SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) May 15, 1997
QUALITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 0-13801 95-2888568
(State or other jurisdiction (Commision (IRS Employer
of incorporation) File Number) Identification No.)
17822 East 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 15, 1997, Quality Systems, Inc. (the "Company") acquired substan-
tially all of the assets of MicroMed Healthcare Information Systems, Inc., a
Georgia corporation ("MicroMed"). The acquisition (the "Acquisition") was
achieved pursuant to an Asset Purchase Agreement (the "Agreement"), dated
May 5, 1997, by and among MicroMed, the Company, MHIS Acquisition Corp., a
California corporation and a wholly-owned subsidiary of the Company, and
certain shareholders of MicroMed identified in the Agreement (the "Share-
holders"). In connection with the Acquisition, MicroMed received $4,800,000
in cash with the possibility of receiving up to an additional $6,000,000 in
cash and securities contingent upon certain performance criteria, pursuant
to Section 1.5(b) of the Agreement. In determining the aggregate purchase
price of MicroMed, the Company took into account the value of software
companies of similar industry and size to MicroMed, comparable transactions,
and the market for software companies generally. The source of Registrant's
funds used for the Acquisition were its cash and cash equivalents of which
the Registrant had $21,997,000 as of December 31, 1996.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. No financial statements
of the acquired business are required to be filed.
(b) Pro Forma Financial Information. No pro forma financial information
regarding the Acquisition is required to be filed.
(c) Exhibits
2 Asset Purchase Agreement, dated May 5, 1997, by and among
MicroMed Healthcare Information Systems, Inc., MHIS Acquisi-
tion Corp., Quality Systems, Inc., and Stephen K. Puckett,
Timothy Eggena, Jonathan Harmantas, Robert Davis, Matthew
Tichenor and Robert Hale.
99.1 Text of Press Release dated May 5, 1997.
99.2 Text of Press Release dated May 15, 1997.
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.
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QUALITY SYSTEMS, INC.
May 29, 1997 /s/ Robert G. McGraw
Robert G. McGraw
Vice President and Chief Financial Officer
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INDEX TO EXHIBITS
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Exhibit Description Sequentially
Number
Page
2 Asset Purchase Agreement, dated May 5, 1997, by and
among MicroMed Healthcare Information Systems, Inc.,
MHIS Acquisition Corp., Quality Systems, Inc., and
Stephen K. Puckett, Timothy Eggena, Jonathan Harmantas,
Robert Davis, Matthew Tichenor and Robert Hale. 6
99.1 Text of Press Release dated May 5, 1997. 79
99.2 Text of Press Release dated May 15, 1997. 82
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EXHIBIT 2
ASSET PURCHASE AGREEMENT
BY AND AMONG
MICROMED HEALTHCARE INFORMATION SYSTEMS, INC.,
a Georgia corporation
MHIS ACQUISITION CORP.
a California corporation
QUALITY SYSTEMS, INC.,
a California corporation
AND
STEPHEN K. PUCKETT,
TIMOTHY EGGENA,
JONATHAN HARMANTAS,
ROBERT DAVIS,
MATTHEW TICHENOR
AND
ROBERT HALE
TABLE OF CONTENTS
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Page
ARTICLE I PURCHASE AND SALE OF ASSETS AND PURCHASE PRICE . . . . . . . . 8
1.1 Purchase and Sale of Assets. . . . . . . . . . . . . . . . . . 8
1.2 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . 10
1.3 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . 10
1.4 Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . 11
1.5 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 12
1.6 Capitalized Software . . . . . . . . . . . . . . . . . . . . . 17
1.7 Allocation of Purchase Price . . . . . . . . . . . . . . . . . 17
ARTICLE II CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 18
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Instruments of Conveyance and Transfer . . . . . . . . . . . . 18
2.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 19
2.4 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . 19
3.1 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 20
3.2 Corporate Power and Authority. . . . . . . . . . . . . . . . . 20
3.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 Consents and Approvals of Governmental Authorities . . . . . . 21
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . 21
3.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 21
3.7 Absence of Certain Changes . . . . . . . . . . . . . . . . . . 22
3.8 Title to Properties; Encumbrances; Program Matters . . . . . . 23
3.9 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.10 Intellectual Property. . . . . . . . . . . . . . . . . . . . . 26
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.13 Contracts and Commitments. . . . . . . . . . . . . . . . . . . 29
3.14 Suppliers and Customers. . . . . . . . . . . . . . . . . . . . 30
3.15 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 31
3.16 Employment Law Matters . . . . . . . . . . . . . . . . . . . . 32
3.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 33
3.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 33
3.19 Licenses, Permits and Authorizations . . . . . . . . . . . . . 34
3.20 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.21 Business Trade Receivables and Business Payables . . . . . . . 34
3.22 Investment Matters . . . . . . . . . . . . . . . . . . . . . . 35
3.23 Related Party Transactions . . . . . . . . . . . . . . . . . . 37
3.24 Equipment, Etc . . . . . . . . . . . . . . . . . . . . . . . . 37
3.25 Condition of Tangible Assets . . . . . . . . . . . . . . . . . 37
3.26 Sufficiency of Assets. . . . . . . . . . . . . . . . . . . . . 37
3.27 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . 38
3.28 Safe Deposit Boxes . . . . . . . . . . . . . . . . . . . . . . 38
3.29 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . 38
3.30 Disclosure of Confidential Information . . . . . . . . . . . . 38
3.31 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . 39
4.1 Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.2 Power and Authority. . . . . . . . . . . . . . . . . . . . . . 39
4.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4 Consents and Approvals of Governmental Authorities . . . . . . 40
4.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.6 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . 40
ARTICLE V CERTAIN OBLIGATIONS OF THE PARTIES PRIOR TO CLOSING. . . . . . 40
5.1 Access Prior to the Closing. . . . . . . . . . . . . . . . . . 40
5.2 Confidentiality Prior to the Closing . . . . . . . . . . . . . 41
5.3 Conduct Prior to Closing Date. . . . . . . . . . . . . . . . . 41
5.4 Prohibited Transactions Prior to Closing Date. . . . . . . . . 42
5.5 Closing Balance Sheet. . . . . . . . . . . . . . . . . . . . . 42
5.6 Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.7 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.8 No Negotiations, Etc . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI CONDITIONS TO THE PURCHASER'S OBLIGATIONS . . . . . . . . 43
6.1 Representations and Warranties True. . . . . . . . . . . . . . 43
6.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.3 No Adverse Changes . . . . . . . . . . . . . . . . . . . . . . 43
6.4 Transfer Instruments . . . . . . . . . . . . . . . . . . . . . 44
6.5 Opinion of Counsel to the Seller . . . . . . . . . . . . . . . 44
6.6 Employment Agreements. . . . . . . . . . . . . . . . . . . . . 44
6.7 Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.8 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.9 Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.10 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.11 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII CONDITIONS TO THE SELLER'S OBLIGATIONS. . . . . . . . . . 45
7.1 Representations and Warranties True. . . . . . . . . . . . . . 45
7.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.4 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . 46
7.5 No Adverse Changes . . . . . . . . . . . . . . . . . . . . . . 46
7.6 Authorizations and Approvals . . . . . . . . . . . . . . . . . 46
7.7 Opinion of Counsel to the Purchaser. . . . . . . . . . . . . . 46
7.8 Employment Agreements. . . . . . . . . . . . . . . . . . . . . 46
7.9 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII [RESERVED]. . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE IX CERTAIN POST-CLOSING COVENANTS. . . . . . . . . . . . . . 47
9.1 Financial Statements; Books and Records; Access. . . . . . . . 47
9.2 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . 47
9.3 Noncompetition; Confidentiality. . . . . . . . . . . . . . . . 47
9.4 Public Reports and Disclosure Cooperation. . . . . . . . . . . 49
9.5 Sales Tax Receipt. . . . . . . . . . . . . . . . . . . . . . . 50
9.6 Further Funding. . . . . . . . . . . . . . . . . . . . . . . . 50
9.7 Name Changes . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.8 Seller and Purchaser Operations. . . . . . . . . . . . . . . . 50
9.9 Software Promotion . . . . . . . . . . . . . . . . . . . . . . 51
9.10 Guaranty; Certain Financial Incentives . . . . . . . . . . . . 51
9.11 Sales Leads. . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.12 Successor Executive. . . . . . . . . . . . . . . . . . . . . . 52
9.13 Conduct of Acquired Business . . . . . . . . . . . . . . . . . 53
9.14 Board Composition and Representation . . . . . . . . . . . . . 53
9.15 Noninterference. . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 53
10.1 Survival of Representations and Warranties . . . . . . . . . . 53
10.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XI TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 58
11.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XII MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 58
12.1 Public Announcements . . . . . . . . . . . . . . . . . . . . . 58
12.2 Amendment; Waiver. . . . . . . . . . . . . . . . . . . . . . . 59
12.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 59
12.4 Bulk Sales Law Waiver. . . . . . . . . . . . . . . . . . . . . 59
12.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.7 Governing Law; Consent to Jurisdiction . . . . . . . . . . . . 62
12.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.9 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 62
12.11 Severability. . . . . . . . . . . . . . . . . . . . . . . 62
12.12 No Third Party Beneficiaries. . . . . . . . . . . . . . . 62
12.13 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 63
12.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . 63
12.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . 63
12.16 Recitals; Definitions . . . . . . . . . . . . . . . . . . 63
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LIST OF SCHEDULES
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Schedule 1.1(c) Computer Software, Computer Hardware and Telephone Switches
Schedule 1.1(e) Inventory
Schedule 1.1(f) Personal Property
Schedule 1.1(l) Prepaid Expenses
Schedule 1.2(g) Other Items
Schedule 1.3 Bayfront Letter Agreement
Schedule 1.5(d) Revenue Recognition and Software Capitalization Policies of Purchaser
Purchaser
Schedule 1.5(e) March 31, 1997 List Prices
Schedule 1.5(f) Potential Adjustment Expense
Schedule 3.1 Jurisdictions
Schedule 3.4 Consents and Approvals of Governmental Authorities
Schedule 3.5-1 Financial Statements
Schedule 3.5-2 GAAP Exceptions
Schedule 3.6 Liabilities
Schedule 3.7 Absence of Certain Changes
Schedule 3.8(a) Liens
Schedule 3.8(e) Material Bugs
Schedule 3.8(f) Technical Documentation
Schedule 3.8(g) Software Contracts
Schedule 3.9 Leases
Schedule 3.10 Intellectual Property
Schedule 3.10-1 Sole Rights to Patents, Trademarks, Etc.
Schedule 3.10-2 Limited Rights to Patents, Trademarks, Etc.
Schedule 3.11 Litigation
Schedule 3.12 Insurance Policies
Schedule 3.13(a) Contracts and Commitments
Schedule 3.13(d) Take-or-Pay Contracts
Schedule 3.14(b) Customers
Schedule 3.15 Employee Benefit Plans
Schedule 3.17 Environmental Matters
Schedule 3.19 Licenses, Permits and Authorizations
Schedule 3.21-1 Business Trade Receivables
Schedule 3.21-2 Business Payables
Schedule 3.22 Non-Accredited Investors
Schedule 3.23 Related Party Transactions
Schedule 3.24 Equipment
Schedule 3.27 Tax Returns and Payments
Schedule 3.29 Broker's and Finder's Fees
Schedule 5.7 Consent Matters
Schedule 6.5 Opinion of Counsel to the Seller
Schedule 6.6-1 Employment Agreement of Stephen K. Puckett
Schedule 6.6-2 Employment Agreement of Timothy Eggena
Schedule 6.6-3 Employment Agreement of Jonathan Harmantas
Schedule 6.6-4 Employment Agreement of Robert Davis
Schedule 6.6-5 Employment Agreement of Matthew Tichenor
Schedule 7.5 Adverse Changes
Schedule 9.3 Geographic Area
Schedule 9.6 Further Funding/Budgets
Schedule 9.10 Option Grants
Schedule 9.13 Policies Relating to Conduct of Acquired Business
Schedule 10.2(g) Indemnification Limitation
</TABLE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into on May 5, 1997 by
and among MICROMED HEALTHCARE INFORMATION SYSTEMS, INC., a Georgia corporation
(the "Seller"), and MHIS ACQUISITION CORP., a California corporation and a
wholly-owned subsidiary of QSI (the "Purchaser"), QUALITY SYSTEMS, INC., a
California corporation ("QSI"), and STEPHEN K. PUCKETT ("Puckett"), TIMOTHY
EGGENA ("Eggena"), JONATHAN HARMANTAS ("Harmantas"), ROBERT DAVIS ("Davis"),
MATTHEW TICHENOR ("Tichenor") and ROBERT HALE ("Hale") (collectively, Puckett,
Eggena, Harmantas, Davis, Tichenor and Hale referred to herein as the
"Shareholders").
R E C I T A L S:
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, substantially all of the assets, properties
and rights, including, but not limited to, technology and intellectual property,
and certain proprietary software and systems developed by Seller which consti-
tute the business of the Seller (collectively, the "Business");
WHEREAS, QSI has previously loaned to Seller $200,000 under the terms of
an unsecured Promissory Note dated March 17, 1997 in anticipation of consum-
mating the transactions contemplated herein;
WHEREAS, concurrent with the execution of this Agreement, Seller has
refinanced such $200,000 loan and borrowed an additional $350,000 under the
terms of a Secured Promissory Note in the amount of $550,000 (the "Bridge Loan")
secured by a Security Agreement and Source Code Escrow Agreement, all of even
date herewith, in anticipation of consummating the transactions contemplated
herein;
WHEREAS, Purchaser desires that the current management of Seller (the
"Existing Management") remain in certain management positions of the Business as
such Business exists and is conducted commencing as of April 1, 1997 (the
"Acquired Business");
WHEREAS, the parties acknowledge that the achievement of certain
performance criteria set forth herein is required for (i) the continued
management role of the Existing Management with respect to the Acquired
Business, and (ii) the ability of the Seller to qualify for Contingent Payment
set forth in Section 1.5 herein.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
AGREEMENT
DEFINITIONS
As used in this Agreement, the terms set forth below are defined as follows
(with respect to any financial terms contained herein, the definition of such
terms shall be as defined under Generally Accepted Accounting Principles unless
otherwise specifically defined herein, and in the event of any disparity between
the definitions of any term set forth below and any subsequent definition of
such term as set forth in the text of the Agreement, such subsequent definition
shall govern):
"AAA" shall mean the American Arbitration Association.
"Act" shall mean the Securities Act of 1933, as amended.
"Acquired Business" shall mean the Business as it is conducted upon
April 1, 1997 and thereafter.
"Acquired Business Revenues," shall have the meaning set forth in
Section 1.5(e).
"Action" shall mean all actions, claims and proceedings and, to the
best knowledge of such entity, investigations to which such entity is a
party.
"Add Back Expenses" shall have the meaning set forth in Section
1.5.
"Additional Expenses" shall have the meaning set forth in Section
1.5.
"Adjustment Expenses" shall have the meaning set forth in Section
1.5.
"Advisors" shall mean a party's counsel, accountants and other
authorized agents and representatives.
"Affiliate" or "Affiliates" shall mean, with respect to any
Shareholder, individual, partnership, corporation, association, business
trust, joint venture, governmental entity or other entity of any nature
("Person"), any Person that controls, is controlled by, or is under common
control with, such Person.
"Assumed Liabilities" shall have the meaning set forth in Section
1.3.
"Audited Financial Statements" shall have the meaning set forth in
Section 1.5(d).
"Average Daily Net Sales" shall mean the number computed by
dividing the sum of Total Net Revenues of the Acquired Business for the
twelve (12) months ending March 31, 1998 by 365.
"Bridge Loan" shall mean that certain $550,000 secured loan made
by QSI to Seller under the terms of a Secured Promissory Note dated May 5,
1997.
"Business" shall mean substantially all of the assets, properties
and rights, including, but not limited to, technology and intellectual
property, and certain proprietary software and systems developed by Seller
which constitute the business of the Seller.
"Business Payables" shall mean all trade payables, liabilities and
deferred revenue incurred by the Seller resulting from Seller's ownership,
conduct and operation of the Business in the ordinary course. Business
Payables shall not include trade payables or liabilities arising from
Seller's transaction costs including, without limitation, costs and
expenses related to the sale of the Transferred Assets such as applicable
attorneys' and accountants' costs and expenses.
"Business Trade Receivables" shall mean all accounts receivable of
the Business resulting from Seller's ownership, conduct and operation of
the Business in the ordinary course.
"Clinitec" shall mean Clinitec International, Inc., a California
corporation, and a wholly-owned subsidiary of QSI.
"Closing" shall mean the closing of the transactions contemplated
by this Agreement.
"Closing Balance Sheet" shall have the meaning set forth in Section
5.5.
"Closing Date" shall mean May 15, 1997.
"Closing Date Financial Statements" shall have the meaning set
forth in Section 3.5.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidential Matters" shall mean all secrets, know-how, processes,
formulas, discoveries, improvements, designs, business affairs and other
secrets.
"Contingent Payment" shall have the meaning set forth in Section
1.5(b).
"Damages" shall have the meaning set forth in Section 10.2.
"Davis" shall mean Robert Davis.
"Days Sales Outstanding" shall mean the number computed by dividing
Purchaser's accounts receivable before any allowance for doubtful accounts
at March 31, 1998 by Average Daily Net Sales.
"Deductible Revenues" shall have the meaning set forth in Section
1.5(e).
"Eggena" shall mean Timothy Eggena.
"Employee Benefit Plan" shall mean each of the employee benefit
plans disclosed on Schedule 3.15(a).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Existing Management" shall mean the Shareholders.
"Excluded Assets" shall have the meaning set forth in Section 1.2.
"Excluded Liabilities" shall have the meaning set forth in Section
1.4.
"Executive Committee" shall have the meaning set forth in
Section 9.14.
"Financial Statements" shall have the meaning set forth in Section
3.5.
"Hale" shall mean Robert Hale.
"Harmantas" shall mean Jonathan Harmantas.
"Income From Operations" shall mean income or loss before
(i) investment and interest income, (ii) interest expense attributable
solely to the Working Capital Line of Credit, and (iii) any provision for
income taxes. Investment and interest income, interest expense
attributable solely to the Working Capital Line of Credit and any
provision for income taxes shall be set forth as separate line items in
the Audited Financial Statements.
"Indemnified Party" shall have the meaning set forth in Section
10.1.
"Indemnifying Party" shall have the meaning set forth in Section
10.1.
"Intellectual Property" shall have the meaning set forth in Section
1.1(h).
"Inventory" shall mean all finished goods, work-in-process,
packaging, supplies, spare parts, raw materials and other miscellaneous
inventories, whether current, excess or obsolete used in the Business,
wherever located.
"Investors" shall mean Seller and the Shareholders.
"JAMS" shall mean the Judicial Arbitration & Mediation Services,
Inc.
"Leasehold" shall mean the Premises including all fixtures existing
thereon.
"Lien" shall have the meaning set forth in Section 3.8(d).
"Liability" shall mean all debts, liabilities, commitments or
obligations of any nature, absolute, accrued, contingent or otherwise.
"March 31, 1997 Balance Sheet" shall mean the balance sheet as of
March 31, 1997.
"Material Bug" shall mean a program defect that severely impacts
a client's business process. Such defects require an immediate program
modification but exclude any requested functionality that extends beyond
the program's standard functional specifications.
"Material Contracts" shall mean all of the documents identified on
Schedules 3.9, 3.10, 3.13 and 3.15.
"MicroMed Name" shall mean MicroMed Healthcare Information Systems,
Inc.
"OSHA" shall mean the Occupational Safety and Health
Administration.
"Permit" shall mean all licenses, permits, authorizations,
approvals, consents, franchises and orders required for the conduct and
operation of the Business.
"Permitted Liens" shall mean (i) Liens for taxes (excluding Liens
for taxes arising out of the Transfer of the Transferred Assets) not yet
delinquent or the validity of which are being contested in good faith,
(ii) Liens for purchase money security interests described on Schedule
3.8(a), and (iii) Liens described on Schedule 3.8(a) which Seller has
agreed that it will discharge.
"Person" shall mean any individual, partnership, corporation,
association, business trust, joint venture, governmental entity or other
entity of any nature.
"Personal Property Taxes" shall mean ad valorem taxes imposed upon
the Transferred Assets other than the Premises.
"Post Closing Financial Statements" shall have the meaning set
forth in Section 3.5.
"Premises" shall mean the Seller's leasehold interest in the
premises located at 3405 Piedmont Road, Suite 350, Atlanta, Georgia 30305.
"Pretax Operating Income" shall have the meaning set forth in
Section 1.5(e).
"Pretax Operating Loss" shall mean Pretax Operating Income of less
than zero.
"Previously Delivered Financial Statements" shall have the meaning
set forth in Section 3.5.
"Program" shall mean all versions (existing and future), components
and available add-on modules of the computer program marketed commonly as
"MicroMed".
"Puckett" shall mean Stephen K. Puckett.
"Purchaser" shall mean MHIS Acquisition Corp., a California
corporation.
"QSI" shall mean Quality Systems, Inc., a California corporation.
"QSI Shares" shall mean shares of QSI's authorized and previously
unissued Common Stock.
"QSI Share Value" shall mean the average last trade price of the
QSI Shares as reported on the NASDAQ National Market for the twenty (20)
trading days immediately prior to June 29, 1998.
"Real Property Taxes" shall mean ad valorem taxes imposed upon the
Premises, general assessments imposed with respect to the Premises and
special assessments upon the Premises, whether payable in full or by
installments prior to the Closing Date.
"Recoverable Disbursements" shall mean any cash payments made by
Seller during the period from March 17, 1997 through and including the
Closing Date for bonuses, loans (including, but not limited to, repayment
of any existing loans from shareholders), any distributions (other than
ordinary course salaries, benefits and expense reimbursements not related
to the sale of the Transferred Assets) to Seller's Shareholders for any
purpose, and any costs and expenses related to the sale of the Transferred
Assets and ongoing Acquired Business (including, but not limited to,
Seller's attorney's and accountant's costs and expenses).
"Seller" shall mean MicroMed Healthcare Information Systems, Inc.,
a Georgia corporation.
"Seller's Knowledge" shall mean the knowledge of the officers,
directors and shareholders of Seller.
"Shareholders" shall mean Puckett, Davis, Eggena, Hale, Harmantas
and Tichenor.
"Software Contracts" shall have the meaning set forth in Section
3.8(g).
"Technical Documentation" shall mean all technical and descriptive
materials owned by Seller relating to the acquisition, design development,
use or maintenance of computer code and program documentation in any and
all computer programming languages. The Technical Documentation includes
the source code, system documentation, statements or principles of
operation, and schematics for the Program, as well as any pertinent
commentary or explanation that may be necessary to render such materials
understandable and usable by a trained computer programmer. The Technical
Documentation also includes any program (including compilers),
"workbenches," tools and higher level (or "proprietary") language used for
the development, maintenance, and implementation of the Program.
"Tichenor" shall mean Matthew Tichenor.
"Total Net Revenues" shall mean revenues of the Acquired Business
that constitute the ongoing major or central operations less all related
sales returns, allowances, discounts and the like. Total Net Revenues
shall be set forth as a separate line item in the Audited Financial
Statements.
"Transfer" shall mean to sell, transfer, convey, assign and
deliver.
"Transferred Assets" shall have the meaning set forth in Section
1.1.
"Union Contract" shall mean any collective bargaining agreement or
agreement with a union.
"Working Capital" shall mean current assets minus current
liabilities. For purposes of this calculation, the Working Capital Line
of Credit, and related accrued interest thereon, shall be considered a
long-term liability.
"Working Capital Line of Credit" shall mean the $2 million line of
credit set forth in Section 9.6.
ARTICLE I
PURCHASE AND SALE OF ASSETS AND PURCHASE PRICE
1.1 Purchase and Sale of Assets. Subject to the terms and conditions
of this Agreement, on the Closing Date (as defined in Section 2.1) the Seller
shall sell, transfer, convey, assign and deliver ("Transfer") to the Purchaser,
and the Purchaser shall purchase, acquire and accept from the Seller, all of the
Seller's right, title and interest in and to all of the properties, assets,
contracts, rental agreements, purchase orders, sales orders and leases of every
kind, character and description, whether tangible or intangible, whether real,
personal or mixed, whether accrued, contingent or otherwise, and wherever
located, relating to the Business as of the Closing Date, less and except the
Excluded Assets (as defined in Section 1.2) (after giving effect to the
exclusion of the Excluded Assets, such assets are hereinafter collectively
referred to as the "Transferred Assets"), free and clear of all Liens (as
defined in Section 3.8(d)) except for Permitted Liens (as defined in Section
3.8(a)) including, without limitation:
(a) the Seller's leasehold interest in the Premises, including
all fixtures and rights to fixtures existing thereon ("Leasehold");
(b) all equipment, furniture, office and computer equipment,
spare parts, supplies, machinery and tools set forth on Schedule 3.24 and
rights to obtain same under the Leasehold;
(c) all versions of computer software including, without
limitation, the program (the "Program"), known commonly as "MicroMed," and
its documentation, including source code, object code, related programming
tools, Technical Documentation and systems documentation (including the
technical descriptive materials relating to the use or maintenance of all
versions of such software), computer hardware and telephone switches set
forth on Schedule 1.1(c);
(d) all vehicles and related equipment set forth on Schedule
3.24;
(e) all Inventory, a complete and accurate list of which is set
forth on Schedule 1.1(e);
(f) all leases of personal property, rental agreements,
commitments, purchase orders and sales orders (including unfilled customer
orders for products of the Business), license agreements, service
agreements, maintenance agreements, custom software agreements,
distribution agreements, supply agreements and other contracts, agreements
and understandings, whether written or oral, of or relating to the
Business as set forth on Schedule 1.1(f);
(g) any Business Trade Receivables (as defined in Section 3.21);
(h) all intellectual property rights, both registered and at
common law, relating to the Business, irrespective of where any of the
same were issued, whether pending or existing (collectively, the
"Intellectual Property"), as set forth on Schedule 3.10, including,
without limitation, all: United States and foreign patents or any
descriptions and applications therefor; registrations of trademarks,
service marks and of other marks, registrations of trade names, labels,
logos, trading styles or other trade rights, registered user entries, and
applications for any such registrations or entries; United States and
foreign copyrights, copyright registrations and applications therefor;
United States and foreign trademarks and other marks, trade names, labels
and other trade rights, whether or not registered, and applications
therefor; trade secrets, know-how, inventions, discoveries, improvements,
engineering or other drawings, designs, processes and formulae, whether
patented or patentable or not; customer lists, technical data, marketing
information and plans, software, software documentation and software
source code(s); any other proprietary information or intangible rights
related in any way to the Business; shop rights, license agreements and
other agreements relating in whole or in part to any of the foregoing; and
all claims and causes of action on behalf of the Seller or against third
parties relating to any of the foregoing, including claims and causes of
action for past infringement;
(i) all books, records and confidential information which have
been reduced to writing relating to the Business, including without
limitation (i) diagrams, drawings and other technical papers, (ii) payroll
and employee benefit records, (iii) inventory, maintenance and asset
history records, and (iv) customer lists and records, but excluding such
writings pertinent to corporate, financial or administrative matters to
the extent not germane to the Business (delivery of such books and records
to be deemed to occur at 11:59 p.m. on the Closing Date);
(j) the names "MicroMed" and "MicroMed Healthcare Information
Systems, Inc.," and any derivation thereof, and all of the right, title
and interest of the Seller in the logos relating to such names, including
the goodwill associated with each of the foregoing, to the extent owned by
Seller;
(k) all cash and cash equivalents, if any, in the amount shown
on the Closing Balance Sheet (as defined in Section 5.5); and
(l) those prepaid expenses paid by Seller on or prior to Closing
Date in respect of the Business as set forth on Schedule 1.1(l).
1.2 Excluded Assets. Notwithstanding anything in Section 1.1 to the
contrary, the Seller shall retain all of its right, title and interest in and to
all of, and shall not Transfer to the Purchaser any of, the following assets,
rights and properties (the "Excluded Assets"):
(a) all federal, state, local and foreign income tax deposits
paid by the Seller in connection with the income or operations of the
Business, with respect to any period ending on or before the Closing Date;
(b) any proceeds paid or payable in accordance with this
Agreement;
(c) all minute books, stock books and similar corporate records
of the Seller (provided reasonable copies thereof are supplied to
Purchaser);
(d) any rights of the Seller in, to or under any collective
bargaining agreement or union contract (individually, a "Union Contract"
and, collectively, the "Union Contracts") to which the Seller is a party
or by which the Seller, any of its employees or the Business are bound;
(e) any assets relating to any "employee benefit plan" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or any other plans, programs or arrangements of
any kind relating to employee benefits sponsored or maintained by the
Seller for the benefit of the employees or former employees of the
Business;
(f) any assets not relating to the Business;
(g) any other items set forth on Schedule 1.2(g); and
(h) the Seller's right to enforce the Purchaser's
representations, warranties and covenants hereunder and all other rights
of the Seller under this Agreement or any instrument executed pursuant
hereto.
1.3 Assumption of Liabilities. Subject to the terms and conditions of
this Agreement, on the Closing Date, the Purchaser shall assume and agree to
pay, perform and discharge when due only the following liabilities and
obligations of the Seller (the "Assumed Liabilities"):
(a) the Seller's Business Payables as defined in Section 3.21
(and as specifically identified as assumed by the Purchaser on Schedule
3.21-2 or otherwise arising out of the ordinary course of business since
March 31, 1997) and, to the extent specifically assigned to the Purchaser
under this Agreement, its obligations under (i) leases of real and
personal property, (ii) rental agreements, (iii) commitments, (iv)
manufacturing agreements, (v) purchase orders, (vi) sales orders
(including unfilled customer orders for products of the Business) and
(vii) other contracts and agreements of or relating to the Business,
including, without limitation, all contracts and agreements disclosed on
the Schedules to this Agreement and as specifically assigned to and
assumed, in writing, by Purchaser; and
(b) the Seller's obligations under contracts with persons, firms
or corporations engaged in the sale, distribution, or maintenance of the
Business' products, to the extent specifically assigned under this
Agreement, including without limitation, $363,000 to be paid subsequent to
the Closing Date to Bayfront Medical Center, Inc. in connection with that
certain Letter Agreement dated August 1, 1995, as amended (attached hereto
as Schedule 1.3), between Seller and Bayfront Medical Center, Inc. wherein
Seller is obligated to pay $575,000 to Bayfront Medical Center, Inc. of
which $212,000 was paid by Seller at Closing.
1.4 Excluded Liabilities.
(a) Except for the Assumed Liabilities set forth in Section 1.3,
the Purchaser shall not assume, and shall have no liability for, any
debts, liabilities, obligations, expenses, taxes, contracts or commitments
of the Seller or the Business of any kind, character or description,
whether accrued, absolute, contingent or otherwise, arising out of any act
or omission occurring or state of facts existing prior to or on the
Closing Date (the "Excluded Liabilities"). The Seller shall remain
fully liable for the Excluded Liabilities.
(b) The Purchaser shall be free to hire such persons, whether or
not employees of the Seller, on such terms and conditions of employment as
the Purchaser shall determine in the exercise of its sole discretion, and
nothing in this Agreement shall establish any enforceable rights, legal or
equitable, in any person other than the parties hereto, including, without
limitation, any employee of the Seller or any beneficiary of such
employee, beyond those which constitute Assumed Liabilities pursuant to
Section 1.3. Any claim, including any claim for benefits, asserted, by or
on behalf of any person with respect to such person's employment by the
Purchaser, shall be governed solely by applicable employment policies and
employee benefit plans, if any, which the Purchaser shall adopt after the
Closing Date, as construed in accordance with applicable federal and state
law. Notwithstanding anything contained herein to the contrary, the
Purchaser shall not be obligated to establish or maintain for the benefit
of employees of the Acquired Business any employee benefit plan or fringe
benefit arrangement of any kind, including, but not limited to, ERISA
plans. The Seller will retain sole and complete responsibility for the
administration of, and benefits payable under, all employee benefit plans
maintained by Seller for the benefit of the employees of the Seller on or
prior to the Closing Date subject to the terms of such plans, other than
benefits payable that are specifically assumed in writing by Purchaser
under this Agreement. Notwithstanding anything to the contrary herein,
the Purchaser may, in its sole and absolute discretion, terminate, with or
without cause, any employee hired by the Purchaser in connection with the
transactions contemplated hereby except with respect to the provisions of
any written employment agreement between the Acquired Business and such
employee.
1.5 Purchase Price.
(a) At the Closing, Purchaser shall (i) assume the Assumed
Liabilities and (ii) pay to Seller $4,800,000 as follows: (A) deliver
within three (3) days of the Closing Date a check to Bayfront Medical
Center, Inc. in the amount of $212,000; and (B) pay to Seller $4,588,000
less the Recoverable Disbursements, if any, in cash;
(b) Up to an additional $6 million shall be paid by Purchaser no
later than ninety (90) days after March 31, 1998 ("Contingent Payment")
subject to and contingent upon the Acquired Business (i) achieving the
requirements set forth in Section 1.5(c) and (ii) the performance criteria
specified in this Section 1.5(b) below. At the sole option of Purchaser's
Board of Directors, up to 15% of the Contingent Payment may be paid by
Purchaser with QSI Shares at the QSI Share Value with a cash payment made
in lieu of any fractional share issuance. The remaining portion of the
Contingent Payment not paid in QSI Shares shall be paid in cash. The
amount of the Contingent Payment will be based on the audited financial
performance (as set forth in Section 1.5(d)) of the Acquired Business for
the twelve (12) month period ending March 31, 1998 as set forth in Section
1.5(d). If both Acquired Business Revenues and Pretax Operating Income
are not at least $3.8 million and $600,000, respectively, then there will
be no Contingent Payment of any amount regardless of whether either of
these measures individually exceed the required respective specified
minimum amounts. If both Acquired Business Revenues and Pretax Operating
Income equal or exceed $5 million and $1.2 million, respectively, then the
Contingent Payment shall be $6 million. For Acquired Business Revenues of
at least $3.8 million and Pretax Operating Income of at least $600,000,
the Contingent Payment amount will be the average of the amounts for each
of these items indicated in the following table.
(in millions)
Criteria
Acquired Pretax Contingent
Business Operating Payment
Revenues Income Amount
-------- --------- ----------
<TABLE>
<CAPTION> <C> <C> <C>
$5.00 $1.20 $6.000
4.90 1.15 5.667
4.80 1.10 5.333
4.70 1.05 5.000
4.60 1.00 4.667
4.50 0.95 4.333
4.40 0.90 4.000
4.30 0.85 3.667
4.20 0.80 3.333
4.10 0.75 3.000
4.00 0.70 2.667
3.90 0.65 2.333
3.80 0.60 2.000
</TABLE>
For example, if the Acquired Business attains $4.79 million in Acquired
Business Revenues and $760,000 in Pretax Operating Income, then the
Contingent Payment will be ($5 million + $3 million) / 2 = $4 million.
Each level in the table must be attained or exceeded in order to qualify
for utilizing the Contingent Payment indicated for that level in the
calculation (i.e., Acquired Business Revenues and Pretax Operating Income
will be rounded down to the nearest level). Purchaser and Seller further
agree that for any software and/or system which is shipped as of March 31,
1998, for which installation is not complete as of March 31, 1998, the
revenues and related costs (e.g., sales commissions and labor installation
costs) will be accrued as of March 31, 1998, in the same manner as if
installation had been completed as of March 31, 1998.
(c) In addition, to be eligible for any Contingent Payment:
(i) For the period commencing one (1) day after the
Closing Date through June 30, 1997 and for each of the quarterly
periods ending September 30, 1997, December 31, 1997, and March 31,
1998, Purchaser shall not incur a Pretax Operating Loss exceeding
($250,000) for any of these periods.
(ii) For the periods commencing one (1) day after the
Closing Date through (A) September 30, 1997, (B) December 31, 1997,
and (C) March 31, 1998, respectively, Purchaser shall not incur a
cumulative Pretax Operating Loss exceeding ($500,000) for any of
these periods.
(iii) The outstanding principal balance due QSI under the
Working Capital Line of Credit may not exceed $1.25 million at any
time commencing with the Closing Date and ending June 30, 1997.
(iv) The outstanding principal balance due QSI under the
Working Capital Line of Credit may not exceed $1.75 million at any
time during the quarter ending September 30, 1997.
(v) At any time from the Closing Date through March 31,
1998, the outstanding principal balance due QSI under the Working
Capital Line of Credit may not exceed $2 million and the cash
requirements of the Purchaser may not exceed the $2.00 million
Working Capital Line of Credit, plus cash generated solely from the
ongoing operations of the Acquired Business.
(vi) As of March 31, 1998, the Purchaser's Days Sales
Outstanding shall not exceed one hundred eighty (180) days and the
Purchaser's accounts receivable aging shall be such that the
percentage of total receivables in excess of fifty-nine (59) days
outstanding is less than fifty-five percent (55%).
(d) The audited financial performance of the Acquired Business
shall consist of the combined audited income statement (or statement of
operations as the case may be) of the Acquired Business of the Seller for
the period commencing April 1, 1997 through the Closing Date and the
audited income statement (or statement of operations as the case may be)
of the Acquired Business of the Purchaser for the period commencing the
day immediately following the Closing Date through March 31, 1998
("Audited Financial Statements"). All financial statements identified in
this Section 1.5(d) shall be prepared in accordance with Generally
Accepted Accounting Principles. Schedule 1.5(d) sets forth Purchaser's
revenue recognition and software capitalization policies for the Acquired
Business which are in accordance with Generally Accepted Accounting
Principles and which shall be applied consistently throughout the twelve
(12) month period ending March 31, 1998. The auditors shall be the same
firm which performs the audit of QSI's consolidated financial statements
for the fiscal year ending March 31, 1998.
(e) "Acquired Business Revenues," as that term is utilized in
this Agreement, will be computed by starting with Total Net Revenues and
such amount will be adjusted by deducting therefrom all revenues which are
included in Total Net Revenues ("Deductible Revenues") for the applicable
period during the twelve (12) months ending March 31, 1998, other than the
following:
(i) Revenues from the sale of systems, upgrades and
supplies for which the related discount, if any, from the March 31,
1997, list price, as set forth on Schedule 1.5(e), does not exceed
twenty-five percent (25%) unless approved in writing in advance by
QSI;
(ii) Maintenance revenues;
(iii) Time and materials or fixed fee contract revenues
generated from users of the Program, e.g., revenues from customer
funded software development projects, specially contracted training
projects and specially contracted consulting projects.
(iv) Revenues from sales of source code for customer's
own internal use which will not be used to compete against Purchaser
or QSI;
(v) Royalties for referring customers, such as
Purchaser's dealings with Netsolve;
(vi) Transaction revenues based on usage of the Acquired
Business software, e.g., revenues from a service bureau utilizing
the Program that have contracted with the Acquired Business to pay
for its utilization of the Program by paying the Acquired Business
a specified percentage of the revenues earned by the service bureau
from providing specified services to the customers of the service
bureau; and
(vii) Normal business directions other than the above and
which will be mutually agreed upon in writing by Purchaser and QSI.
"Pretax Operating Income" as that term is utilized in this Agreement will
be computed by starting with Income From Operations for the applicable
period and such amount will be adjusted by deducting the gross margin
contribution of the Deductible Revenues from Income From Operations,
adding back to Income From Operations certain identified expenses that
were deducted from Total Net Revenues to arrive at Income From Operations
("Add Back Expenses") and deducting certain identified expenses from
Income From Operations which have not been deducted from Total Net
Revenues to arrive at Income From Operations ("Additional Expenses").
(Add Back Expenses and Additional Expenses are collectively "Adjustment
Expenses.")
(f) All Adjustment Expenses must be designated as such in writing
by both QSI and Purchaser's President prior to their incursion. If QSI
and Purchaser's President cannot agree whether an expense will be an
Adjustment Expense, both parties will use reasonable best efforts to
resolve the dispute. If the dispute cannot be resolved between the two
parties, then the parties will go to arbitration in accordance with
Section 12.15. Any expense which has not been designated as an Adjustment
Expense by both parties prior to incurring said expense cannot
retroactively be designated as an Adjustment Expense regardless of the
nature of the expense.
(g) Add Back Expenses are:
(i) QSI's expenses and QSI's preapproved Purchaser
expenses incurred solely to implement and integrate the acquisition
of the Acquired Business with QSI and Clinitec; or
(ii) Expenses incurred by Purchaser at the written
instruction of QSI directing Purchaser to incur such expenses that
Purchaser would not have otherwise incurred in the ordinary and
reasonable course of conducting the Acquired Business; or
(iii) Expenses included in Purchaser's financial
statements for the applicable period during the period commencing on
(1) day after the Closing Date through March 31, 1998 arising solely
from the use of the purchase method of accounting to record the
acquisition of the Acquired Business (e.g., amortization expense
resulting from goodwill recorded in the purchase transaction, the
increase in amortization expense related to the step up in value
of the Seller's capitalized software as a result of purchase
accounting and the charge for in-process research and development
attributed to the acquisition); or
(iv) Expenses included in Purchaser's financial
statements for the applicable period during the period commencing
one (1) day after the Closing Date through March 31, 1998
attributable to Damages in the amount for which Purchaser and/or QSI
was indemnified by Seller and/or the Shareholders.
(h) Additional Expenses are:
(i) Expenses incurred by QSI or Clinitec which provide
a value added benefit to Purchaser;
(ii) Expenses incurred by QSI or Clinitec that Purchaser
has requested in writing; or
(iii) $363,000 to be paid by Purchaser to Bayfront Medical
Center, Inc. in connection with that certain letter agreement dated
August 1, 1995, as amended (attached hereto as Schedule 1.3),
between Seller and Bayfront Medical Center, Inc. wherein Seller is
obligated to pay $575,000 to Bayfront Medical Center, Inc. of which
$212,000 was paid by Seller at Closing.
Within fifteen (15) days of receipt of written notice by QSI from
Purchaser that Purchaser has made cash payment of an Add Back Expense
specified in Section 1.5(g)(i) and (ii), QSI shall reimburse Purchaser for
said disbursement. Within fifteen (15) days of receipt of written notice
by Purchaser from QSI that QSI has made cash payment of an Additional
Expense, Purchaser shall reimburse QSI for said disbursement.
Schedule 1.5(f) sets forth examples of specific expenses together
with the party which should be responsible for said expense. If the party
responsible for the expense has not recorded the expense and corresponding
liability for/made payment of that expense, then the expense will become
an Adjustment Expense in accordance with Section 1.5(f). Schedule 1.5(f)
is for illustrative purposes only and is not intended to be all inclusive.
1.6 Capitalized Software. The maximum amount of costs that the
Acquired Business may capitalize during the twelve (12) months ending March 31,
1998, as capitalized software costs for purposes of computing Pretax Operating
Income is $467,000. The amount that is actually capitalized for the twelve (12)
month ending March 31, 1998, must both be in accordance with Generally Accepted
Accounting Principles and be deemed reasonable and realizable by the outside
auditors as part of their audit of the financial statements. The excess, if any,
of capitalized software costs over $467,000 will be a further deduction from
Income From Operations in arriving at Pretax Operating Income. Any amount that
is in excess of an amount in accordance with Generally Accepted Accounting
Principles and an amount which the auditors have deemed to be reasonable and
realizable will be an audit adjustment that will be recorded in preparing the
Audited Financial Statements.
1.7 Allocation of Purchase Price. As soon as practicable after the
Closing Date, the Purchaser shall prepare an allocation of the Purchase Price
among the Transferred Assets in accordance with Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code"). Further, the amount of the
Purchase Price allocated to (i) Business Trade Receivables shall be their face
value as of the Closing Date; (ii) depreciable fixed assets shall be the net tax
basis of the Seller in those assets immediately prior to the close; and (iii)
any portion of the Purchase Price in excess of identifiable Transferred Assets
shall be allocated to intangible assets. Neither the Purchaser nor the Seller
shall take any position for purposes of federal or state income taxes respecting
the allocation of the Purchase Price which is inconsistent with such
allocation.
ARTICLE II
CLOSING
2.1 Closing.
(a) The closing (the "Closing") of the transactions contemplated
by this Agreement will be held on May 15, 1997 (the "Closing Date") at
10:00 a.m. at the offices of Rutan & Tucker, 611 Anton Boulevard, Suite
1400, Costa Mesa, California 92626, or at such other time, date or
location as the parties hereto may mutually agree upon.
(b) At the Closing, the Purchaser shall deliver to Seller Four
Million Five Hundred Eighty-Eight Thousand Dollars ($4,588,000) less the
Recoverable Disbursements, if any, in cash or by cashier's or certified
check or by wire transfer to an account which the Seller has identified in
writing to the Purchaser at least three (3) days prior to the Closing Date
and commence delivery of a check to Bay Front Medical Center in the amount
of Two Hundred Twelve Thousand Dollars ($212,000).
2.2 Instruments of Conveyance and Transfer.
(a) At the Closing, the Seller shall deliver to the Purchaser:
(i) such bills of sale, endorsements, assignments and
other good and sufficient instruments of conveyance and transfer,
in form reasonably satisfactory to the Purchaser, as shall be
effective to vest in the Purchaser all of the Seller's right, title
and interest in and to the Transferred Assets;
(ii) with respect to the patents, trademarks, service
marks, trade names and copyrights, such assignments and
endorsements and other good and sufficient instruments of
conveyance and transfer, in form reasonably satisfactory to the
Purchaser, as shall be effective to vest in the Purchaser all of
the Seller's right, title and interest in and to the Intangible
Property Rights, all in recordable form as may be required by the
U.S. Patent and Trademark Office;
(iii) copies of all of the Seller's books, records and
financial records purchased hereunder; and
(iv) duly executed and acknowledged assignments of the
Leasehold and all other leases included in the Transferred Assets,
if any, or other instruments of conveyance, all in recordable form
as may be required, including, with respect to such leases, all
consents and approvals as may be necessary to convey to the
Purchaser the rights of the Seller thereunder (including all right,
title, and interest of the Seller in and to any escrow or security
deposits, advance rentals, or other payments made or to be made
thereunder); any estoppel certificates which may be requested by
the Purchaser in the exercise of its reasonable discretion;
assignment and assumption agreements appropriate to cause the
Purchaser to assume the rights and obligations of the Seller
thereunder (including without limitation, software licenses); and
any releases, satisfactions, or other documents reasonably
necessary to cause the release of any mortgage, deed of trust, or
other Lien affecting the Transferred Assets as may be requested by
the Purchaser.
(b) Simultaneously with such deliveries, the Seller shall take
such steps as may be necessary to put the Purchaser in actual possession
and operating control of the Transferred Assets and the Acquired Business.
2.3 Further Assurances. From time to time after the Closing, and
without further consideration, the Seller shall execute and deliver such other
instruments of conveyance, assignment, transfer and delivery, and take such
other actions as the Purchaser may reasonably request in order to more
effectively Transfer to the Purchaser, and to place the Purchaser in possession
or control of, all of the rights, properties, assets and businesses intended to
be Transferred hereunder, to reasonably assist in the collection of any and all
such rights, properties and assets, and to enable the Purchaser to exercise
and enjoy all of the rights and benefits of the Seller with respect thereto.
2.4 Transfer Taxes. The Seller shall pay all sales and excise taxes,
if any, incurred in connection with the transactions contemplated by this
Agreement. Except as hereinabove provided, the party hereto which is
responsible under applicable law shall bear and pay in their entirety all other
taxes and registration and transfer fees, if any, payable by reason of the
Transfer of the Transferred Assets pursuant to this Agreement. Each party
hereto will cooperate to the extent practicable in minimizing all taxes (other
than income taxes) and fees levied by reason of the Transfer of the Transferred
Assets. Notwithstanding the foregoing, the Seller will pay, cause to be paid
or make adequate provision for the payment when due of all real estate
transfer taxes, recording fees or similar taxes paid or payable in connection
with Transfer to the Purchaser of the Transferred Assets, including, but not
limited to, the Leasehold.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller and each of the Shareholders, hereby jointly and severally
(subject to the limitations with respect to the Shareholders set forth in
Section 10(g)) represents and warrants to the Purchaser that the following
representations and warranties are true and correct at the date hereof and as of
the Closing Date as if made on each such date:
3.1 Corporate Existence. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia and
has full corporate power and authority to conduct its business as it is now
being conducted and to own or lease all of its properties and assets. The
Seller is duly qualified or licensed to do business as a foreign corporation,
and is in good standing as a foreign corporation, in every jurisdiction in which
the ownership of its property or assets or the conduct or nature of its
operations requires such qualification or license, and Schedule 3.1 sets forth a
true and complete list of all such jurisdictions, except where failure to
obtain such qualification would not have a material adverse effect on Purchaser.
The Seller has previously delivered to the Purchaser true and complete copies
of its Articles of Incorporation and Bylaws as in effect on the date hereof.
3.2 Corporate Power and Authority. The Seller has full corporate power
and authority to enter into this Agreement, perform its obligations hereunder,
Transfer the Transferred Assets and carry out the transactions contemplated
hereby. The execution and delivery of this Agreement, the performance by the
Seller of its obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all corporate, shareholder and
other actions on the part of the Seller required by applicable law, its Articles
of Incorporation or Bylaws, or otherwise. This Agreement constitutes the legal,
valid and binding obligation of the Seller, enforceable against it in accordance
with its terms, except (i) as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
3.3 No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Seller of its obligations hereunder nor the
consummation of the transactions contemplated hereby will (a) contravene any
provision of the Articles of Incorporation or Bylaws of the Seller; (b) violate,
be in conflict with, constitute a default under, permit the termination of,
cause the acceleration of the maturity of any debt or contractual obligation of
the Seller under, require the consent of any other party to, constitute a breach
of, create a loss of a material benefit under, or result in the creation or
imposition of any Lien (as defined in Section 3.8(d)), other than Permitted
Liens, upon any property or assets of the Seller under any mortgage, indenture,
lease, contract, agreement, instrument or commitment to which the Seller is a
party or by which it or any of its assets or properties may be bound; (c)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority to which the Seller is subject or by which
the Seller or any of its assets or properties, are bound; (d) result in the loss
of any material license or certificate benefiting the Seller; or (e) violate any
contract, agreement or commitment to which the Seller is bound or create a claim
of diversion of corporate opportunity against any officer, director or
shareholder of the Seller that could reasonably be expected to have a material
adverse effect on the Seller.
3.4 Consents and Approvals of Governmental Authorities. Except as set
forth on Schedule 3.4, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority is
required to be made or obtained by the Seller in connection with the execution,
delivery or performance of this Agreement by the Seller where the failure to
obtain such consent, approval or authorization or declaration, filing or
registration would have a material adverse impact on the Purchaser.
3.5 Financial Statements. The Seller has previously delivered to the
Purchaser (a) the unaudited balance sheet of the Seller as of December 31, 1996
and the related statements of operations and cash flows for the year then ended;
and (b) the unaudited balance sheet of the Seller as of March 31, 1997 and the
related statement of operations for the three(3) months then ended (collectively
the "Previously Delivered Financial Statements"). At least one (1) day prior to
the Closing Date, Seller shall deliver to Purchaser the unaudited Balance Sheet
of Seller as of April 30, 1997, and the related statement of operations for the
one (1) month then ended (the "Closing Date Financial Statements"). No later
than fifteen (15) days after the Closing Date, the Seller shall deliver to
Purchaser the unaudited balance sheet of the Seller as of the time immediately
prior to the Closing along with the related statement of operations for the
period from April 1, 1997 through the Closing Date (the "Post Closing Financial
Statements"). (The Previously Delivered Financial Statements, the Closing Date
Financial Statements and the Post Closing Financial Statements are collectively
the "Financial Statements"). The Financial Statements (i) are compiled from the
books and records of the Seller regularly maintained by management; (ii) except
as specifically set forth on Schedule 3.5-2, are prepared in accordance with
generally accepted accounting principles which have been consistently applied
through the respective periods; (iii) are used by the Seller in the ordinary
conduct of its operations; and (iv) except as specified in Section 3.5(ii)
present fairly the financial position, results of operations and other
information included therein of the Seller for the periods or as of the dates
thereof, in each case in accordance with generally accepted accounting princi-
ples consistently applied during the periods covered. The Previously Delivered
Financial Statements and the Closing Date Financial Statements are attached
hereto on Schedule 3.5-1.
3.6 No Undisclosed Liabilities. The Seller has, and on the Closing
Date will have, no debts, liabilities, commitments or obligations of any nature,
absolute, accrued, contingent or otherwise (individually, a "Liability" and,
collectively, the "Liabilities"), other than those which (a) are fully reflected
on the balance sheet as of March 31, 1997 (the "March 31, 1997 Balance Sheet"),
(b) have been incurred since March 31, 1997 in the ordinary course of business
in amounts and for terms consistent, individually and in the aggregate, with the
past practice of Seller, or (c) have been specifically set forth on Schedule
3.6.
3.7 Absence of Certain Changes. Except as set forth on Schedule 3.7,
since March 31, 1997, the Seller has conducted its operations only in the
ordinary course and consistent with prior practice or as in accordance with the
capital and operating budgets set forth in Schedule 9.6 and Seller has not:
(a) suffered any material adverse change in its assets,
liabilities, reserves, results of operations, working capital, business
operations or prospects from historical trends and condition (financial or
otherwise);
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially adversely affecting its business, operations,
assets, prospects or condition (financial or otherwise);
(c) paid, discharged or satisfied any Liability or other
expenses, other than the payment, discharge or satisfaction of the
Liabilities described in Section 3.6 at the time the same were due and
payable and in the ordinary course of business;
(d) mortgaged or pledged, or permitted the imposition of any Lien
upon, any of its properties or assets (real, personal or mixed, tangible
or intangible), other than those incurred in the ordinary course of
business;
(e) cancelled or compromised any debts, or waived or permitted
to lapse any material claims or rights, or sold, assigned, transferred or
otherwise disposed of, other than in the ordinary course of business, any
of its properties or assets (real, personal or mixed, tangible or
intangible);
(f) disposed of or permitted to lapse any rights to the use of
any patent, registered trademark, service mark, trade name or copyright,
or disposed of or disclosed to any person any trade secret, formula,
process or know-how material to Seller's operations not theretofore a
matter of public knowledge;
(g) except as disclosed on Schedule 3.7 and agreed to by the
Purchaser, granted any increase in the compensation of any officer,
employee or consultant of Seller (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or granted
any increase in the compensation payable or to become payable to any
officer, employee or consultant;
(h) entered into any commitment or transaction (other than this
Agreement) not in the ordinary course of business or made any capital
expenditure or commitment for any additions to property, plant or
equipment;
(i) made any change in any method of accounting or accounting
practice;
(j) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of
its officers, directors, employees, shareholders, or any family member or
Affiliate (as defined in Section 3.23) of any of its officers, directors,
employees or shareholders, or any officer, director, employee or
shareholder of any such Affiliate;
(k) incurred any material property losses or waived any rights
of material value;
(l) declared, paid or made any dividend or other distribution or
payment in respect of the capital stock of the Seller;
(m) suffered the loss of, or been threatened with the loss of,
any supplier or customer or group of related suppliers or customers
referred to in Section 3.14(b);
(n) made any Recoverable Disbursements; or
(o) agreed, whether in writing or otherwise, to take any action
referred to in and prohibited by this Section 3.7.
3.8 Title to Properties; Encumbrances; Program Matters.
(a) The Seller has good and marketable title to all of its
properties and assets (real, personal or mixed, tangible or intangible),
or licenses thereto (as applicable), constituting all or part of the
Transferred Assets. None of the Transferred Assets are subject to any
Lien (as defined in Section 3.8(d) below), except (i) Liens for taxes
(excluding Liens for taxes arising out of the Transfer of the Transferred
Assets) not yet delinquent or the validity of which are being contested in
good faith, (ii) Liens for purchase money security interests described on
Schedule 3.8(a), (iii) Liens described on Schedule 3.8(a) which Seller has
indicated on such Schedule, next to the description of such Lien, whether
Seller will discharge each such listed Lien and, if Seller will discharge
a Lien, whether the discharge will be made on or prior to the Closing and
(iv) any Lien constituting an Assumed Liability or securing a Transferred
Asset (collectively, the "Permitted Liens"), none of which adversely
affects the Acquired Business's continued operations.
(b) All material property and assets (real, personal or mixed,
tangible or intangible) used or required by the Seller in the conduct of
its operations are owned by the Seller or leased or licensed to the Seller
pursuant to a lease or license listed on Schedules 3.9 or 3.10. All such
property and assets, or the leases or licenses thereof, constitute all or
a part of the Transferred Assets and constitute all property, assets and
contractual rights necessary for the conduct of Seller's operations as
presently conducted and as it has been conducted in the past.
(c) The Seller does not own or hold, and is not obligated under
or a party to, any option, right of first refusal or other contractual
right to acquire any real property or interest therein.
(d) When used in this Agreement, "Lien" or "Liens" shall mean any
mortgage, pledge, asset escrow, encumbrance, lien, or other security
interest.
(e) Except as set forth on the Schedules to this Agreement,
without limiting any of the foregoing, Seller owns and has the full and
complete title to and right to use and license the Program. Except as set
forth on Schedule 3.8(e), the Program is free from all Material Bugs and
operates in compliance in all material respects with the specifications
and warranties with respect thereto. Except as set forth on
Schedule 3.8(e), Seller has not received oral or written notice from any
customer, licensee, beta test site or other person of any Material Bug.
Seller has, and at the Closing will convey and transfer to Buyer, good,
complete and marketable title to the Program, free and clear (except as
otherwise set forth on the Schedules to this Agreement) of restrictions or
conditions to transfer or assignment, and free and clear (except as
otherwise set forth on the Schedules to this Agreement) of all defects of
title, mortgages, liens, encumbrances, pledges, leases, equities, claims,
charges, conditions, confidential sale contracts, security interests and
restrictions. Any licenses of the source code of the Program have been
provided to customers of the Seller for their internal use only.
(f) The Technical Documentation includes the source code, system
documentation, statements or principles of operation, and schematics for
the Program, as well as any pertinent commentary or explanation that may
be necessary to render such materials understandable and usable by a
trained computer programmer. The Technical Documentation also includes
any program (including compilers), "workbenches," tools and higher level
(or "proprietary") language used for the development, maintenance, and
implementation of the Program. Schedule 3.8(f) sets forth a complete and
accurate list of all the Technical Documentation for the Program.
(g) Schedule 3.8(g) contains a list of all of Seller's contracts,
agreements, licenses, leases, and other commitments or arrangements, oral
or written, with any person or entity respecting the ownership, license,
acquisition, design, development, distribution, marketing, use or
maintenance of the Program or the Technical Documentation (the "Software
Contracts"), which consists of (i) licenses from third parties
(development or marketing), (ii) licenses from third parties (internal
only), (iii) development contracts, work for hire agreements, consulting
and employment agreements, (iv) distributorships, dealerships, franchises
and manufacturer's representative contracts, (v) license and sublicenses
to others, and (vi) maintenance, support or enhancement agreements.
Seller has validly and effectively obtained the right and license to use,
copy, modify and distribute any third-party programming and materials
contained in all versions of the Program and Technical Documentation
pursuant to the Software Contracts identified as "licenses from third
parties (development and/or marketing)" or "licenses from third parties
(internal use only)." Except as set forth on Schedule 3.8(g), Seller has
no liability for royalties, fees, payments or other obligations to any
third party. Except as set forth on Schedule 3.8(g), the Program
(including all versions thereof) and Technical Documentation contain no
other programming or materials in which any third party owns superior,
joint or common ownership, including any right or license. The Program
(including all versions thereof) and Technical Documentation do not
contain derivative works of any programming or materials not owned in
their entirety by Seller.
(h) Seller has not granted, transferred or assigned any right or
interest in the Program, Technical Documentation or intellectual property
related thereto to any person or entity, except pursuant to the Software
Contracts identified as "licenses and sublicenses to others" in
Schedule 3.8(g). Except as set forth in Schedule 3.8(g), all Software
contracts identified as "licenses and sublicenses to others" constitute
only end-user agreements, each of which grants the end-user thereunder
solely the nonexclusive right and license to use the Program and related
user documentation, for internal purposes only. There are no contracts,
agreements, licenses or other commitments or arrangements in effect with
respect to the marketing, distribution, licensing or other commitments or
promotion of the Program, the Technical Documentation, or any intellectual
property related thereto by any independent salesperson, distributor,
sublicensor, or other remarketer or sales organization.
3.9 Leases.
(a) Schedule 3.9 contains a true and complete list of:
all leases pursuant to which the Seller leases or
subleases any real property interests, whether as lessor, lessee,
sublessor or sublessee;
all leases pursuant to which the Seller leases any
type of personal property (other than computer equipment and
related hardware or software) which provide, individually, for
rental payments in excess of $5,000 per annum;
all leases pursuant to which the Seller leases any
computer equipment and related hardware or software;
all leases pursuant to which the Seller leases any
vehicles or related equipment; and
all leases pursuant to which the Seller leases to
others any type of property which provide, individually, for rental
payments in excess of $5,000 per annum or which have a term in
excess of one year.
(b) Each such lease described on Schedule 3.9 is the legal, valid
and binding obligation of the Seller and the other parties thereto,
enforceable in accordance with their respective terms, and is in full
force and effect. The Seller is not in default under any such lease, and
the Seller has not received any notice from any person or entity asserting
that the Seller is in default under any such lease, and no events or
circumstances exist which, with notice or the passage of time or both,
would constitute a default under any such lease.
(c) Each such lease described on Schedule 3.9 may be assigned by
the Seller to the Purchaser without the consent or approval of any other
person or entity, or if such consent or approval shall be necessary to
assign such lease, such consent or approval shall have been obtained in
writing prior to the Closing Date or the obtaining of such consent or
approval may be waived in writing by the Purchaser on or before the
Closing Date.
3.10 Intellectual Property. The Seller owns, or is licensed or
otherwise has the full right to use, the Intellectual Property (as defined in
Section 1.1(h) above) (except for the use of certain retail software where the
annual liability attributable to such use does not exceed $5,000 in the
aggregate). Schedule 3.10 contains a true and complete list of (a) the
Intellectual Property used by Seller or proposed to be used by the Acquired
Business, all applications therefor and all licenses and other agreements
relating thereto, and (b) all agreements relating to technology, know-how or
processes which the Seller is licensed or authorized to use by others or which
the Seller licenses or authorizes others to use. The Seller has (i) the sole and
exclusive right to use the patents, trademarks, service marks, trade names,
copyrights, technology, know-how and processes described on Schedule 3.10-1,(ii)
the partial or limited right to use the patents, trademarks, service marks,trade
names, copyrights, technology, know-how and processes described on Schedule
3.10-2, and except as disclosed on Schedule 3.10, no consent of any third party
is required for the use thereof by the Purchaser upon the consummation of the
transactions contemplated hereby or,if such consent shall be necessary to assign
such Intellectual Property, such consent shall have been obtained in writing
prior to the Closing Date. Except as set forth on Schedule 3.10, no claims have
been asserted against Seller, its licensees or its Shareholders by any person to
the use of any of the items of Intellectual Property or challenging or
questioning the validity or effectiveness of any such license or agreement, and
the Seller knows of no valid basis for any such claims. Except as set forth on
Schedule 3.10,the Seller has no notice that the use of the Intellectual Property
by the Seller infringes on the rights of any other person or entity. Seller does
not engage in any unfair competition in a way that would adversely affect its
prospects or its conduct or operations. Each item of Intellectual Property is
in full force and effect, fully protected and, if registered, filed or issued,
then duly and properly registered, filed or issued in the appropriate office and
jurisdiction for such registration, filings or issuance. Each license, contract
or other agreement to which the Seller is a party pertaining to any item of
Intellectual Property owned, used or available for use by the Seller is a valid,
legally binding obligation of all parties thereto,enforceable in accordance with
its terms. Each such license, contract or other agreement is in full force and
effect. Except as set forth on Schedule 3.10, with respect to each such license,
contract or other agreement, there is no payment due and not paid as of the
Closing Date and no default (or event which, with or without notice, lapse of
time or both, would constitute a default) by any party thereto. Except as
disclosed on Schedule 3.10, the Seller has not disposed of or permitted to lapse
any rights to the use of any item of Intellectual Property used or usable in its
operations. Except as set forth on Schedule 3.10-2, the Seller has good and
valid title to, or otherwise possesses adequate and exclusive rights to use, all
Intellectual Property and other proprietary information necessary to permit the
Seller to conduct its operations in the same manner as is presently conducted,
and all items of Intellectual Property are being transferred to the Purchaser
free of any encumbrance whatsoever. Notwithstanding the foregoing, the parties
hereto acknowledge and agree that Seller has not registered a trademark with
respect to the name "MicroMed" and that it holds only common law rights with
respect to such name and mark, and each is aware of a number of corporate and
trade names and registered trade and service marks incorporating the word or
name "MicroMed." Accordingly, all representations and warranties contained
within this Section 3.10 concerning the name and mark "MicroMed" are delivered
to Seller's Knowledge only.
3.11 Litigation. Schedule 3.11 sets forth a true and complete list and
description of all actions, claims and proceedings and, to the Seller's
Knowledge, investigations to which the Seller is a party (individually, an
"Action" and, collectively, "Actions"), including, without limitation, Actions
for personal injury, products liability, wrongful death or other tortious
conduct, or breach of warranty arising from or relating to materials,
commodities, products or goods used, transferred, processed, manufactured, sold,
distributed or shipped by the Seller (a) involving or relating to the Seller or
any of its assets, properties or rights, or, to Seller's Knowledge, any
shareholder of the Seller owning 5% or more of the issued and outstanding
capital stock of the Seller on the date hereof, or (b) pending, or, to Seller's
Knowledge, threatened, against Seller, or any of its assets, properties or
rights, before any court, arbitrator or administrative or governmental body.
There is no Action pending, or, to Seller's Knowledge threatened, against the
Seller, or any of its assets, properties or rights, before any court, arbitrator
or administrative or governmental body, which questions or challenges the
validity of this Agreement or any Action taken or proposed to be taken by the
Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby. To Seller's Knowledge, no state of facts exists or has
existed which would constitute grounds for the institution of any Action against
the Seller or against any assets, properties or rights of the Seller which would
adversely affect Seller or which would not be covered or defended against by a
carrier under policies of insurance in favor of the Seller. The Seller is not
subject to any judgment, order or decree entered in any lawsuit or proceeding
which has affected, or which can reasonably be expected to affect, the Seller's
business practices or its ability to acquire any property or conduct its
operations in any way. None of the Actions set forth on Schedule 3.11, if
adversely determined, or any other Action in connection with any accident or
event occurring prior to the Closing Date, will adversely affect Seller, the
Acquired Business or their respective assets, properties, rights, operations,
condition (financial or otherwise) or prospects.
3.12 Insurance. Schedule 3.12 sets forth a true and complete list and
description of all policies of fire, liability, worker's compensation and other
forms of insurance owned or held by the Seller. No installment premiums are due
under the policies set forth on Schedule 3.12 other than as indicated on such
Schedule. All such policies are in full force and effect, insure against risks
and liabilities to the extent and in the manner deemed appropriate and
sufficient by the Seller in its reasonable business judgment, and will remain in
full force and effect through the Closing Date, and the Seller has not received
any notice of cancellation with respect thereto. To the Seller's Knowledge, the
Seller is not in default with respect to any provision contained in any such
policy and has not failed to give any notice or present any claim under any such
policy in due and timely fashion.
3.13 Contracts and Commitments.
(a) Insofar as they constitute a portion of the Transferred
Assets, Schedule 3.13, together with the leases set forth on Schedule 3.9,
the licenses and other agreements set forth on Schedule 3.10 and the
employee benefit plans and commitments set forth on Schedule 3.15, contain
a true and complete list and description (stated without duplication) of:
(i) all contracts (including, without limitation, letters
of credit) and commitments of the Seller which are material to the
operations, business, prospects or condition (financial or
otherwise) of the Seller;
(ii) all employment agreements, arrangements and
commitments, including severance or termination arrangements and
commitments (whether written or oral), between the Seller and
employees of the Seller;
(iii) all consulting agreements (whether written or oral),
regardless of amounts or duration;
(iv) all manuals or written materials of the Seller
relating to severance or termination pay;
(v) all Union Contracts to which the Seller is a party
or by which it or any of its employees are bound;
(vi) all material contracts or commitments (whether
written or oral) with distributors, brokers, manufacturer's
representatives, sales representatives, service or warranty repre-
sentatives, customers and other persons, firms, corporations or
other entities engaged in the sale, distribution, service or repair
of the Seller's products;
(vii) all other contracts, commitments and instruments of
the Seller (excluding, for purposes of this clause (vii), leases)
reflecting obligations for borrowed money or for other indebtedness
or guarantees thereof;
(viii) all purchase orders issued by or sales orders
received by Seller in excess of $10,000 each;
(ix) all contracts relating to construction-in-progress
of capital assets; and
(x) all joint venture or materially similar agreements
or arrangements to which the Seller is a party in any way providing
for the authorship, marketing, sale or distribution of any products
of the Seller.
(b) The Seller has delivered to the Purchaser true and complete
copies of all of the documents identified on Schedules 3.9, 3.10, 3.13 and
3.15 (collectively, the "Material Contracts") and shall deliver true and
complete copies of all such other agreements, instruments and documents as
the Purchaser may reasonably request relating to the operation, ownership
or conduct of Seller's operations.
(c) Except as set forth in Schedule 3.13(a), the Seller is not
a party to any written agreement that would restrict it from carrying on
Seller's or the Acquired Business' operations anywhere in the world.
(d) Except as set forth on Schedule 3.13(d), the Seller is not
a party to any "take-or-pay" contracts.
(e) Each of the Material Contracts has been entered into in the
ordinary course of business and is valid and binding, and none of such
contracts contains terms or conditions which are materially adverse to the
Seller. The Seller is not, and to the Seller's Knowledge no other party
is, in default under or in breach or violation of, nor has the Seller
received notice of any asserted claim of default by the Seller or by any
other party under, or a breach or violation of, any of the Material
Contracts.
3.14 Suppliers and Customers.
(a) The Seller enjoys good commercial relationships under all of
its supply, purchase, sale, distribution, sales representative and similar
agreements necessary for the normal conduct of its operations.
(b) Schedule 3.14(b) contains a true and complete list of all
customers of Seller and groups of related customers of Seller (i.e., any
customers who are directly or indirectly, through one or more
intermediaries, under common control), which during any of the calendar
years 1996 or 1995, accounted for 5% or more of the Seller's gross sales
during such period. Seller does not rely upon any single supplier for
supplies it consumes which are not otherwise commonly available from
another supplier upon similar terms and conditions.
(c) Except as set forth on Schedule 3.14(b), to Seller's
Knowledge no such customer or group of related customers of Seller has
cancelled or otherwise terminated or threatened to cancel or otherwise
terminate, its relationship with Seller, which termination would have a
material adverse effect on Seller, or has during the last twelve (12)
months decreased materially its usage or purchase of the services or
products of Seller, or that any such customer or group of related
customers expects to reduce its business by reason of the transactions
contemplated by this Agreement or for any other reason whatsoever.
3.15 Employee Benefit Plans.
(a) Except as set forth on Schedule 3.15, Seller maintains no
pension, retirement, severance, welfare, profit-sharing, stock purchase,
stock option, vacation, deferred compensation, bonus or other incentive
plan, or other employee benefit program, arrangement, agreement or
understanding, or medical, vision, dental or other health plan, or life
insurance or disability plan, retiree medical or life insurance plan or
any other employee benefit plans, including, without limitation, any
"employee benefit plan" (as defined in Section 3(3) of ERISA), to which
the Seller contributes or is a party to or by which it is bound or under
which it may have liability and under which employees or former employees
of the Seller (or their beneficiaries) are eligible to participate or
derive a benefit. Each employee benefit plan which is a "group health
plan" (as such term is defined in Section 5000(b)(i) of the Code)
satisfies the applicable requirements of Section 4980B of the Code.
Except as described on Schedule 3.15, the Seller has no formal plan or
commitment, whether legally binding or not, to create any additional plan,
practice or agreement or modify or change any existing plan, practice or
agreement that would affect any of its employees or terminated employees.
Benefits under all employee benefit plans are as represented and have not
been and will not be increased subsequent to the date copies of such plans
have been provided.
(b) The Seller does not contribute to or have any obligation to
contribute to, has not at any time contributed to or had an obligation to
contribute to, sponsor or maintain, and has not at any time sponsored or
maintained, a "multi-employer plan" (within the meaning of Section 3(37)
of ERISA) for the benefit of employees or former employees of Seller.
(c) The Seller has, in all material respects, performed all
obligations, whether arising by operation of law, contract, or past
custom, required to be performed under or in connection with the employee
benefit plans disclosed on Schedule 3.15 (individually, an "Employee
Benefit Plan" and, collectively, the "Employees Benefit Plans"), and the
Seller has no knowledge of any default or violation by any other party
with respect thereto.
(d) There are no Actions, suits or claims (other than routine
claims for benefits) pending, or, to the best of the Seller's Knowledge,
after due inquiry and diligent investigation, threatened, against any
Employee Benefit Plan or against the assets funding any Employee Benefit
Plan.
(e) The Seller neither maintains nor contributes to any "employee
welfare benefit" (as such term is defined in Section 3(i) of ERISA) plan
which provides any benefits to retirees or former employees of Seller.
(f) The Seller has caused to be delivered to the Purchaser and
its counsel true and complete copies, if applicable, of (i) all documents
governing the Employee Benefit Plans, including, without limitation, all
amendments thereto which will become effective at a later date; (ii) all
summary plan descriptions and each summary of material modifications
relating to the Employee Benefit Plans; (iii) all employment manuals; and
(iv) all insurance policies or contracts with respect to the Employee
Benefit Plans.
3.16 Employment Law Matters.
(a) To Seller's Knowledge, Seller (i) is in compliance with all
applicable laws respecting employment, employment practices, terms and
conditions of employment and wages and hours with respect to the conduct
of its operations; (ii) is in compliance with all applicable laws and
regulations relating to the employment of aliens or similar immigration
matters with respect to the conduct of its operations; and (iii) is not
engaged in any unfair labor practice, including, but not limited to,
discrimination or wrongful discharge with respect to the conduct of its
operations.
(b) The Seller has not at anytime during the last five years had,
nor to the Seller's Knowledge, is there now threatened, a strike, picket,
work stoppage, work slowdown or other labor trouble, against or directly
affecting Seller that had or may have a material adverse effect on Seller
or the Transferred Assets.
(c) None of the employees of Seller is represented by a labor
union, and no petition has been filed or proceedings instituted by any
employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. The Seller is not a party to
any multi-employer collective bargaining agreement covering any of its
employees.
(d) There are no controversies or disputes (including any union
grievance or arbitration proceeding) pending, or, to the Seller's
Knowledge, threatened, between the Seller and any employees of Seller (or
any union or other representative of such employees). No unfair labor
practice complaints have been filed against Seller in respect of the
Business with the National Labor Relations Board or any other governmental
or administrative body, and the Seller has not received any written notice
or communication reflecting an intention or a threat to file any such
complaint.
3.17 Environmental Matters. The Seller is in compliance with all
federal, state and local environmental laws, rules, regulations, standards and
requirements, including, without limitation, those respecting hazardous
materials. There is no Action pending before any court, governmental agency or
board or other forum or, to Seller's Knowledge, threatened by any person or
entity for (i) noncompliance by the Seller or the Business with any environ-
mental law, rule or regulation or (ii) relating to the release into the environ-
ment by the Seller of any pollutant, toxic or hazardous material or waste
generated by the Seller, whether or not occurring at or on a site owned, leased
or operated by the Seller. To Seller's Knowledge, Schedule 3.17 contains a true
and complete list and description of all waste disposal or dump sites at which
hazardous or toxic wastes generated by Seller have been disposed of, including
without limitation, all sites where hazardous or toxic wastes generated by
Seller have come to rest which are or have been included in any published
federal, state or local "super fund" or other list of hazardous or toxic waste
sites.
3.18 Compliance with Laws. The Seller has not been charged with, and,
to Seller's Knowledge, is not threatened with or under any investigation with
respect to, any charge concerning any violation of any provision of any federal,
state, local or foreign law, regulation, ordinance, order or administrative
ruling affecting Seller or the Transferred Assets, and the Seller is not in
default with respect to any order, writ, injunction or decree of any court,
agency or instrumentality affecting Seller or the Transferred Assets. The Seller
(a) is not in violation of any federal, state, local or foreign law, ordinance
or regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to Seller or the Transferred Assets or (b) would
not, to the Seller's Knowledge, be in violation of any such law, ordinance,
regulation or other requirement that has been enacted or adopted but is not yet
effective if it were effective at the date hereof. The Seller has not made any
illegal payment (a) to officers or employees of any governmental or regulatory
body or (b) to its customers for the sharing of fees or (c) to customers or
suppliers of Seller for the rebating of charges, or engaged in any other similar
reciprocal practices, or made any illegal payment or given any other illegal
consideration to purchasing agents or other representatives of customers of
Seller in respect of sales made or to be made by the Seller. Without limiting
the generality of the foregoing, Seller is in compliance with the Export
Administration Act (50 U.S.C. 2401-2420 (1979)), and all rules and
regulations promulgated thereunder. Without limiting the generality of the
foregoing, to Seller's Knowledge, Seller is in compliance with all rules and
regulations promulgated by the Occupational Safety and Health Administration
("OSHA"). The Seller has previously delivered to the Purchaser a true and
complete copy of the Seller's most recent inspection report or reports, if any,
relating to compliance with OSHA rules and regulations.
3.19 Licenses, Permits and Authorizations. The Seller has all
governmental and regulatory licenses, permits, authorizations, approvals,
consents, franchises and orders required for the conduct and operation of its
operations (individually, a "Permit" and, collectively, the "Permits") and the
use and ownership or leasing of its properties and assets as currently operated,
used, owned or leased. All of the Permits are valid, in full force and effect
and in good standing. To Seller's Knowledge, no violations have been recorded
in respect of any such Permit. Schedule 3.19 contains a true and complete list
and description of all the Permits and the Seller has previously delivered to
the Purchaser true and complete copies of all such Permits identified in
Schedule 3.19 and in effect as of the date hereof. There is no claim or Action
pending, or, to the best of the Seller's Knowledge, threatened, which disputes
the validity of any such Permit or threatens to revoke, cancel, suspend or limit
any such Permit.
3.20 Inventory. Seller possesses no Inventory and carries no Inventory
on its books and records.
3.21 Business Trade Receivables and Business Payables. All Business
Trade Receivables reflected on the Financial Statements of Seller as of the
Closing Date represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of Seller's
operations. Unless paid prior to the Closing Date, the Business Trade
Receivables are or will be as of the Closing Date current and collectible net of
the respective reserves shown on the Financial Statements as of the Closing Date
(which reserves are adequate and calculated consistent with past practice and,
in the case of the reserves as of the Closing Date,will not represent a material
adverse change in the composition of such Business Trade Receivables in terms of
aging). Subject to such reserves, each of the Business Trade Receivables either
has been or will be collected in full, without any set-off, within ninety (90)
days after the day on which it first becomes due and payable. Subject to the
provisions as set forth in Section 10.2(f), the value of Business Trade
Receivables in excess of the reserves shown on the Financial Statements which
remain uncollected by the Acquired Business in excess of one hundred twenty
(120) days after the Closing shall be the joint and several liability of the
Seller and the Shareholders due and payable to Purchaser no later than March 31,
1998. There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any contract with any obligor of a Business
Trade Receivable relating to its amount or validity. Schedule 3.21-1 attached
hereto contains a complete and accurate list of all Business Trade Receivables
as of April 30, 1997. Set forth on Schedule 3.21-2 is a complete list of all
Business Payables as of April 30, 1997. Any Business Payables and Business Trade
Receivables arising after April 30, 1997 and through and including the Closing
Date, shall be in the ordinary course of Seller's business.
3.22 Investment Matters. With respect to its acquisition of the QSI
Shares, the Seller and each Shareholder (collectively, the "Investors") further,
jointly and severally, represents and warrants to the Purchaser and QSI as
follows:
(a) By reason of his knowledge and experience in financial and
business matters in general, and investments in particular, he is able to
evaluate the merits and risks of an investment in the QSI Shares;
(b) Their respective income and net worth are such that each is
not now required, and does not contemplate in the future being required,
to dispose of any portion of any investment in the QSI Shares to satisfy
any existing or contemplated undertaking;
(c) In evaluating the merits and risks of an investment in the
QSI Shares, each has relied upon the advice of its legal counsel, tax
advisors, and investment advisors;
(d) Each is able to bear the economic risks of an investment in
the QSI Shares, including, without limiting the generality of the
foregoing, the risk of losing part or all of an investment in the QSI
Shares, and the inability to sell or transfer the QSI Shares for an
indefinite period of time or at a price which would enable each to recoup
its investment in the QSI Shares;
(e) Except with respect to the anticipated distribution by Seller
of the QSI Shares to the Shareholders, the purchase of the QSI Shares is
solely for his own account, for investment, and not with an intent to sell
or offer for sale in connection with a distribution of the QSI Shares, and
no other person has any interest in or right with respect to the QSI
Shares, nor has there been any agreement to give any person any such
interest or right in the future;
(f) Except as set forth on Schedule 3.22, each is an "accredited
investor" as that term is defined in Section 501 of Regulation D of the
Securities Act of 1933, as amended (the "Act");
(g) QSI and Purchaser have afforded each and their respective
advisors full and complete access to all information with respect to QSI
and Purchaser and their business and financial condition (to the extent
that such information was possessed by QSI and Purchaser or could be
acquired by QSI and Purchaser without unreasonable effort or expense) that
each (and its advisors) deemed necessary in order to evaluate the merits
and risks of an investment in the QSI Shares;
(h) At no time was an oral representation made to the Seller or
any of the Shareholders, relating to the sale of the QSI Shares nor was
the Seller or any of the Shareholders presented with or solicited by any
leaflet, public or promotional meeting, newspaper or magazine article,
radio or television advertisement or any other form of general advertising
relating to the sale of the QSI Shares by the Purchaser;
(i) Each has been advised that the QSI Shares have not been
registered under the Act, or under any state securities act and that the
QSI Shares must be held until they are registered under the Act and
qualified under any applicable state act or an exemption from such
registration and qualification is available;
(j) Each has been advised that the QSI Shares are deemed
"restricted securities" as that term is defined in Rule 144 promulgated
under the Act; that the exemption from registration under Rule 144 will
not be available in any event for at least one year from the date of
issuance, and even then will not be available unless (i) a public trading
market then exists for such QSI Shares, (ii) adequate information
concerning QSI is then available to the public, and (iii) other terms and
conditions of Rule 144 are complied with; and that any sale of the QSI
Shares may be made only in accordance with such terms and conditions;
(k) Based solely on the information each has received from QSI,
the Purchaser and their authorized representatives, each is aware of QSI's
and Purchaser's business affairs and financial condition. Each has had an
opportunity to review information pertaining to QSI and Purchaser which
QSI and Purchaser and their authorized representatives have provided and
each has received all such information that it has requested. Based
solely on such information, and the representations and warranties
contained herein, each has acquired sufficient information about QSI and
Purchaser to reach an informed decision to acquire the QSI Shares;
(l) All certificates representing any of the QSI Shares may bear
legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"); THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF: (1) AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT;
(2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED; OR (3) A "NO-ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT THE STAFF OF THE COMMISSION WILL NOT RECOMMEND
THAT ANY ACTION BE TAKEN UNDER THE ACT AGAINST THE COMPANY
OR THE HOLDER IF SUCH PROPOSED SALE IS CONSUMMATED WITHOUT
REGISTRATION UNDER THE ACT."
(m) QSI may impose appropriate stop-transfer instructions
relating to the restrictions set forth herein.
3.23 Related Party Transactions. Schedule 3.23 describes all agreements
and understandings to which Seller is or has been subject which provide for or
reflect the sale by Seller to, or the purchase by Seller from, any Affiliate (as
defined below) of the Seller of any goods, equipment or services which have
occurred since March 31, 1997. The termination of any such agreement or
understanding would not have an adverse effect on Seller's business, operations,
prospects or condition (financial or otherwise).
When used in this Agreement, "Affiliate" or "Affiliates" shall mean, with
respect to any Shareholder, individual, partnership, corporation, association,
business trust, joint venture, governmental entity or other entity of any nature
("Person"), any Person that controls, is controlled by, or is under common
control with, such Person.
3.24 Equipment, Etc. Schedule 3.24 contains a true and complete list
of all items of computer equipment, machinery, other equipment, vehicles,
furniture and other tangible personal property and assets with a book value for
each such item in excess of $10,000, each owned by Seller as of April 30, 1997
and included in the Transferred Assets as of the date hereof, except for
dispositions and acquisitions in the ordinary course of business since April 30,
1997.
3.25 Condition of Tangible Assets. The Seller's facilities and tangible
assets,including, without limitation, machinery, equipment, vehicles, furniture,
plants and buildings, which are included in the Transferred Assets are in good
operating condition and repair (ordinary wear and tear excepted) and are
adequate for the uses to which they have been put by the Seller in the ordinary
course of business, except for parts or repairs of an immaterial nature in the
aggregate,and the Seller has not received any notice that any of such facilities
or assets is in need of substantial maintenance or repair.
3.26 Sufficiency of Assets. Excepting the Excluded Assets and certain
assets that may be acquired by Purchaser upon termination of the Leasehold
concerning the Premises (which, upon acquisition shall be transferred to
Purchaser in further consideration of this Agreement), the Transferred Assets
constitute all property, assets and contractual rights (i) necessary for the
conduct of Seller's operations as presently conducted and (ii) presently used by
the Seller.
3.27 Tax Returns and Payments. All of the tax returns and reports of
the Seller required by law to be filed have been duly filed and all taxes shown
as due thereon have been paid. There are in effect no waivers of the applicable
statutes of limitations for any federal, state, local or foreign taxes for any
period. Except as set forth on Schedule 3.27, no liability for any federal,
state,local or foreign income, sales, use, withholding, payroll, franchise, real
property or personal property taxes is pending, and there is no proposed
liability for any such taxes to be imposed upon the properties or assets of
Seller. The provisions of this Section 3.27 shall include, without limiting the
generality of this Section 3.27, all reports, returns and payments due under all
federal, state, local or foreign laws or regulations relating to income, sales,
use, payroll, franchise, withholding, real property or personal property taxes,
unemployment insurance, social security, worker's compensation and other
obligations of the same or of a similar nature. The Seller does not have any
liability for any federal, state, local or foreign income, sales, use,
withholding, payroll, franchise, real property or personal property taxes,
assessments, amounts, interest or penalties of any nature whatsoever other than
as shown on the March 31, 1997 Balance Sheet and there is no basis for any
additional claim or assessment other than with respect to liabilities for taxes
which may have accrued since the date of the March 31, 1997 Balance Sheet in the
ordinary course of business and reserved against on the books and records of the
Seller compiled in accordance with Generally Accepted Accounting Principles
which have been consistently applied to the Closing Date. The Seller has paid
to the proper authorities all customs, duties and similar or related charges
required to be paid by it with respect to the importation of goods into the
United States.
3.28 Safe Deposit Boxes. Prior to the Closing Date, the Seller shall
deliver to the Purchaser a list of the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which the Seller maintains safe deposit boxes or lock boxes and the names of all
persons authorized to have access to such boxes.
3.29 Broker's and Finder's Fees. Except as set forth on Schedule 3.29,
the Seller is not a party to, nor in any way obligated to make any payment
relating to, any contract or outstanding claim for the payment of any broker's
or finder's fee in connection with the origin, negotiation, execution or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
3.30 Disclosure of Confidential Information. The Seller has fully
disclosed, or will disclose on or before the Closing Date, to the Purchaser, all
material processes, inventions, methods, formulae, plans, drawings, customer
lists, secret information and know-how (whether secret or not) used by it in the
course of the Acquired Business.
3.31 Disclosure. No representation or warranty by the Seller or
Shareholders in this Agreement (including, without limitation, the Schedules
hereto) contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
herein or therein not misleading. There is no fact to Seller's Knowledge which
adversely affects,or which might in the future adversely affect, the operations,
business, assets, properties, prospects or condition (financial or otherwise) of
the Seller which has not been set forth in this Agreement or on the Schedules
hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser and QSI each hereby jointly and severally represents and
warrants to the Seller as follows:
4.1 Existence. The Purchaser is a corporation, validly existing and
in good standing under the laws of the State of California.
4.2 Power and Authority. The Purchaser has full power and authority
to enter into this Agreement, perform its obligations hereunder, acquire and own
the Transferred Assets, assume the Assumed Liabilities and carry out the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by the Purchaser of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by all corporate, stockholder and other actions on the part of the Purchaser
required by applicable law, its Articles of Incorporation or Bylaws, or
otherwise. This Agreement constitutes the legal, valid and binding obligation
of the Purchaser, enforceable against it in accordance with its terms, except
(i) as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
4.3 No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Purchaser of its obligations hereunder nor the
consummation of the transactions contemplated hereby will (a) contravene any
provision of the Articles of Incorporation or Bylaws of the Purchaser; (b)
violate, or be in conflict with, or constitute a default under, permit the
termination of, or cause the acceleration of the maturity of any debt or
obligation of the Purchaser under, require the consent of any other party to,
constitute a breach of, create a loss of a material benefit under, or result in
the creation or imposition of any Lien (as defined in Section 3.8(d)) upon any
property or assets of the Purchaser under, any mortgage, indenture, lease,
agreement,instrument or commitment to which the Purchaser is a party or by which
the Purchaser or any of its assets or properties may be bound or (c) to the best
of the Purchaser's knowledge, after due inquiry and diligent investigation,
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority to which the Purchaser is subject or by
which it or any of its assets or properties are bound.
4.4 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by the
Purchaser in connection with the execution, delivery and performance of this
Agreement by the Purchaser except filings which have been made or will be made
by Purchaser or QSI.
4.5 Disclosure. No representation or warranty by the Purchaser or QSI
in this Agreement (including, without limitation, the Schedules hereto supplied
by Purchaser and QSI) contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the statements herein or therein not misleading. There is no fact known to the
Purchaser or QSI which adversely affects, or which might in the future adversely
affect, the operations, business, assets, properties, prospects or condition
(financial or otherwise) of the Purchaser or QSI which has not been set forth in
this Agreement or on the Schedules hereto or Disclosure Memorandum delivered to
each Shareholder in connection herewith. The Confidential Private Placement
Memorandum contains such information as has been supplied to the existing
shareholders of QSI as required to be disclosed to the Purchaser by Regulation D
of the Act. All parties acknowledge that a class action shareholder's lawsuit
has been filed against QSI and certain of its officers and directors and that
each Shareholder has received information concerning such case in the Disclosure
Memorandum.
4.6 Broker's and Finder's Fees. Neither Purchaser nor QSI is a party
to, nor in any way obligated to make any payment relating to, any contract or
outstanding claim for the payment of any broker's or finder's fee in connection
with the origin, negotiation, execution or performance of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE V
CERTAIN OBLIGATIONS OF THE PARTIES PRIOR TO CLOSING
The Seller and the Purchaser hereby covenant as follows:
5.1 Access Prior to the Closing. Provided Purchaser is discreet, not
disruptive and maintains the confidentiality of the transactions contemplated by
this Agreement, the Seller shall afford the Purchaser and Purchaser's counsel,
accountants and other authorized agents and representatives (its "Advisors")
reasonable access during normal business hours to the Seller's facilities,
properties, books, records, customers and personnel in order that the Purchaser
and its Advisors may have the opportunity to make such reasonable investigations
as they shall desire to make of the affairs of the Seller. The Seller shall
furnish,or shall cause its accountants to furnish, such additional financial and
operating data and other information as the Purchaser or its Advisors shall from
time to time reasonably request,including, without limitation, all financial and
operating data as shall be necessary for preparation of the Closing Balance
Sheet (as defined in Section 5.5) and verification of the accuracy of the
Financial Statements. The Seller shall, upon the reasonable request of the
Purchaser, assist the Purchaser and its Advisors in contacting and communicating
with suppliers, customers and employees of Seller.
5.2 Confidentiality Prior to the Closing. Except as required by law
or any securities exchange,each party hereto shall, and shall cause its officers
and Advisors to, hold in strict confidence, and not disclose to others (except
its Advisors) for any reason whatsoever,without the prior written consent of the
other party, any nonpublic information received by it from the other party in
connection with the transactions contemplated hereby and will not use such
information for any purpose in the event that no Closing occurs under this
Agreement.
5.3 Conduct Prior to Closing Date. Except as otherwise contemplated
by this Agreement or permitted by the prior written consent of the Purchaser,
but without making any commitment on the Purchaser's behalf, prior to the
Closing Date the Seller shall:
(a) conduct its business and operations only in the ordinary
course;
(b) maintain its properties and assets including, without
limitation, the Transferred Assets, in good condition and repair, perform
its obligations under all agreements to which it is a party or by which it
or any of its assets or properties are bound and maintain all of its
Permits in good standing;
(c) continue in effect the policies of insurance (or similar
coverage) referred to in Section 3.12;
(d) preserve the business organization, including the present
work force, intact in all material respects;
(e) use its best efforts to keep available the services of its
present key employees as it deems appropriate;
(f) maintain and preserve the goodwill of the suppliers,
customers and others having business relations with Seller; and
(g) consult with the Purchaser from time to time, upon the
reasonable request of the Purchaser, with respect to any actual or
proposed conduct of Seller's operations.
5.4 Prohibited Transactions Prior to Closing Date. Except as otherwise
contemplated by, or disclosed in, this Agreement or permitted by the prior
written consent of the Purchaser or provided for in the operating and capital
budget set forth in Schedule 9.6, prior to the Closing Date the Seller shall
not:
(a) become a party to any agreement which, if it existed on the
date hereof, would be required to be listed in the Schedules pursuant to
Sections 3.9, 3.10, 3.13 or 3.15 (Purchaser's consent to such Agreements
shall not be unreasonably withheld and shall be delivered promptly);
(b) do or permit to occur any of the things referred to in
Section 3.7;
(c) modify or terminate any of the agreements, commitments,
obligations, understandings or accounting entries listed on Schedule 3.23;
or
(d) enter into any compromise or settlement of any Action
relating to Seller's assets or properties.
5.5 Closing Balance Sheet. Within fifteen (15) days after the Closing
Date, the Seller shall deliver to the Purchaser Seller's unaudited balance sheet
as of the time immediately prior to the Closing (the "Closing Balance Sheet"),
which balance sheet shall have been prepared by the Seller in accordance with
Generally Accepted Accounting Principles.
5.6 Lease. To the extent the Purchaser reasonably requests, the Seller
shall cooperate with and provide reasonable assistance to the Purchaser with
respect to the Purchaser's negotiation with the landlord for a new lease of the
Premises or an assignment of the existing lease thereof.
5.7 Cooperation. Each party hereto shall use its best efforts to cause
the transactions contemplated by this Agreement to be consummated, and without
limiting the generality of the foregoing, to obtain all consents and
authorizations of government agencies and third parties listed on Schedule 3.19,
and to make all filings with and give all notices to government agencies and
third parties which may be necessary or reasonably required in order to
consummate the transactions contemplated by this Agreement. The Seller shall
give prompt notice to the Purchaser, after receipt thereof by the Seller, of (i)
any notice of, or other communication relating to, any default or event which,
with notice or the lapse of time or both, would become a default under any
indenture, instrument or agreement material to the operations, condition
(financial or otherwise) or prospects of the Seller, to which the Seller is a
party or by which the Seller, its assets or properties are bound and (ii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement. The Seller shall obtain all required consents
(except those consents set forth in Schedule 5.7 specifically identified as not
being required prior to Closing) and approvals (if any) to assign and transfer
the Permits to the Purchaser on the Closing Date and, to the extent that one or
more of the Permits are not transferable, to obtain replacements therefor
satisfactory to the Purchaser.
5.8 No Negotiations, Etc. Prior to the Closing Date, the Seller shall
not, directly or indirectly, in any way contact, initiate, enter into or conduct
any discussions or negotiations, or enter into any agreements, whether written
or oral, with any Person with respect to the sale of all or any part of the
equity securities or assets of Seller; or a merger or consolidation of the
Seller with any other Person. The Seller shall, immediately upon receipt
thereof, notify the Purchaser of any such offer.
ARTICLE VI
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
Each and every obligation of the Purchaser under this Agreement to be
performed on or before the Closing Date shall be subject to the satisfaction, on
or before the Closing Date, of each of the following conditions of any of which
may be waived by Purchaser and QSI in writing:
6.1 Representations and Warranties True. The representations and
warranties of the Seller and the Shareholders contained herein, in the Schedules
and Exhibits hereto and in all certificates and other documents delivered by the
Seller and/or the Shareholders to the Purchaser pursuant hereto or in connection
with the transactions contemplated hereby shall be true and accurate in all
material respects as of the date of this Agreement and as of the Closing Date
with the same effect as if made on and as of the Closing Date.
6.2 Performance. The Seller shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, including, without limitation, those referred to in Article V.
6.3 No Adverse Changes.
(a) No portion of the Transferred Assets shall have been damaged,
destroyed or taken by condemnation to such an extent that substantial
operation of Seller's operations cannot continue.
(b) Seller shall not have suffered or become subject to changes
of any kind or nature which either individually or in the aggregate
adversely affect the ability of the Purchaser to continue the Acquired
Business or its operations.
(c) No material adverse change in Seller or the operations,
condition (financial or otherwise) or prospects of Seller since March 31,
1997 shall have occurred except as previously disclosed in the Schedules
hereto or as set forth in the budget attached hereto as Schedule 9.6.
(d) The Seller shall not have done or permitted to occur any of
the things referred to in Section 3.7, except in the ordinary course of
Seller's business or as set forth in the budget attached hereto as
Schedule 9.6.
6.4 Transfer Instruments. The Seller shall have delivered to the
Purchaser such instruments of conveyance and transfer as are contemplated by
Section 2.2.
6.5 Opinion of Counsel to the Seller. The Seller shall have delivered
to the Purchaser an opinion of Morris, Manning & Martin, counsel to the Seller,
dated the Closing Date, in substantially the form attached on Schedule 6.5
attached hereto.
6.6 Employment Agreements. Employment Agreements, each dated as of the
Closing Date, between each of the Shareholders other than Hale and the
Purchaser, and each in the form attached hereto as Schedules 6.6-1 through
6.6-5, shall have been duly executed by each of the Shareholders and delivered
to the Purchaser.
6.7 Lease. The Seller shall have assigned to Purchaser its lease of
the Premises and shall have obtained any and all consents required in connection
with such assignment.
6.8 Certificates. The Seller shall have furnished: the Seller's
Articles of Incorporation, as amended, certified by the Secretary of State of
the State of Georgia; certificates, dated not earlier than thirty (30) days
prior to the Closing Date, of the Secretary of State of the Seller's juris-
diction of incorporation and the Secretary of State of each foreign jurisdiction
where the Seller has qualified to do business as to the good standing of the
Seller in each such jurisdiction; and such certificates of its President or Vice
President to evidence compliance with the conditions set forth in Sections 6.1,
6.2, and 6.3 and any other certificates to evidence compliance with the
conditions set forth in this Article VI as may be reasonably requested by the
Purchaser and a certificate of Seller's President setting forth and certifying
the calculation of the Recoverable Disbursements and the matters which are the
subject of this Article VI.
6.9 Resolutions. The Seller shall have furnished a copy of the
resolutions adopted by the Board of Directors and Shareholders of the Seller
authorizing this Agreement and the transactions contemplated hereby, certified
by a Secretary or Assistant Secretary.
6.10 Proceedings. All corporate and other proceedings of Seller in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be in form and substance reasonably
satisfactory to the Purchaser and its counsel, and the Purchaser shall have
received all such originals or certified or other copies of such documents as it
may reasonably request.
6.11 Absence of Litigation. There shall be no Action pending or
threatened before any federal, state or local court, governmental agency or
regulatory body which seeks (a) to invalidate or set aside, in whole or in part,
this Agreement, (b) to restrain, prohibit, invalidate or set aside, in whole or
in part, the consummation of the transactions contemplated hereby or (c) to
obtain substantial damages in connection therewith.
ARTICLE VII
CONDITIONS TO THE SELLER'S OBLIGATIONS
Each and every obligation of the Seller under this Agreement to be
performed on or before the Closing Date shall be subject to the satisfaction, on
or before the Closing Date, of each of the following conditions:
7.1 Representations and Warranties True. The representations and
warranties of the Purchaser contained herein and in all certificates and other
documents delivered by the Purchaser to the Seller pursuant hereto or in
connection with the transactions contemplated hereby shall be in all material
respects true and accurate as of the date of this Agreement and as of the
Closing Date with the same effect as if made on and as of the Closing Date.
7.2 Performance. The Purchaser shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date, including, without limitation, those referred to in Article V.
7.3 Consents. All filings with and consents from government agencies
required to consummate the transactions contemplated hereby shall have been
obtained, unless the failure to obtain any such consent or make any such filing
would not have a material adverse effect on the assets, properties, business or
condition (financial or otherwise) of Seller or the transactions contemplated
hereby, or except to the extent that making any such filing or obtaining any
such consent has been waived in writing by the Seller.
7.4 Absence of Litigation. There shall be no Action pending or
threatened before any federal, state or local court, governmental agency or
regulatory body which seeks (a) to invalidate or set aside, in whole or in part,
this Agreement, (b) to restrain, prohibit, invalidate or set aside, in whole or
in part, the consummation of the transactions contemplated hereby or (c) to
obtain substantial damages in connection therewith.
7.5 No Adverse Changes. Except as set forth on Schedule 7.5,
(a) No portion of the QSI's business assets shall have been
damaged, destroyed or taken by condemnation to such an extent that
substantial operation of QSI's operations cannot continue.
(b) QSI shall not have suffered or become subject to changes of
any kind or nature which either individually or in the aggregate adversely
affect the ability of QSI to continue its business operations.
(c) No undisclosed material adverse change in QSI or the
operations, condition (financial or otherwise) or prospects of QSI since
the date of the December 31, 1996 Form 10-QSB shall have occurred.
7.6 Authorizations and Approvals. Prior to or on the Closing Date,
Purchaser and QSI shall have secured whatever authorizations or approvals are
required to enable each such entity to consummate the transactions contemplated
hereby and incident hereto.
7.7 Opinion of Counsel to the Purchaser. The Purchaser shall have
delivered to the Seller an opinion of Rutan & Tucker counsel to the Purchaser,
dated the Closing Date, in form and substance reasonably satisfactory to Seller
and its counsel.
7.8 Employment Agreements. The Employment Agreements set forth in
Section 6.9, each dated as of the Closing Date, between each of the Shareholders
and the Purchaser, shall have been duly executed by Purchaser and delivered to
each of the Shareholders.
7.9 Certificates. The Purchaser shall have furnished: the Purchaser's
Articles of Incorporation, certified by the Secretary of State of the State of
California; certificates, dated not earlier than thirty (30) days prior to the
Closing Date, of the Secretary of State of California and the Secretary of State
of each foreign jurisdiction where the Purchaser has qualified to do business as
to the good standing of the Purchaser in each such jurisdiction; and such
certificates of its President or Vice President to evidence compliance with the
conditions set forth in Sections 7.1, 7.2, 7.3 and 7.5 and any other certifi-
cates to evidence compliance with the conditions set forth in this Article VII
as may be reasonably requested by the Seller.
7.10 Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement, and all documents incident
thereto, shall be in form and substance reasonably satisfactory to the Seller
and its counsel, and the Seller shall have received all such originals or
certified or other copies of such documents as it may reasonably request.
ARTICLE VIII
[RESERVED]
ARTICLE IX
CERTAIN POST-CLOSING COVENANTS
The parties hereto covenant as follows: The covenants of either Purchaser
or QSI shall be deemed to be joint and several covenants of Purchaser and QSI.
The covenants of Seller or the Shareholders shall be deemed to be joint and
several covenants of Seller and each of the Shareholders.
9.1 Financial Statements; Books and Records; Access. Seller shall
provide to Purchaser within fifteen (15) days subsequent to the Closing Date the
Post Closing Financial Statements. Thereafter Purchaser shall provide QSI with
Purchaser's monthly financial statements within twenty(20) days after each month
end consisting of a balance sheet and a statement of operations for the month
then ended prepared in accordance with Generally Accepted Accounting Principles
consistently applied. Unless otherwise consented to in writing by the Purchaser,
the Seller shall not destroy, alter or otherwise dispose of any original books
or records of the Seller without first offering to surrender such books and
records to the Purchaser and shall maintain such books and records in good
condition in a reasonably accessible location. The Seller shall allow the
Purchaser and its Advisors reasonable access during normal business hours to
examine and copy such books and records.
9.2 Employee Benefits. Employees of Seller shall be entitled to
distributions under any "employee pension benefit plan" (as such term is defined
in Section 3(2) of ERISA) in accordance with its terms and under applicable laws
as a result of the Closing.
9.3 Noncompetition; Confidentiality.
(a) During the period any Shareholder is an employee of the
Purchaser, such Shareholder shall not (i) directly or indirectly engage in
any activity which the Purchaser shall determine in good faith to be in
competition with the Purchaser, or (ii) plan or otherwise take any
preliminary steps, either alone or in concert with others, to set up or
engage in any business enterprise that would be in competition with the
Purchaser.
(b) During the period any Shareholder is an employee of the
Purchaser and for a period ending upon the later of (i) three (3) years
(in the case of Puckett, four (4) years) after the Closing Date and (ii)
one (1) year (in the case of Puckett, two (2) years) after the termination
of such Shareholder's employment with the Purchaser, such Shareholder
shall not, either directly or indirectly, either alone or in concert with
others, (A) solicit or entice any employee of or consultant to the
Purchaser to leave the Purchaser or to work for anyone other than
Purchaser, or (B) solicit, entice or in any way divert any (x) customer or
(y) supplier with whom such Shareholder has conducted business or assisted
the Purchaser in providing business, to do business with any business
entity in competition with the Purchaser.
(c) Upon the termination of a Shareholder's employment with the
Purchaser, such Shareholder shall not, directly or indirectly through
affiliates, a partnership, a joint venture or otherwise, (i) enter into,
engage in, conduct or carry on any business which produces, manufacturers,
sells or distributes (v) healthcare practice management systems and/or
software, (w) electronic patient records systems and/or software, (x)
electronic medical records systems and/or software, (y) products of QSI
(or any subsidiaries of QSI) toward which such Shareholder has contributed
or will, during the term of such Shareholder's employment with Purchaser,
contribute in either the areas of development or direct involvement in
marketing or (z) products of the Purchaser toward which such Shareholder
has contributed or will, during the term of such Shareholder's employment,
contribute in either the areas of development or marketing (collectively,
(v) through (z) referred to herein as a "Competitive Business") or (B)
participate in the management of any person, firm, enterprise or
corporation if such person, firm, enterprise or corporation engages or
proposes to engage in a Competitive Business where such Shareholder
engages in or assists in any of the enumerated areas, (v) through (z)
above, of such Competitive Business, in the geographic areas set forth on
Schedule 9.3 attached hereto for a period ending the later of (y) three
(3) years after the Closing Date (four (4) years in the case of Puckett)
and (x) one (1) year (two (2) years in the case of Puckett) after the date
of termination of such Shareholder's employment with Purchaser.
(d) If any of the covenants contained in Sections 9.3(a), (b) and
(c) is determined to be unenforceable because of the duration of such
covenants or the area covered thereby, or the scope of such prohibited
activities, then the court making the determination shall have the power
to reduce the duration of such covenant, area covered and/or the scope of
prohibited activities covered thereby, and such covenants, in their
reduced form shall be enforceable. If any of the covenants contained in
Section 9.3(a), (b) and (c) is determined to be wholly unenforceable by
the courts of any domestic or foreign jurisdiction, such covenant shall be
deemed severable into independent covenants and shall be enforceable as so
severed to the extent permitted by such court.
(e) The Seller and the Shareholders shall each keep all
"Proprietary Information," "Inventions" and "Rights" (each as defined
those certain Employment Agreements described in Section 6.9) in the
strictest confidence and trust, and the Seller and each Shareholder will
not disclose, use or induce or assist in the use or disclosure of any
Proprietary Information, Inventions or Rights pertaining to Proprietary
Information, or anything related thereto, without the prior express
written consent of the Purchaser, except, while an employee of the
Purchaser, as may be necessary in the ordinary course of performing his
duties as an employee of the Purchaser. Seller and each Shareholder
recognizes that the Acquired Business has received, and in the future the
Purchaser will receive, from third parties their confidential or
proprietary information subject to a duty on the Purchaser's part to
maintain the confidentiality of such information and to use it only for
certain limited purposes. The Seller and each Shareholder jointly and
severally agrees that each owes the Purchaser and such third parties a
duty to hold all such confidential or proprietary information in the
strictest confidence, and he/it shall not disclose, use or induce or
assist in the use or disclosure of any such confidential or proprietary
information without the prior express written consent of the Purchaser,
except, while an employee of Purchaser, as may be necessary in the
ordinary course of performing his duties as an employee of the Purchaser,
consistent with the Purchaser's agreement with such third party.
(f) If the Seller commits a breach, or threatens to commit a
breach, of any of the provisions of this Section 9.3, the Purchaser shall
have the right and remedy (in addition to any others) to have the
provisions of this Section 9.3 specifically enforced by any court having
equity jurisdiction, together with an accounting therefor, it being
acknowledged and understood by the Seller that any such breach or
threatened breach will cause irreparable injury to the Purchaser and that
money damages will not provide an adequate remedy therefor.
9.4 Public Reports and Disclosure Cooperation. During the period
commencing on the date of this Agreement and terminating on the fifth anniver-
sary hereof, QSI shall make all necessary filings with the Securities and
Exchange Commission in order to permit the use of Rule 144 under the Act for
sales of QSI Shares by the Shareholders, provided that such Shareholders other-
wise do not at the time of any such contemplated sale, qualify for use of Rule
144(k). Seller and each of the Shareholders shall cooperate with the requests
of Purchaser and QSI in connection with any required audit of Seller or other
financial disclosure concerning the transactions contemplated hereby.
9.5 Sales Tax Receipt. Seller covenants and agrees that it will, at
the earliest practicable date, pay any and all sales tax due and owing to the
State of Georgia on account of the Transfer of the Transferred Assets to
Purchaser hereunder or otherwise. Seller further understands and agrees that any
amounts paid by Purchaser to the Georgia Department of Revenue because of
Seller's sales tax liability will be setoff by Purchaser against the Contingent
Payment.
9.6 Further Funding. As a material inducement to Seller and
Shareholders entering into this Agreement and to assist Seller and Shareholders
in obtaining the Contingent Payment, QSI shall supply up to Two Million Dollars
($2,000,000) in funding toward the working capital of the Acquired Business from
the Closing Date through March 31, 1998 (the "Working Capital Line of Credit")
and that upon the Closing Date, QSI shall make a Five Hundred Fifty Thousand
Dollar ($550,000) advance against such Working Capital Line of Credit to the
Acquired Business to retire the Bridge Loan payable to QSI in full. The dates
and amounts of each infusion shall be as specified in the budget on Schedule 9.6
attached hereto (unless otherwise mutually agreed to in writing) and be in
addition to the Purchase Price payment set forth in Section 1.5. QSI shall have
no further obligation to provide funding to the Acquired Business.
9.7 Name Changes. Purchaser shall change its name to "MicroMed
Healthcare Information Systems, Inc." ("MicroMed Name") within five (5) business
days of the Closing Date. Seller shall make such filings as is necessary to
accomplish same (including, without limitation, changing Seller's name to one
which does not contain any of the words "MicroMed," "Healthcare," or
"Information") or assist Purchaser in such filings. To the extent the MicroMed
Name (or any portion thereof) is the subject of a legal challenge, controversy
or dispute, or not legally available for use following the Closing, Purchaser
shall have the sole discretion to discontinue its use.
9.8 Seller and Purchaser Operations. Seller shall cease all business
activity other than the activities relating to the windup of Seller's affairs as
of the Closing Date. Purchaser shall conduct the sales efforts of the Acquired
Business as historically conducted by the Seller and, during the twelve (12)
months ending on March 31, 1998, not provide any special sales incentives,
rebates, royalties, bonuses or commissions concerning the sales of its product
(at any time during such period, or in the future) without the prior written
consent of QSI's Chief Executive Officer. Immediately upon the Closing and until
March 31, 1998, unless otherwise provided herein, Purchaser shall:
(a) conduct the Acquired Business as a subsidiary of QSI
responsible for its own profit and loss;
(b) retain the Acquired Business' operations in Atlanta, Georgia;
and
(c) continue such Acquired Business operations as historically
conducted under the MicroMed Name, to the extent the MicroMed Name is not
the subject of a legal challenge, controversy or dispute, or not legally
available for use following the Closing with substantially the same
management.
Section 1.5(c) sets forth certain additional criteria which must be met by the
operations of the Acquired Business for the period from the Closing Date through
March 31, 1998. If any or all of the criteria set forth in Section 1.5(c) are
not met, then in addition to Seller being ineligible for the Contingent Payment,
QSI may at its election assume full control of operations and management of the
Acquired Business and/or, at its sole discretion, cease to:
(x) conduct the Acquired Business as a subsidiary of QSI
responsible for its own profit and loss;
(y) retain the Acquired Business' operations in Atlanta, Georgia;
or
(z) continue such Acquired Business operations as historically
conducted under the MicroMed Name with substantially the same management;
or any combination of the foregoing (x), (y) and (z).
9.9 Software Promotion. Purchaser's software shall be QSI's primary
Windows software product in the medical practice management marketplace provided
it proves, in the assessment of QSI, to be suitable and successful for the
medical practice management markets in which QSI participates.
9.10 Guaranty; Certain Financial Incentives. QSI guarantees the payment
of the Contingent Payment in accordance with the terms and conditions of this
Agreement. QSI will provide financial incentives to senior and key staff in
order to promote financial and company growth. Concurrent with the Closing,
options to acquire 100,000 QSI Shares ("Stock Options") will be reserved under
QSI's 1989 Stock Option Plan (the "Plan") by QSI's Board of Directors for future
grant to senior and key personnel of Purchaser. Immediately after the Closing,
Purchaser's senior and key personnel (and such personnel thereafter hired by
Purchaser) who do not have an equity interest in Seller of any kind as of the
Closing Date shall be eligible to receive Stock Option grants. Commencing one
year after the Closing Date of the transaction and if both Acquired Business
Revenues and Pretax Operating Income for the twelve (12) months ending March 31,
1998 are at least $3.8 million and $600,000, respectively, then senior and key
staff who did have an equity interest in Seller as of the Closing Date will also
be eligible to be granted any remaining portion of the Stock Options not already
granted as of March 31, 1998, provided any such grants to individuals identified
in Schedule 9.10 attached hereto do not exceed the respective amount set forth
for each individual identified therein. All Stock Option grants are subject to
QSI Board approvals. At least two (2) weeks prior to any regularly scheduled
meeting of the QSI Board of Directors, the President of Purchaser shall submit
in writing to QSI's Chief Executive Officer recommendations for Stock Option
grants which QSI's Chief Executive Officer will then present for action to QSI's
Board of Directors at the next regularly scheduled meeting of QSI's Board. If
Puckett is no longer President of Purchaser as a result of his death or
disability prior to the allocation of such remaining Stock Options and until
June 30, 1998, the Shareholders (other than Puckett or his estate) may by
majority vote, recommend the allocation of the Stock Options. QSI commits to
annually review and issue as appropriate additional stock options. Stock Options
are subject to and governed by the Plan. Stock Option exercise prices, vesting
provisions and expiration dates are as follows:
(a) The exercise price is the last traded price on the date of
grant;
(b) Individual awarded options will be twenty-five percent (25%)
vested upon each annual anniversary of the award, and one hundred percent
(100%) vested after four (4) years; and
(c) Stock Options expire five (5) years from the date of grant.
9.11 Sales Leads. For a period of six (6) months commencing with the
Closing Date, QSI will refer all GUI/client server medical practice management
system sales leads to the Acquired Business with the exception of one sales lead
that QSI may pursue with a QSI customer resulting in the licensing of such
Program to such customer. Also during this six (6) month period, QSI sales,
training and support staff will accompany personnel of the Acquired Business on
selected visits to agreed upon customers or potential customers of the Acquired
Business, irrespective of whether the lead was originally generated by QSI, for
the purposes of learning methodologies of the Acquired Business. All costs for
QSI personnel will be borne by QSI.
9.12 Successor Executive. In the event Puckett dies (or becomes disabled
resulting in termination of employment) prior to March 31, 1998, a majority in
interest of the Shareholders will, as a group (exclusive of Puckett or his
estate) within thirty(30) days of such event, recommend in writing a replacement
for Puckett for consideration by the Purchaser's Board of Directors which
recommendation shall be accepted or rejected in writing by Purchaser's Board of
Directors within thirty (30) days of such recommendation. Until March 31, 1998,
no replacement shall be appointed by Purchaser's Board of Directors who has not
been recommended by a majority in interest of the Shareholders as a group
(exclusive of Puckett or his estate).
9.13 Conduct of Acquired Business. Upon the Closing Date and
thereafter, each of the Shareholders, in their respective capacities as officers
and key employees of Purchaser as set forth in the Employment Agreements
specified in Section 6.9 hereof, shall conduct the business and operations of
Purchaser in a reasonable and prudent manner including complying with the
policies set forth in Schedule 9.13.
9.14 Board Composition and Representation. During the period commencing
upon the Closing Date and ending on the earlier to occur of: (i) March 31, 1998
or (ii) the date upon which Purchaser fails to satisfy any one of the criteria
set forth in Section 1.5(c), QSI shall vote its shares of Purchaser's common
stock to elect only four (4) persons to Purchaser's Board of Directors, two (2)
of whom shall be nominated by Puckett and the remaining two (2) shall be
nominated by QSI. The Purchaser's Board of Directors shall adopt all necessary
corporate actions to establish an executive committee of the Purchaser's Board
of Directors (the "Executive Committee") comprised of the two (2) directors
nominated by QSI for the sole purpose of administering and taking such action as
may be required or permitted of such executive committee (such as termination
for "Cause") under Puckett's Employment Agreement. In addition, QSI and
Purchaser acknowledge and agree that only during the period set forth in the
first sentence of this Section 9.14, Puckett shall be the Senior executive
officer responsible for the management of Purchaser such that no other employee
or officer of Purchaser or QSI shall have the authority or power to take any
action inconsistent with, or in contravention of, the directives of Puckett,
as President.
9.15 Noninterference. During the period commencing upon the Closing
Date and ending on the earlier to occur of: (i) March 31, 1998 or (ii) the date
upon which Purchaser fails to satisfy any one of the criteria set forth in
Section 1.5(c), QSI shall not knowingly and intentionally take any corporate
action designed to interfere with Purchaser's ability to achieve the Contingent
Payment.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. Notwithstanding (a)
the making of this Agreement, (b) any examination made by or on behalf of the
parties hereto and (c) the Closing hereunder, the representations and warranties
of the Seller and the Purchaser contained in this Agreement, or in any document
delivered pursuant to the provisions of this Agreement,shall survive the Closing
for a period of three (3) years and the covenants and agreements required to be
performed after the Closing or pursuant to Article V of this Agreement (unless
noncompliance with those covenants contained in Article V was waived in writing
at the Closing) shall survive until fully performed or fulfilled.
10.2 Indemnification.
(a) Subject to the provisions of Section 10.2(e),(f) (g)and (h),
from and after the Closing, the Seller and the Shareholders (collectively,
the Seller and Shareholders referred to as the "Seller Indemnifying
Parties") shall jointly and severally indemnify and hold harmless the
Purchaser and QSI and each of their respective officers, directors,
partners, shareholders, successors and assigns (collectively, the "Seller
Indemnified Parties") from and against any loss, claim, liability,
damages, punitive damages, remedial costs, civil and criminal penalties or
expenses or other damages of any kind or nature, including Purchaser's
reasonable attorneys' fees and costs incurred in connection with any of
the foregoing (collectively, the "Damages"), caused to the Acquired
Business or any of the Seller Indemnified Parties by or arising out of (i)
the failure by the Seller or any of the Shareholders to perform any
covenant or agreement required to be performed by any such Person in this
Agreement (unless noncompliance with those covenants was waived in writing
by the Purchaser at the Closing); (ii) the failure of the Seller to pay,
perform or satisfy any Excluded Liability; (iii) any judgments, orders or
decrees entered in any lawsuit or proceeding or Actions against the
Seller, the Acquired Business, or any of the Seller Indemnified Parties
arising out of activities undertaken by the Seller prior to, on, or after
the Closing Date; (iv) the failure of the Seller to pay promptly any
federal, state, local or foreign taxes of the Seller (including, without
limitation, all taxes of any kind or nature and all interest, additions to
tax and penalties thereon) claimed or assessed for any taxable period
ended on or prior to the Closing Date; (v) any Actions, claims, demands,
grievances or disputes brought or initiated by third parties against QSI
or the Purchaser or any of its Affiliates in connection with an Excluded
Liability; or (vi) any breach of warranty or representation in this
Agreement (including the Schedules hereto) made by or on behalf of the
Seller and not waived in writing by the Seller Indemnified Parties. From
and after the Closing, the Purchaser and QSI (the "Purchaser Indemnifying
Parties") shall indemnify and hold harmless the Seller and the
Shareholders and the officers, directors, successors and assigns of each
(collectively, the "Purchaser Indemnified Parties"), as applicable,
against any Damages caused to Seller or any of the Shareholders by or
arising out of the failure by Purchaser to perform any covenant or
agreement required to be performed by it in this Agreement (unless
noncompliance with those covenants was waived in writing by the Seller at
the Closing), or any breach of warranty or representation in this
Agreement made by or on behalf of the Purchaser and not waived in writing
by the Purchaser Indemnified Parties.
(b) The Seller Indemnified Parties or the Purchaser Indemnified
Parties as the case may be (the "Indemnified Party") shall notify the
Seller Indemnifying Parties or the Purchaser Indemnifying Parties as the
case may be (the "Indemnifying Party") within a reasonable period of time
after becoming aware of, and shall provide to the Indemnifying Party as
soon as practicable thereafter all information and documentation necessary
to support and verify, any Damages which the Indemnified Party shall have
determined has given or could give rise to a claim for indemnification
hereunder, and the Indemnifying Party shall be given access to all books
and records in the possession or under the control of the Indemnified
Party which the Indemnifying Party reasonably determine to be related to
such claim.
(c) All claims for indemnity under this Article X shall be paid
by the Indemnifying Party on demand in immediately available funds in U.S.
dollars. At the Purchaser's option, in lieu of payment in cash, Purchaser
shall have the absolute right in Purchaser's sole discretion to setoff, in
part or in full, against any portion of the Contingent Payment then
outstanding and owing to Seller, the full or partial amount of any claim
for indemnity pursuant to the provisions of Section 10.2.
(d) The Indemnified Party shall notify the Indemnifying Party
with reasonable promptness of its discovery of any matter giving rise to
a claim of indemnity or setoff pursuant to this Agreement. With respect
to any third party claim or action that could give rise to indemnity under
this Agreement, the Indemnifying Party shall be entitled to assume the
defense thereof with counsel satisfactory to the Indemnified Party,
provided, that upon the request of the Indemnified Party, the Indemnifying
Party provide reasonable evidence of its ability to perform its
obligations under this Section 10.2; and after notice from the
Indemnifying Party to the Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to the
Indemnified Party under the foregoing indemnity agreement for any legal or
other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than (i) those relating to
investigation or the furnishing of documents or witnesses and (ii) all
reasonable fees and expenses of separate counsel retained by such
Indemnified Party if (A) the Indemnifying Party and the Indemnified Party
shall have agreed to the retention of such counsel or (B) counsel to the
Indemnified Party shall have concluded reasonably that the representation
of the Indemnifying Party and the Indemnified Party by the same counsel
would be inappropriate due to actual or potential differing interests
between them in the conduct of the defense of such action. Promptly after
receipt by the Indemnified Party of notice of the commencement of any
action to which the Indemnifying Party is not a party, such Indemnified
Party shall, if such claim in respect thereof is to be made against the
Indemnifying Party pursuant to this Agreement, notify the Indemnifying
Party in writing of the commencement thereof, but the failure or delay in
so notifying the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations to indemnify pursuant to the terms of this
Agreement. The Indemnified Party shall keep the Indemnifying Party
informed of the progress of any such action and shall not enter into any
settlement of any such action without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
(e) The Indemnified Party shall not be entitled to
indemnification hereunder until the aggregate value of all Damages claimed
by such Indemnified Party exceeds $100,000, in which case the Indemnified
Party shall be entitled to indemnification hereunder for the total amount
of all Damages suffered or incurred by such party. Damages incurred as a
result of a breach of any representation or warranty set forth in
Section 3.21 with regard to the Business Trade Receivables shall not be
included in such $100,000, but, instead shall be treated separately as set
forth in Section 10.2(f).
(f) The Indemnified Party shall not be entitled to
indemnification for breaches of Section 3.21 with regard to the Business
Trade Receivables hereunder until the aggregate value of all Damages as a
result of any breaches of Section 3.21 with regard to the Business Trade
Receivables claimed by such Indemnified Party exceeds $100,000, in which
case the Indemnified Party shall be entitled to indemnification hereunder
for the total amount of all Damages suffered or incurred by such party in
the same manner as set forth above.
Example: By way of example and not limitation: (i) if aggregate
Damages attributable to breaches of certain representations and warranties
of this Agreement, other than those of Section 3.21 with regard to
Business Trade Receivables, equaled $90,000 and there existed $80,000 of
Business Trade Receivables aged in excess of one hundred twenty (120)
days, no indemnification for Damages would be due to the Indemnified
Party; (ii) if aggregate Damages attributable to breaches of certain
representations and warranties of this Agreement, other than those of
Section 3.21 with regard to Business Trade Receivables, equaled $110,000,
and there existed $80,000 of Business Trade Receivables aged in excess of
one hundred twenty (120) days, $110,000 of indemnification for Damages
would be due to the Indemnified Party; (iii) if aggregate Damages
attributable to breaches of certain representations and warranties of this
Agreement, other than those of Section 3.21 with regard to Business Trade
Receivables, equaled $110,000, and there existed $130,000 of Business
Trade Receivables aged in excess of one hundred twenty (120) days,
$240,000 of indemnification for Damages would be due to the Indemnified
Party.
(g) Where the Indemnifying Party is the Seller Indemnifying
Parties, the liability of each of the Shareholders for the indemnification
obligations of the Seller Indemnifying Parties shall be limited to the
amount of Damages which are the subject of such claim, multiplied by such
Shareholder's percentage ownership interest in the common stock of Seller
as of the Closing Date (as set forth on Schedule 10.2(g) attached hereto)
and shall not exceed, with respect to each such Shareholder, the amount of
consideration received by Seller from Purchaser and QSI hereunder,
multiplied by such Shareholder's percentage share ownership interest in
Seller, less any amount previously paid by such Shareholder to Purchaser
as liquidated damages under the terms of such Shareholder's Employment
Agreement described in Section 6.6.
Example: By way of example and not limitation (and without
consideration of Section 10.2(e) and (f)), if a Shareholder owned 25% of
the common stock of Seller as of the Closing Date and the Seller
Indemnifying Parties were responsible for Damages of $500,000, then such
Shareholder would be individually responsible for no more than $125,000 of
such Damages.
Example: By way of further example and not limitation (and without
consideration of Section 10.2(e) and (f)), if (i) payments to Seller on or
behalf of Seller as of the date Damages are to be recovered total
$6,000,000, (ii) a Shareholder owned 25% of the common stock of Seller as
of the Closing Date and (iii) the Seller Indemnifying Parties were
responsible for Damages of $8,000,000, then (iv) such Shareholder would be
individually responsible for no more than $1,500,000 of such Damages, (v)
the aggregate liability for all Shareholders would be $6,000,000 as of
such date, (vi) the Purchaser Indemnifying Parties would have (x) a claim
against the Seller, and (y) a setoff right against any further amounts due
and payable to the Seller/Shareholders hereunder (including, without
limitation, any Contingent Payment), up to the amount of any Damages not
recovered as a result of the limitation contained in this Section 10.2(g).
(h) The Indemnified Party shall not be entitled to
indemnification, payment of any Damages, expenses or other remedy with
respect to any representation, warranty, covenant, or obligation of the
Indemnifying Party insofar as and to the extent that, such Indemnified
Party had actual knowledge on or prior to the Closing Date of the
inaccuracy of, or the noncompliance with any such representation,
warranty, covenant or obligation.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by the mutual written consent of the Purchaser and the
Seller; or
(b) by either the Purchaser or the Seller, upon written notice,
if there has been a material misrepresentation or any breach on the part
of the other party hereto in the representations, warranties or covenants
contained in this Agreement which is not cured within fifteen (15)
business days after such other party has been notified of the intent to
terminate this Agreement pursuant to this subsection (b).
11.2 Effect of Termination. In the event of the termination of this
Agreement as expressly permitted under Section 11.1, such termination shall be
the sole remedy and this Agreement shall forthwith become void (except for
Sections 5.2 and 12.3) and there shall be no liability on the part of either the
Seller or the Purchaser or any of their Affiliates; provided, however, that if
such termination shall result from the willful breach by a party hereto of its
obligations under this Agreement, such party shall be fully liable for any and
all damages, costs and expenses sustained or incurred by the other party as a
result of such breach. In the event of the termination of this Agreement without
a Closing, the Seller shall return promptly to the Purchaser all documents, work
papers and other materials of the Purchaser furnished or made available to the
Seller or its Advisors, and all copies thereof, and no information received by
the Seller shall be revealed to any third party or used for the advantage of the
Seller or any other party; and the Purchaser shall return promptly to the Seller
all documents, work papers and other material of the Seller furnished or made
available to the Purchaser or its Advisors, and all copies thereof, and no
information received by the Purchaser shall be revealed to any third party or
used for the advantage of the Purchaser or any other party.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Public Announcements. As soon as practicable following the date
of this Agreement, QSI shall issue a press release concerning the transactions
contemplated hereby. Such press release shall be provided to Seller for Seller's
prompt comment and approval, which shall not be unreasonably withheld, no less
than twelve (12) hours prior to its release to the public. Prior to the Closing
Date,the Purchaser and the Seller shall notify and consult with each other prior
to issuing any statement or communication to the public or the press regarding
the transactions contemplated by this Agreement. Except as required by law or
by any securities exchange and except as the other party hereto shall authorize
in writing or as provided under this Section 12.1, the parties hereto shall not,
and shall cause their respective officers, directors, employees, Affiliates and
Advisors not to, disclose any matter or matters relating to this transaction to
any Person not an officer, director, employee, Affiliate or Advisor of such
party.
12.2 Amendment; Waiver. Neither this Agreement, nor any of the terms
or provisions hereof, may be amended, modified, supplemented or waived, except
by a written instrument signed by the parties hereto (or, in the case of a
waiver, by the party granting such waiver). No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No failure of either party hereto to insist upon strict
compliance by the other party with any obligation, covenant, agreement or
condition contained in this Agreement shall operate as a waiver of, or estoppel
with respect to, such compliance or any subsequent or other failure. Whenever
this Agreement requires or permits consent by or on behalf of any party hereto,
such consent shall be given in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 12.2.
12.3 Fees and Expenses. Except as otherwise provided in this Agreement,
each of the parties hereto shall bear and pay its own costs and expenses
incurred in connection with the origin, preparation, negotiation, execution and
delivery of this Agreement and the agreements, instruments, documents and trans-
actions referred to in or contemplated by this Agreement (whether or not such
transactions are consummated) including, without limitation, any fees, expenses
or commissions of any of its Advisors, attorneys, agents, finders or brokers.
The Purchaser shall indemnify the Seller against any claims of third parties for
any brokerage, finder's, agent's or similar fees or commissions in connection
with the transactions contemplated hereby insofar as such claims are alleged to
be based on arrangements or contacts made by, to or with the Purchaser or its
Advisors or representatives. The Seller shall indemnify the Purchaser against
all such claims insofar as they are alleged to be based on arrangements or
contacts made by, to or with the Seller or its Advisors or representatives.
12.4 Bulk Sales Law Waiver. The Purchaser and the Seller each agrees
to waive compliance by the other with the provisions of the Bulk Sales Law of
the State of Georgia or comparable law of any jurisdiction to the extent that
the same may be applicable to the transactions contemplated by this Agreement.
In addition to any other indemnities provided in this Agreement, the Seller and
the Shareholders agree to indemnify and hold harmless the Purchaser from and
against any and all claims that may be asserted against the Purchaser or liens
claimed against any of the Transferred Assets by the creditors of the Seller or
other third parties under the Bulk Sales Law of the State of Georgia or
comparable law of any state.
12.5 Notices.
(a) All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing (including
telefax, telegraphic, telex or cable communication) and mailed, telefaxed,
telegraphed, telexed, cabled or delivered:
(i) If to the Seller, to:
MicroMed Healthcare Information
Systems, Inc.
3405 Piedmont Road, Suite 350
Atlanta, Georgia 30305
Attn: President
Fax: (404) 467-0501
with a copy to:
Richard L. Haury, Jr., Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road N.E.
Atlanta, Georgia 30326-1041
Fax: (404) 365-9532
(ii) If to the Shareholders, to:
c/o Stephen K. Puckett
3295 Wake Robin Trail
Atlanta, Georgia 30341
with a copy to:
Richard L. Haury, Jr., Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road N.E.
Atlanta, Georgia 30326-1041
Fax: (404) 365-9532
(iii) If to the Purchaser, to:
c/o Quality Systems, Inc.
Meredith Financial Center
Centre Building, Suite 210
17822 East 17th Street
Tustin, California 92780
Attn: President
Fax: (714) 731-9494
with a copy to:
Thomas J. Crane, Esq.
Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Fax: (714) 546-9035
(iv) If to QSI, to:
Quality Systems, Inc.
Meredith Financial Center
Centre Building, Suite 210
17822 East 17th Street
Tustin, California 92780
Attn: President
Fax: (714) 731-9494
with a copy to:
Thomas J. Crane, Esq.
Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Fax: (714) 546-9035
(b) All notices and other communications required or permitted
under this Agreement which are addressed as provided in this Section 12.5
(i) if delivered personally against proper receipt or by confirmed telefax
or telex, shall be effective upon delivery and (ii) if delivered (A) by
certified or registered mail with postage prepaid, (B) by Federal Express
or similar courier service with courier fees paid by the sender or (C) by
telegraph or cable, shall be effective two (2) business days following the
date when mailed, couriered, telegraphed or cabled, as the case may be.
Either party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no
such change shall be deemed to have been given until it is actually
received by the party sought to be charged with its contents.
12.6 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder may be assigned by the parties
hereto without the prior written consent of the other party; provided, however,
that the Purchaser may assign its rights and obligations under this Agreement to
any of its Affiliates or any entity who by merger, consolidation, purchase or
sale subsequently becomes an Affiliate without the prior consent of the Seller.
Any assignment which contravenes this Section 12.6 shall be void ab initio.
12.7 Governing Law; Consent to Jurisdiction. This Agreement and the
legal relations between the parties hereto shall be governed by and construed in
accordance with the internal laws of the State of California, without giving
effect to the conflicts of laws principles thereof, except for the covenant set
forth in Section 9.3 which shall be governed by the laws of the State of
Georgia.
12.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
12.9 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not constitute a part hereof or define,
limit or otherwise affect the meaning of any of the terms or provisions hereof.
12.10 Entire Agreement. This Agreement (which defined term includes the
Schedules and Exhibits to this Agreement) and the Employment Agreements
referenced in Section 6.9, embodies the entire agreement and understanding among
the parties hereto with respect to the subject matter of this Agreement and
supersedes all prior agreements, commitments, arrangements, negotiations or
understandings, whether oral or written, between the parties with respect
thereto. There are no agreements, covenants, undertakings, representations or
warranties with respect to the subject matter of this Agreement other than those
expressly set forth or referred to herein.
12.11 Severability. Each term and provision of this Agreement
constitutes a separate and distinct undertaking, covenant, term and/or provision
hereof. In the event that any term or provision of this Agreement shall be
determined to be unenforceable, invalid or illegal in any respect, such
unenforceability, invalidity or illegality shall not affect any other term or
provision of this Agreement, but this Agreement shall be construed as if such
unenforceable, invalid or illegal term or provision had never been contained
herein. Moreover, if any term or provision of this Agreement shall for any
reason be held to be excessively broad as to time, duration, activity or sub-
ject, it shall be construed, by limiting and reducing it, so as to be enforce-
able to the extent permitted under applicable law as it shall then exist.
12.12 No Third Party Beneficiaries. Nothing in this Agreement is
intended, nor shall anything in this Agreement be construed, to confer any
rights, legal or equitable, in any Person (other than the parties hereto and
their respective heirs, distributees, beneficiaries, executors, successors and
assigns), including, without limitation, any employee of the Seller or any
beneficiary of such employee.
12.13 Miscellaneous. The persons executing this Agreement on behalf of
the parties hereto are duly authorized to execute, acknowledge and deliver this
Agreement.
12.14 Attorneys' Fees. In the event it becomes necessary for any of the
parties hereto to institute any action, suit or proceeding to enforce the
provisions of this Agreement, the nonprevailing party agrees to pay the
prevailing party's costs and fees, including reasonable attorneys' fees incurred
in the enforcement of this Agreement.
12.15 Arbitration. All disputes arising under this contract will be
resolved by submission to binding arbitration at the Orange County offices of
Judicial Arbitration & Mediation Services, Inc. ("JAMS"). If JAMS is unable to
arbitrate the dispute, then the dispute will be arbitrated at the Orange County
offices of the American Arbitration Association ("AAA"). Except as specifically
modified by this clause, the Commercial Arbitration Rules of the AAA will apply
to all arbitrations before JAMS and the AAA. Except as specifically modified by
this clause, California law, including California evidence law, shall be applied
to determine all arbitrated issues (except for disputes concerning Section 9.3
which shall be governed by Georgia law). California discovery law will apply to
provide all discovery available in California Superior Court cases. No punitive
damages shall be awarded in any arbitration proceeding or otherwise, and such
damages are hereby waived. Judgment upon an arbitration award may be entered in
any court having competent jurisdiction and shall be binding, final and
nonappealable.
12.16 Recitals; Definitions. The Recitals and Definitions set forth
herein are hereby made a part of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
<TABLE>
<S> <C>
SELLER: MICROMED HEALTHCARE INFORMATION
SYSTEMS, INC.
By: /S/ STEPHEN K. PUCKETT
Title: President
PURCHASER: MHIS ACQUISITION CORP.
By: /S/ SHELDON RAZIN
Title: Chief Executive Officer
QSI: QUALITY SYSTEMS, INC.
By: /S/ SHELDON RAZIN
Title: Chief Executive Officer and
President
</TABLE>
SHAREHOLDERS:
<TABLE>
<S> <C>
PUCKETT: /S/ STEPHEN K. PUCKETT
STEPHEN K. PUCKETT
EGGENA: /S/ TIMOTHY EGGENA
TIMOTHY EGGENA
HARMANTAS: /S/ JONATHAN HARMANTAS
JONATHAN HARMANTAS
DAVIS: /S/ ROBERT DAVIS
ROBERT DAVIS
TICHENOR: /S/ MATTHEW TICHENOR
MATTHEW TICHENOR
HALE: /S/ ROBERT HALE
ROBERT HALE
</TABLE>
EXHIBIT 99.1
QSI PRESS RELEASE
FOR IMMEDIATE RELEASE Date: May 5, 1997
Quality Systems, Inc. Announces Agreement to Acquire MicroMed
Healthcare Systems, Inc.
Includes GUI/Client Server Practice-Management System for Medical
Marketplace
TUSTIN, Calif.--May 5, 1997--Quality Systems, Inc. (Nasdaq: QSII) Chairman and
Chief Executive Officer Sheldon Razin Monday announced that the company has
entered into a purchase agreement to acquire substantially all of the assets of
MicroMed Healthcare Systems, Inc., a privately held company based in Atlanta.
MicroMed provides practice-management systems and services to the medical
marketplace utilizing a Microsoft Windows-based graphical user interface (GUI)
client/server platform. MicroMed's primary product, which is designed for
health-care provider networks, includes a master patient index (MPI),
enterprisewide appointment scheduling with referral tracking, clinical support,
and centralized or decentralized patient financial management based on either a
managed-care or fee-for-service model. The system is scalable, and currently
MicroMed's client base includes a prestigious Florida medical center with more
than 70 doctors, 20 locations and nearly 100 simultaneous system users.
The MicroMed acquisition provides another dimension to QSI's current information
technology, which includes character-based UNIX medical and dental practice-
management systems, Internet/intranet solutions and its subsidiary Clinitec's
NextGen electronic medical records system -- a complementary product to QSI's
and MicroMed's practice-management systems -- that has been designed using a GUI
client/server platform.
QSI has agreed to purchase MicroMed for up to $10.8 million. QSI will form a new
subsidiary composed of the net assets of MicroMed. Under terms of the agree-
ment, QSI will pay $4.8 million in cash upon the closing of the transaction,
which is expected to occur by May 15, 1997. QSI will pay up to an additional
$6 million no later than June 29, 1998, under a formula based primarily upon
revenues and pretax operating income of the MicroMed business for the 12 months
ending March 31, 1998. The additional payment, if any, is payable up to 15
percent in QSI common stock, at the option of QSI, with the balance payable in
cash. The transaction will be treated as a purchase for accounting purposes.
In connection with this treatment, QSI expects to allocate a significant portion
of the purchase price to be paid upon the closing to purchase in-process
research and development which will be charged against operations during the
quarter ending June 30, 1997, if the transaction closes when anticipated.
MicroMed President Stephen Puckett stated: "We are excited to join the team of
Clinitec and longtime industry leader QSI. Our goal is to offer the health-care
community a truly integrated delivery solution that empowers them in the
competitive market of today and positions them for the challenges of tomorrow.
We look forward to shaping the future."
Upon the closing of the acquisition, Puckett will become president of Quality
Systems' new wholly owned subsidiary, which was formed to acquire the MicroMed
assets. Puckett will also become an executive vice president of Quality Systems.
Razin said: "We are excited to have Steve and his talented team join with QSI.
We are extremely pleased with this acquisition, and we believe that the new
technologies of Micromed are a good complement to QSI's existing technology.
This move will enable us to extend our product reach and offer additional
products to our existing customer base. This acquisition represents one more
step in the execution of QSI's growth strategy, and we are excited about the
prospects for this new technology."
Quality Systems is one of the leading developers and providers of computer-based
practice-management systems for medical and dental group practices, with a
customer base of approximately 500 clients in 45 states, Canada, and Saudi
Arabia.
This news release contains forward-looking statements that involve a number of
risks and uncertanties. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are volume and timing of systems sales and installations, length of
sales cycles and installation process, seasonal patterns of sales and customer
buying behavior, the development of competitors of new or superior technologies,
delays in product development, undetected errors or bugs in software, product
liability, changing economic, political or regulatory influences on the healt-
care industry, changes in product-pricing policies, competitive pressures,
possible regulation of the company's software by the U.S. Food and Drug
Administration, general economic conditions, and the risk factors detailed from
time to time in the company's periodic reports and registration statements filed
with the Securities and Exchange Commission.
EXHIBIT 99.2
QSI PRESS RELEASE
FOR IMMEDIATE RELEASE Date: May 15, 1997
Quality Systems, Inc. Completes Acquisition of MicroMed
Healthcare Systems, Inc.
TUSTIN, CA, May 15, 1997 ... Quality Systems, Inc. (Nasdaq: QSII) Chairman and
CEO Sheldon Razin announced today that the company has completed its acquisition
of MicroMed Healthcare Systems, Inc., a privately held company based in Atlanta,
Georgia.
Under terms of the agreement, QSI paid $4.8 million in cash upon the closing of
the transaction. QSI will pay up to an additional $6 million no later than June
29, 1998, under a formula based primarily upon revenues and pre-tax operating
income of the MicroMed business for the twelve months ending March 31, 1998. QSI
has formed a new subsidiary composed of the net assets of MicroMed.
MicroMed provides practice management systems and services to the medical
marketplace utilizing a Microsoft Windows-based graphical user interface (GUI)
client/server platform. MicroMed's primary product, which is designed for
healthcare provider networks, includes a master patient index (MPI), enterprise-
wide appointment scheduling with referral tracking, clinical support, and
centralized or decentralized patient financial management based on either a
managed care or fee-for-service model. The system is scalable and currently
MicroMed's client base includes a prestigious Florida medical center with more
than 70 doctors, 20 locations, and nearly 100 simultaneous system users.
MicroMed's product is complimentary to QSI's existing technologies.
Quality Systems is one of the leading developers and providers of computer-based
practice management systems for medical and dental group practices, with a
customer base of approximately 500 clients in 45 states, Canada and Saudi
Arabia.
This press release contains forward-looking statements that involve a number of
risks and uncertainties. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are volume and timing of systems sales and installations, length of
sales cycles and installation process, seasonal patterns of sales and customer
buying behavior, the development by competitors of new or superior technologies,
delays in product development, undetected errors or bugs in software, product
liability, changing economic, political or regulatory influences on the
healthcare industry, changes in product pricing policies, competitive pressures,
possible regulation of the Company's software by the U.S. Food and Drug
Administration, general economic conditions, and the risk factors detailed from
time to time in the Company's periodic reports and registration statements filed
with the Securities and Exchange Commission.
