.
5.1 Termination by the Merger Sub for Cause. At any
time, at its sole option, Merger Sub shall have the right to
immediately terminate the Employee's employment hereunder by
written notice to the Employee upon any of the following
occurrences:
(i) the Employee's conviction of a felony or
other serious crime;
(ii) the Employee's gross negligence or willful
misconduct which results in material injury to QSI and/or
Merger Sub;
(iii) the Employee's willful dishonesty towards,
fraud upon, or deliberate injury or attempted injury to, QSI
and/or Merger Sub;
(iv) a material breach by the Employee of any of
the terms or conditions of (A) this Agreement or (B) the
Non-Competition Agreement; provided, that Merger Sub shall
not be permitted to terminate the Employee's employment
pursuant to (A) above without at least thirty (30) days
prior written notice specifying the breach and permitting
the Employee a reasonable opportunity to cure such breach;
(v) If Employee materially fails to perform the
reasonably assigned duties hereunder; provided that Employee
shall be provided with at least thirty (30) days prior
written notice specifying such failure and permitting
Employee a reasonable opportunity to cure such failure;
(vi) in the event that Merger Sub's income from
operations as determined in accordance with generally
accepted accounting principles applied on a consistent basis
("Income from Operations") excluding the QSI Contribution is
not at least Seven Hundred Fifty Thousand Dollars ($750,000)
for the fiscal year ending March 31, 1997; or
(vii) in the event that Merger Sub does not attain
a minimum increase of fifteen percent (15%) in Income from
Operations excluding the QSI Contribution for the fiscal
year ending March 31, 1998 as compared to the corresponding
amount for the fiscal year ending March 31, 1997.
5.2 Voluntary Termination by the Employee; Payments
Upon Voluntary Termination or Termination for Cause. The
Employee shall have the right to voluntarily terminate his
employment hereunder at any time upon fifteen (15) business days
prior written notice to Merger Sub. In the event that the
Employee voluntarily terminates his employment hereunder (which
shall not include termination due to death or Total Disability of
the Employee or the Employee's termination of this Agreement
pursuant to Section 5.3 due to the breach of this Agreement by
Merger Sub), or this Agreement is terminated pursuant to Section
5.1 above, Merger Sub shall pay the Employee's Base Salary and
provide other compensation and benefits through the date of such
termination only and shall have no responsibility for the payment
of Employee's Base Salary or any other compensation or benefits
to the Employee for any time period subsequent to such
termination. Nothing herein shall affect Merger Sub's obligation
to provide benefits as required by COBRA or any other applicable
federal or state law.
5.3 Termination by the Employee for Breach;
Termination by Merger Sub Without Cause; Payments Upon Such
Termination. The Employee shall have the right to terminate his
employment hereunder upon a material breach by Merger Sub of any
of the terms or conditions of this Agreement; provided, that the
Employee shall not be permitted to terminate his employment
pursuant to this Section 5.3 without providing Merger Sub at
least thirty (30) days prior written notice specifying the breach
and permitting Merger Sub a reasonable opportunity to cure such
breach. Notwithstanding the preceding sentence, if the breach by
Merger Sub results from its failure to timely pay Employee's Base
Salary, Employee may terminate his employment pursuant to this
Section 5.3 upon providing Merger Sub with at least five (5)
business days prior written notice and reasonable opportunity to
cure such breach. In addition, Merger Sub may terminate this
Agreement upon fifteen (15) business days prior written notice
"without cause" (i.e., without reason or for any reason other
than pursuant to Section 5.1 above). If Merger Sub exercises its
rights pursuant to this Section 5.3, Merger Sub shall pay to the
Employee, as his sole and exclusive remedy, (i) the Base Salary,
(ii) Additional Compensation and (iii) any and all employee
benefits (including health insurance) that the Employee would
have received had he remained in the employ of Merger Sub through
the end of the Term. If Employee exercises his rights pursuant
to this Section 5.3, Merger Sub shall pay to Employee, as his
sole and exclusive remedy, items (i) and (iii) in the preceding
sentence that he would have received had he remained in the
employ of Merger Sub through the end of the Term. Any amounts
payable under this paragraph shall be paid according to the same
schedule as would have applied if the Employee had remained in
the employ of Merger Sub.
6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and
assigns of Merger Sub, and, unless clearly inapplicable, all
references herein to Merger Sub shall be deemed to include any
such successor. In addition, this Agreement shall be binding
upon and inure to the benefit of the Employee and his heirs,
executors, legal representatives and assigns; provided, that this
Agreement and any provision hereunder shall not be assigned,
transferred or delegated by Employee without the prior written
approval of the Board of Directors of Merger Sub.
7. Entire Agreement; Waivers. This Agreement and the Non-
Competition Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof. No
supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of
any of the provisions 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. No
waiver shall be binding unless executed in writing by the party
making the waiver.
8. Severability. All provisions contained herein are
severable and in the event that any of them shall be held to be
to any extent invalid or otherwise unenforceable by any court of
competent jurisdiction, such provision shall be construed as if
it were written so as to effectuate to the greatest possible
extent the parties' expressed intent; and in every case the
remainder of this Agreement shall not be affected thereby and
shall remain valid and enforceable, as if such affected provision
were not contained herein.
9. Notices. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and
shall be deemed to have been duly given upon receipt if
(i) delivered in person; (ii) given by facsimile; (iii) sent by
Federal Express or other nationally recognized overnight delivery
service, charges paid by the sender, or (iv) upon the earlier of
receipt or five (5) business days after being sent by registered
or certified mail, return receipt requested, with proper postage
prepaid, as follows:
To the Employee at: Patrick Cline
Clinitec International, Inc.
Cedar Creek Corporate Center
195A Witmer Road
Horsham, PA 19044
Facsimile No. (215) 957-5493
With a copy to: Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, NJ 08540-6615
Attn: William J. Thomas, Esq.
Facsimile No. (609) 520-0360
To the Company at: Quality Systems, Inc.
17822 East 17th Street
Suite 210
Tustin, CA 92680
Attn: Sheldon Razin, Chief Executive Officer
Facsimile No. (714) 731-9494
With a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attn: Bruce R. Hallett, Esq.
Facsimile No. (714) 752-7522
10. Applicable Law. The terms of this Agreement shall be
governed by the laws of the Commonwealth of Pennsylvania
applicable to agreements entered into, to be wholly performed in
and among residents exclusively of, Pennsylvania, without regard
to the conflicts of law provisions thereof.
11. Termination of Other Agreements. Upon the effective
date of this Agreement, all other employment, severance or other
similar agreements between the Employee and Clinitec and/or any
affiliate, subsidiary or parent company of Clinitec, if any,
shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment
of any other amounts shall be made thereunder, notwithstanding
any provision to the contrary set forth therein.
12. Liquidated Damages. Employee acknowledges and agrees
that his employment by Merger Sub is necessary to maintain the
goodwill of Clinitec's business as operated by Merger Sub
following the Merger, and that this Agreement is a condition to
consummation of the Merger by QSI and Merger Sub. Employee,
Merger Sub and QSI acknowledge and agree that the business of
Clinitec, as operated by Merger Sub subsequent to the Merger,
will suffer loss of business relations and other goodwill if (A)
Employee resigns or voluntarily terminates this Agreement prior
to its expiration or (B) this Agreement is terminated for cause
under Section 5.1 (except for subsections (vi) and (vii)
thereof), and that it will be extremely difficult to ascertain or
quantify the actual amount of damages or loss suffered by QSI or
Merger Sub as a result of such resignation or termination.
Accordingly, Employee agrees to pay to Merger Sub as liquidated
damages the amounts as specified below if (X) Employee terminates
this Agreement prior to the expiration of its Term for any reason
other than pursuant to and in accordance with the provisions of
Section 5.3 for breach of this Agreement by Merger Sub or (Y)
Merger Sub terminates this Agreement for cause under Section 5.1
(except for subsections (vi) and (vii) thereof) prior to the
expiration of its Term. Employee shall be entitled to pay up to
one-half (1/2) of a required liquidated damages payment in QSI
Stock (to the extent Employee owns sufficient amounts of QSI
Stock) valued at the average of the closing trading price for QSI
Stock over the twenty (20) day period ending on the termination
date.
Liquidated Damages
(i) $2.0 Million if terminated during the first
year of the Term;
(ii) $1.5 Million if terminated during the second
year of the Term; and
(iii) $1.0 million if terminated during the third
year of the Term.
13. Obligations of QSI. As inducement for Employee to
enter into this Agreement with Merger Sub, QSI guarantees the
full and prompt performance of each of Merger Sub's duties and
obligations hereunder.
14. Assignment of Inventions. All inventions, computer
programs and associated documentation, whether or not patentable,
made or conceived solely or jointly by Employee during the period
of Employee's employment hereunder, which relate in any manner to
the actual or anticipated business, including research and
development, of QSI, Merger Sub or any of their affiliates
(collectively, the "Company") or are suggested by or result from
work assigned to Employee or work performed by Employee, shall be
the property of the Company. By executing this Agreement,
Employee agrees as follows:
(i) Employee will promptly and fully disclose in
writing to the Company all such inventions, computer
programs and associated documentation.
(ii) Employee will cooperate with the Company in
all proper ways to protect the Company's rights therein,
including the execution of papers deemed by the Company to
be desirable or necessary to enable the Company to apply
for, secure, and maintain patent or copyright protection
thereon in the United States and in foreign countries.
[Signature Pages to Follow]
Counterpart Signature Page to Employment Agreement
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
CII ACQUISITION CORPORATION
By:
Its:
QUALITY SYSTEMS, INC.
By:
Its:
EMPLOYEE
Patrick Cline
Schedule B
Annual Compensation Limit Criteria
1. Provided that (i) the business of Clinitec (as
conducted by Merger Sub following consummation of the Merger)
continues to be operated by its current management, and (ii) QSI
does not impose fees for services or other obligations on Merger
Sub which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved
by QSI due to business synergies, management of the combined
entities and economies of scale, if the business of Clinitec does
not achieve Income from Operations of at least $1,675,000
exclusive of the QSI Contribution (as defined in Section 4.1
herein) for the fiscal year ending March 31, 1998 then the Cap
and compensation structure for the fiscal year ending March 31,
1997 will replace the Cap and compensation structure for the
fiscal year ending March 31, 1998.
2. Provided that (i) the business of Clinitec (as
conducted by Merger Sub following consummation of the Merger)
continues to be operated by its current management, and (ii) QSI
does not impose fees for services or other obligations on Merger
Sub which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved
by QSI due to business synergies, management of the combined
entities and economies of scale, if the business of Clinitec does
not achieve at least a 50% increase in its Income from Operations
exclusive of the QSI Contribution (as defined in Section 4.1
herein) for the fiscal year ending March 31, 1999 over the
comparable amount for the fiscal year ending March 31, 1998, then
the Cap and compensation structure in effect for the prior year
will replace the Cap and compensation structure for the fiscal
year ending March 31, 1999.
EXHIBIT C
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into
effective as of May __, 1996, by and between CII Acquisition
Corporation, a California corporation ("Merger Sub") and Bryan
Rosenberger (the "Employee"), with reference to the following
facts:
Recitals
A. Quality Systems, Inc., a California corporation
("QSI"), Merger Sub, Clinitec International, Inc., a Pennsylvania
corporation ("Clinitec"), and certain principal shareholders of
Clinitec have entered into that certain Agreement and Plan of
Merger dated May __, 1996 (the "Merger Agreement"), pursuant to
which Clinitec shall merge (the "Merger") with and into Merger
Sub, a wholly-owned subsidiary of QSI;
B. Merger Sub and the Employee desire to enter into an
employment relationship pursuant to which the Employee will be
employed by Merger Sub subsequent to the consummation of the
Merger and will perform duties similar to those performed by the
Employee for Clinitec prior to the consummation of the Merger;
C. As a condition to the closing of the Merger and
concurrently herewith, the Employee, Merger Sub and QSI have
entered into a Non-Competition and Non-Disclosure Agreement (the
"Non-Competition Agreement") also effective as of May __, 1996,
pursuant to which the Employee has agreed to refrain from
competing with Merger Sub and/or QSI or taking certain other
actions as outlined in the Non-Competition Agreement; and
D. It is a condition to the closing of the Merger that
Merger Sub and the Employee enter into this Agreement.
Agreement
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
1. Duties and Performance.
1.1 Employment and Performance. During the Term (as
defined below), Merger Sub shall employ the Employee full-time
and the Employee hereby accepts such employment. The parties
acknowledge and agree that "full-time" shall have a meaning which
is consistent with the meaning of such term in the industry in
which the Company operates and shall include, if reasonably necessary,
more than forty (40) hours per week. Employee shall devote all of his
working hours and time to performing services for Merger Sub and shall not,
during the Term hereof, hold any position with or perform any
services for or on behalf of any other person in exchange for any
form of remuneration whatsoever. The Employee shall have duties
and responsibilities as an employee of Merger Sub that are
substantially similar to those performed by the Employee for
Clinitec prior to the date hereof, subject to such reasonable
changes as determined by the Board of Directors of Merger Sub and
submitted in writing to Employee. Notwithstanding the preceding
sentence, Employee shall have a senior executive position with
Merger Sub, with such duties and responsibilities commensurate
with those of senior executive officers with companies of similar
size in the same industry. In addition, the Employee agrees to
faithfully and diligently perform such reasonable duties and
services.
1.2 Performance Location. If the principal business
office of Merger Sub is moved or relocated to a new location
which is outside of the twenty-five (25) mile radius of its
location as of the Effective Date of this Agreement, then
Employee shall be entitled to work from his principal place of
residence so long as Employee does not relocate his principal
place of residence outside of a twenty-five (25) mile radius of
the Employee's principal place of residence as of the date of
this Agreement.
2. No Conflict. The Employee covenants and represents
that he is not a party to any agreement or understanding which
impairs or prohibits his ability to enter into, and perform
services under, this Agreement.
3. Term. The Employee shall be employed by Merger Sub on
a full-time basis for a term of three (3) years (the "Term"),
commencing on the Closing Date (as such term is defined in the
Merger Agreement); subject, however, to earlier termination as
hereinafter provided. The Term shall terminate upon the
Employee's death or Total Disability. For purposes of this
Agreement, "Total Disability" shall mean the Employee's
disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties
for Merger Sub. Upon (i) the expiration of the Term or (ii) upon
Employee's early, voluntary termination of this Agreement, the
Employee shall, on a good faith basis, attempt to be available to
consult with Merger Sub or QSI regarding Merger Sub's and/or
QSI's products, and the payment for such services shall be
mutually agreeable to the Employee and Merger Sub. The
immediately preceding sentence shall survive the termination or
expiration of this Agreement.
4. Compensation.
4.1 Annual Compensation. Subject to the limitations
set forth in Section 4.2 below, Employee shall receive the
following compensation:
(i) Base Salary. Employee shall receive a base
annual salary as indicated on Schedule A attached hereto
(the "Base Salary") payable in installments on such dates
consistent with Merger Sub's payroll procedures;
(ii) Additional Compensation. Employee shall be
entitled to a bonus ("Additional Compensation") computed
upon such formula and payable at such times as set forth in
Schedule A hereto; and
(iii) For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(a) The term "non-QSI Revenues" shall mean total
revenues of Merger Sub (following consummation of
the Merger) less revenues generated from sales to
QSI.
(b) The term "QSI Contribution" shall mean total
revenues of Merger Sub (following consummation of
the Merger) generated from sales to QSI, less
aggregate sales commissions paid on such sales to
Merger Sub's sales representatives.
4.2 Maximum Annual Compensation. Subject to Section
5.2 hereof, during the Term, the Employee's total annual
compensation hereunder (including, without limitation, Base
Salary and any Additional Compensation) shall be capped for each
successive fiscal year under the Term hereof as follows
(hereinafter, as to the maximum annual compensation for each
fiscal year, a "Cap"):
(i) for the fiscal year ending March 31, 1997:
$95,000 (the aggregate compensation received from Clinitec
by Employee from April 1, 1996 through consummation of the
Merger is deemed to have been paid by Merger Sub for
purposes of computing the Employee's total annual
compensation paid for the fiscal year ending March 31,
1997);
(ii) for the fiscal year ending March 31, 1998:
$104,000; and
(iii) for the fiscal year ending March 31, 1999:
$115,000
Notwithstanding the preceding fiscal year Caps on
annual compensation, the compensation limits applicable to the
fiscal years 1998 and 1999 shall be subject to the criteria set
forth in Schedule B hereto. Merger Sub will be entitled to
offset against any future amounts owed to Employee payments made
to Employee in excess of the Caps described above.
4.3 Employee Benefits. Employee shall be entitled to
participate, subject to the provisions, rules and regulations
applicable thereto, including provisions empowering the Board of
Directors of Merger Sub to modify and/or terminate any such plan
or programs, in all Merger Sub employee benefit plans or programs
(including vacation time, sick leave and holidays) in accordance
with the terms and conditions thereof. The benefit plans or
programs made available to Employee shall be commensurate with
those plans or programs made available to employees of QSI with
similar positions and duties.
4.4 Expenses. In accordance with Merger Sub's
policies established from time to time, Merger Sub will pay or
reimburse the Employee for all reasonable and necessary out-of-
pocket expenses incurred by him in the performance of his duties
under this Agreement, subject to the prior authorization thereof
or subsequent presentment of appropriate receipts and vouchers
therefor.
5. Termination.
5.1 Termination by the Merger Sub for Cause. At any
time, at its sole option, Merger Sub shall have the right to
immediately terminate the Employee's employment hereunder by
written notice to the Employee upon any of the following
occurrences:
(i) the Employee's conviction of a felony or
other serious crime;
(ii) the Employee's gross negligence or willful
misconduct which results in material injury to QSI and/or
Merger Sub;
(iii) the Employee's willful dishonesty towards,
fraud upon, or deliberate injury or attempted injury to, QSI
and/or Merger Sub;
(iv) a material breach by the Employee of any of
the terms or conditions of (A) this Agreement or (B) the
Non-Competition Agreement; provided, that Merger Sub shall
not be permitted to terminate the Employee's employment
pursuant to (A) above without at least thirty (30) days
prior written notice specifying the breach and permitting
the Employee a reasonable opportunity to cure such breach;
(v) If Employee materially fails to perform the
reasonably assigned duties hereunder; provided that Employee
shall be provided with at least thirty (30) days prior
written notice specifying such failure and permitting
Employee a reasonable opportunity to cure such failure;
(vi) in the event that Merger Sub's income from
operations as determined in accordance with generally
accepted accounting principles applied on a consistent basis
("Income from Operations") excluding the QSI Contribution is
not at least Seven Hundred Fifty Thousand Dollars ($750,000)
for the fiscal year ending March 31, 1997; or
(vii) in the event that Merger Sub does not attain
a minimum increase of fifteen percent (15%) in Income from
Operations excluding the QSI Contribution for the fiscal
year ending March 31, 1998 as compared to the corresponding
amount for the fiscal year ending March 31, 1997.
5.2 Voluntary Termination by the Employee; Payments
Upon Voluntary Termination or Termination for Cause. The
Employee shall have the right to voluntarily terminate his
employment hereunder at any time upon fifteen (15) business days
prior written notice to Merger Sub. In the event that the
Employee voluntarily terminates his employment hereunder (which
shall not include termination due to death or Total Disability of
the Employee or the Employee's termination of this Agreement
pursuant to Section 5.3 due to the breach of this Agreement by
Merger Sub), or this Agreement is terminated pursuant to Section
5.1 above, Merger Sub shall pay the Employee's Base Salary and
provide other compensation and benefits through the date of such
termination only and shall have no responsibility for the payment
of Employee's Base Salary or any other compensation or benefits
to the Employee for any time period subsequent to such
termination. Nothing herein shall affect Merger Sub's obligation
to provide benefits as required by COBRA or any other applicable
federal or state law.
5.3 Termination by the Employee for Breach;
Termination by Merger Sub Without Cause; Payments Upon Such
Termination. The Employee shall have the right to terminate his
employment hereunder upon a material breach by Merger Sub of any
of the terms or conditions of this Agreement; provided, that the
Employee shall not be permitted to terminate his employment
pursuant to this Section 5.3 without providing Merger Sub at
least thirty (30) days prior written notice specifying the breach
and permitting Merger Sub a reasonable opportunity to cure such
breach. Notwithstanding the preceding sentence, if the breach by
Merger Sub results from its failure to timely pay Employee's Base
Salary, Employee may terminate his employment pursuant to this
Section 5.3 upon providing Merger Sub with at least five (5)
business days prior written notice and reasonable opportunity to
cure such breach. In addition, Merger Sub may terminate this
Agreement upon fifteen (15) business days prior written notice
"without cause" (i.e., without reason or for any reason other
than pursuant to Section 5.1 above). If Merger Sub exercises its
rights pursuant to this Section 5.3, Merger Sub shall pay to the
Employee, as his sole and exclusive remedy, (i) the Base Salary,
(ii) Additional Compensation and (iii) any and all employee
benefits (including health insurance) that the Employee would
have received had he remained in the employ of Merger Sub through
the end of the Term. If Employee exercises his rights pursuant
to this Section 5.3, Merger Sub shall pay to Employee, as his
sole and exclusive remedy, items (i) and (iii) in the preceding
sentence that he would have received had he remained in the
employ of Merger Sub through the end of the Term. Any amounts
payable under this paragraph shall be paid according to the same
schedule as would have applied if the Employee had remained in
the employ of Merger Sub.
6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and
assigns of Merger Sub, and, unless clearly inapplicable, all
references herein to Merger Sub shall be deemed to include any
such successor. In addition, this Agreement shall be binding
upon and inure to the benefit of the Employee and his heirs,
executors, legal representatives and assigns; provided, that this
Agreement and any provision hereunder shall not be assigned,
transferred or delegated by Employee without the prior written
approval of the Board of Directors of Merger Sub.
7. Entire Agreement; Waivers. This Agreement and the Non-
Competition Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof. No
supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of
any of the provisions 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. No
waiver shall be binding unless executed in writing by the party
making the waiver.
8. Severability. All provisions contained herein are
severable and in the event that any of them shall be held to be
to any extent invalid or otherwise unenforceable by any court of
competent jurisdiction, such provision shall be construed as if
it were written so as to effectuate to the greatest possible
extent the parties' expressed intent; and in every case the
remainder of this Agreement shall not be affected thereby and
shall remain valid and enforceable, as if such affected provision
were not contained herein.
9. Notices. All notices, requests, demands, and other
communications provided for hereunder shall be in writing and
shall be deemed to have been duly given upon receipt if
(i) delivered in person; (ii) given by facsimile; (iii) sent by
Federal Express or other nationally recognized overnight delivery
service, charges paid by the sender, or (iv) upon the earlier of
receipt or five (5) business days after being sent by registered
or certified mail, return receipt requested, with proper postage
prepaid, as follows:
To the Employee at: Bryan Rosenberger
Clinitec International, Inc.
Cedar Creek Corporate Center
195A Witmer Road
Horsham, PA 19044
Facsimile No. (215) 957-5493
With a copy to: Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, NJ 08540-6615
Attn: William J. Thomas, Esq.
Facsimile No. (609) 520-0360
To the Company at: Quality Systems, Inc.
17822 East 17th Street
Suite 210
Tustin, CA 92680
Attn: Sheldon Razin, Chief Executive Officer
Facsimile No. (714) 731-9494
With a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attn: Bruce R. Hallett, Esq.
Facsimile No. (714) 752-7522
10. Applicable Law. The terms of this Agreement shall be
governed by the laws of the Commonwealth of Pennsylvania
applicable to agreements entered into, to be wholly performed in
and among residents exclusively of, Pennsylvania, without regard
to the conflicts of law provisions thereof.
11. Termination of Other Agreements. Upon the effective
date of this Agreement, all other employment, severance or other
similar agreements between the Employee and Clinitec and/or any
affiliate, subsidiary or parent company of Clinitec, if any,
shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment
of any other amounts shall be made thereunder, notwithstanding
any provision to the contrary set forth therein.
12. Liquidated Damages. Employee acknowledges and agrees
that his employment by Merger Sub is necessary to maintain the
goodwill of Clinitec's business as operated by Merger Sub
following the Merger, and that this Agreement is a condition to
consummation of the Merger by QSI and Merger Sub. Employee,
Merger Sub and QSI acknowledge and agree that the business of
Clinitec, as operated by Merger Sub subsequent to the Merger,
will suffer loss of business relations and other goodwill if (A)
Employee resigns or voluntarily terminates this Agreement prior
to its expiration or (B) this Agreement is terminated for cause
under Section 5.1 (except for subsections (vi) and (vii)
thereof), and that it will be extremely difficult to ascertain or
quantify the actual amount of damages or loss suffered by QSI or
Merger Sub as a result of such resignation or termination.
Accordingly, Employee agrees to pay to Merger Sub as liquidated
damages the amounts as specified below if (X) Employee terminates
this Agreement prior to the expiration of its Term for any reason
other than pursuant to and in accordance with the provisions of
Section 5.3 for breach of this Agreement by Merger Sub or (Y)
Merger Sub terminates this Agreement for cause under Section 5.1
(except for subsections (vi) and (vii) thereof) prior to the
expiration of its Term. Employee shall be entitled to pay up to
one-half (1/2) of a required liquidated damages payment in QSI
Stock (to the extent Employee owns sufficient amounts of QSI
Stock) valued at the average of the closing trading price for QSI
Stock over the twenty (20) day period ending on the termination
date.
Liquidated Damages
(i) $200,000 if terminated during the first year
of the Term;
(ii) $160,000 if terminated during the second year
of the Term; and
(iii) $100,000 if terminated during the third year
of the Term.
13. Obligations of QSI. As inducement for Employee to
enter into this Agreement with Merger Sub, QSI guarantees the
full and prompt performance of each of Merger Sub's debts and
obligations hereunder.
14. Assignment of Inventions. All inventions, computer
programs and associated documentation, whether or not patentable,
made or conceived solely or jointly by Employee during the period
of Employee's employment hereunder, which relate in any manner to
the actual or anticipated business, including research and
development, of QSI, Merger Sub or any of their affiliates
(collectively, the "Company") or are suggested by or result from
work assigned to Employee work performed by Employee, shall be
the property of the Company. By executing this Agreement,
Employee agrees as follows:
(i) Employee will promptly and fully disclose in
writing to the Company all such inventions, computer
programs and associated documentation.
(ii) Employee will cooperate with the Company in
all proper ways to protect the Company's rights therein,
including the execution of papers deemed by the Company to
be desirable or necessary to enable the Company to apply
for, secure, and maintain patent or copyright protection
thereon in the United States and in foreign countries.
[Signature Pages to Follow]
Counterpart Signature Page to Employment Agreement
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
CII ACQUISITION CORPORATION
By:
Its:
QUALITY SYSTEMS, INC.
By:
Its:
EMPLOYEE
Bryan Rosenberger
Schedule B
Annual Compensation Limit Criteria
1. Provided that (i) the business of Clinitec (as
conducted by Merger Sub following consummation of the Merger)
continues to be operated by its current management, and (ii) QSI
does not impose fees for services or other obligations on Merger
Sub which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved
by QSI due to business synergies, management of the combined
entities and economies of scale, if the business of Clinitec does
not achieve Income from Operations of at least $1,675,000
exclusive of the QSI Contribution (as defined in Section 4.1
herein) for the fiscal year ending March 31, 1998 then the Cap
and compensation structure for the fiscal year ending March 31,
1997 will replace the Cap and compensation structure for the
fiscal year ending March 31, 1998.
2. Provided that (i) the business of Clinitec (as
conducted by Merger Sub following consummation of the Merger)
continues to be operated by its current management, and (ii) QSI
does not impose fees for services or other obligations on Merger
Sub which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved
by QSI due to business synergies, management of the combined
entities and economies of scale, if the business of Clinitec does
not achieve at least a 50% increase in its Income from Operations
exclusive of the QSI Contribution (as defined in Section 4.1
herein) for the fiscal year ending March 31, 1999 over the
comparable amount for the fiscal year ending March 31, 1998, then
the Cap and compensation structure in effect for the prior year
will replace the Cap and compensation structure for the fiscal
year ending March 31, 1999.
Exhibit D
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
This NON-COMPETITION AND NON-DISCLOSURE AGREEMENT (this
"Agreement"), is entered into as of this 16th day of May, 1996
("Effective Date") by and among Quality Systems, Inc., a
California corporation ("QSI"), CII Acquisition Corporation, a
California corporation ("Merger Sub") (QSI and Merger Sub are
hereinafter referred to collectively as the "Company") and Bryan
Rosenberger (the "Shareholder").
Recitals
14.1 Company, Clinitec International, Inc., a
Pennsylvania corporation ("Clinitec"), and certain principal
shareholders of Clinitec have entered into that certain Agreement
and Plan of Merger dated May 16, 1996 (the "Merger Agreement"),
pursuant to which Clinitec shall merge (the "Merger") with and
into Merger Sub, a wholly-owned subsidiary of QSI;
14.2 Shareholder is a principal shareholder and officer
of Clinitec and, as such, possesses confidential and proprietary
information regarding Clinitec;
14.3 The execution and delivery of this Agreement is a
condition to closing under the Merger Agreement;
14.4 Shareholder has received substantial consideration
pursuant to the Merger Agreement, which was in part attributable
to this Agreement; and
14.5 Concurrently herewith, Merger Sub and the
Shareholder have entered into either an Employment Agreement or a
Consulting Agreement (hereafter referred to as the "Related
Agreement") pursuant to which the Shareholder will be employed or
retained as a consultant (as the case may be) by Merger Sub and
will perform such duties or services as indicated in the Related
Agreement.
NOW, THEREFORE, for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto covenant and agree as follows:
Agreement
1. NON-COMPETITION AGREEMENT.
1.1 Covenant Not to Compete. The parties understand
and agree that this Agreement is entered into in connection with
the Merger, that the Shareholder is a key and significant
employee of Clinitec and that the Merger Agreement is contingent
upon the Shareholder entering into this Agreement. During the
term of the Restriction Period (as defined below), in
consideration of the performance by QSI and Merger Sub of their
respective obligations under the Merger Agreement, the
Shareholder shall not directly or indirectly enter into or engage
in, or have any interest in any person, firm, corporation,
partnership or venture (whether as an employee, officer,
director, agent, shareholder, creditor, partner, consultant or
otherwise), which engages in or operates a business (i) which
develops, manufactures, sells, implements, provides or arranges
for the provision of information systems and/or software or
practice management systems and/or software for the health care
industry and (ii) which is similar to the business conducted by
QSI, Merger Sub, or any of their respective affiliates or
subsidiaries during the Restriction Period (as defined below) in
the geographic area indicated on Schedule A hereto, or in any way
interferes or competes with the Company in the operation of its
business of Clinitec following consummation of the Merger;
provided, however, that nothing herein shall prohibit the
Shareholder from owning less than one percent (1%) of the capital
stock of a corporation the common stock of which is publicly
traded on a national securities exchange or through NASDAQ. For
purposes of this Agreement, the term "Restriction Period" shall
mean the greater of (i) five (5) years from the Effective Date of
this Agreement or (ii) the period from the Effective Date hereof
through two (2) years following any termination or expiration of
the Related Agreement.
1.2 Covenant Not to Solicit. During the Restriction
Period, the Shareholder agrees not to solicit for, or divert or
attempt to divert, directly or indirectly, any business of the
Company (including, without limitation, the business of Clinitec
as conducted by the Company following consummation of the
Merger), or any customers or suppliers of the Company, to or for
the benefit of any competitor of the Company. Notwithstanding
the preceding sentence, during such period that the Related
Agreement remains in effect and has not expired or been
terminated by either party thereto and so long as Shareholder
uses his best efforts to assure that the actions of Merger Sub
and all of its personnel serve the best interests of the combined
QSI and Merger Sub entity, nothing shall prevent Shareholder
(when reasonable and practicable for Merger Sub's business and
operations) from doing any of the following:
(i) selling software and/or systems to customers
that utilize software and/or systems
competitive with QSI software and/or systems;
(ii) jointly bidding and/or jointly marketing with
competitors of QSI on projects that customers
or potential customers contemplate utilizing
software and/or systems of QSI competitors;
or
(iii) responding to requests of customers or
potential customers inquiring about non-QSI
software and/or systems which may be
applicable or compatible to the customers'
needs.
The Shareholder agrees that during the Restriction
Period, he shall not solicit or induce any person who at any time
within the previous one (1)-year period prior to such
solicitation or contact shall have been an employee or
independent contractor of QSI, Merger Sub or Clinitec to become
employed by or associated with any other person, firm or
corporation, and the Shareholder shall not approach any such
employee or independent contractor for such purpose or authorize
or knowingly approve the taking of such actions by any other
person, firm or corporation or assist any such person, firm or
corporation in taking such action.
1.3 Covenants Not Unduly Restrictive. The Shareholder
acknowledges, represents and warrants to QSI and Merger Sub that
the covenants of the Shareholder in Sections 1.1 and 1.2 hereof
are reasonably necessary for the protection of QSI's or Merger
Sub's interests under this Agreement and are not unduly
restrictive upon the Shareholder. The parties intend that the
covenant contained in Section 1.1 hereof shall be construed as a
series of separate covenants, one for each geographic location to
which Section 1.1 applies, and one for each year period. Except
for geographic coverage, each such separate covenant shall be
deemed identical in terms to the covenant contained in Section
1.1. In any event, if any restriction set forth in Sections 1.1
and 1.2 hereof is held to be unreasonable, then the Shareholder
agrees, and hereby submits, to the reduction and limitation of
such prohibition to such geographic area or time period as shall
be deemed reasonable.
2. NON-DISCLOSURE.
2.1 Proprietary Information. The Shareholder has in
his possession or may come into possession in the future of
certain confidential and/or proprietary information relating to
QSI's, Merger Sub's or Clinitec's business (including, without
limitation, all customer names and customer lists, know how,
patents, patent rights, trademarks, trade names, trade secrets,
service marks and copyrights, and any applications or
registrations therefor, maskworks, net lists, schematics,
technology, computer software programs or applications (in both
source code and object code form), and tangible or intangible
proprietary information or material (excluding Commercial
Software as defined in Paragraph 3.8(c) of the Merger Agreement),
designs, licenses and proprietary rights) hereinafter referred to
as "Proprietary Information."
2.2 Non-Disclosure of Proprietary Information. The
Shareholder hereby agrees (i) to hold the Proprietary Information
in strict confidence and to take all reasonable precautions to
protect such Proprietary Information, (ii) not to divulge any
such Proprietary Information or any information derived therefrom
to any third person, (iii) not to make any use whatsoever at any
time of such Proprietary Information, except, when providing
services to QSI or Merger Sub, and (iv) not to copy any such
Proprietary Information. Without granting any right or license,
QSI or Merger Sub agrees that the foregoing clauses (i), (ii),
(iii) and (iv) shall not apply with respect to any Proprietary
Information that the Shareholder can document (a) is or becomes
generally available to the public other than as a result of a
disclosure by the Shareholder, (b) was available to the
Shareholder on a non-confidential basis prior to its disclosure
by the Company to the Shareholder, or (c) becomes available to
the Shareholder from a person other than QSI, Merger Sub, or
their affiliates, employees or consultants not otherwise known by
Shareholder (after due inquiry) to be bound by a confidentiality
or similar type of agreement. The Shareholder may make
disclosures required by court order, provided the Shareholder
uses reasonable efforts to limit such disclosure and to obtain
confidential treatment or a protective order, has provided the
Company with reasonable prior notice of such required disclosure,
and has allowed the Company to participate in the proceeding at
its own expense.
3. REMEDIES.
3.1 Injunctive Relief; Indemnification. The parties
hereto further agree that the covenants and obligations contained
in this Agreement relate to special, unique and extraordinary
matters and that a violation of any of such covenants or
obligations may cause QSI and/or Merger Sub irreparable injury
for which adequate remedy at law will not be available; and,
therefore, that upon any such breach of any such covenant or
obligation, or any threat thereof, QSI and/or Merger Sub shall be
entitled to the immediate remedy of a temporary restraining
order, preliminary injunction or such other form of injunctive or
equitable relief in addition to whatever remedies they might have
at law. Furthermore, the Shareholder agrees to indemnify QSI and
Merger Sub against and shall reimburse the Company for and in
respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, remedies and penalties,
including interest, penalties and reasonable attorneys' fees and
expenses that QSI and/or Merger Sub shall incur or suffer and
which arise from, are attributable to, by reason of or in
connection with any breach or inaccuracy of or any failure to
perform or comply with any of the Shareholder's agreements or
covenants contained in this Agreement.
3.2 Remedies Cumulative. QSI's and Merger Sub's
rights and remedies under this Agreement are cumulative and are
in addition to any other rights and remedies QSI and/or Merger
Sub may have at law or in equity.
4. MISCELLANEOUS.
4.1 Notices. All notices, requests, demands, and
other communications provided for hereunder shall be in writing
and shall be deemed to have been duly given upon receipt if
(i) delivered in person; (ii) given by facsimile; (iii) sent by
Federal Express or other nationally recognized overnight delivery
service, charges paid by the sender, or (iv) upon the earlier of
receipt or five (5) business days after being sent by registered
or certified mail, return receipt requested, with proper postage
prepaid, as follows:
To the Shareholder at: Clinitec International, Inc.
Cedar Creek Corporate Center
195A Witmer Road
Horsham, PA 19044
Attn: Bryan Rosenberger
With a copy to: Buchanan Ingersoll
500 College Road East
Princeton Forrestal Center
Princeton, NJ 08540-6615
Attn: William J. Thomas, Esq.
Facsimile No. (609) 520-0360
To the Company at: Quality Systems, Inc.
17822 East 17th Street
Suite 210
Tustin, CA 92680
Attn: Sheldon Razin, Chief Executive Officer
Facsimile No. (714) 731-9494
With a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attn: Bruce R. Hallett, Esq.
Facsimile No. (714) 752-7522
4.2 Assignment. This Agreement shall be binding on,
and shall inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and assigns;
provided, however, that the Shareholder may not assign, transfer
or delegate his rights or obligations hereunder and any attempt
to do so shall be null and void.
4.3 Entire Agreement; Waivers. This Agreement and the
Related Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof. No
supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of
any of the provisions 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. No
waiver shall be binding unless executed in writing by the party
making the waiver.
4.4 Amendment. This Agreement may be modified or
amended only by a written agreement signed by both parties.
4.5 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original,
but which together shall constitute one and the same instrument.
4.6 Severability. The provisions of this Agreement
shall be deemed severable, and if any part of any provision is
held illegal, void or invalid under applicable law, such
provision may be changed to the extent reasonably necessary to
make the provision, as so changed, legal, valid and binding. If
any provision of this Agreement is held illegal, void or invalid
in its entirety, the remaining provisions of this Agreement shall
not in any way be affected or impaired but shall remain binding
in accordance with their terms.
4.7 Governing Law. The terms of this Agreement shall
be governed by the laws of the Commonwealth of Pennsylvania
applicable to agreements entered into, to be wholly performed in
and among residents exclusively of, Pennsylvania, without regard
to the conflicts of law provisions thereof.
4.8 Attorneys' Fees. In the event of any proceeding,
claim or action being filed or instituted between the parties
with respect to this Agreement, the prevailing party will be
entitled to receive from the other party all costs, damages and
expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with that action or proceeding
whether or not the controversy is reduced to judgment or award.
The prevailing party will be that party who may be fairly said by
the trier of fact to have prevailed on the major disputed issues.
[Signature Page to Follow.]
Counterpart Signature Page to Non-Competition and Non-Disclosure
Agreement
IN WITNESS WHEREOF, the parties hereto have executed
this Non-Competition and Non-Disclosure Agreement as of the day
and year first above written.
QUALITY SYSTEMS, INC.
By:
Sheldon Razin
Its: President and Chief Executive Officer
CII ACQUISITION CORPORATION
By:
Its:
SHAREHOLDER
BRYAN ROSENBERGER
Schedule A
Geographic Area
(i) The entire world, but to the extent that such geographic
restriction is determined to be unreasonable by a court of
competent jurisdiction; then
(ii) The United States and Canada, but to the extent that such
geographic restriction is determined to be unreasonable by a
court of competent jurisdiction; then
(iii) Any State within the United States or any Province of
Canada in which QSI, Merger Sub or any of their
affiliates or subsidiaries conducts business or
operations, but to the extent that such geographic
restriction is determined to be unreasonable by a court
of competent jurisdiction; then
(iv) Within a fifty (50) mile radius of any location within the
United States or Canada from which QSI, Merger Sub or any of
their affiliates or subsidiaries conducts business or
operations, but to the extent that such geographic
restriction is determined to be unreasonable by a court of
competent jurisdiction; then
(v) Within a fifty mile radius of any location from which
Clinitec (immediately prior to the Merger) conducted
business or operations.
Exhibit E
May 16, 1996
Quality Systems, Inc.
17822 East 17th Street, Suite 210
Tustin, CA 92680
Attn: Robert McGraw, Chief Financial Officer
Re: Investment in Quality Systems, Inc, a
California corporation
Dear Mr. McGraw:
In connection with the acquisition of shares of Common
Stock (the "Securities") of Quality Systems, Inc., a California
corporation (the "Company"), by the undersigned (the "Investor"),
the Investor hereby represents and warrants as follows:
(a) Investment. Investor is acquiring the Securities
for investment purposes only, for his/her own account and not as
a nominee or agent for any other person, and not with a view to,
or for resale in connection with, any distribution thereof within
the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Investor has no present intention of selling
or distributing the Securities.
(b) Securities Act Registration. Investor understands
that the Securities that he/she is purchasing have not been
registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of
his/her investment intent as expressed herein.
(c) Rule 144. Investor acknowledges that, because
they have not been registered under the Securities Act, the
Securities he/she is purchasing must be held indefinitely unless
subsequently registered under the Securities Act or an exemption
from such registration is available. Investor is aware of the
provision of Rule 144 promulgated under the Securities Act that
permits limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the
Securities, the availability of certain current public
information about the Company, the resale occurring not less than
two years after a party has purchased and paid for the security
to be sold, the sale being through a "broker's transaction" (as
provided by Rule 144(f)), and not exceeding specified limitations
(unless the sale is within the requirements of Rule 144(k)).
(d) Access to Data. Investor has had an opportunity
to ask questions of the Company and has received all business,
financial and other information that he/she has requested
regarding the Company. Investor believes that such information
is sufficient to enable him/her to make an informed decision to
purchase the Securities.
(e) Accredited or Sophisticated Investor. Investor
either: (a) is an accredited investor as defined in Rule 501(a)
of Regulation D of the Securities and Exchange Commission; or
(b)(i) either alone or with Investor's professional advisor or
advisors, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and
risks of the acquisition of the Securities, (ii) either alone by
reason of Investor's business or financial experience or together
with Investor's professional advisor or advisors, has the
capacity to protect Investor's interests in connection with an
acquisition of the Securities, and (iii) is able to bear the eco-
nomic risk of the investment in the Securities, including a
complete loss of the investment.
(f) Restrictive Legend. Investor understands that the
Securities shall bear one or more of the following restrictive
legends:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF EITHER (i) A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES AND "BLUE SKY"
LAWS OR (ii) AN OPINION OF COUNSEL
SATISFACTORY TO QUALITY SYSTEMS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED OR HAS BEEN
DELIVERED TO QUALITY SYSTEMS, INC."
(ii) Any legend required to put third parties on
notice of the existence of the Lock-Up
Agreement.
(iii) Any legend required by applicable state
law.
(g) Certain Representation. In connection with the
delivery and surrender of the shares of Common Stock (the
"Clinitec Stock") of Clinitec International, Inc. ("Clinitec") by
the undersigned pursuant to the merger (the "Merger") of Clinitec
with and into a wholly-owned subsidiary of the Company, the
undersigned represents that (i) the undersigned has full
authority to surrender the certificate(s) representing the shares
of Clinitec Stock free and clear of all liens, claims and
encumbrances and (ii) the shares of Clinitec Stock surrendered by
the undersigned in connection with the Merger constitute all of
the shares of Clinitec Stock owned by the undersigned
(beneficially or otherwise) and the undersigned has no options,
warrants, securities or other claims or rights to acquire
additional securities (including, without limitation, shares of
Clinitec Stock) of Clinitec.
<PAGE>
(h) Address. The address set forth at the end of this
letter is his/her true and correct address.
"INVESTOR"
_________________________________
(Signature)
_________________________________
(Print Name)
Address: _______________________
_______________________
