<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For fiscal year ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to ___________ to ____________
Commission File Number 0-16594
MEDICAL TECHNOLOGY SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-2740462
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12920 Automobile Boulevard, Clearwater, Florida 33762
-----------
(Address of Principal Executive Offices) (Zip Code)
(727) 576-6311
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to
Section 12(b)of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
--------------------- -------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
(Title of Class)
COMMON STOCK PURCHASE WARRANTS
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x]Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]Yes [ ] No
Aggregate market value of voting Common Stock held by non-affiliates was
$2,300,000 as of June 25, 1998.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [x]Yes [ ] No
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 6,129,673 as of June 25, 1998.
Documents Incorporated by Reference
Parts of the Company's definitive proxy statement which will be filed by the
Company within 120 days after the end of the Company's 1998 fiscal year end, are
incorporated by reference into Part III of this Form.
Total number of pages, including cover page - 55 (excluding exhibits)
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1
MEDICAL TECHNOLOGY SYSTEMS, INC.
CLEARWATER, FLORIDA
INDEX
PART I PAGE
Item 1. Business................................................... 2-11
2. Properties................................................. 11
3. Legal Proceedings.......................................... 11-13
4. Submission of Matters to a Vote of Security Holders........ 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 14
6. Selected Financial Data........................................ 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16-21
8. Financial Statements and Supplementary Data................. 21
9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure.................................. 21
PART III
Item 10. Directors and Executive Officers of the Registrant........ 22
11. Executive Compensation.................................... 22
12. Security Ownership of Certain Beneficial Owners .......... 22
13. Certain Relationships and Related Transactions
and Management............................................ 22
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K................................................ 23-24
Index to Financial Statements.......................................... 25
Signatures ............................................................ 52
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2
PART I
This Annual Report on Form 10-K (the "10-K") contains certain statements
concerning the future that are subject to risks and uncertainties. Additional
written or oral forward-looking statements may be made by the Company from time
to time, in filings with the Securities and Exchange Commission or otherwise.
Such statements include, among other things, information concerning
possible-future results of operations, capital expenditures, the elimination of
losses under certain programs, financing needs or plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, and the effects of pending and possible litigation, as well as
assumptions relating to the foregoing, and those accompanied by the words
"anticipates," "estimates," "expects," "intends," "plans," or similar
expressions. For those statements we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
You should specifically consider the various factors identified in this
10-K, including the matters set forth in "Item 1. Business", "Item 3. Legal
Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Notes to Consolidated Financial
Statements that could cause actual results to differ materially from those
indicated in any forward-looking statements. Other factors that could contribute
to or cause such differences include, but are not limited to, unanticipated
increases in operating costs, labor disputes, capital requirements, increases in
borrowing costs, product demand, pricing, market acceptance, intellectual
property rights and litigation, risks in product and technology development and
other risk factors detailed in the Company's Securities and Exchange Commission
filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained in this 10-K, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
ITEM 1. BUSINESS
Introduction
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Medical Technology Systems, Inc.(TM), a Delaware corporation (the
"Company"), was incorporated in March 1984. The Company is a holding company
operating through a number of separate subsidiaries, including MTS Packaging
Systems, Inc.(TM) ("MTS Packaging"), Medical Technology Laboratories, Inc.
("MTL") and LifeServ Technologies, Inc.(TM) ("LifeServ"). These subsidiaries
provide a diverse line of proprietary medication dispensing systems, laboratory
services and clinical information systems to the health care industry. The
Company also owned Vangard Labs, Inc. ("Vangard"), a generic drug repackaging
company, which was sold in fiscal 1997.
MTS Packaging primarily manufactures and sells disposable medication punch
cards, packaging equipment and allied ancillary products throughout the United
States. Its customers are predominantly pharmacies that supply nursing homes and
assisted living facilities with prescription medications for their patients. MTS
Packaging manufactures its proprietary disposable punch cards and packaging
equipment in its own facilities. This manufacturing process uses technologically
advanced integrated machinery for manufacturing the disposable medication punch
cards. The disposable medication punch cards and packaging equipment are
designed to provide a cost effective method for pharmacies to dispense
medications. The Company's medication dispensing systems and products provide
innovative methods for dispensing medications in disposable packages.
MTL was formed as a result of the acquisition and combination of Clearwater
Medical Services and Clinical Diagnostic Centers during fiscal year 1992. MTL
conducts analytical services for testing of blood, tissue and other body fluids
for hospitals, physicians and other health care providers in Florida. On March
17, 1995, MTL purchased the rights and interests in certain clinical laboratory
services of Tampa Pathology Laboratory, including the right, title and interest
in the customer accounts associated with Tampa Pathology Laboratory and the
right to service and continue sales of clinical laboratory services to these
customers. The purchase agreement provided for a purchase price of approximately
$1.4 million. In connection with its reorganization, the Company negotiated to
reduce the purchase price to $500,000. See "Item 3. Legal Proceedings."
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3
On March 10, 1995, the Company established MTS Sales and Marketing, Inc.
("MTS Sales"). This subsidiary was established to provide administrative support
and sales and marketing services to the other subsidiaries. MTS Sales is
currently an inactive subsidiary.
On June 20, 1997, Medication Management Technologies, Inc. ("MMT") entered
into an Agreement and Plan of Merger with Cygnet Laboratories, Inc., a
California corporation. MMT subsequently filed for relief under Chapter 11 of
the U.S. Bankruptcy code. See "Reorganization Under Chapter 11" and "Item 3.
Legal Proceedings."
On February 24, 1998, the Company formed LifeServ for the purpose of
holding and operating the Company's health care information subsidiaries:
Performance Pharmacy Systems, Inc. ("PPS"), Medication Management Systems, Inc.
("MMS"), MMT, Cart-Ware, Inc. ("Cart-Ware") and Systems Professionals, Inc.
("SPI"). In April 1998, the Company entered into a stock subscription agreement
with LifeServ whereby the Company made a capital contribution of all of the
outstanding capital stock of those subsidiaries to LifeServ.
In April 1998, LifeServ entered into an asset purchase agreement to acquire
the assets of Peritronics Medical, Inc. ("Peritronics"), a subsidiary of
Peritronics Medical, Ltd., a publicly held British Columbia, Canada corporation.
The assets are primarily composed of proprietary software products and
customers. The Company anticipates that the closing of the asset purchase
agreement will take place in August 1998.
Discontinued Operations
- -----------------------
The Company acquired all of the Common Stock of Vangard on June 1, 1992.
Vangard suspended operations in January 1996. Vangard previously packaged and
sold oral solid unit-dose generic drugs to hospitals and nursing home
institutional pharmacies. The Company sold certain assets of Vangard effective
March 31, 1997, to an unrelated third party. The terms of the agreement of sale
provided for the payment to the Company of $3.1 million in cash and the
assumption of certain liabilities by the buyer. The $3.1 million received by the
Company was used to reduce debt. See "Item 3. Legal Proceedings".
On November 3, 1993, the Company signed a joint venture agreement to create
Glasgow Pharmaceutical Corporation ("GPC") for the purpose of marketing and
selling pharmaceutical products to the long-term care industry. GPC is owned 50%
by Vangard and 50% by Creighton Pharmaceuticals Corporation, a wholly-owned
subsidiary of Sandoz Pharmaceuticals Corporation. The GPC joint venture was
created to provide the Company with a competitive price advantage in the
acquisition cost of its pharmaceuticals as well as provide additional product
lines. The principal product of GPC was MedCard, which was a medication punch
card that could be pre-filled with oral solid generic and brand name drugs.
Operations of GPC commenced in May 1994 and were suspended in January 1996 along
with the operations of Vangard. The Vangard asset sale agreement did not include
GPC. The Company has no immediate plans to resume operations of GPC. GPC does
not have any material assets or liabilities.
The principal executive offices and manufacturing facilities of the Company
are located at 12920 Automobile Boulevard, Clearwater, Florida 33762 and the
Company's telephone number is (727) 576-6311.
Segments
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The Company is composed of three operating segments:
a. Medication packaging and dispensing systems: MTS Packaging and MTS
Sales are the only subsidiaries in this segment.
b. Health care information systems: LifeServ and its subsidiaries, MMS,
PPS, MMT, Cart-Ware and SPI represent this segment.
c. Clinical laboratory services: MTL is the only subsidiary in this
segment.
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4
The following is operating information for these industry segments for the
years ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Revenue:
Reportable Segments
Medication Packaging & Dispensing Systems $ 12,338 $ 11,169 $ 10,651
Health Care Information Systems 4,306 1,965 1,249
Clinical Laboratory Services 7,428 6,113 5,152
--------------- --------------- ---------------
Total Consolidated Revenue $ 24,072 $ 19,247 $ 17,052
================ =============== ===============
Depreciation and Amortization:
Reportable Segments
Medication Packaging & Dispensing Systems $ 554 $ 534 $ 647
Health Care Information Systems 255 150 764
Clinical Laboratory Services 258 250 579
--------------- --------------- ----------------
1,067 934 1,990
Corporate 406 447 692
--------------- --------------- ----------------
Total Consolidated Depreciation and Amortization $ 1,473 $ 1,381 $ 2,682
=============== =============== ================
Interest Expense:
Reportable Segments
Medication Packaging & Dispensing Systems $ 1 $ 2 $ 5
Health Care Information Systems 13 20 16
Clinical Laboratory Services 36 5 31
---------------- -------------- ----------------
50 27 52
Unallocated Debts 1,059 582 1,687
---------------- ---------------- ----------------
Total Consolidated Interest Expense $ 1,109 $ 609 $ 1,739
================ ================ ================
Operating Profit (Loss):
Reportable Segments
Medication Packaging & Dispensing Systems $ 2,827 $ 2,512 $ (6,752)
Health Care Information Systems (1,214) (472) (5,798)
Clinical Laboratory Services 460 136 (4,443)
--------------- ---------------- ----------------
2,073 2,176 (16,993)
Corporate and Interest (3,197) (2,161) (7,624)
---------------- ---------------- ----------------
Total Consolidated Operating Profit (Loss) $ (1,124) $ 15 $ (24,617)
================ ================ ================
Identifiable Assets:
Reportable Segments
Medication Packaging & Dispensing Systems $ 5,944 $ 6,006 $ 7,557
Health Care Information Systems 3,871 938 1,355
Clinical Laboratory Services 3,509 2,560 2,551
--------------- ---------------- ----------------
13,324 9,504 11,463
Corporate 2,438 3,039 3,206
--------------- --------------- ----------------
Total Consolidated Identifiable Assets $ 15,762 $ 12,543 $ 14,669
=============== =============== ================
Identifiable Liabilities:
Reportable Segments
Medication Packaging & Dispensing Systems $ 1,029 $ 280 $ 1,508
Health Care Information Systems 3,056 382 691
Clinical Laboratory Services 1,175 780 1963
--------------- --------------- ----------------
5,260 1,442 4,162
Corporate 16,615 16,517 29,053
---------------- ---------------- ----------------
Total Consolidated Liabilities $ 21,875 $ 17,959 $ 33,215
================ ================ ================
Capital Expenditures:
Reportable Segments
Medication Packaging & Dispensing Systems $ 131 $ 123 $ 769
Health Care Information Systems 103 92 5
Clinical Laboratory Services 62 67 2
--------------- --------------- ----------------
296 282 776
Corporate 66 25 21
--------------- --------------- ----------------
Total Consolidated Capital Expenditures $ 362 $ 307 $ 797
================ =============== ================
Impairment of Long-Lived Assets:
Reportable Segments
Medication Packaging & Dispensing Systems $ 0 $ 0 $ 7,319
Health Care Information Systems 0 0 3,029
Clinical Laboratory Services 0 0 4,105
--------------- --------------- ----------------
0 0 14,453
Corporate 0 0 1,968
--------------- --------------- ----------------
Total Consolidated Impairment of Long-Lived Assets $ 0 $ 0 $ 16,421
================ ================ ================
</TABLE>
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5
Corporate expenses are composed primarily of personnel costs and
administrative expenses, which are incurred on behalf of each reportable
segment. The Company cannot accurately allocate these costs and expenses to each
reportable segment.
Corporate assets are composed primarily of $678,000 of cash, $477,000 of
equipment used by administrative personnel and $1.2 million of intangible
assets.
Corporate liabilities are composed of $1.4 million of short-term accounts
payable and accrued liabilities and $15.2 million in long-term debt.
The geographic sales of the Company are in the United States, and there are
no customers that account for more than 10% of the Company's revenues for all
periods presented.
Products/Services
- -----------------
MTS Packaging manufactures proprietary medication dispensing systems and
related products for use by medication prescription service providers. These
systems utilize disposable medication punch cards and specialized machines that
automatically or semi-automatically assemble, fill and seal drugs into
medication punch cards representing a 30 day supply of a patient's medication.
MTS Packaging's machinery for dispensing medication in disposable packages
automatically places tablets or capsules (the amount of medication required by a
patient during one month) into a blistered punch card. The use of these cards
and machines provides a cost effective customized package at competitive prices.
The punch card medication dispensing system can provide tamper evident packaging
for products dispensed in the package.
The retail price of MTS Packaging's machinery ranges from $1,100 to
$120,000 depending upon the degree of automation and options requested by a
customer. The punch cards typically retail from $155 to $225 per 1,000 cards and
blisters, depending upon the size, design and volume of cards ordered by a
customer. To date, MTS Packaging has placed approximately 1,660 medication
dispensing systems with pharmacy clientele. MTS Packaging also sells
prescription labels and ancillary supplies designed to complement sales of
disposable medication punch cards. MTS Packaging had approximately $530,000 in
unshipped orders as of June 25, 1998.
LifeServ is a health care information technology company that provides
solutions for medication management and point of care electronic documentation
for hospitals and other health care facilities through its subsidiaries, MMS,
PPS, MMT, Cart-Ware and SPI. LifeServ's systems are used to collect, archive and
process patient demographics, medication data and associated patient care
information. The systems are also designed to address the health care provider's
need to more efficiently manage patient care by collecting and assimilating
"outcomes" information and automating a traditionally manual paper process.
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6
LifeServ has approximately 248 customers and has recently further expanded its
product offering and customer base, to approximately 468 customers, through
business acquisitions. LifeServ had approximately $1,500,000 in contracts for
shipment and installation of systems at March 31, 1998. The following are
LifeServ's products:
Performance(TM) is a pharmacy software system for use in hospitals and
long-term care facilities. The primary emphasis of this system is to provide the
hospital pharmacist with a comprehensive collection of automated tools for
completing day-to-day activities in an efficient manner. The system performs
important medication management responsibilities and sophisticated drug therapy
monitoring and documentation. The system also provides hospital pharmacists with
the ability to process physicians' medication orders quickly and accurately. The
organization of screens, use of overlapping windows, in-process access to
multiple files and other user friendly techniques make the Performance system an
attractive and functional hospital pharmacy software system. Performance pricing
starts at approximately $30,000, which includes hardware, software, training and
pre-loaded drug files. To date, more than 145 Performance systems have been
installed.
MedServ(R) is a line of automated dispensing cabinets that control the
distribution, administration and documentation of medications and supplies in
hospitals, clinics, long-term care facilities, out-patient surgery centers and
other health care settings. MedServ functions as a floor stock inventory
software system that provides security by restricting access and providing
tighter inventory controls in emergency rooms, operating rooms and nursing units
where floor stock medications, supplies and controlled substances are stored.
MedServ's self-contained units consist of a color touch-screen monitor mounted
on a dispensing cabinet. The MedServ product has not previously been made widely
available to the health care industry. MedServ pricing starts at approximately
$30,000 for a one unit system and a file server. MedServ is currently installed
in approximately 25 hospitals.
E-mar(TM) integrates Performance with MedServ to provide automated
dispensing and to electronically produce medication orders, drug interaction
assessment, nurse charting and other administrative functions. E-mar can assist
in the reduction of medications errors, nursing labor, and pharmacy labor and
provides an electronic medication administration record. E-mar also provides
two-way communication between the pharmacy system and the dispensing cabinet.
The system allows orders to be entered either at the pharmacy or the dispensing
cabinet and to be electronically transmitted to the "other end" for
verification. Traditionally, the nurse would have been provided with a paper
document called a medication administration record (describing a patient's full
drug regimen) on which to manually record the medication information as drugs
are administered. E-mar permits the nurse to record medications administered,
plus patient responses to medications in a repository that can be reviewed by
the physician or pharmacist so that they can assess outcomes and determine
appropriate drug therapy. E-mar has recently been released from testing and is
installed at three hospitals with several more under contract to be installed.
Pricing starts at approximately $46,500 which includes a redundant file server.
Cygnet(R) offers a fully-integrated information system for the
obstetrical clinics of hospitals and doctors' offices. Cygnet creates a
paperless environment for the complete perinatal process. The system archives
all data on optical disk collected from fetal and physiological monitors, as
well as all electronic documentation such as patient charting and nurses' notes.
Such information can be easily retrieved for performing outcomes analysis and
for mandated legal documentation. Eight thousand, eight-hour births can be
archived on a single optical disk recorded by Cygnet. The Cygnet product is
installed in approximately 75 hospitals with an average sales price of
approximately $128,000. Several of the obstetrical clinics in these hospitals
are now completely paperless, using electronic documentation for perinatal
point-of-care rather than paper forms.
The Peritronics software product, like Cygnet, is also an obstetrical
information system. LifeServ currently expects that future software releases
will allow customers of both Peritronics and Cygnet to migrate their systems to
a common version without the loss of current data. The addition of Peritronics
will bring LifeServ total installed obstetrical systems to 295 customers.
LifeServ had approximately $1.5 million in contracts for shipment and
installation at March 31, 1998.
MTL provides clinical laboratory testing services. The analytical tests of
blood, tissues and other bodily fluids that it provides are typical of
diagnostic laboratories and the facilities presently have no particular
specialization in any of its testing procedures and services. MTL performs
in-house over 95% of the testing routinely ordered by physicians for their
patients, which typically includes chemistry, hematology, serology, urinalysis
and bacteriology.
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7
Research and Development
- ------------------------
Research and development activities during the past three years have not
been significant and, therefore, have not been separately classified in the
financial statements. The Company has focused on the development of products
that it has been determined are technologically feasible.
Product Development
- -------------------
The Company had several projects underway to develop new products during
its most recent fiscal year.
a. MTS Packaging is presently developing:
- Medication dispensing systems that more fully automate its
customers' operation and increase the productivity of the
pharmacy.
- A dispensing system for the packaging of unit dose medication for
hospitals.
b. LifeServ is presently developing:
- Emergency department software.
- Conversion of Performance to a Windows NT(R) platform.
- Single item dispensing hardware for MedServ.
Manufacturing Processes
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MTS Packaging has developed integrated punch card manufacturing equipment
that will accomplish the various punch card manufacturing steps in a
single-line, automated process. The Company believes that its advanced
automation gives it certain speed, cost and flexibility advantages over
conventional punch card manufacturers. MTS Packaging's equipment produces
finished cards in one eight hour shift. This process takes approximately one
week using conventional methods. MTS Packaging's advanced automation provides a
substantial reduction in time compared to conventional punch card manufacturing
systems. MTS Packaging has two machines capable of producing punch cards in this
manner. In addition to the manufacturing of punch cards, MTS Packaging
manufactures machines that are used by its customers to fill punch cards with
medication. The majority of these machines are sold to customers; however, from
time to time, customers are provided or rented machines in conjunction with an
agreement to purchase certain quantities of punch cards over a specified period.
MTS Packaging uses automated fabrication equipment to produce its
medication packaging machinery. All essential components of the machines are
designed and manufactured by the Company without reliance on outside vendors.
MTS Packaging is dependent on a number of suppliers for the raw materials
essential in the production of its products. The Company believes that relations
are adequate with its existing vendors. However, there can be no assurance that
such relations will be adequate in the future or that shortages of any of these
raw materials will not arise, causing production delays. MTS Packaging believes
it is necessary to maintain an inventory of materials and finished products that
allows for customer orders to be shipped within the industry standard of 2 - 3
days. The inability to obtain raw materials on a timely basis and on acceptable
terms may have a material adverse effect on the future financial performance of
the Company.
LifeServ assembles computer hardware for its MedServ and E-mar product line
and then installs its proprietary software. The MedServ cabinetry is
manufactured by outside vendors that are metal fabricators with experience in
the medical business. Although LifeServ is aware of several vendors that could
manufacture the MedServ product, a change in vendors could create a void in
product availability while a new vendor prepares to meet LifeServ inventory
needs. LifeServ's current vendor for the MedServ cabinetry has three separate
locations capable of manufacturing its product in order to provide adequate
backup if an event occurs that interrupts production flow. The unavailability of
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8
MedServ cabinetry could have a material adverse effect on future sales of the
MedServ and E-mar product line. All computer hardware is purchased from outside
vendors but is common to many suppliers. The Company believes its proprietary
software adds substantial value to the product, primarily because of the
Company's extensive knowledge of hospital pharmacy management practices derived
from more than 145 installations of Performance.
LifeServ's Performance and Cygnet products are software systems. All
computer hardware is purchased from outside vendors, but is common to many
suppliers. However, the development and software support services provided for
all LifeServ software products are dependent on attracting and retaining
qualified personnel experienced in computer software design and development.
Computer programmers and other technical personnel are currently in high demand.
The availability of qualified personnel could have a material adverse effect on
the future financial performance of the Company.
MTL primarily relies upon sophisticated diagnostic testing equipment to
evaluate bodily fluid samples. MTL has upgraded its laboratory equipment through
the acquisition of automated analyzers. Each analyzer is capable of performing
36 different tests on up to 160 patients per hour. The testing categories
performed by such machinery include bacteriology, chemistry, hematology,
serology and urinalysis. MTL provides services and as a result, is not dependent
upon a supply of raw materials; however, MTL uses certain disposable supplies to
produce test results. MTL's service revenue is dependent upon referrals by
physicians.
As a result of the Company's financial condition, many of the suppliers of
raw materials and other goods and services to the Company's subsidiaries have
required that purchases be paid for in advance or on a COD basis. As a result,
the Company's ability to obtain raw materials and other goods and services is
substantially dependent upon the Company's cash flow.
Markets and Customers
- ---------------------
MTS Packaging's products are sold throughout the United States, primarily
through its sales organization and independent sales representatives. MTS
Packaging also participates in trade shows and training seminars. MTS Packaging
presently has no customers that account for greater than 10% of its consolidated
sales.
The primary customers for MTS Packaging's proprietary packaging machinery
and the related disposable punch cards, labels and ancillary supplies are
pharmacies that supply prescription medication to nursing homes. Such pharmacies
serve from 250 to 34,000 nursing home beds per location and many serve the
sub-acute, assisted living and the home health care markets as well.
LifeServ has begun selling its MedServ and E-mar product lines, which are a
computerized medication management system, to hospitals throughout the United
States. The Company believes this technology is attractive to hospitals because
it provides the opportunity for the hospital to reduce medication dispensing and
administration errors. Approximately 3,000 of the more than 6,400 acute care and
specialty care hospitals throughout the United States currently have
computerized medication dispensing systems. Most of those 3,000 hospitals use
floor stock systems, such as MedServ, for inventory control in primarily the
emergency room, operating room or in areas where narcotic floor stock was
previously stored. Thus, there is an opportunity within most of those 3,000
hospitals for systems, such as E-mar, that can adequately administer a patient's
regularly scheduled medications. The floor stock systems that have been
installed are primarily justified by reducing inventory shortages and decreasing
"lost billings" rather than reducing or eliminating medication errors. As of
June 25, 1998, LifeServ had 25 MedServ and 3 E-mar installations within the U.S.
Pricing for MedServ and E-mar products range from $30,000 to over $1,000,000 for
a hospital installation depending on the number of beds and service level
requirements. The Company believes that the market for the LifeServ products is
currently favorable.
The markets for other health care facilities, such as nursing home,
sub-acute care and assisted living facilities, are relatively new. Although the
Company has no specific data for these markets, it believes that the extension
of the health care market from hospitals into nursing homes, sub-acute care,
assisted living facilities and other health care facilities represents a
potential to expand the customer base for LifeServ's products. Although the
Company is optimistic that it will be able to generate additional revenue from
the growing assisted care facilities market, there is no assurance that it can
successfully penetrate such markets.
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9
MTL provides clinical laboratory testing services for physicians primarily
in the west central Florida area. MTL also services physicians in Key West.
Service is a key factor in retaining and securing referrals from physicians.
Several of the national laboratories that compete with MTL have consolidated
their operations outside the Tampa Bay area which has benefited MTL.
Approximately 65% of the tests performed by MTL are paid for by Medicare.
In January 1998, Medicare instituted a 4% reduction in their reimbursement
rates. On April 1, 1998, Medicare instituted changes which required physicians
to provide more diagnosis information for the tests they order. The reduction in
reimbursement rates and the additional information which Medicare requires for
reimbursement have resulted in reduced gross margins for MTL as well as delays
in receiving payment for services rendered. There are no contracts between MTL
and the physicians serviced, accordingly at any time, the physician can change
laboratory services.
Competition
- -----------
The pharmacy customers of MTS Packaging supply prescribed medications to
nursing homes, which are the primary market for MTS Packaging's products. This
market is highly competitive. There are several competitors that presently
market other systems using punch cards. The Company believes it is the industry
leader in the automation of packaging and sealing of solid medications into
punch cards. The Company believes that products developed by the Company's
competitors are not as efficient as the Company's systems because they are not
as automated. The Company's method of dispensing medication replaces more
traditional dispensing methods, such as prescription vials. The principal
methods of competition in supplying medication dispensing systems to
prescription service providers are product innovation, price, customization and
product performance. Many of the Company's competitors have been in business
longer and have substantially greater resources than the Company. There is no
assurance that the Company will be able to compete effectively with competitive
methods of dispensing medication or other punch card systems.
The Company's primary competitors for punch card dispensing systems are
Drug Package, Inc., PCI/Trans Aid, Inc. and RX Systems, Inc. The Company
believes that its automated proprietary packaging machinery distinguishes MTS
Packaging from its competitors' manual systems, which are capable of only
filling and sealing 30-45 disposable medication punch cards per hour. The
Company's new automated packaging machinery can fill and seal up to 720
disposable medication cards per hour. The Company believes that its production
rates will meet the needs of its customers who are consolidating and require
higher productivity to meet their growing market share.
LifeServ faces intense competition within the hospital marketplace for its
products, Performance, MedServ, E-mar and Cygnet. For pharmacy management
systems, competitors include dominant hospital information system vendors such
as HBO & Company, SMS Corporation, MEDITECH, Inc. and other major corporations.
Also included are pharmacy management systems providers such as Cerner
Corporation, Mediware Information Systems, Inc. and Health Care Services, Inc.
Among suppliers of automated dispensing systems to hospitals, the Company will
be competing with such major companies as Pyxis Corporation, a subsidiary of
Cardinal Health Inc., Baxter International, Inc., Diebold Incorporated and
others for its new MedServ product line. The Company believes E-mar is defining
a new market and the Company is not aware of any competitors with installed
systems such as E-mar. Although the Company believes it has been first to
market, many companies that have greater financial resources could develop a
similar product. The obstetrical information market segment of the Company's
business is principally divided among Watch Child, a division of Hill-Rom
Company, Inc., Marquette Medical Systems, Inc. and Cygnet. Although the Company
believes it provides superior technological systems, there is no assurance that
it will be able to effectively compete with companies that have greater
financial resources or established market distribution channels.
MTL conducts its business in a very competitive marketplace. There are a
number of clinical laboratories in the Tampa Bay area that compete with the
Company's facility. In addition, hospitals are offering their own diagnostic
clinical laboratory services, which places additional competitive pressure on
the Company. Although the Company believes that MTL provides a high level of
service and quality. There can be no assurance that competitors, governmental
regulators, or reductions in Medicare reimbursement policies will not erode the
business prospects of MTL.
<PAGE>
10
Proprietary Technology
- ----------------------
The Siegel Family QTIP Trust (the "Trust") is the holder of certain patents
and other proprietary rights for the equipment and processes that MTS Packaging
uses and sells. The Trust is the assignee of all such proprietary and patent
rights used in the Company's business that were invented or developed by Harold
B. Siegel, the founder of the Company. The Trust and the Company are parties to
a license agreement whereby the Company is granted an exclusive and perpetual
license from the Trust to use the know-how and patent rights in the manufacture
and sale of the Company's medication dispensing systems. MTS Packaging is
heavily dependent upon the continued use of the proprietary rights associated
with these patents. The patents begin expiring in 2001 continuing through 2006.
The license agreements are co-extensive with the patents.
There are numerous patent applications and patent license agreements for
products that have been sold and that have been in development within MTS
Packaging and LifeServ, however, their business' are not materially dependent
upon the issuing or its ownership of any one patent applied for or patent
license agreements.
There is no assurance that any additional patents will be granted with
respect to the Company's medication dispensing or information systems and
products or that any patent issued, now or in the future, will provide
meaningful protection from competition.
MTL does not presently use any proprietary technology. The Company has
completed a program to upgrade to more technologically advanced equipment for
the delivery of diagnostic information to its customers.
Government Regulation
- ---------------------
Certain subsidiaries of the Company are subject to various federal, state
and local regulations with respect to their particular businesses. The Company
believes that it currently complies with these regulations.
MTS Packaging's products are governed by federal regulations concerning
components of packaging materials that are in contact with food. The Company has
obtained assurances from its vendors that the packaging materials used by MTS
Packaging are in conformity with such regulations. However, there is no
assurance that significant changes in the regulations applicable to MTS
Packaging's products will not occur in the foreseeable future. Any such changes
could have a material adverse effect on the Company.
The operations of LifeServ are subject to Food and Drug Administration
(FDA) Guidelines. In accordance with FDA Guidelines, the Cygnet Product is
classified as a Class II medical device and requires the filing of a 510(k)
application with the FDA for approval and compliance. The 510(k) application
serves as a pre-market notification to the FDA of a company's intention to sell
a medical device and seeks consent to do so. The Cygnet product received this
consent in December 1993. Any material changes or modifications to the present
Cygnet product will require the filing of an additional 510(k) application. On
September 10, 1996, the FDA issued a letter of compliance for the Cygnet
product. The Company believes that it will be able to maintain FDA compliance
for its Cygnet product.
The operations of MTL are subject to extensive federal, state, and local
regulation. Specifically, MTL is licensed by the State of Florida Department of
Health and Rehabilitation Services ("HRS") and is certified by the Health Care
Financing Administration ("HCFA"), a federal governmental agency. The Company
believes MTL is currently operated in compliance with HRS and HCFA licensing and
certification requirements.
The operations of MTL are subject to Medicare reimbursement requirements
and restrictions imposed by the Social Security Act as administered by HCFA.
Recent regulatory changes directly affect the way Medicare reimburses for
laboratory services. Medicare only pays for laboratory services if the lab
facility is certified under the Clinical Laboratory Improvement Act of 1988. The
Company's operation of MTL complies with this federal legislation.
Most clinical laboratory procedures are paid from laboratory fee schedules
issued by individual Medicare carriers or intermediaries. Laboratory services
are paid based upon a national fee schedule modified by local economic factors.
Medicare carriers pay laboratory claims on a reasonable fee basis. In the case
of laboratory tests, the recommended fee is the lesser of the fee schedule or
the national caps on the actual billed amounts. Most laboratory tests must be
<PAGE>
11
billed on an assigned basis. This means that the provider must accept the
Medicare reimbursement as payment in full for a laboratory test. Medicare
patients are not billed for the additional amount. In addition, Florida has
adopted legislation that limits billing for laboratory services to 120% of the
allowable Medicare reimbursement. Recent changes in Medicare reimbursement
policies have severely impacted MTL's ability to receive timely reimbursement
for tests performed. MTL is currently evaluating these policies and attempting
to make the necessary changes in its internal information systems in order to
improve its ability to adjust to these changes.
The Company cannot predict the extent to which its operations will be
effected under the laws and regulations described above or any new regulations
that may be adopted by regulatory agencies.
Employees
- ---------
As of June 25, 1998, the Company employed 275 persons full time. None of
the Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with employees to be good.
ITEM 2. PROPERTIES
The Company leases a 67,000 square foot plant consisting of office space
and air-conditioned manufacturing and warehousing space near the Clearwater/St.
Petersburg International Airport at 12920 Automobile Boulevard. The Company's
corporate administrative offices, LifeServ and the manufacturing facilities for
MTS Packaging are at this location. The lease expires on April 15, 1999. The
Company's current monthly lease payments are approximately $19,000. The premises
are generally suited for light manufacturing and/or distribution. Currently the
Company is operating at two-thirds of actual manufacturing capacity.
The Company leases approximately 5,200 square feet at approximately $2,500
per month for office and warehouse space at 21530 Drake Road, Cleveland, Ohio.
The lease expires on March 31, 1999. This space is used by the Ohio Label
business acquired by the Company in 1989. This business is now part of MTS
Packaging.
The Company leases approximately 3,300 square feet of space for MTL located
in Pinellas County, Florida. This lease expires on April 1, 2002, with monthly
rents of approximately $5,000.
The Company subleases approximately 4,000 square feet for LifeServ
located in San Jose, California. The lease expires on December 31, 2000 with
monthly rents of $4,400.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any litigation that, in the opinion of
management, would have a material adverse effect on the Company's financial
position, results of operations or liquidity. As more fully described in the
last paragraph of Note 15 to the consolidated financial statements, the Company
is disputing a proposed assessment by the State of Florida, Department of
Revenue.
Reorganization Under Chapter 11 and Subsequent Operations
- ---------------------------------------------------------
On January 3, 1996, three of the Company's subsidiaries, MTS Packaging, MTL
and MTS Sales, filed voluntary petitions for relief under Chapter 11 in the
Bankruptcy Court. On February 22, 1996, Vangard filed a voluntary petition for
relief under Chapter 11 in the same jurisdiction. On July 10, 1997, MMT filed a
voluntary petition for relief under Chapter 11 in the same jurisdiction.
On September 4, 1996, the Plans of Reorganization for MTS Packaging, MTL
and Vangard were confirmed by the Bankruptcy Court. The case of MTS Sales was
dismissed. On June 12, 1998, the Plan of Reorganization for MMT was confirmed by
the bankruptcy court.
<PAGE>
12
Certain liabilities were compromised by creditors as part of the Plans for
Reorganization as follows:
Secured Claims: (Bank) - Each of the companies that filed petitions under
Chapter 11 were co-borrowers on bank notes, lines of credit, accrued interest
and other charges and expenses, in the amount of approximately $28.0 million,
that were combined and restructured into two separate promissory notes.
Plan Note I, in the stated principal amount of approximately $27.0 million,
provided for a portion of the principal amount, $15.0 million, to be due and
payable as follows:
a. Interest at the rate of 7.5% for a period of two years ending
September 1, 1998.
b. Installments of principal and interest at the rate of 7.5% payable
monthly for a period of ten years ending September 1, 2006. At which
time, the then outstanding principal amount is due and payable in
full. The monthly installments of principal and interest are
calculated based on the principal amount amortized in equal monthly
payments over twenty years.
Plan Note II, in the stated principal amount of $1,000,000 provided for
payment of $750,000 on or about the date of confirmation of the Plans of
Reorganization. The Company made the payment of $750,000 on or about September
5, 1996 and in accordance with the terms of Plan Note II, the stated principal
amount was deemed fully satisfied.
Plan Note I further provided that the net proceeds from the sale of Vangard
would be paid to the Bank. In addition, certain other mandatory prepayments of
the stated principal amount were required upon the occurrence of a capital
transaction in which any of the Company's subsidiaries are sold, as well as upon
the receipt of any proceeds resulting from certain causes of action commenced by
the Company. Plan Note I also provided that the full stated principal amount of
approximately $28.0 million would be due and payable upon the occurrence of
specified major events of default.
Effective March 31, 1997, the stated principal amount of Plan Note I was
reduced to $15.0 million. Thereby, permanently removing any contingent amount
due including the additional $12.0 million principal amount, except for the
mandatory prepayments for any capital transactions. As a result of this
modification and the receipt of proceeds from the sale of Vangard during fiscal
1997, the Company realized an extraordinary gain of approximately $10.3 million,
after the mandatory payment from the Vangard sales proceeds of approximately
$3.1 million.
Plan Note I contains certain financial covenants including prohibiting the
Company from exceeding a maximum consolidated intangible deficit, maintaining
various financial ratios and limits the amount of capital expenditures. In
addition, Plan Note I requires the bank's approval of the payment of dividends
and the borrowing of any additional amounts from other parties.
Other Secured Claims: The holder of a secured note payable by MMT in the
amount of approximately $45,000 elected to receive payment over a two-year
period with interest at 7%.
Unsecured Claims - The holders of trade and miscellaneous claims elected to
receive payment of their claims under several options provided for in the Plans
of Reorganization.
The amount of secured and unsecured liabilities that were compromised as
part of the plans of reorganization have been classified as extraordinary gain
in the Company's Consolidated Statement of Operations and Statement of Cash Flow
for the year ended March 31, 1997 except for the MMT unsecured liabilities,
which were compromised as part of the MMT Plan of Reorganization confirmed in
the first quarter of fiscal 1999.
Bank Matters
- ------------
On December 5, 1997, the Company received a notification from its bank that
certain events of default had occurred under Plan Note I. As a result of
discussions between the Company and the bank, Plan Note I was amended on April
16, 1998 to provide for the following:
<PAGE>
13
a. The formation of LifeServ as a subsidiary of the Company.
b. The inclusion of LifeServ as a co-borrower.
c. The consent of the bank for the incurrence of additional debt and a
private placement of equity by LifeServ.
d. Release of LifeServ as a co-borrower in the event that LifeServ is
successful in obtaining equity capital.
e. Accelerated repayment of $1,000,000 of the stated principal amount
beginning November 1998 based upon 25% of excess cash flow generated
by the Company.
f. Waiver by the bank of any events of default which may have occurred
prior to April 16, 1998.
g. A limitation in the amount of funding that the Company can provide to
LifeServ.
h. Accelerated repayments of the stated principal amount in the event of
certain capital transactions involving subsidiaries of the Company as
well as recoveries from certain causes of action.
i. Additional payments above the stated principal amount in the event
that capital transactions result in proceeds to the Company in excess
of certain amounts and recoveries from certain causes of action.
Management believes that these additional payments, if any are made,
will be offset by gains recognized on these transactions and
recoveries.
On May 13, 1998, LifeServ obtained a $500,000 loan from an individual. The
terms of the loan provide for repayment in full plus interest at 10% on the
earliest of: the date LifeServ receives the proceeds of a sale of equity or July
31, 1998. In addition, LifeServ and the Company issued warrants to the lender to
purchase shares of their common stock as follows:
LifeServ Warrants
-----------------
200,000 warrants exercisable on the date of the loan through the tenth
anniversary of their issuance at $1.00 per share.
15,000 warrants exercisable on the maturity date of the loan, if the
loan is not repaid on the maturity date, through the tenth anniversary
of their issuance at $1.00 per share.
15,000 warrants exercisable on August 31, 1998, if the loan is not
repaid on August 31, 1998, through the tenth anniversary of their
issuance at $1.00 per share.
15,000 warrants exercisable on September 30, 1998, if the loan is not
repaid on September 30, 1998, through the tenth anniversary of their
issuance at $1.00 per share.
The Company Warrants
--------------------
25,000 warrants exercisable on October 30, 1998, if the loan is not
repaid on October 30, 1998 through the tenth anniversary date of their
issuance at $0.45 per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item is incorporated by reference to the
Form 10-Q filed by the Company on November 13, 1997.
<PAGE>
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of the Company's Securities
- ---------------------------------------
The Company's Common Stock trades on the over-the-counter market. The table
below sets forth the range of high and low bid information for the Company's
common stock for the periods indicated, as reported by the NASD OTC Bulletin
Board. Over-the-counter market quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not necessarily represent actual
transactions.
High Low
---------------- -----------------
1998 Fiscal Year
---------------------
First Quarter $ .63 $ .44
Second Quarter $ .53 $ .44
Third Quarter $ .53 $ .22
Fourth Quarter $ .44 $ .13
1997 Fiscal Year
---------------------
First Quarter $ 1.00 $ .25
Second Quarter $ 1.38 $ .44
Third Quarter $ 1.06 $ .56
Fourth Quarter $ 1.00 $ .53
The Company's warrants to purchase the Company's common stock are
traded through the National Quotation Bureau, LLC. The table below sets forth
the range of high and low bid information for the Company's warrants for the
periods indicated. Over-the-counter market quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions.
High Low
---------------- -----------------
1998 Fiscal Year
---------------------
First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
1997 Fiscal Year
---------------------
First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
* Quotations not available. The last reported bid for the Company's
warrants occurred on January 4, 1996. At that time the bid price was 1/32.
As of June 25, 1998, there were approximately 4,000 holders of record
of the Company's common stock.
Historically, the Company has not paid dividends on its common stock and
has no present intention of paying dividends in the foreseeable future. Payment
of dividends are subject to the prior approval by the Company's secured lender,
SouthTrust Bank.
<PAGE>
15
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial and operating data
regarding the Company. This information should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the Company's Financial Statements and Notes thereto. See
"FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------
(In Thousands, Except Earnings Per Share Amounts)
1998 1997 1996 1995 1994
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales $ 24,072 $ 19,247 $ 17,052 $ 14,830 $ 12,301
Cost of Sales and Other Expenses 25,196 19,232 41,669 16,946 9,367
------------ ------------ ------------- ------------ -------------
Before Cumulative Effect of Accounting Change (1,124) 15 (24,617) (2,116) 2,934
Income Tax (Benefit) Expense (270) 0 (1,900) (844) 1,078
Income (Loss) from Discontinued Operations 0 (2,800) (6,634) 16 762
Gain on Forgiveness of Debt of Discontinued
Operations 0 3,500 0 0 0
Estimated Gain (Loss) on Disposal of
Discontinued Operations 0 2,200 (5,229) 0 0
Extraordinary Gain on Debt Forgiveness 0 10,097 0 0 0
Cumulative Effect of Accounting Change
for FASB No. 109 0 0 0 0 543
------------ ------------ ------------- ------------ -------------
Net Income (Loss) $ (854) $ 13,012 $ (34,580) $ (1,256) $ 3,161
============ ============ ============= ============ =============
Net Earnings (Loss) Per Basic and Diluted Share:
From Continuing Operations $ (0.14) $ 0.00 $ (5.60) $ (0.32) $ 0.48
Income (Loss) from Discontinued Operations 0.00 0.51 (2.92) 0.00 0.20
Cumulative Effect of Accounting Change
for FASB No. 109 0.00 0.00 0.00 0.00 0.14
Extraordinary Gain on Debt Forgiveness 0.00 1.76 0.00 0.00 0.00
------------ ------------ ------------- ------------ -------------
Net Earnings (Loss) Per Basic and Diluted Share $ (0.14) $ 2.27 $ (8.52) $ (0.32) $ 0.82
============ ============ ============= ============ =============
Average Common Shares Outstanding - Basic and Diluted 6,062 5,737 4,059 3,974 3,879
============ ============ ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------
(In Thousands)
Balance Sheet Data: 1998 1997 1996 1995 1994
------------ ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net Working Capital $ 2,852 $ 3,989 $ 5,406 $ 5,410 $ 1,695
Assets 15,762 12,543 14,669 44,243 33,018
Short-Term Debt 625 310 168 1,165 979
Long-Term Debt 15,613 15,459 350 23,224 10,588
Stockholders' Equity (Deficit) (6,113) (5,416) (18,546) 15,640 16,853
Liabilities Subject To Compromise 826 0 30,457 0 0
</TABLE>
<PAGE>
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
During fiscal 1998, the Company continued to focus on the expansion of its
core business as well as develop a professional management team to direct and
implement growth strategies for its health care information businesses. The
health care information businesses have been consolidated under LifeServ to
provide solutions for medication management and point-of-care electronic
documentation for hospital and other health care facilities. The Company has
determined that additional capital will be required to assist LifeServ in its
growth opportunities. As a result, the Company negotiated an amended loan
agreement with its bank which provides LifeServ the opportunity to raise equity
capital to fund its growth and then to be released from its obligations under
the current loan agreement. The Company has retained the services of an
investment banking firm to assist in raising capital.
Results of Operations
- ---------------------
Fiscal Year 1998 Compared to Fiscal Year 1997
Revenue
- -------
Net sales for the fiscal year ended March 31, 1998 increased 25.1% to $24.1
million from $19.2 million the prior fiscal year. Revenue for each business
segment increased in fiscal 1998 compared to 1997 as follows.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 % Increase
---------------- ------------------ ----------------
<S> <C> <C> <C>
Medication Packaging and Dispensing $12.4 million $11.2 Million 10.7%
Health Care Information Systems $4.3 Million $2.0 Million 115.0%
Clinical Laboratory Services $7.4 Million $6.1 Million 21.3%
</TABLE>
Revenue increased in the medication packaging and dispensing system segment
primarily due to a higher number of disposable medication punch cards sold to
pharmacies by MTS Packaging, resulting from concerted sales and marketing
efforts. In addition, pharmacies servicing long-term care facilities are
continuing to consolidate. As a result, many of MTS Packaging's customers are
acquiring other pharmacies and thereby, raising their demand for disposable
supplies. Increases in the number of installations of medication dispensing
systems, pharmacy systems and sales of obstetrical information systems that
LifeServ acquired during fiscal 1998 contributed to increases in revenue for the
health care information system segment. Revenue grew in the Company's clinical
laboratory segment due to increases in the number of tests performed, which
resulted from a higher in the number of physicians serviced by the laboratory.
Cost of Sales and Services
- --------------------------
Cost of sales for the year ended March 31, 1998 increased 22.4% to $13.2
million from $10.8 million in the prior year. Cost of sales as a percentage of
sales decreased to 54.7% from 55.9%. Cost of sales for each business segment as
a percentage of revenues in fiscal 1998 compared to 1997 was as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
---------------- ------------------
<S> <C> <C>
Medication Packaging and Dispensing 56.4% 55.4%
Health Care Information Systems 38.0% 50.8%
Clinical Laboratory Services 61.5% 58.6%
</TABLE>
The incremental profit margin realized from increased revenue in the health
care information segment contributed significantly to the reduction in costs of
sales as a percentage of revenue. The increase in revenue did not require the
addition of any material amount of fixed costs.
<PAGE>
17
Increases in raw material and labor costs were the primary reasons for the
increase in cost of sales as a percentage of revenue for the medication
packaging and dispensing segments. Competitive issues precluded the Company from
adjusting the prices charged to customers in order to offset these increases.
Changes in Medicare reimbursement policies resulted in decreases in the gross
margin realized by the clinical laboratory services segment.
Selling, General and Administrative Expenses ("SG&A")
- -----------------------------------------------------
SG&A expenses for the year ended March 31, 1998 increased 45.1% to $9.4
million compared to $6.5 million the prior year. SG&A expenses increased for
each business segment in fiscal 1998 compared to 1997 as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 % Increase
----------------- ------------------ -----------------
<S> <C> <C> <C>
Medication Packaging & Dispensing Systems $2.0 million $1.9 Million 5.3%
Health Care Information Systems $3.6 Million $1.2 Million 200.0%
Clinical Laboratory Services $2.1 Million $2.1 Million 0.0%
Corporate $1.7 Million $1.1 Million 54.6%
</TABLE>
The increase resulted primarily from increases in personnel and selling
costs associated with the increase in and anticipation of revenue realized by
each business segment.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense increased 6.7% to $1.5 million in
fiscal 1998 from $1.4 million the prior year. The increase resulted from
depreciation and amortization of assets acquired during fiscal 1998.
Interest Expense
- ----------------
Interest expense increased 82.1% to $1.1 million in fiscal 1998 from
$609,000 in the prior year. The increase resulted primarily from the fact that
prior to the confirmation of the Company's Plans of Reorganization during fiscal
1997, interest payments were suspended. Interest was paid during the entire
fiscal 1998 period.
Income Taxes
- ------------
The Company realized an income tax benefit in fiscal 1998 as a result of an
income tax refund related to the amendment of its 1992 income tax return.
Fiscal Year 1997 Compared to Fiscal Year 1996
- ---------------------------------------------
Revenue
- -------
Net sales for the fiscal year ended March 31, 1997 increased 12.9% to $19.2
million from $17.0 million the prior fiscal year. Revenue for each business
segment increased in fiscal year 1997 compared to 1996 as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 % Increase
------------------ ------------------ -----------------
<S> <C> <C> <C>
Medication Packaging & Dispensing Systems $11.2 million $10.7 Million 4.7%
Health Care Information Systems $2.0 Million $1.2 Million 66.7%
Clinical Laboratory Services $6.1 Million $5.2 Million 17.3%
</TABLE>
The increase in revenue for the medication packaging and dispensing system
segment resulted primarily from higher sales of disposable medication punch
cards. The continued focus of marketing efforts on wholesale distribution of
disposables has contributed significantly to the increase in revenue. In
addition, the Company added several national account customers who are
significant long-term care pharmacy providers. The growth in revenue for the
<PAGE>
18
health care information systems segment was due primarily to increased
installations of systems which resulted from greater customer acceptance of the
products offered. The increase in revenue for the clinical laboratory segment
resulted primarily from concerted sales and marketing efforts, which have
increased the number of physicians serviced by the laboratory.
Cost of Sales and Services
- --------------------------
Cost of sales for the year ended March 31, 1997 increased 1.0% to $10.8
million from $10.7 million in the prior year. Cost of sales as a percentage of
sales decreased to 55.9% from 62.5%. Cost of sales for each business segment as
a percentage of revenue in fiscal 1997 compared to the prior year was as
follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
---------------- ------------------
<S> <C> <C>
Medication Packaging and Dispensing 55.4% 61.9%
Health Care Information Systems 50.8% 67.2%
Clinical Laboratory Services 58.6% 62.8%
</TABLE>
The decrease in Cost of sales as a percentage of revenue for each business
segment resulted primarily from the fact that although revenue for each segment
increased certain fixed costs included in cost of sales did not increase
correspondingly. Although each business segment realized increased costs of raw
materials or supplies used in their respective operations, the costs were more
than offset by additional gross margin realized on increased revenue.
Selling, General and Administrative Expenses ("SG&A")
- -----------------------------------------------------
SG&A expenses for the year ended March 31, 1997 decreased 24.2% to $6.5
million compared to $8.5 million the prior year. The decrease resulted primarily
from reductions in corporate overhead expense of approximately $2.0 million. The
Company implemented cost reduction measures during fiscal 1997 as part of its
overall reorganization efforts including reductions in personnel and other
overhead expenses. The reductions were partially offset by increases in sales
and marketing expenses concomitant with an increase in revenue in the clinical
laboratory segment.
SG&A expenses for each business segment increased (decreased) in fiscal
1997 compared to fiscal 1996 as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 % Increase
(Decrease)
----------------- ----------------- ----------------
<S> <C> <C> <C>
Medication Packaging and Dispensing $1.9 million $2.0 Million (5.0%)
Health Care Information Systems $1.2 Million $1.6 Million (25.0%)
Clinical Laboratory Services $2.1 Million $1.6 Million 31.3%
Corporate $1.1 Million $3.1 Million (64.5%)
</TABLE>
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense decreased 48.5% to $1.4 million in
fiscal 1997 from $2.7 million the prior year. The Company reduced the estimated
useful lives of its property and equipment in fiscal 1996 to reflect
technological changes, resulting in additional depreciation in 1996 of $589,000.
Furthermore, during 1996, the Company reduced the carrying value of certain
long-lived assets which had been impaired. As a result of these reductions,
depreciation and amortization expense was reduced in fiscal 1997 compared to the
prior year.
<PAGE>
19
Interest Expense
- ----------------
Interest expense decreased 65.0% to $609,000 in fiscal 1997 from $1.7
million in the prior year. The decrease resulted primarily from the reduction in
indebtedness which the Company realized as a result of the restructured debt
with its secured lenders, and the suspension of interest payments during the
Chapter 11 proceedings. Interest expense for fiscal 1997 would have been
approximately $1.1 million higher if payments had been required during the
Chapter 11 proceedings.
Income Taxes
- ------------
In 1996, the Company recognized an income tax benefit of $1.9 million from
the use of net operating loss carrybacks. In 1997, no income tax expense or
benefit was recognized as taxes on income from continuing operations,
discontinued operations and extraordinary items were offset by the net operating
loss carryforward. See Note 15 to the financial statements.
Gain on Disposal of Discontinued Operations
- -------------------------------------------
The Company completed the sale of certain assets of Vangard effective March
31, 1997. The Company received $3.1 million for the assets. In addition, the
buyer assumed approximately $700,000 in liabilities. As a result of the sale,
the Company realized a gain of approximately $2.2 million.
Extraordinary Gain on Forgiveness of Debt
- -----------------------------------------
The Company's principal subsidiaries emerged from Chapter 11 during fiscal
1997. The Company's Plans of Reorganization provided for a reduction of the
amounts owed to both secured and unsecured creditors. The reduction, less
certain expenses relating to the reorganization, has been recognized as an
extraordinary gain.
Restructuring Charges
- ---------------------
The Company recognized significant restructuring charges in fiscal 1996. No
further restructuring charges were required in fiscal 1997.
Loss from Discontinued Operations
- ---------------------------------
The Company elected to treat Vangard as a discontinued operation due to
management's decision to dispose of the business. Vangard was managed by a plan
trustee approved by the Bankruptcy Court (see Note 3 to the Consolidated
Financial Statements). The loss incurred by Vangard was $2.8 million in 1997
compared to a loss of $6.6 million in 1996.
Gain on Forgiveness of Debt of Discontinued Operation
- -----------------------------------------------------
The Plan of Reorganization of Vangard provided for a reduction of the
amounts owed to unsecured creditors. In addition, certain post petition loans
made to Vangard were forgiven by its bank. The reductions and the forgiveness of
debt has been recognized as a gain on forgiveness of debt of discontinued
operations.
Year 2000 Compliance
- --------------------
The Company has reviewed its computer information systems to identify
any systems that could be affected by the "Year 2000" issue. Year 2000 problems
typically arise from computer programs using two characters rather than four to
define the applicable year. This could result in system failure or
miscalculations. The Company is presently upgrading its software systems, which
include its application products and other internally-developed software, and
its information systems hardware used in connection with managing the Company's
operations in order to ensure they are Year 2000 compliant. The Company is
currently assessing the cost of the year 2000 upgrades.
<PAGE>
20
The health care information system products that the Company offers for
sale through LifeServ have been tested for year 2000 compliance, except for the
Performance software system which is currently undergoing an upgrade that is
expected to be completed in fiscal 1999. The Company believes that all of its
products except Performance are year 2000 compliant.
The Company has not assessed fully the impact of the Year 2000 compliance
issue on the entities with whom the Company interacts, such as distributors,
suppliers, manufacturers and customers. The Company also has not verified
whether its non-information systems equipment is Year 2000 compliant.
Liquidity and Capital Resources
- -------------------------------
The Company had a net loss of $854,000 in fiscal 1998 compared to net
income of $13.0 million the prior year. Cash provided from continuing operations
was $305,000 in fiscal 1998 compared to $1.6 million the prior year. Cash
provided from continuing operations resulted primarily from positive cash flow
from operations and income tax refunds.
Investing activities used $1.1 million in fiscal 1998 compared to $584,000
in fiscal 1997. The increase resulted from the fact that the Company resumed
several development projects during fiscal 1998 which had been suspended during
the prior year. In addition, the Company elected to upgrade certain equipment
used in its manufacturing operation.
Financing activities provided $524,000 in fiscal 1998. The Company entered
into a sale and leaseback transaction with a financial institution in fiscal
1998 which provided funding for a long-term contract with one customer where the
Company is the lessor. There are no assurances that the Company will be able to
obtain additional loans to fund similar arrangements.
The Company had working capital of approximately $2.8 million at March 31,
1998 and had no source of additional working capital other than that which is
generated from operations.
The Company's short-term and long-term liquidity is primarily dependent on
its ability to generate cash flow from operations. Inventory levels are not
expected to change significantly based upon the Company's current level of
operation. Increases in revenue have generally resulted in corresponding
increases in accounts receivable. Cash flow from operations may not be
sufficient to support a substantial increase in accounts receivable.
Throughout fiscal 1998, the Company dedicated a limited amount of resources
to complete development of E-mar, which was completed in March 1998, and
approximately seven punch card packaging and dispensing systems. The continued
development of these projects is dependent upon the Company's ability to
generate sufficient cash flow from operations. In order for the Company to
maximize its market opportunities for these projects, it may require additional
capital. There is no assurance that sufficient capital will be available to the
Company to complete its planned product development. The Company's inability to
continue development of these projects may have a material impact on its ability
to remain competitive and could have a material impact on its future operation.
On June 12, 1998, the Plan of Reorganization for MMT was confirmed by the
bankruptcy court. As a result, the Company will recognize a gain of
approximately $600,000 in the first quarter of fiscal 1999.
In April 1998, the Company entered into an amended loan agreement with its
bank. The amended loan agreement provides, among other things, that the Company
maintain certain minimum working capital amounts, prohibits the Company from
exceeding a maximum consolidated deficit of $6.5 million and limits the amount
of capital expenditures.
The Company believes that cash generated from operations will be sufficient
to meet its capital expenditures and working capital needs. The Company has
retained the services of an investment banking firm to assist LifeServ in
raising capital, however, there are no assurances that additional capital will
be available. The amended loan agreement referred to above, among other things,
limited to $200,000 the amount of working capital which the Company could
provide to its LifeServ subsidiary from its other subsidiaries. As a result of
this limitation, LifeServ will rely solely on cash flow from operations and
additional debt and equity which they are permitted to obtain in accordance with
the amended loan agreement. There are no assurances that LifeServ will generate
sufficient cash flow from operations to fund its operations or be successful in
raising equity capital. Management believes that the results of operation of
LifeServ will not adversely effect the overall liquidity of the Company.
<PAGE>
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are contained at the end of
this report.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statements establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b)display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in fiscal
1999 and expects no material impact to the Company's financial statement
presentation.
The American Institute of Certified Public Accounts has issued Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition" which is effective for
fiscal years beginning after December 15, 1997. SOP 97-2 establishes certain
criteria which must be satisfied prior to the recognition of revenue for
licensing, selling, leasing or otherwise marketing computer software. Although
the Company plans to adopt SOP 97-2 in fiscal 1999, management has not yet
determined the potential effect that SOP 97-2 will have on the Company's
financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
<PAGE>
22
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement which
will be filed by the Company within 120 days after the end of the Company's 1998
fiscal year.
<PAGE>
23
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<S> <C>
(a) The following documents are filed as part of this report:
1. and 2. The Financial Statements and schedule filed as part of this report are listed separately in the
Index to Financial Statements beginning on page 24 of this report
3. For Exhibits, see Item 14(c) below. Each management
contract or compensatory plan or arrangement required to be
filed as an Exhibit hereto is listed in Exhibit Nos. 10.20,
10.21, 10.22, 10.23, 10.24 and 10.25 of Item 14(c) below.
(b) No reports on Form 8-K have been filed by the Company
during the last quarter of the year ended March 31, 1998
(c) List of Exhibits
2.1(9) Agreement and Plan of Merger between Medication Management Technologies, Inc. and Cygnet
Technologies, Inc. dated April 24, 1997
2.2(9) Sale Agreement Vangard Labs, Inc. and NCS Healthcare, Inc. dated April 17, 1997
2.3(9) Asset Acquisition Agreement effective April 30, 1998 among the Company, LifeServ Technologies,
Peritronics Medical, Ltd. and 562577 B.C., Ltd.
2.4(9) Medication Management Technologies, Inc. Plan of Reorganization
2.5(9) MTS Packaging Systems, Inc. Plan of Reorganization
2.6(9) Medical Technology Laboratories, Inc. Plan of Reorganization
2.7(9) MTS Sales and Marketing, Inc. Plan of Reorganization
2.8(9) Vangard Labs, Inc. Plan of Reorganization
**3.1 Articles of Incorporation and Amendments thereto
*3.1(a) Amendment to Articles of Incorporation increasing authorized Common Stock to 25,000,000 from
15,000,000 shares
**3.2 Bylaws of the Company
*4.1 Form of Warrant from July 1992 Offering
**4.1(a) Form of Initial Offering Warrant from January 1988 Offering
**4.2 Designation of Rights, Preferences and Limitations of Voting Preferred Stock
**10.1 Business Lease between Leslie A. Rubin, Limited, as Lessor and the Company as Lessee dated March
1987
**10.2 Siegel Family Revocable Trust Agreement
10.2(a) (8) Amendment and Restated Siegel Family Revocable Trust Agreement
10.2(b) (8) Siegel Family Limited Partnership Agreement
**10.3(a) Agreements and Assignments of Patent Rights between Harold B. Siegel and the Siegel Family
Revocable Trust
**10.3(b) License Agreement between the Company and the Siegel Family Revocable Trust
**10.3(c) Assignment of Trade Names, Licenses, and Accounts Receivable from DRG Consultants, Inc. to the Company
**10.4 Agreement for Sale of Stock between Lawrence E. Steinberg and the Company dated April 27, 1987
**10.5 Warrant Agreement between Lawrence E. Steinberg and the Company dated April 27, 1987
**10.6 Warrant Agreement between Overseas Group and the Company dated May 8, 1987
**10.7 Option Agreement between the Siegel Family Revocable Trust and Lawrence E. Steinberg dated December 18, 1987
***10.8 Pilot Project and Option Agreement between Sandoz and the Company
****10.9 Documents relating to the acquisition of the business of Ohio Label & Packaging Inc.dated November 3, 1989
*10.10 Agreement among Company, Trust and Harold B. Siegel regarding modification to royalty
arrangements and issuance of Common Stock and retirement of preferred stock dated September 2, 1990
10.11(1) Acquisition and financing documents relating to Clearwater Medical Services, Inc.
10.12(2) Acquisition and financial documents relating to Clearwater Diagnostic Center, Inc.
</TABLE>
<PAGE>
24
<TABLE>
<S> <C>
10.13(3) Stock Purchase Agreement for Vangard Labs, Inc.
10.14(4) Warrant Agreement between Ladenburg Thalman & Co. and the Company
10.15(5) Loan and Security Agreement dated December 1, 1992 with Daiwa Bank, Limited
10.16(6) Amended and Restated Loan and Security Agreement dated September 28, 1993 with SouthTrust Bank of Alabama
10.17(7) First Amendment to Amended and Restated Loan and Security Agreement dated April 25, 1994 with
SouthTrust Bank of Alabama
10.18(7) Addendum to Lease dated September 30, 1993 with Leslie A. Rubin for facilities located at 12920
and 12910 Automobile Boulevard, Clearwater, Florida
10.19(7) Lease effective August 2, 1993 by and between C & C Park Building and Medical Technology Systems, Inc.
for property located at 21540 Drake Road, Strongsville, Ohio
10.20(7) Form of 1994 Stock Option Plan
10.21(7) Form of Employment Agreement for Todd Siegel and Gerald Couture
10.22(7) Form of Executive Stock Appreciation Rights and Non-Qualified Stock Option Agreement
10.23(7) Form of Director's Stock Option Agreement
10.24(7) Form of Directors' Consulting Agreement
10.25(7) Form of Director/Officer Indemnification Agreement
10.26(7) Joint Venture Agreement between MedVantage, Inc. and the Company dated January 5, 1995
10.27(7) Third Amendment to Amended and Restated Loan and Security Agreement effective March 28, 1995
10.28(9) Form of Executive Director's Agreement for Gerald Couture
10.29(9) Stock Option Plan dated March 4, 1997
10.30(9) Stock Option Agreement with David Kazarian
10.31(9) Stock Subscription Agreement, dated April 28, 1998, between the Company and LifeServ Technologies, Inc.
10.32(9) Loan Agreement dated May 13, 1998, between Ella Kedan and LifeServ Technologies, Inc.,
Performance Pharmacy Systems, Inc., Cart-Ware Inc., Medication Management Systems, Inc. and
Systems Professional, Inc. and related Promissory Note and Security Agreement.
10.33(9) Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
10.34(9) Form of Warrant dated May 13, 1998 between the Company and Ella Kedan
10.35(9) Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
10.36(9) LINC Capital, Inc. - Sale and Leaseback Agreement dated February 23, 1998
10.37(9) Employment Agreement between LifeServ Technologies, Inc. and Michael T. Felix dated April 1, 1998
10.38(9) Employment Agreement between Medical Technology Systems, Inc. and Michael P. Conroy dated March 1, 1998
10.39(9) Amendment to Second Amended and Restated Loan and Security Agreement between the Company and
SouthTrust Bank dated April 16, 1998
21(8) List of Subsidiaries
23(9) Consent of Independent Certified Public Accountants
27(8) Financial Data Schedule
* Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement No.
33-40678 filed with the Commission on May 17, 1991
** Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement (SEC
File No. 33-17852)
*** Incorporated herein by reference to Form 8-K filed on November 18, 1988
**** Incorporated herein by reference to Form 8-K filed on November 16, 1989
(1) Incorporated herein by reference to Form 8-K for event dated November 8, 1991
(2) Incorporated herein by reference to Form 8-K for event dated November 14, 1991
(3) Incorporated herein by reference to Form 8-K for event dated May 27, 1991
(4) Incorporated herein by reference to Form S-3 filed April 16, 1993
(5) Incorporated herein by reference to Form 10-K for year ended March 31, 1993
(6) Incorporated herein by reference to Post Effective Amendment No. 1 to Form S-1 (File No.
33-40678) dated October 14, 1993
(7) Incorporated herein by reference to Form 10-K for year ended March 31, 1995
(8) Incorporated herein by reference to Form 10-K for year ended March 31, 1996
(9) Filed herewith
</TABLE>
<PAGE>
25
MEDICAL TECHNOLOGY SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..................... 26-27
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and 1997............ 28
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997 and 1996...................................... 29
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the years ended March 31, 1998, 1997 and 1996.................. 30
Consolidated Statement of Cash Flows for the years ended
March 31, 1998, 1997 and 1996.................................. 31
Notes to Consolidated Financial Statements............................ 32-51
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts......................... S-1
All other schedules are omitted since the required information is not
present in amount sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
<PAGE>
26
Report of Independent Certified Public Accountants
Board of Directors
Medical Technology Systems, Inc. and Subsidiaries
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Tampa, Florida
June 26, 1998
<PAGE>
27
Independent Auditors' Report
Board of Directors
Medical Technology Systems, Inc. and Subsidiaries
Clearwater, Florida
We have audited the accompanying consolidated statements of operations,
changes in stockholders' deficit and cash flows for the year ended March 31,
1996 of Medical Technology Systems, Inc. and Subsidiaries. These financial
statements are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated statement of operations, changes in
stockholders deficit and cash flows referred to above present fairly, in all
material respects, the results of their operations and cash flows of Medical
Technology Systems, Inc. and Subsidiaries in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company incurred
losses during the current year of approximately $34.6 million and its total
liabilities exceed its total assets by approximately $18.6 million as of March
31, 1996. The Company also had negative cash flows from operations during the
current year of approximately $.9 million. In addition, the major operating
subsidiaries of the Company have filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. These consolidated financial
statement do not include any adjustments that might result from the outcome of
these uncertainties.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
June 20, 1996
<PAGE>
28
<TABLE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(In Thousands)
ASSETS
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash $ 324 $ 616
Accounts Receivable, Net 5,277 3,041
Inventories 2,481 2,260
Prepaids and Other 206 222
Other Receivables 0 350
--------------- ---------------
Total Current Assets 8,288 6,489
Property and Equipment, Net 3,173 4,004
Other Assets, Net 4,301 2,050
--------------- ---------------
Total Assets $ 15,762 $ 12,543
=============== ===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-Term Debt $ 625 $ 310
Accounts Payable and Accrued Liabilities 4,811 2,190
--------------- ---------------
Total Current Liabilities 5,436 2,500
Liabilities Subject to Compromise 826 0
Long-Term Debt, Less Current Maturities 15,613 15,459
--------------- ---------------
Total Liabilities 21,875 17,959
--------------- ---------------
Stockholders' Equity (Deficit):
Voting Preferred Stock 1 1
Common Stock 62 60
Capital In Excess of Par Value 8,588 8,433
Retained Earnings (Deficit) (14,433) (13,579)
Less: Treasury Stock (331) (331)
--------------- ---------------
Total Stockholders' Equity (Deficit) (6,113) (5,416)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 15,762 $ 12,543
=============== ===============
Liabilities Subject to Compromise consist of the following:
Secured Debt $ 45 $ 0
Trade and Other Miscellaneous Claims 781 0
--------------- ---------------
$ 826 $ 0
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
29
<TABLE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Thousands; except Earnings Per Share Amounts)
<CAPTION>
1998 1997 1996
----------------- -------------- ---------------
<S> <C> <C> <C>
Revenue:
Net Sales and Services $ 24,072 $ 19,247 $ 17,052
Costs and Expenses:
Cost of Sales and Services 13,167 10,762 10,665
Selling, General and Administrative 9,401 6,480 8,549
Loss on Early Retirement of Fixed Assets 46 0 8,329
Loss on Inventory Revaluation 0 0 1,510
Depreciation and Amortization 1,473 1,381 2,682
Interest, Net 1,109 609 1,739
----------------- -------------- ---------------
Total Costs and Expenses 25,196 19,232 33,474
----------------- -------------- ---------------
Reorganization items:
Product Development and Software Costs 0 0 4,605
Goodwill Write-down 0 0 2,937
Terminated Joint Venture 0 0 550
Professional Fees 0 0 103
----------------- -------------- ---------------
Income (Loss) from Continuing Operations Before
Income Taxes, Discontinued Operations and
Extraordinary Gain (1,124) 15 (24,617)
Income Tax (Benefit) Expense (270) 0 (1,900)
----------------- -------------- ---------------
Income (Loss) from Continuing Operations Before
Discontinued Operations and Extraordinary Gain (854) 15 (22,717)
Income (Loss) from Operations of Discontinued Operations,
Net of Income Tax in 1997 and 1996 0 (2,800) (6,634)
Gain on Forgiveness of Debt of Discontinued Operations 0 3,500 0
Gain (Loss) on Disposal of Discontinued Operations,
Net of Income Tax in 1997 and 1996 0 2,200 (5,229)
Extraordinary Gain on Forgiveness of Debt 0 10,097 0
----------------- -------------- ---------------
Net Income (Loss) $ (854) $ 13,012 $ (34,580)
================= =============== ===============
Earnings (Loss) per Basic and Diluted Common Share:
Income (Loss) from Continuing Operations $ (0.14) $ 0.00 $ (5.60)
Income (Loss) from Discontinued Operations 0.00 0.51 (2.92)
Extraordinary Gain in Debt Forgiveness 0.00 1.76 0.00
----------------- -------------- ---------------
Net Income (Loss) per Basic and Diluted Common Share $ (0.14) $ 2.27 $ (8.52)
================= ============== ===============
Weighted average Common Shares Outstanding - Basic and Diluted 6,062 5,737 4,059
================= ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
30
<TABLE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Thousands Except Share Data)
<CAPTION>
COMMON STOCK
-----------------------------------------------------------------------------------------------
Number $0.01 Capital in Retained
of Par Excess of Earnings Treasury
Shares Value Par Value (Deficit) Stock Total
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 4,026,832 $ 40 $ 7,941 $ 7,989 $ (331) $ 15,639
Stock Issued 1,458,503 15 379 394
Net Loss for Year Ended
March 31, 1996 (34,580) (34,580)
-----------------------------------------------------------------------------------------------
Balance, March 31, 1996 5,485,335 55 8,320 (26,591) (331) (18,547)
Stock Issued 471,838 5 113 118
Net Income for Year Ended
March 31, 1997 13,012 13,012
-----------------------------------------------------------------------------------------------
Balance, March 31, 1997 5,957,173 60 8,433 (13,579) (331) (5,417)
Stock Issued 172,500 2 155 157
Net Loss for Year Ended
March 31, 1998 (854) (854)
-----------------------------------------------------------------------------------------------
Balance, March 31, 1998 6,129,673 $ 62 $ 8,588 $ (14,433) $ (331) $ (6,114)
=========== ============= ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
VOTING PREFERRED STOCK
-----------------------------------------------------------------------------------------------
Number $0001.
of Par
Shares Value
----------- -----------
<S> <C> <C> <C>
Balance, March 31, 1996 6,500,000 $ 1 $ 1
----------- ------------- -------------
Balance, March 31, 1997 6,500,000 $ 1 $ 1
----------- ------------- -------------
Balance, March 31, 1998 6,500,000 $ 1 $ 1
----------- ------------- -------------
Total Stockholders' (Deficit)
March 31, 1998 $ (6,113)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
31
<TABLE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(In Thousands)
<CAPTION>
1998 1997 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) from Continuing Operations $ (854) $ 15 $ (22,717)
--------------- -------------- ---------------
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 1,473 1,381 2,682
Product Development and Software Cost 0 0 4,605
Goodwill Write-down 0 0 2,937
Loss on Early Retirement of Fixed Assets 46 0 8,329
Loss on Inventory Revaluation 0 0 1,510
Write-off of Accounts Receivable and Other Assets 0 0 1,323
Stock Issued from Stock Compensation Plan 0 118 388
(Increase) Decrease in:
Accounts Receivable (2,099) 219 (458)
Income Taxes Receivable 0 880 (72)
Inventories (190) 185 297
Prepaids and Other 92 42 (100)
Other Receivables 350 (350) 0
Other Assets (712) 0 0
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities 2,199 (935) 1,724
Income Taxes Payable and Deferred Taxes 0 0 (1,347)
--------------- -------------- ---------------
Total Adjustments 1,159 1,540 21,818
--------------- -------------- ---------------
Net Cash Provided (Used) by Continuing Operations 305 1,555 (899)
--------------- -------------- ---------------
Net Cash (Used) by Discontinued Operations 0 0 (117)
--------------- -------------- ---------------
Investing Activities
Expended for Property and Equipment (362) (307) (797)
Expended for Software Development 0 0 (30)
Expended for Product Development (354) (233) (484)
Expended for Patents and Other Assets (48) (44) (109)
Expended for Acquisition, Net of Cash Acquired (357) 0 (1,453)
--------------- -------------- ---------------
Net Cash Used by Investing Activities (1,121) (584) (2,873)
--------------- -------------- ---------------
Financing Activities
Payments on Notes Payable, Long-Term Debt (222) (1,399) (947)
Net Proceeds from Line of Credit 0 0 2,162
Issuance of Common Stock 7 0 5
Proceeds from Borrowing on Notes Payable and Long-Term Debt 739 79 3,021
--------------- -------------- ---------------
Net Cash Provided (Used) by Financing Activities 524 (1,320) 4,241
--------------- -------------- ---------------
Net Increase (Decrease) in Cash (292) (349) 352
Cash at Beginning of Period 616 965 613
--------------- -------------- ---------------
Cash at End of Period $ 324 $ 616 $ 965
=============== ============== ===============
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 1,100 $ 609 $ 1,570
=============== ============== ===============
Cash Received from Income Tax Refund $ 270 $ 880 $ 0
=============== ============== ===============
</TABLE>
See Note 22 for supplemental disclosures of non-cash financing and investing
activities.
The accompanying notes are an integral part of these financial statements.
<PAGE>
32
MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, 1997 AND 1996
NOTE 1 - BACKGROUND INFORMATION
Medical Technology Systems, Inc. (the "Company") is a Delaware corporation,
incorporated in March of 1984. The Company is a holding company operating
through a number of separate subsidiaries providing a diverse line of
proprietary medication dispensing systems, clinical information systems and
laboratory services to the health care industry. The Company's principal
businesses consist of the following reportable segments: (i) the core business
of manufacturing and selling proprietary medication dispensing systems which
include punch cards for use by pharmacies in dispensing prescription medicines;
(ii) the health care information system business consisting of the
Performance(TM) pharmacy software, the MedServ and E-mar computerized medication
management systems for hospitals and other health care facilities, and Cygnet,
the fetal monitoring and archiving information systems for obstetrical clinics
of hospitals and doctors' offices; and (iii) the clinical laboratory service
business of supplying anatomical diagnostic testing services to the medical
profession. (See Note 20)
As a result of significant losses in the second and third quarter of fiscal
1996, the Company was in violation of certain financial covenants in the
borrowing agreements with its principal lenders. The Company was unable to reach
an agreement with its lenders to amend or restructure the debt. The extended
negotiations with the Company's lenders created substantial uncertainty which
led to management's decision, during the fourth quarter of fiscal 1996, to file
voluntary petitions for relief under Chapter 11 ("Chapter 11") of Title 11 of
the United States Bankruptcy Code in the Middle District of Florida, Tampa
Division (the "Bankruptcy Court") for four of its subsidiaries (the "MTS
debtors"). Plans of Reorganization for each of the MTS debtors were approved by
the Bankruptcy Court on September 4, 1996 (collectively, the "Plan of
Reorganization" ). The Plan of Reorganization provided for the following
significant matters:
a. A reduction in the amount of the existing bank indebtedness, as
well as a reduction in the interest rate on the indebtedness.
b. A restructuring of the repayment terms of the bank indebtedness,
which provides for interest payments only for a certain period
and principal payments over an extended period of time.
c. A reduction in the amount payable pursuant to the acquisition of
Tampa Pathology Laboratory, as well as modification of the method
of calculating the repayment.
d. A restructuring of the amounts and repayment terms for the
unsecured creditors of the MTS debtors.
e. A restructuring of the management of the Company.
f. The disposition of one of its subsidiaries, Vangard Labs, Inc.
On July 10, 1997, Medication Management Technologies, Inc. ("MMT") filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code in the Middle District of Florida, Tampa Division. On June 12,
1998, the Plan of Reorganization for MMT was confirmed by the bankruptcy court.
The Plan of Reorganization provided for the restructuring of amounts and
repayment terms for secured and unsecured creditors.
NOTE 2 - RESTRUCTURING AND OTHER CHARGES
In December 1995, the Company initiated a cost reduction strategy that
focused upon reducing operating expenses and returning the Company to
profitability. This plan included the filing on January 3, 1996 of voluntary
petitions under Chapter 11 for three of the Company's subsidiaries: MTS
<PAGE>
33
Packaging Systems, Inc. ("MTS Packaging"), Medical Technology Laboratories, Inc.
("MTL") and MTS Sales and Marketing, Inc. ("MTS Sales"). On February 22, 1996,
the Company also filed a voluntary petition under Chapter 11 for its generic
drug repackaging subsidiary, Vangard Labs, Inc. ("Vangard")
These Chapter 11 filings, together with the limitation on the Company's
financing alternatives, necessitated a comprehensive examination of the
Company's business operations. Because of the numerous development projects that
the Company had underway, and the limited opportunity that existed for
completion of these projects, it was decided by management that, without
additional capital, virtually none of the existing development projects could be
successfully completed.
The following restructuring charges were incurred during the fiscal year
ended March 31, 1996 (in thousands):
<TABLE>
<S> <C>
Loss on Early Retirement of Fixed Assets $ 8,329
Loss on Inventory Revaluation 1,510
----------------
9,839
Chapter 11 Reorganization Charges:
Product Development and Software Costs 4,605
Goodwill Write-down 2,937
Terminated Joint Venture 550
Professional Fees 103
----------------
8,195
----------------
Total From Continuing Operations, including 18,034
$16,421 of impairment losses
----------------
Loss on Disposal of Discontinued Operations 5,229
----------------
Total Restructuring Charges $ 23,263
================
</TABLE>
As of March 31, 1996 and 1997, there were no additional reserves
established for these projects. During 1998 there were no further restructuring
charges recorded.
NOTE 3 - DISCONTINUED OPERATIONS
As part of a corporate restructuring strategy, the Company plans to
concentrate its resources on its medication packaging and dispensing system
business and the health care information system products which have been
developed and are presently marketable. Although the clinical diagnostic
laboratory business has been identified as a non-core business, its operations
may be a potential source of cash to support repayment of debt obligations of
the Company. The Company's generic drug repackaging subsidiary, Vangard, whose
production operations were curtailed on January 3, 1996 and subsequently filed a
voluntary petition under Chapter 11 on February 22, 1996, was sold on April 17,
1997. In addition, the GPC joint venture with Creighton Pharmaceuticals
Corporation, a wholly owned subsidiary of Sandoz Pharmaceuticals, Inc., is
considered a discontinued operation primarily because of its dependence upon
Vangard production capabilities. A pre-tax charge of approximately $5.2 million
for a loss on disposal of these discontinued operations was recorded in fiscal
year 1996 and is shown in the Consolidated Statement of Operations as estimated
loss on disposal of discontinued operations.
<PAGE>
34
During 1997, Vangard was principally managed by a plan trustee approved by
the bankruptcy court. Vangard's operations were minimal, basically at a
maintenance level only with revenue of $550,000. Vangard's costs and expenses
totaled $3.4 million, creating a loss from operations of $2.8 million, before
the effect of the gain of $3.5 million recognized from the forgiveness of
Vangard's pre-petition unsecured creditors ($2.7 million) debt as part of the
bankruptcy proceedings and the gain on forgiveness of a post petition loan made
by Vangard's bank ($800,000). Vangard's 1997 operations were funded primarily
from the collection of accounts receivable, new bank debt of $800,000 and
approximately $450,000 from the Company.
In April 1997, the Company completed the sale of Vangard to an unrelated
third party which was effective on March 31, 1997. In accordance with the
Company's Plan of Reorganization and its amended bank agreement, the proceeds of
the sale, approximately $3.1 million were utilized to reduce the Company's
outstanding obligation to its principal lender. In addition, the buyer assumed
certain post petition obligations of Vangard of $673,000. As a result of the
sale, the Company recognized an extraordinary gain on the disposal of the assets
of Vangard of approximately $2.2 million net of income taxes.
Net revenue of discontinued operations were $0, $542,000 and $5,968,000 in
fiscal years 1998, 1997 and 1996 respectively.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
- -------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, MTS Packaging, MTL and LifeServ Technologies, Inc.
("LifeServ"). LifeServ was formed in February 1998 for the purpose of holding
the Company's health care information subsidiaries: Performance Pharmacy
Systems, Inc. ("PPS"), Medication Management Systems, Inc. ("MMS"), Medication
Management Technologies, Inc. ("MMT"), Cart-Ware, Inc. ("Cart-Ware") and Systems
Professional, Inc. ("SPI"). All significant inter-company accounts and
transactions have been eliminated in consolidation.
Vangard, a wholly owned subsidiary of the Company, and Glasgow
Pharmaceutical Corporation, a 50% joint venture with Creighton Pharmaceuticals,
Inc., are treated as discontinued operations for 1997 and 1996 as set forth in
Note 3. In April 1997, the Company completed the sale of Vangard.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash
- ----
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. There were no cash equivalents for all periods
presented.
<PAGE>
35
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO" ) method. As of March 31, 1998 and 1997, the
Company has established an inventory valuation allowance of $269,000 and
$80,000, respectively, to account for the estimated loss in value of inventory
due to obsolescence. The Company will continue to evaluate the inventory and
review the valuation allowance if deemed necessary.
Revenue Recognition
- -------------------
The Company recognizes revenue when products are shipped by MTS Packaging.
MTL recognizes revenue from the clinical laboratory services net of estimated
contractual adjustments resulting from the unpaid portion of the assigned
insurance billings and other third party payers, as services are performed.
LifeServ recognizes revenue when systems are placed in service.
The American Institute of Certified Public Accounts has issued Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition" which is effective for
fiscal years beginning after December 15, 1997. SOP 97-2 establishes certain
criteria which must be satisfied prior to the recognition of revenue for
licensing, selling, leasing or otherwise marketing computer software. Although
the Company plans to adopt SOP 97-2 in fiscal 1999, management has not yet
determined the potential effect that SOP 97-2 will have on the Company's
financial statements.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Additions to and major
improvements of property and equipment are capitalized. Maintenance and repair
expenditures are charged to expense as incurred. As property and equipment is
sold or retired, the applicable cost and accumulated depreciation is eliminated
from the accounts and any gain or loss recorded. Depreciation and amortization
are calculated using the straight-line method based upon the assets' estimated
useful lives as follows: Years
Property and Equipment........................................ 3-7
Leasehold Improvements........................................ 5
The Company uses accelerated methods of depreciation for tax purposes.
Software and Product Development Cost
- -------------------------------------
All costs associated with the product development from the point of
technological feasibility to its general distribution to customers are
capitalized and, subsequently, amortized. Annually, the Company re-examines its
amortization policy relating to its software and product development cost. The
Company has determined that a five-year period is appropriate.
Goodwill
- --------
Goodwill represents amounts paid in excess of fair market value of assets
acquired by the Company in the purchase of other companies. These amounts are
amortized over a ten-year period. See the Accounting for Impairment Note below.
Other Assets
- ------------
Other assets are carried at cost less accumulated amortization, which is
being provided on a straight-line basis over a five to seventeen year period.
<PAGE>
36
Earnings (Loss) Per Share
- -------------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128), "Earnings Per Share" as this standard became effective for
financial statements issued after December 15, 1997. SFAS No. 128 eliminates
primary and fully dilutive net income per common share and replaces them with
basic and diluted net income per common share. Accordingly, all income (loss)
per common share for the previous periods have been restated to conform to the
new standard.
Research and Development
- ------------------------
The Company expenses research and development costs as incurred. During
fiscal 1998, 1997 and 1996, the Company dedicated its resources to the
completion of product development projects and therefore did not incur any
material research and development costs.
Income Taxes
- ------------
Income taxes are provided for under the liability method in accordance with
FASB No. 109, "Accounting for Income Taxes", whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Treasury Stock
- --------------
The Company records its treasury stock at cost.
Stock Based Employee Compensation
- ---------------------------------
The Company accounts for its stock options granted to employees in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of granting the
stock options only if the current market price of the underlying stock exceeded
the exercise price. As permitted by SFAS No. 123, Accounting for Stock-Based
Compensation, the Company also provides certain pro forma disclosure provisions
of Statement 123 (See Note 16).
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
- ---------------------------------------------------------------------------
Assets to be Disposed of
- ------------------------
Long-lived assets and certain identifiable intangibles, including goodwill,
to be held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the assets
and their eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the assets, an impairment loss is recognized. Long-lived assets and certain
identifiable intangibles to be disposed of are to be reported at the lower of
the carrying amount or the fair value less cost to sale, except for assets that
are related to discontinued operations which are reported at the lower of
carrying value or net realizable value.
The Company recognized impairment losses of $16,421,000 in fiscal 1996.
These losses related to the early retirement of certain production equipment and
tooling, product development projects which were suspended and goodwill related
to the acquisition of various businesses.
<PAGE>
37
Discontinued Operations
- -----------------------
The Company's generic drug repackaging business, Vangard was classified as
a discontinued operation in fiscal year 1996 and disposed of in April 1997.
Bankruptcy Related Accounting Matters and Extraordinary Gain
- ------------------------------------------------------------
The financial statements and the notes thereto reflect various disclosures
principally required by AICPA SOP 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code". Since the voting control of the
Company's stock remained the same as a result of the confirmation of the Plan of
Reorganization, fresh start accounting was not appropriate. However, the
liabilities compromised by the confirmed plans have been recorded at the present
values of the amounts to be paid. The forgiveness of debt resulting from the
compromise has been recognized as an extraordinary gain. See Notes 1, 3 and 10.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of cash receivables, accounts payable and accrued
liabilities approximates fair value because of the short-term nature of the
items.
The carrying amount of current and long-term portions of long-term debt
approximates fair value since the interest rates approximate current prevailing
market rates.
New Accounting Pronouncement Not Yet Adopted
- --------------------------------------------
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statements establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The new rule requires that the Company
(a) classify items of other comprehensive income by their nature in a financial
statement and (b)display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The Company plans to adopt SFAS No. 130 in fiscal
1999 and expects no material impact to the Company's financial statement
presentation.
NOTE 5 - ACCOUNTS RECEIVABLE
The Company maintains an allowance for potential losses on individual and
commercial accounts receivable. Management considers the allowances provided to
be reasonable.
Accounts Receivable consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- --------------
(In Thousands)
<S> <C> <C>
Accounts Receivable at Gross $ 7,281 $ 4,081
Less: Allowance for Doubtful Accounts (830) (388)
Contractual Adjustments (1,174) (652)
--------------- --------------
$ 5,277 $ 3,041
=============== ==============
</TABLE>
Substantially all of the Company's accounts receivable are pledged as
collateral on bank notes.
<PAGE>
38
NOTE 6 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------------- ---------------
(In Thousands)
<S> <C> <C>
Raw Material $ 531 $ 588
Finished Goods and Work in Process 2,219 1,752
Less: Inventory Valuation Allowance (269) (80)
-------------- --------------
$ 2,481 $ 2,260
============== ==============
</TABLE>
Substantially all of the Company's inventories are pledged as collateral on
bank notes.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------------- ---------------
(In Thousands)
<S> <C> <C>
Property and Equipment $ 7,777 $ 7,581
Leasehold Improvements 833 806
-------------- --------------
8,610 8,387
Less: Accumulated Depreciation and Amortization (5,437) (4,383)
-------------- --------------
$ 3,173 $ 4,004
============= ==============
</TABLE>
Substantially all of the Company's property and equipment are pledged as
collateral on bank notes. Depreciation expense and amortization of leasehold
improvement totals approximately $1,180,000, $1,222,000 and $1,308,000 for
fiscal years ending March 31, 1998, 1997 and 1996 respectively.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------------- ---------------
(In Thousands)
<S> <C> <C>
Accounts Payable/Trade $ 2,505 $ 987
Accrued Liabilities:
Salaries & Commissions 693 301
Medical Claims 184 212
Interest 128 28
Legal 68 346
State Taxes 564 168
Other 669 148
-------------- --------------
$ 4,811 $ 2,190
============== ==============
</TABLE>
<PAGE>
39
NOTE 9 - OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------------- ---------------
(In Thousands)
<S> <C> <C>
Goodwill $ 2,405 $ 1,204
Less: Accumulated Amortization (455) (307)
-------------- --------------
$ 1,950 $ 897
-------------- --------------
Product Development $ 327 $ 131
Less: Accumulated Amortization 0 0
-------------- --------------
$ 327 $ 131
-------------- --------------
MedServ Development and Related Software $ 462 $ 314
Less: Accumulated Amortization (130) (85)
-------------- --------------
$ 332 $ 229
-------------- --------------
Patents $ 1,109 $ 1,079
Less: Accumulated Amortization (423) (349)
-------------- --------------
$ 686 $ 730
-------------- ---------------
Lease Contract Receivable $ 843 $ 0
Other 196 93
Less: Accumulated Amortization (33) (30)
--------------- ---------------
$ 1,006 $ 63
--------------- ---------------
Total Other Assets, Net $ 4,301 $ 2,050
=============== ===============
</TABLE>
Substantially all of the Company's intangible assets are pledged as
collateral on bank notes.
The Company entered into a direct financing lease agreement of MedServ and
E-mar systems with a customer calling for lease payments of $20,000 per month
for 5 years beginning April 1998. The value of the lease payments receivable
($843,000) was determined based on an imputed interest rate of 6.4% and the
related systems serve as collateral against the receivable.
<PAGE>
40
NOTE 10 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- --------------
<S> <C> <C>
Plan Note I; interest only at 7.5% payable monthly until September 1,
1998; installments of interest and principal monthly for ten
September 1, 2006, with a lump sum payment of approximately $11.4 million
on years endingthat date secured by all tangible and intangible
assets of the Company. $ 15,000 $ 15,000
Note Payable; interest at 12% payable $20,026 per month including
interest maturing September 1, 2002. Secured by equipment at a
customer site and the payments from a lease contract receivable. 688 0
Seller Financing Under Tampa Pathology Acquisition Agreement,
face value of $487,628 discounted at 10%, with variable monthly
payments until satisfied, subject to compromise at March 31, 1996. 234 273
Other Notes and Agreements; interest and principal payable monthly and
annual at various amounts through March 2000. 316 496
-------------- ---------------
Total Long -Term Debt 16,238 15,769
Less Current Portion (625) (310)
--------------- ---------------
LONG-TERM DEBT DUE AFTER 1 YEAR $ 15,613 $ 15,459
=============== ===============
</TABLE>
The following is a schedule by year of the principal payments required on
these notes payable and long-term debts as of March 31, 1998:
In Thousands)
1999. . . . . . . . . . . . . . . . . . . . . . . . . $ 625
2000. . . . . . . . . . . . . . . . . . . . . . . . . $ 593
2001. . . . . . . . . . . . . . . . . . . . . . . . . $ 620
2002. . . . . . . . . . . . . . . . . . . . . . . . . $ 561
2003. . . . . . . . . . . . . . . . . . . . . . . . . $ 475
Thereafter. . . . . . . . . . . . . . . . . . . . . $ 13,364
The above notes payable are collateralized by the Company's accounts
receivables, inventory, equipment and intangibles.
On September 4, 1996, the Plan of Reorganization for the MTS debtors were
confirmed by the bankruptcy court. As part of the Plan of Reorganization for the
MTS debtors, the notes payable and bank line of credit were restructured as
follows:
Bank notes payable, line of credit, accrued interest and other charges and
expenses, in the amount of approximately $28.0 million, were combined and
restructured into two separate promissory notes.
Plan Note I, in the stated principal amount of approximately $27.0 million,
provided for a portion of the principal amount, $15.0 million, to be due and
payable as follows:
<PAGE>
41
a. Interest at the rate of 7.5% for a period of two (2) years ending
September 1, 1998.
b. Installments of principal and interest at the rate of 7.5%
payable monthly for a period of ten years ending September 1,
2006. At which time, the then outstanding remaining principal
amount of the $15,000,000 debt is due and payable in full. The
monthly installments of principal and interest are calculated
based on the principal amount amortized in level monthly payments
over twenty years.
Plan Note II, in the stated principal amount of $1,000,000 provided for
payment of $750,000 on or about the date of confirmation of the Plans of
Reorganization. The Company made the payment of $750,000 on or about September
5, 1996 and in accordance with the terms of Plan Note II, the stated principal
amount was deemed fully satisfied.
Plan Note I further provided that the net proceeds from the sale of
Vangard, would be paid to the Bank (see Note 3). In addition, certain other
mandatory prepayments of the stated principal amount were required upon the
occurrence of a capital transaction in which any of the Company's subsidiaries
are sold, as well as upon the receipt of any proceeds resulting from certain
causes of action commenced by the Company. Plan Note I also provided that the
full stated principal amount of approximately $28.0 million would be due and
payable upon the occurrence of specific major events of default.
Effective March 31, 1997, the stated principal amount of Plan Note I was
reduced to $15.0 million. Thereby, permanently removing any contingent amount
due, including the additional $12.0 million principal amount, except for the
mandatory prepayments for any capital transactions in which certain of the
Company's subsidiaries are sold or a portion of the ownership surrendered. As a
result of this modification and receipt of the proceeds of the sale of Vangard,
the Company realized during the fourth quarter and for the year an extraordinary
gain of approximately $8.2 million, after the mandatory payment from the Vangard
sales proceeds of approximately $3.1 million.
The remaining portion of extraordinary gain reported in the Company's
statement of operation, $1,800,000 relates to the forgiveness of the Company's
pre-petition debt by its unsecured creditors.
On December 5, 1997, the Company received a notification from its bank that
certain events of default had occurred under Plan Note I. As a result of
discussions between the Company and the bank, Plan Note I was amended on April
16, 1998 to provide for the following:
a. The formation of LifeServ as a subsidiary of the Company.
b. The inclusion of LifeServ as a co-borrower.
c. The consent of the bank for the incurrence of additional debt and a
private placement of equity by LifeServ.
d. Release of LifeServ as a co-borrower in the event that LifeServ is
successful in obtaining equity capital.
e. Accelerated repayment of $1,000,000 of the stated principal amount
beginning November 1998 based upon 25% of excess cash flow generated
by the Company.
f. Waiver by the bank of any events of default which may have occurred
prior to April 16, 1998.
g. A limitation in the amount of funding which the Company can provide to
LifeServ.
<PAGE>
42
h. Accelerated repayments of the stated principal amount in the event of
certain capital transactions involving subsidiaries of the Company as
well as recoveries from certain causes of action.
i. Additional payments above the stated principal amount in the event
that capital transactions result in proceeds to the Company in excess
of certain amounts and recoveries from certain causes of action.
Management believes that these additional payments, if any are made,
will be offset by gains recognized on these transactions and
recoveries.
Plan Note I contains certain financial covenants including prohibiting the
Company from exceeding a maximum consolidated deficit of $6.5 million,
maintaining various financial ratios and limits the amount of capital
expenditures. In addition, Plan Note I requires the banks approval of the
payment of dividends and the borrowing of any additional amounts from other
parties.
On May 13, 1998, LifeServ obtained a $500,000 loan from an individual. The
terms of the loan provide for repayment in full plus interest at 10% on the
earliest of: the date LifeServ receives the proceeds of a sale of equity or July
31, 1998. In addition, LifeServ and the Company issued warrants to the lender to
purchase shares of their common stock as follows:
LifeServ Warrants
-----------------
200,000 warrants exercisable on the date of the loan through the tenth
anniversary of their issuance at $1.00 per share.
15,000 warrants exercisable on the maturity date of the loan, if the
loan is not repaid on the maturity date, through the tenth anniversary
of their issuance at $1.00 per share.
15,000 warrants exercisable on August 31, 1998, if the loan is not
repaid on August 31, 1998, through the tenth anniversary of their
issuance at $1.00 per share.
15,000 warrants exercisable on September 30, 1998, if the loan is not
repaid on September 30, 1998, through the tenth anniversary of their
issuance at $1.00 per share.
The Company Warrants
--------------------
25,000 exercisable on October 30, 1998, if the loan is not repaid on
October 30, 1998, through the tenth anniversary date of their issuance
at $0.45 per share.
NOTE 11 - LEASE COMMITMENTS
The following is a schedule by year of future minimum rental payments
required under operating leases that have an initial or remaining non-cancelable
lease term in excess of one year as of March 31, 1998.
(In Thousands)
1999...................................... $ 375
2000...................................... 126
2001...................................... 100
2002...................................... 61
Thereafter................................ 0
Rent expense amounted to $832,000, $733,000 and $504,000, for the years
ended March 31, 1998, 1997 and 1996, respectively.
<PAGE>
43
NOTE 12 - 401(K) PROFIT SHARING PLAN
The Company has a 401(K) Profit Sharing Plan. The Plan covers substantially
all of its employees. Contributions are at the employees discretion and may be
matched by the Company up to certain limits. For the years ended March 31, 1998,
1997 and 1996, the Company made no contributions to the Plan.
NOTE 13 - SELF INSURANCE PLAN
The Company has a Medical Health Benefit Self-insurance Plan which covers
substantially all of its employees. The Company is reinsured for claims which
exceed $30,000 per participant and has an annual maximum aggregate limit of
approximately $450,000.
NOTE 14 - RELATED PARTY TRANSACTIONS
Todd E. Siegel ("Siegel") is the Trustee of the Siegel Family QTIP Trust
(the "Trust") which is the general partner in JADE Partners, a significant
shareholder of the Company. The Trust has entered into an exclusive Technology
and Patent Licensing Agreement with the Company for certain technologies and
patents on machine and product designs.
Under the terms of the amended agreement, the Company is required to pay to
the Trust royalties of one percent of sales on licensed products. In addition,
the agreement states that there are no minimum royalty payments due and the
agreement would expire if the Company abandons or ceases to use the
technologies. Royalty payments were $50,000, $76,000 and $30,000 in the years
ended March 31, 1998, 1997, and 1996, respectively.
Siegel, through his beneficial interest in the Trust, owns approximately 10
percent of the outstanding Common Stock of the Company. In addition, Siegel
beneficially owns 6,500,000 shares of voting preferred stock which have two
votes per share for all matters submitted to the holders of the Common Stock of
the Company.
Siegel had outstanding indebtedness to the Company at March 31, 1998 and
March 31, 1997 of approximately $10,466 and $11,886. The Company expects to
collect the full balance of this indebtedness.
NOTE 15 - TAXES
The components of related income taxes provided on continuing operations
were as follows:
Years Ended March 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
(In Thousands)
Current Tax (Benefit):
Federal $ (270) $ 6 $ (635)
State 0 1 0
------------- ------------- -------------
(270) 7 (635)
------------- ------------- -------------
Deferred Tax:
Federal $ 0 $ (6) $ (1,132)
State 0 (1) (133)
------------- ------------- -------------
(7) (1,265)
$ (270) $ 0 $ (1,900)
============= ============ =============
<PAGE>
44
Total income tax (benefit) expense for 1998, 1997 and 1996 from continuing
operations resulted in effective tax rates of (24.0%), 0.0% and 7.7%,
respectively. The reasons for the differences between these effective tax rates
and the U.S. statutory rate of 35.0% on the continuing operations are as
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Tax (Benefit) Expense at U.S. statutory rate $ (382) $ 6 $ (8,616)
State Income Tax, Net (41) 1 (543)
Current tax benefit not recognized 423 0 6,877
Effect of prior year carryback, not previously recognized (270) 0 0
Other, Net 0 (7) 382
------------- ------------- ------------
$ (270) $ 0 $ (1,900)
============= ============= =============
</TABLE>
Deferred taxes and deferred tax asset resulted from differences in timing
of deductions recognized for tax and financial reporting purposes.
Deferred taxes for continuing operations consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997 March 31, 1996
------------- ------------- --------------
(In Thousands)
<S> <C> <C> <C>
Deferred Tax Liabilities:
Depreciation/Amortization Gross Deferred Tax Liability $ 0 $ 716 $ 379
------------- ------------- -------------
Deferred Tax Assets:
Depreciation/Amortization Temporary Difference (997) (670) (1,386)
Allowance for Doubtful Accounts (230) (146) (73)
Inventory Valuation Allowance (101) (319) (163)
Tax Loss Carry Forward (4,234) (4,168) (5,525)
Reserves and Provisions (327) (322) (109)
------------- ------------- -------------
Gross Deferred Tax Asset (5,889) (5,625) (7,256)
------------- ------------- -------------
Net Deferred Tax (Asset) Liability (5,889) (4,909) (6,877)
Less Valuation Allowance (5,889) (4,909) (6,877)
------------- ------------- -------------
Deferred Income Taxes $ 0 $ 0 $ 0
============= ============== ==============
</TABLE>
<PAGE>
45
The Company is currently analyzing among other things, its income tax basis
of property and equipment and intangibles as to the effect of prior impairments
and disposals. Any revisions to the amounts reported herein will not effect the
reported tax deferred income taxes, net (balance sheet account) nor the income
tax (benefit) expense (statement of operations account).
At March 31, 1998, the Company had deferred tax assets available of
approximately $5.9 million. A tax benefit has not been recorded for these assets
as it is not yet more likely than not that these benefits will be realized by
reducing future taxable income. At March 31, 1998, the Company had approximately
$11.0 million of carryforward losses which will expire by 2012 that are
available to offset future taxable income.
The Florida State Department of Revenue has examined the Company's Sales
and Use Tax returns for the period January 1988 through December 1993. The State
Department of Revenue and the Company have agreed on a settlement amount of
$294,000 including taxes, penalties and interest. The settlement amount is
payable over a period of four to eight years depending on certain events
occurring related to the Company's ability to raise capital. In addition, the
State Department of Revenue has proposed a suggested assessment of approximately
$380,000 for intangible taxes, interest and penalties for the period 1987
through 1996. The Company is disputing this amount. A reserve of $310,000 has
been made as of March 31, 1998 for the settlement of the Sales and Use Tax and
the Intangible tax.
NOTE 16 - STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' Equity (Deficit) consists of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1998 1997 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Voting Preferred Stock:
Par Value $.0001 Per Share
Authorized Shares 7,500,000 7,500,000 7,500,000
Issued Shares 6,500,000 6,500,000 6,500,000
Outstanding Shares 6,500,000 6,500,000 6,500,000
Common Stock:
Par Value $.0001 Per Share
Authorized Shares 25,000,000 25,000,000 25,000,000
Outstanding Shares 6,129,673 5,917,173 5,445,335
Issued Shares 6,129,673 5,975,173 5,485,335
</TABLE>
Common Stock
During fiscal 1998, the Company issued 150,000 shares of common stock in
lieu of a debt payment to a former employee of the Company. These shares were
valued based upon the value of the debt payment. In addition, 22,500 shares were
issued to employees for services and were valued at $0.32 per share which was
the approximate market value at the time they were issued.
Preferred Stock
The JADE Family Partnership ("Partnership") is currently the holder of
6,500,000 shares of Voting Preferred Stock. The Siegel Family QTIP Trust,
established pursuant to the terms of the Siegel Family Revocable Trust (the
"Trust"), which originally acquired the shares of Voting Preferred Stock in 1986
for the aggregate par value of the shares ($650.00), transferred the shares to
the Siegel Family Limited Partnership in 1993. The Siegel Family Limited
<PAGE>
46
Partnership transferred the shares to the Partnership in 1994. The Company's CEO
is the trustee of the Trust, which is the managing general partner of the
Partnership, and accordingly, controls the shares held by the Partnership.
The Voting Preferred Stock has two votes per share on all matters submitted
to a vote of other holders of Common Stock. In addition to preferential voting
rights, the Voting Preferred Stock is entitled to receive upon dissolution or
liquidation of the Company, the first $10,000 of proceeds distributed to
stockholders of the Company upon such events. Thereafter, the Voting Preferred
Stock is entitled to no additional amounts upon dissolution or liquidation of
the Company. The Voting Preferred Stock has no dividend rights, redemption
provisions, sinking fund provisions or conversion, or preemptive or exchange
rights. The Voting Preferred Stock is not subject to further calls or
assessments by the Company.
Stock Options
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation," as it
relates to employment awards. It applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans and does not recognize compensation expense based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income (loss) and earnings (loss) per
share would be reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net Income (Loss) As Reported $ (854) $ 15 $ (22,717)
ProForma (Unaudited) $ (1,066) $ (246) $ (22,921)
Earnings (Loss) Per Common Share As Reported $ (.14) $ .00 $ (5.60)
ProForma (Unaudited) $ (.18) $ (.04) $ (5.65)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Binominal options-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively, no dividend
yield for all years, expected volatility of 131, 109 and 42 percent; risk-free
interest rates of 5.81, 6.44 and 6.25 percent, and expected lives of 3.7, 5.4
and 6.8 years. Because of the insignificant effect on the pro forma amounts
presented above, the Company has elected not to attempt to adjust (lower) the
volatility factor used. Such adjustment would account for the various factors or
conditions that probably impacted the Company's common stock prices and which
are possibly non-recurring. Such an adjustment which would lower the volatility
factor used would reduce the calculated fair value of the options.
<PAGE>
47
Activity related to options is as follows:
<TABLE>
<CAPTION>
Number of Shares Price per Share
------------------- ------------------
<S> <C> <C>
Outstanding at March 31, 1995 332,926
Granted in Fiscal 1996:
Officers & Directors 59,000 $1.63
Employees 8,808 $6.00 - $10.00
------------------- ------------------
Outstanding at March 31, 1996 400,734
Granted in Fiscal 1997:
Officers & Directors 145,000 $1.00
Employees 471,878 $1.00 - $7.00
Options Expired (1,323)
------------------- ------------------
1,016,289
Outstanding at March 31, 1997 Granted in Fiscal 1998:
Officers and Directors 152,000 $1.00
Employees 412,000 $1.00
Options Expired (22,170)
------------------- ------------------
Outstanding at March 31, 1998 1,558,119 $1.00 - $10.00
=================== ==================
</TABLE>
Outstanding Shares
<TABLE>
<CAPTION>
Weighted Average
Range of Number Remaining Contractual Weighted Average
Exercise Prices Outstanding Life Exercise Price
(Years)
--------------------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
$1.00 - $1.63 1,499,049 8.1 $1.11
$4.00 - $6.00 40,250 4.3 $4.80
$6.38 - $10.00 18,820 6.2 $8.79
Exercisable Shares
$1.00 - $1.63 614,914 $1.26
$4.00 - $6.00 40,250 $4.80
$6.38 - $10.00 18,820 $8.79
</TABLE>
The options outstanding at March 31, 1998 expire on various dates commencing in
March 2001 and ending in February 2008.
<PAGE>
48
Warrants
Activity related to warrants is as follows:
<TABLE>
<CAPTION>
Number of Shares Price Per Share
-------------------- -------------------
<S> <C> <C>
Outstanding at March 31, 1994 1,320,000 $7.00
Granted in Fiscal 1995 through Fiscal 1998 0
-------------------- -------------------
Outstanding at March 31, 1998 1,320,000 $7.00
==================== ===================
</TABLE>
All of the warrants outstanding at March 31, 1998 expire in July 1999.
During fiscal year 1995, the Company entered into a stock appreciation
rights agreement with its Chief Executive Officer. The agreement, which is for a
term of 10 years, calls for additional compensation payable annually equal to
3.25% of the total of the incremental increase in the value of the Company's
outstanding stock. Additional compensation payable for the years ended March 31,
1998 and 1997 totaled $0 and $53,000, respectively.
NOTE 17 - CONCENTRATION OF CREDIT RISK
The business of MTL is primarily with individuals located in the State of
Florida, many of whom routinely assign to the Company payment by their medical
insurance providers. As of March 31, 1998, MTL's patient accounts receivable
from individuals and commercial medical insurance providers was approximately
$1,563,000. As of March 31, 1998, MTL's accounts receivable from Medicare and
Medicaid was approximately $2,553,000.
NOTE 18 - BUSINESS ACQUISITION
On June 20, 1997, the Company, through its subsidiary MMT, concluded a
merger with Cygnet Laboratories, Inc. ("Cygnet"), a California company which
distributes obstetrical information systems. The plan of merger provided for the
Cygnet shareholders to receive nominal cash consideration in exchange for their
shares. MMT assumed all the liabilities of Cygnet as a result of the merger. The
business combination of MMT and Cygnet has been accounted for using the purchase
method. Accordingly, the difference between the cost of the assets acquired of
$526,000 and the liabilities assumed of $1,247,000 plus the acquisition costs of
$366,000 has been recorded as goodwill in the amount of $1,087,000. The results
of operation for Cygnet from the date of the merger through June 30, 1997 were
not significant. The proforma results, as if the business combination occurred
April 1, 1996 and April 1, 1997, has not been presented as the results of
operation are not significant.
NOTE 19 - SUBSEQUENT EVENT
In April 1998, the Company, through its subsidiary LifeServ Technologies,
Inc. entered into an agreement to purchase certain assets of Peritronics
Medical, Inc. ("Peritronics"), a California company which distributed
obstetrical information systems. The agreement provides for the Company to pay
the Peritronics shareholders $350,000 in cash, 250,000 shares of the Company's
common stock and assuming certain liabilities in the amount of approximately
$330,000. The purchase is anticipated to close in August 1998.
This note should also be read in conjunction with the other notes to the
financial statements for additional subsequent event transactions.
<PAGE>
49
NOTE 20 - SEGMENT INFORMATION
The Company has adopted SFAS No. 131 "Disclosures about Segments of a
Business Enterprise" which supercedes the previous disclosure requirements.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Revenue:
Reportable Segments
Medication Packaging & Dispensing Systems $ 12,338 $ 11,169 $ 10,651
Health Care Information Systems 4,306 1,965 1,249
Clinical Laboratory Services 7,428 6,113 5,152
--------------- --------------- ---------------
Total Consolidated Revenue $ 24,072 $ 19,247 $ 17,052
================ =============== ===============
Depreciation and Amortization:
Reportable Segments
Medication Packaging & Dispensing Systems $ 554 $ 534 $ 647
Health Care Information Systems 255 150 764
Clinical Laboratory Services 258 250 579
--------------- --------------- ----------------
1,067 934 1,990
Corporate 406 447 692
--------------- --------------- ----------------
Total Consolidated Depreciation and Amortization $ 1,473 $ 1,381 $ 2,682
=============== =============== ================
Interest Expense:
Reportable Segments
Medication Packaging & Dispensing Systems $ 1 $ 2 $ 5
Health Care Information Systems 13 20 16
Clinical Laboratory Services 36 5 31
---------------- -------------- ----------------
50 27 52
Unallocated Debts 1,059 582 1,687
---------------- ---------------- ----------------
Total Consolidated Interest Expense $ 1,109 $ 609 $ 1,739
================ ================ ================
Operating Profit (Loss):
Reportable Segments
Medication Packaging & Dispensing Systems $ 2,827 $ 2,512 $ (6,752)
Health Care Information Systems (1,214) (472) (5,798)
Clinical Laboratory Services 460 136 (4,443)
--------------- ---------------- ----------------
2,073 2,176 (16,993)
Corporate and Interest (3,197) (2,161) (7,624)
---------------- ---------------- ----------------
Total Consolidated Operating Profit (Loss) $ (1,124) $ 15 $ (24,617)
================ ================ ================
Identifiable Assets:
Reportable Segments
Medication Packaging & Dispensing Systems $ 5,944 $ 6,006 $ 7,557
Health Care Information Systems 3,871 938 1,355
Clinical Laboratory Services 3,509 2,560 2,551
--------------- ---------------- ----------------
13,324 9,504 11,463
Corporate 2,438 3,039 3,206
--------------- --------------- ----------------
Total Consolidated Identifiable Assets $ 15,762 $ 12,543 $ 14,669
=============== =============== ================
Identifiable Liabilities:
Reportable Segments
Medication Packaging & Dispensing Systems $ 1,029 $ 280 $ 1,508
Health Care Information Systems 3,056 382 691
Clinical Laboratory Services 1,175 780 1963
--------------- --------------- ----------------
5,260 1,442 4,162
Corporate 16,615 16,517 29,053
---------------- ---------------- ----------------
Total Consolidated Liabilities $ 21,875 $ 17,959 $ 33,215
================ ================ ================
Capital Expenditures:
Reportable Segments
Medication Packaging & Dispensing Systems $ 131 $ 123 $ 769
Health Care Information Systems 103 92 5
Clinical Laboratory Services 62 67 2
--------------- --------------- ----------------
296 282 776
Corporate 66 25 21
--------------- --------------- ----------------
Total Consolidated Capital Expenditures $ 362 $ 307 $ 797
================ =============== ================
Impairment of Long-Lived Assets:
Reportable Segments
Medication Packaging & Dispensing Systems $ 0 $ 0 $ 7,319
Health Care Information Systems 0 0 3,029
Clinical Laboratory Services 0 0 4,105
--------------- --------------- ----------------
0 0 14,453
Corporate 0 0 1,968
--------------- --------------- ----------------
Total Consolidated Impairment of Long-Lived Assets $ 0 $ 0 $ 16,421
================ ================ ================
</TABLE>
<PAGE>
50
Corporate expenses are composed primarily of personnel costs and
administrative expenses, which are incurred on behalf of each reportable
segment. The Company cannot accurately allocate these costs and expenses to each
reportable segment.
Corporate assets are composed primarily of $678,000 of cash, $477,000 of
equipment used by administrative personnel and $1.2 million of intangible
assets.
Corporate liabilities are composed of $1.4 million of short-term accounts
payable and accrued liabilities and $15.2 million in long-term debt.
The geographic sales of the Company are in the United States, and there are
no customers that account for more than 10% of the Company's revenues for all
periods presented.
NOTE 21 - EARNINGS PER SHARE
Net income (loss) per common share is computed by dividing net income
(loss) by the basic and diluted weighted average number of shares of common
stock outstanding. For diluted weighted average shares outstanding, the Company
used the treasury stock method to calculate the Common Stock equivalents that
the stock options would represent.
<PAGE>
51
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 March 31, 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Basic and Diluted
Actual weighted average shares outstanding;
weighted average shares used in income per
calculation - basic and diluted 6,062,000 5,737,000 4,059,000
============== =============== ===============
</TABLE>
The following table set forth the computation of historical basic and
diluted earnings (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Numerator:
Net Income (Loss) (854,000) 13,012,000 (34,580,000)
=============== =============== ===============
Denominator:
Denominator for basic and diluted earnings per
share- weighted average shares outstanding 6,062,000 5,737,000 4,059,000
=============== =============== ===============
Net Income (Loss) Per Common Share - Basic $ (0.14) $ 2.27 $ (8.52)
=============== =============== ===============
Net Income (Loss) per Common Share - Diluted $ (0.14) $ 2.27 $ (8.52)
=============== =============== ===============
</TABLE>
The effect of all options and warrants (see Note 16) for all years were not
included in the calculation of net income (loss) per diluted common share as the
effect would have been anti-dilutive.
NOTE 22 SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
See Notes 1,3,10, and 19 for fiscal 1997 forgiveness of debt (extraordinary
gain) and gain on disposal of discontinued operations.
During fiscal 1998, the Company purchased Cygnet for a cash payment of
$357,000 (net of cash acquired) and assumption of liabilities of $1,247,000. The
assets acquired had a fair value of $517,000 (net of cash acquired).
During fiscal 1998, the Company redeemed a minority interest share of a
subsidiary's common stock resulting in a $114,000 addition to goodwill and
accrued expenses.
During fiscal 1998, the Company reduced a debt obligation $150,000 through
the issuance of common stock.
During fiscal 1998, the Company acquired a patent as satisfaction of a
receivable in the amount of $201,000.
<PAGE>
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
MEDICAL TECHNOLOGY SYSTEMS, INC.
Dated: July 8, 1998 By: /s Todd E. Siegel
---------------------------------------
Todd E. Siegel, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------ ---------------------- --------------
/s Todd E. Siegel Chairman of the Board of Directors, July 8, 1998
----------------------- President and Chief Executive Officer
Todd E. Siegel
/s David Kazarian Director July 8, 1998
David Kazarian
/s Michael P.Conroy Director, Chief Financial Officer July 8, 1998
----------------------- and Vice President
Michael P. Conroy
/s John Stanton Director and Vice Chairman of the July 8, 1998
- ------------------------ Board of Directors
John Stanton
/s David L. Presnell Principal Accounting Officer July 8, 1998
----------------------- and Controller
David L. Presnell
<PAGE>
53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors
Medical Technology Systems, Inc.
In connection with our audit of the consolidated financial statements of
Medical Technology Systems, Inc. and Subsidiaries referred to in our report
dated June 26, 1998, which is included in the Company's Annual Report on SEC
Form 10-K as of and for the year ended March 31, 1998, we have also audited
Schedule II for the years ended March 31, 1997 and 1998. In our opinion, this
schedule presents fairly in all material respects, the information required to
be set forth herein.
GRANT THORNTON LLP
Tampa, Florida
June 26, 1998
<PAGE>
54
Independent Auditors' Report on
Supplementary Information
The accompany information shown on Schedule II (Valuation and Qualifying
Accounts) for the year ended March 31, 1996 is presented for purposes of
complying with the Securities and Exchange Commission rules and is not a
required part of the basic financial statements. Our audits of the basic
financial statements were made for the purpose of forming an opinion on those
statements taken as a whole. The accompanying financial information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements.
In our opinion, the accompanying information included on Schedule II
(Valuation and Qualifying Accounts) for the year ended March 31, 1996 is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
June 20, 1996
<PAGE>
55
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------- --------------- --------------- --------------- ---------------
Balance at Charged to Accounts Balance at
Beginning of Costs and Written Off, End of
Year Expenses Net Year
--------------- --------------- --------------- ---------------
Deferred Tax Valuation Allowance:
<S> <C> <C> <C> <C>
Year Ended March 31, 1996 $ 0 $ 6,877 $ 0 $ 6,877
Year Ended March 31, 1997 $ 6,877 $ 0 $ 1,968 $ 4,909
Year Ended March 31, 1998 $ 4,909 $ 980 $ 0 $ 5,889
Inventory Valuation Allowance:
Year Ended March 31, 1996 $ 0 $ 850 $ 0 $ 850
Year Ended March 31, 1997 $ 850 $ 94 $ 864 $ 80
Year Ended March 31, 1998 $ 80 $ 189 $ 0 $ 269
Self Insured Medical Claims Valuation Allowance:
Year Ended March 31, 1996 $ 110 $ 853 $ 715 $ 248
Year Ended March 31, 1997 $ 248 $ 726 $ 762 $ 212
Year Ended March 31, 1998 $ 212 $ 583 $ 611 $ 184
Allowance for Doubtful Accounts and Contractual Allowances:
Year Ended March 31, 1996 $ 167 $ 906 $ 545 $ 528
Year Ended March 31, 1997 $ 528 $ 693 $ 181 $ 1,040
Year Ended March 31, 1998 $ 1,040 $ 1,463 $ 499 $ 2,004
</TABLE>
<PAGE>
1
ASSET ACQUISITION AGREEMENT
This is an Asset Acquisition Agreement (the "Agreement"), dated April 30,
1998, among 562577 B.C. Ltd., a British Columbia, Canada corporation (the
"Seller"), Peritronics Medical Ltd., a British Columbia, Canada corporation (the
"Shareholder"), LifeServ Technologies, Inc., a Florida corporation (the "Buyer")
and Medical Technology Systems, Inc., a Delaware corporation ("Med Tech").
Background
The Seller is engaged in the business of providing healthcare information
systems, including owning and operating a Fetal Monitoring and Point-of-Care
Documentation System (the "Fetal Monitoring System" and collectively with all of
the Seller's operations, the "Business"). The Shareholder constitutes all of the
shareholders of the Seller and is entering into this Agreement to provide
certain assurances in order to induce the Buyer to enter into this Agreement.
The Buyer, a wholly-owned subsidiary of Med Tech, is a healthcare information
systems company that provides clinical information systems, medication
dispensing, and medications management systems for hospitals and other acute
care facilities. The Buyer wishes to purchase from the Seller and the Seller
wishes to sell to the Buyer certain assets of the Seller related to the Business
effective April 30, 1998 ("Effective Date"), subject to the terms and conditions
set forth below. Accordingly, in consideration of the mutual covenants and
agreements set forth below, the parties agree as follows:
Terms
1. Definitions.
"Accredited Investor" has the meaning set forth in Rule 501(a) of
Regulation D promulgated under the Securities Act.
"Assets" has the meaning set forth in Section 2.
"Assumed Liabilities" means all Liabilities of the Business set forth on
Schedule A of this Agreement, but only to the extent that such Liabilities arise
out of or are attributable to items that would properly be accrued under GAAP as
of the Closing Date; provided, however, that the Assumed Liabilities shall not
include any Liabilities not specifically set forth on Schedule A of this
Agreement, including, without limitation: (i) any Liability of the Seller for
income, transfer, sales, franchise use, and other Taxes arising in connection
with the consummation of the transactions contemplated hereby (including any
income Taxes arising because Seller is transferring the Assets), (ii) any
Liability of the Seller for the unpaid Taxes of any Person under United States
Treasury Regulation ss.1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise, (iii) any
obligation of the Seller to indemnify any Person (including any Shareholder) by
reason of the fact that such Person was a director, officer, employee, or agent
of the Seller or was serving at the request of any such entity as a partner,
trustee, director, officer, employee, or agent of another
<PAGE>
2
entity (whether such indemnification is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses, or otherwise and
whether such indemnification is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) (iv) any Liability of the Seller for costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, (v) any Liability or obligation of the Seller under this
Agreement (or under any related agreement between the Seller on the one hand and
the Buyer on the other hand entered into on or after the date of this
Agreement), (vi) any obligations of any kind relating to any Person whose
approval is or may be required in connection with the transactions contemplated
by this Agreement (provided, however, any fees payable pursuant to compliance
with the HSR Act shall be shared equally by the Buyer and the Seller), (vii) any
obligations related to any severance pay or similar compensation to employees of
the Seller, arising from the termination of any such employee prior to the
Closing Date or related to the transactions contemplated by this Agreement,
(viii) any liability of the Seller, in any real property, owned or leased, and
any obligation or liability of the Seller arising thereunder, and (ix) any
deferred compensation obligations to any of the individuals set forth on
Schedule A to this Agreement.
"Business" has the meaning set forth in the Background Section of this
Agreement.
"Buyer" has the meaning set forth in the preface above.
"Cash Consideration" has the meaning set forth in Section 3(a).
"Closing" has the meaning set forth in Section 3(c).
"Closing Date" has the meaning set forth in Section 3(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the business
and affairs of the Seller prior to Closing or the Buyer subsequent to Closing
that is not already generally available to the public, including trade secrets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Cash Flow" means the Net Sales (as defined herein) of Peritronics
Fetal Monitoring Systems (or sales of fetal monitoring systems to Peritronics
customer list as defined in Schedule B) minus the operating expenses associated
with the Net Sales.
"Fetal Monitoring System" has the meaning set forth in the Background
Section above.
"GAAP" means generally accepted accounting principles.
<PAGE>
3
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) including
any liability for Taxes.
"Med Tech" means Medical Technology Systems, Inc., a Delaware corporation.
"Med Tech Common Stock" means the common stock, par value $.01 per share,
of Medical Technology Systems, Inc.
"Net Sales" means the proceeds received by the Buyer from the sale of the
Peritronics Fetal Monitoring Systems (or sales to customers on the Peritronics
customer list, attached hereto as Schedule B) less the following: (i) the direct
cost of hardware purchased by the Buyer to install the Fetal Monitoring System,
including any amounts paid for installation of the Fetal Monitoring System; (ii)
the cost of freight to ship the Fetal Monitoring System to the customer; (iii)
any amount paid to customize the software component of the Fetal Monitoring
System as required by the customer; (iv) any amount paid to train customer
personnel in the use of the Fetal Monitoring System; (v) any amount paid to
integrate the customer's database into the Fetal Monitoring System; (vi) any
taxes and licenses pertaining to sales of the Fetal Monitoring System; and (vii)
any commissions paid to employees or agents of agents of the Buyer relating to
sales of the Fetal Monitoring System.
"Person" means any natural person, general or limited partnership,
corporation, limited liability company, firm, association, or other legal
entity.
"Purchase Price" has the meaning set forth in Section 3(a).
"Returns" has the meaning set forth in Section 6(q).
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4
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means the Universal Commercial Code filing #9717561018,
filed in Sacramento, California on June 20, 1997 in favor of Eron Mortgage
Corporation on behalf of Henry Rathje, Ron Waters, Frank Biller, and James
Cunnian, attached hereto as Schedule D.
"Seller" has the meaning set forth in the preface above.
"Seller Benefit Plans" has the meaning set forth in Section 6(n).
"Seller ERISA Affiliate" has the meaning set forth in Section 6(n).
"Seller ERISA Plans" has the meaning set forth in Section 6(n).
"Shareholder" has the meaning set forth in the preface above.
"Stock Consideration" has the meaning set forth in Section 3(a).
"Termination for Cause" means termination for: willful disobedience;
insubordination; unwillingness to meet documented and reasonable performance
standards; or gross misconduct.
2. Sale of Business and Assets. The parties hereby agree that, on the Closing
Date, the Seller shall sell and the Buyer shall purchase, for the consideration
set forth below, all of the Seller's assets and the Business as a going concern,
including without limitation, all property, rights, and business of every type
and description, real, personal and mixed, tangible and intangible, constituting
the Business, all of the Seller's goodwill, all contracts and contract rights
with customers of the Business, all contracts and contract rights with temporary
employees or contractors of the Business, any employee or contractor
non-competition agreements in favor of Seller, leases and lease deposits, sales
and supply contracts, leases, all cash on hand in banks, accounts receivable,
all Intellectual Property (including, without limitation, source code for all of
the Seller's products) and Confidential Information, use of the name
"Peritronics", and any variations thereof, patents, trademarks, trade names,
brand names, and copyrights, and all pending applications therefor and interests
thereunder, inventions, processes, know-how, formulae, trade secrets, equipment,
fixtures, rights under contracts and agreements, franchises, all rights in any
funds of whatever nature, books and records (excluding the corporate minute
books and stock transfer records), candidate and employee lists, all telephone
and fax numbers, all telephone listings, and all other property and rights of
every kind and nature owned or held by the Seller on the Closing Date or then
used by the Seller, whether or not specifically referred to in this Agreement.
Such sale shall be made free and clear of all liens, encumbrances, and
restrictions of any kind.
<PAGE>
5
3. Purchase and Sale of the Assets. (a) Purchase Consideration. Subject to the
terms of this Agreement and in reliance on the representations and warranties of
the Seller and the Shareholder set forth below, the Buyer shall purchase the
Assets on the Closing Date. The purchase price for the Assets (the "Purchase
Price") shall consist of (i) $350,000 in cash (the "Cash Consideration"), and
(ii) 250,000 shares of Med Tech Common Stock (the "Stock Consideration"), all of
which shall be payable to the Seller as set forth below. The Seller is obligated
to pay to the Buyer the Cash Consideration only from Net Sales.
(b) Payment. The Stock Consideration shall be delivered to the Seller no
later than ninety days after the Closing Date. The Cash Consideration shall be
payable as follows: -$10,000 paid on May 8, 1998 -$20,000 paid at Closing -The
remainder paid in monthly installments, commencing on the 15th day of the month
following the Closing Date, equal to 50% of the Excess Cash Flow for the
previous calendar month. The monthly installments shall be payable until such
time as the Cash Consideration has been paid, however, the Cash Consideration
shall be paid in full no later than nine months after the Closing Date.
(c) Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of the Seller located at
2700-700 West Georgia Street, Vancouver, British Columbia, V7Y 1B8, five
business days after Shareholder approval, no later than July 31, 1998, or such
other date as may be agreed upon in writing by the parties (the "Closing Date").
(d) Deliveries at Closing. At the Closing, the Seller shall deliver to the
Buyer a bill of sale and such other good and sufficient instruments of transfer
and conveyance as in the reasonable opinion of the Buyer's counsel shall be
effective to vest in the Buyer good and marketable title to the Assets.
4. No Assumption of Liabilities. Except for the obligations of Seller that are
described in Schedule A to this Agreement, the Buyer is not assuming or becoming
liable for any of the Seller's liabilities, obligations, debts, contracts, or
other commitments of the Seller of any kind, known or unknown, whether fixed or
contingent, and whether arising in contract, in tort, or otherwise. The Seller
and the Shareholder have supplied the Buyer with documentation evidencing these
Liabilities as requested by the Buyer.
5. Proration of Expenses. To the extent they relate to the Assets, all sales,
use, and personal property taxes and assessments, accrued and assessed (other
than sales taxes relating to the transfer of the Assets), if any, shall be
prorated as of the Effective Date, with the Seller responsible for the portions
of such items accruing on or before the close of business on the Effective Date
and the Buyer responsible for the portions of such items accruing after the
Effective Date. Personal property taxes and assessments are to be prorated on
the basis of calendar year 1998.
<PAGE>
6
6. Representations and Warranties of the Seller and the Shareholder. The Seller
and the Shareholder, jointly and severally, represent and warrant to the Buyer
as follows:
(a) Organization and Standing. The Seller is a corporation organized and in
good standing under the laws of the province of its incorporation. The Seller is
qualified to do business as a foreign corporation in each jurisdiction in which
its activities require such qualification. No part of the Business is conducted
by or through any entity other than the Seller. The Shareholder owns all of the
outstanding shares of each class of stock of the Seller. As of the date of this
Agreement, there are no options, warrants, calls, subscriptions, or other
rights, agreements, or commitments relating to the issued or unissued capital
stock of the Seller.
(b) Power and Authority. The Seller has the requisite corporate authority
to enter into this Agreement and to incur and perform its obligations under this
Agreement. The Seller has all necessary corporate power to own, lease, hold, and
operate all of its properties and assets and to carry on the Business as it is
now being conducted. The execution, delivery and performance by the Seller of
this Agreement has been authorized by all necessary corporate action including,
without limitation, approval by the board of directors of the Seller. Upon its
execution and delivery, this Agreement shall constitute a valid and binding
agreement of the Seller and the Shareholder, enforceable against the Seller and
the Shareholder in accordance with its terms, subject only to applicable
bankruptcy, moratorium, and similar laws.
(c) Title to Assets. The Seller has good and marketable title to all of the
Assets, free and clear of all liens, encumbrances, security interests, or claims
of any kind or nature except the Security Interest in the process of being
assigned to the Seller by the form of agreement set out in Schedule E attached
hereto. The Seller has no agreements to mortgage, pledge, or subject to lien,
charge, security interest, or other encumbrance any of the Assets.
(d) Approvals and Consents. The execution, delivery, and performance of
this Agreement (and the transactions contemplated by this Agreement) do not and
will not: (i) contravene any provision of the Articles of Incorporation or
Bylaws of the Seller; (ii) result in a breach of, constitute a default under,
result in the modification or cancellation of, or give rise to any right of
termination, modification, or acceleration in respect of any indenture, loan
agreement, mortgage, lease, or any other contract or agreement to which the
Seller or any of the Assets are bound, except for contracts entered into in the
ordinary course of business during the term of the Operations Management
Agreement between the parties dated September 15, 1997; (iii) result in the
creation of any security interest, pledge, lien, charge, claim, option, right to
acquire, encumbrance, restriction on transfer, or adverse claim of any nature
whatsoever upon any of the Assets; (iv) violate any writ, order, injunction, or
decree of any court or any federal, state, municipal, or other domestic or
foreign governmental department, commission, board, bureau, agency, or
instrumentality, which violation or default in any such case would have a
material adverse effect on the Business.
<PAGE>
7
(e) Litigation. There are no actions, suits, proceedings, or investigations
at law or in equity, by or before any court, governmental instrumentality,
agency, or arbitral tribunal, now pending or threatened that could have a
material adverse effect on the Business or any of the Assets, or the ability of
the Seller to consummate the transactions contemplated by this Agreement.
(f) Patents and Trademarks. The Seller has the right to use all
Intellectual Property necessary for, or currently used in, its Business. The
Seller's Business does not violate or infringe the Intellectual Property rights
of any third Person. No proceedings have been instituted or threatened that
assert infringement of the Intellectual Property rights of any third party
against the Seller.
(g) Business Names. Within the past five years, the Shareholder has not
used a business name other than "Peritronics" and variations thereof.
(h) Collective Bargaining Agreements and Employment Contracts. There are no
employment contracts or collective bargaining agreements to which the Seller is
a party or by which the Seller is bound, and there is no pending or threatened
labor dispute, labor union organizing attempt, strike, or work stoppage
affecting either the Seller or the Business. The Seller has made no
representation or assurance to any of its employees with respect to future
salary or compensation adjustments.
(i) Insurance Policies. Attached to this Agreement as Schedule C is a
complete and correct list and summary description of all insurance policies held
by the Seller with respect to the Assets, true and complete copies of which have
been delivered to the Buyer. The Seller has complied with all of the provisions
of such policies and the policies are in full force and effect.
(j) Compliance with Laws. To the Seller's knowledge, there is no violation
of any applicable laws, regulations, or orders relating to the conduct of the
Seller's Business, and there is no use of buildings or equipment used by the
Seller in the Business that violates any applicable laws, codes, ordinances, or
regulations, whether federal, state, or local, that, in either case, would have
a material adverse effect on the Assets.
(k) Conveyance Not Fraudulent. The Seller is not making the transactions
contemplated by this Agreement with the intent to hinder, delay, or defraud
either present or future creditors. The Purchase Price constitutes the
reasonably equivalent value for the Assets.
(l) Assets Represent Substantially the Entire Business. The Assets
represent substantially the entire operating assets of the Business.
(m) Real Property. None of the Assets consist of real property owned by the
Seller.
(n) Improper Payments. Neither the Seller nor, to the Seller's knowledge,
any person acting on behalf of the Seller has made any payment or otherwise
transmitted anything of value, directly or indirectly, to (i) any official of
any government or agency or political subdivision thereof for the purpose of
influencing any decision affecting the Business, (ii) any customer, supplier, or
competitor for the purposes of obtaining, retaining, or directing business for
the Seller, or (iii) any political party or any candidate for elective political
office, nor has any fund or other asset of the Seller been maintained that was
not fully and accurately recorded on the Seller's books of account.
<PAGE>
8
(o) Existing Customers. The Seller has no knowledge or reason to believe
that any existing customers of the Seller will not continue to do business with
the Buyer after the Closing Date.
(p) No Misrepresentations. None of the representations and warranties of
the Seller set forth in this Agreement or in the attached exhibits nor any
information or statements contained in the lists or documents provided or to be
provided by the Seller to the Buyer, notwithstanding any investigation thereof
by the Buyer, contains any untrue statement of a material fact, or omits the
statement of any material fact necessary to render the same not misleading.
(q) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commission to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(r) Investment. The Seller and the Shareholder (i) understand that the
Stock Consideration has not been, and will not be, except as described in
Section 9, registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) are
acquiring the Stock Consideration solely for their own account for investment
purposes, and not with a view to the distribution thereof, (iii) are
sophisticated investors with knowledge and experience in business and financial
matters, (iv) have received certain information concerning the Buyer and has had
the opportunity to obtain additional information as requested by the Seller or
the Shareholder in order to evaluate the merits and the risks inherent in
holding the Stock Consideration, (v) are able to bear the economic risk and lack
of liquidity inherent in holding the Stock Consideration, and (vi) are
Accredited Investors.
7. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller as follows:
(a) The Buyer is a corporation organized under the laws of the State of
Florida, and its status is active.
(b) The Buyer has the requisite corporate authority to enter into this
Agreement and to incur and perform its obligations under this Agreement. The
Buyer has all necessary corporate power to own, lease, hold, and operate the
Assets and carry on the Business as it is now being conducted. The Buyer will
use its reasonable best efforts to obtain all necessary corporate action for the
execution, delivery and performance by the Buyer of this Agreement. Upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding agreement of the Buyer, enforceable against the Buyer in
accordance with its terms, subject only to applicable bankruptcy, moratorium,
and similar laws.
(c) The Buyer will utilize their reasonable best efforts to manage the
operations of the Seller in such a manner as to preserve, safeguard and maintain
the Seller's customer base until the Closing Date.
<PAGE>
9
8. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the parties will use its reasonable best efforts to
take all action and to do all things necessary, appropriate, or convenient to
consummate and make effective the transactions contemplated by this Agreement.
(b) Notices and Consents. The Seller will give any notices to third parties
and will obtain any third-party consents the Buyer may reasonably request in
connection with the transactions contemplated by this Agreement or that may
otherwise be necessary to convey the Seller's full rights in the Assets to the
Buyer.
(c) Full Access. The Seller will permit representatives of the Buyer to
have full access to all premises, properties, books, records, contracts, tax
records, and documents of or pertaining to the Business or the Assets during the
Seller's normal business hours or any other reasonable time for purposes of the
Buyer's due diligence investigation and evaluation of the Assets.
(d) Notice of Developments. The Seller will give prompt written notice to
the Buyer of any material development affecting the Assets. Each party will give
prompt written notice to the other of any material development affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement. No disclosure by any party pursuant to this subsection, however, will
affect the other party's right, if any, to refuse to close under the terms of
this Agreement.
(e) Public Statements. The parties shall cooperate in all respects as to
public statements and announcements with respect to the transactions
contemplated by this Agreement. No party shall issue any press release or
announcement relating to the subject matter of this Agreement without the prior
approval of the other party (which approval shall not be unreasonably withheld);
however, either party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing party will advise
the other party prior to making the disclosure).
(f) Exclusivity. Neither the Seller nor the Shareholder shall (i) solicit,
initiate, or encourage the submission of any proposal or offer from any person
or entity relating to the acquisition of any capital stock or assets of the
Seller (including any acquisition structured as a merger, consolidation, or
share exchange), or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, or assist or participate in,
or facilitate in any other manner any effort or attempt by any person or entity
to do or seek any of the foregoing.
(g) Shareholder Approval. The Seller shall take all action necessary or
advisable to secure the requisite vote or consent of its Shareholder, as
required by Canadian law, to approve or adopt this Agreement.
<PAGE>
10
(h) Regulatory Approval. The Shareholder will use its best efforts to
obtain all necessary governmental and regulatory approvals necessary to complete
this Agreement no later than July 31, 1998.
(i) Security Interest Assignment. The Seller shall take all action
necessary to assign the Security Interest to itself prior to the Closing Date.
9. Registration Rights. "Piggy Back" Registrations. If Medical Technology
Systems, Inc. shall determine to register any of its securities during the
one-year period commencing on the Closing Date, other than a registration
relating solely to employee benefit plans, or a registration on any registration
form that does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Med Tech Common Stock, Med Tech will:
(i) Promptly give to the Seller written notice thereof; and
(ii) Use all commercially reasonable efforts to include in such
registration all the Stock Consideration transferred to the Seller under
this Agreement and specified in a written request, made by the Buyer within
20 days after the date of mailing of the written notice by the Seller
described in clause (i) above. If the underwriter advises the Seller that
marketing considerations require a limitation on the number of shares
offered pursuant to any registration statement, then the Seller may offer
all of the securities it proposes to register for its own account or the
maximum amount that the underwriter considers saleable and such limitation
on any remaining securities that may, in the opinion of the underwriter, be
sold will be imposed pro rata among all holders of Stock Consideration who
are entitled to include shares in such registration statement according to
the number of shares of Stock Consideration each such holder requested to
be included in such registration statement.
As long as the Stock Consideration is owned by the Seller or the
Shareholder, such shares shall have the registration rights and obligations
set forth in this Section.
10. Post-Closing Covenants. The parties agree as follows with respect to the
period following the Closing:
(a) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other party may
reasonably request, all at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Section 13 of this Agreement).
(b) Transition. The Seller and the Shareholder will not take any action
(other than actions required to be taken by the Seller under this Agreement)
that is designed or intended to have the effect of (i) discouraging any lessor,
licensor, customer, supplier, or other business associate of the Seller from
maintaining the same business relationships with the Buyer after the Closing as
it maintained with the Seller prior to the Closing or (ii) inducing any employee
of the Buyer to terminate his employment with the Buyer. The Seller will refer
all customer inquiries relating to the Business to the Buyer from and after the
Closing.
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(c) Name Change. At the Closing, the Seller shall assign the right to use
the name "Peritronics" and variations thereof to the Buyer, shall cease the use
of such name, and shall cooperate with the Buyer in the assumption of such name
by the Buyer in all jurisdictions where the Seller is currently qualified to do
business. Within six months after the Closing Date, the Shareholder shall either
dissolve or change its name to a new name bearing no resemblance to its present
name.
(d) Non-Compete Agreement. (i) The Seller and the Shareholder hereby agree
that, for a period of two years commencing on the Closing Date, they will not
accept a position as a consultant, agent, or independent contractor, or be or
become the owner of any of the outstanding equity interest in, or otherwise
participate in the business of any entity in the business of providing
obstetrical information systems in any area of the United States, within one
hundred miles of a Buyer-owned, a Buyer-licensed, or Buyer-franchised location
(except that the Shareholder may work with or for the Buyer and its affiliates).
Also for a period of two years commencing on the Closing Date, the Seller and
the Shareholder will not solicit the business of any customer of the Buyer or
the Seller relating to providing obstetrical information systems in the United
States or disclose any confidential information regarding the Business. For
purposes of this Section 10(d), the word "customers" means organizations
(whether corporations, partnerships, or otherwise) or persons who have done
business of any nature with the Buyer, the Seller, or any subsidiary or
affiliate of the Buyer or Seller prior to the Closing Date or during a two year
period commencing on the Closing Date, and with whom the Buyer, the Seller, or
any of the Buyer's or Seller's subsidiaries or affiliates has engaged in
discussions regarding a possible business relationship during the two year
period commencing on the Closing Date.
(ii) If the above covenant not to compete is found by a court of
competent jurisdiction to be unreasonable in either geographical scope or
duration, then such court may determine the scope or duration that is, in
its determination, reasonable and therefore enforceable, and such covenant
shall be enforced with retroactive effect as modified. The Seller and the
Shareholder understand that the Buyer will suffer irreparable harm in the
event of any breach of the provisions of this Section 10(d) and that in the
event of an actual or threatened breach of its provisions, the Buyer shall
be entitled to an injunction to restrain the Seller and the Shareholder
from such action. Nothing in this Section 10(d) shall be construed as
prohibiting the Buyer from pursuing any other available remedy, legal or
equitable, for such breach or threatened breach.
(e) Employment. The Buyer agrees that in the event any employees of the
are terminated after the Closing Date, said employees shall receive not less
than 60 days notice of termination, except for Termination for Cause.
(f) Stock Consideration. The certificates representing the Stock
consideration shall be imprinted with a legend in substantially the following
form:
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12
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR ANY STATE SECURITIES LAWS AND CANNOT BE TRANSFERRED WITHOUT
AN OPINION OF COUNSEL SATISFACTORY TO MEDICAL TECHNOLOGY
SYSTEMS, INC. THAT SUCH TRANSFER WILL NOT VIOLATE ANY SUCH
SECURITIES LAWS.
Any holder of the Stock Consideration desiring to transfer such shares must
first furnish the Buyer with a written opinion of counsel reasonably
satisfactory to Medical Technology Systems, Inc. that such holder may transfer
the shares as desired without registration under the Securities Act or any
applicable state law. The Seller shall be permitted to assign the Stock
Consideration to the Shareholder. As long as the Stock Consideration is owned by
the Seller or the Shareholder, such shares shall have the registration rights
and obligations set forth in Section 9.
11. Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Seller and the Shareholder set forth in Section 6 shall be true and correct
in all material respects at and as of the Closing Date;
(b) Assets. The Seller shall not have:
(i) incurred or become subject to, or agreed to incur or become
subject to, any obligation or liability, absolute or contingent, except
current liabilities incurred in the ordinary course of business;
(ii) mortgaged, pledged, or subjected to lien, charge, security
interest, or other encumbrance, or agreed to do so, any of the Assets;
(iii) sold or transferred, or agreed to sell or transfer, any of the
Assets, or cancelled or agreed to cancel, any debts due it or claims
therefor, except, in each case, for full consideration and in the ordinary
course of business;
(iv) engaged in any transactions adversely affecting the Business or
the Assets or suffered any extraordinary losses or waived any rights of
substantial value not in the ordinary course of business;
(c) Performance. The Seller and the Shareholder shall have performed and
complied with all of their respective covenants in all material respects
hereunder through the Closing Date;
<PAGE>
13
(d) Consents. The Seller shall have procured all material third party
consents contemplated in Section 8(b);
(d) No Impediments. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge would (i) prevent consummation
of any of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely the right of the Buyer to own and
operate the Assets (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(e) Change of Name. The Seller shall have taken all steps necessary or
appropriate to cease the use of the name "Peritronics" and to assign the right
to use such name to the Buyer. Within six months after the Closing Date, the
Seller and the Shareholder shall either dissolve or change its name to a new
name bearing no resemblance to its present name.
(f) Real Property and Environmental Matters. The Buyer shall be satisfied,
in its sole discretion, that all leases assumed by the Buyer will be valid and
enforceable, and that no environmental or safety hazards exist at any of the
Seller's places of business.
(g) Satisfaction. All actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all documents required
to effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Buyer and its counsel.
12. Conditions to Obligation of the Seller. The obligation of the Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Buyer set forth in Section 7 shall be true and correct in all material
respects at and as of the Closing Date;
(b) Performance. The Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing Date;
(c) No Impediments. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge would (i) prevent consummation
of any of the transactions contemplated by this Agreement, or (ii) cause any of
the transactions contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation, injunction, or
charge shall be in effect);
(d) Satisfaction. All actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all documents required
to effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Seller and its counsel.
<PAGE>
14
13. Indemnification. (a) The Seller and the Shareholder, jointly and severally,
agree to indemnify and hold the Buyer harmless from, against, and in respect of
the following:
(i) any and all liabilities, obligations, debts, contracts (except
those arising out of LifeServ's management of Peritronics Medical, Inc.
under the Operations Management Agreement, effective as of September 15,
1997, among Med Tech, Medication Management Systems, Inc., Peritronics
Medical, Limited and Peritronics Medical, Inc.), or other commitments of
the Seller of any kind, known or unknown, whether fixed or contingent, and
whether arising in contract, in tort, or otherwise, including any claims by
the Shareholder or any creditors of the Seller;
(ii) any damage or deficiency resulting from any misrepresentation,
breach of warranty, or non-fulfillment of any agreement on the part of the
Seller under this Agreement or from any misrepresentation in or omission
from any certificate or other instrument furnished or to be furnished to
the Buyer by the Seller pursuant to this Agreement;
(iii) any and all liabilities, obligations, damages, fines, and
penalties imposed on the Buyer by any third party or governmental entity
relating to the conduct of the Seller's Business prior to the Effective
Date or the Buyer's relationship with the Seller's former employees and
independent contractors after the Closing Date; and
(iv) all actions, suits, proceedings, claims, demands, assessments,
judgments, legal fees, costs, and expenses incident to any of the foregoing
or arising out of any act or omission of the Seller in the conduct of the
Business prior to the Effective Date except for any costs, liabilities,
legal fees or expenses sustained or incurred as a result of any action,
suit or proceeding that is commenced, threatened or presented as a result
of any action, deed or omission performed or permitted by Buyer or its
employees, officers and directors from September 15, 1997 to the Effective
Date, in its operation of the Business.
(b) The Buyer agrees to give timely notice to the Seller of the assertion
of any claim or demand or the institution of any action, suit, or proceeding in
respect of which indemnification may be claimed hereunder and to provide the
Seller with an opportunity to participate in the defense or settlement of such
action, suit, or proceeding at the Seller's own expense. Any failure by the
Buyer to give such notice shall have no effect on the Buyer's right to
indemnification under Section 13(a).
(c) The indemnification provided for in this Section 13 shall only be
applicable to claims asserted within three years of the date of this Agreement.
Notwithstanding the foregoing, the foregoing time limitation for claims of Buyer
shall not apply to the liabilities of Seller or Shareholder under this Section
13 that are based upon fraud or willful misconduct.
<PAGE>
15
14. Termination.
(a) Termination of Agreement. The parties may terminate this Agreement as
provided below:
(i) the parties may terminate this Agreement by mutual written consent
at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at the Closing if any condition described in Section 12 has
not been satisfied (unless the failure results primarily from the Buyer
breaching any representation, warranty, or covenant contained in this
Agreement); and
(iii) the Seller may terminate this Agreement by giving written notice
to the Buyer at the Closing if any condition described in Section 12 has
not been satisfied (unless the failure results primarily from the Seller
breaching any representation, warranty, or covenant contained in this
Agreement).
(b) Effect of Termination. If any party terminates this Agreement pursuant
to Section 14(a), all obligations of the parties hereunder shall terminate
without any liability of any party to any other party (except for any liability
of any party then in breach).
15. General Provisions.
(a) Benefit and Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. The rights of the Seller hereunder may not be assigned. The rights of
the Buyer may be assigned to a subsidiary or affiliate of the Buyer, provided
that any such assignment shall in no way relieve the Buyer of its obligations
and responsibilities under this Agreement unless the Seller consents thereto
(such consent not to be unreasonably withheld).
(b) Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Florida.
(c) Notices. All notices, requests, demands and other communications
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered by overnight delivery service or hand delivered, addressed as follows:
If to the Buyer:
LifeServ Technologies, Inc.
12920 Automobile Boulevard
Clearwater, Florida 34622
Attn: Michael T. Felix
<PAGE>
16
With a copy to:
Holland & Knight
400 N. Ashley Street
Suite 2300
Tampa, Florida 33602
Attn: Robert J. Grammig, Esq.
If to the Seller or the Shareholder:
562577 B.C. Ltd.
2700-700 West Georgia Street
Vancouver, B.C., Canada V7Y 1B8
Attn: John H. Vice
With a copy to:
Peritronics Medical Ltd.
2700-700 West Georgia Street
Vancouver, B.C., Canada V7Y 1B8
Attn: Michael C. Scholz
16. Expenses. Except as otherwise provided in this Agreement, any expenses in
connection with this Agreement or the transactions contemplated herein shall be
paid for by the party incurring such expenses.
17. Sales and Other Taxes. Any sales taxes shall be paid by the Buyer and all
other applicable transfer taxes hereunder shall be paid by the Seller.
18. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. Headings. All paragraph headings herein are inserted for convenience only
and shall not modify or affect the construction or interpretation of any
provision of this Agreement.
20. Amendment, Modification and Waiver. This Agreement may be modified, amended,
and supplemented by mutual written agreement of the parties hereto, at any time
prior to the Closing. Each party may waive any condition intended to be for its
benefit. Each amendment, modification, supplement, or waiver shall be in writing
executed by both parties.
<PAGE>
17
21. Entire Agreement. This Agreement, including its Exhibits, represents the
entire Agreement of the parties and supersede all prior negotiations and
discussions by and among the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date set forth above.
SELLER:
562577 B.C. LTD.
By: ____________________________________
Its: ____________________________________
SHAREHOLDER:
PERITRONICS MEDICAL LTD.
By: ____________________________________
Its: ____________________________________
BUYER:
LIFESERV TECHNOLOGIES, INC.
By: ___________________________________
Its: ___________________________________
MEDICAL TECHNOLOGY SYSTEMS, INC.
By: ___________________________________
Its: ___________________________________
<PAGE>
18
SCHEDULE A - ASSUMED LIABILITIES
The Buyer accepts no assumed liabilities on the part of the Seller, except in
conjunction with the operation of the Business to the Closing Date, as follows:
Vendor Name Amount Owed
ADP Investor Communications 783.85
Alco Metal Fabricators 3,356.00
Arrow Electronics 69,819.37
B&B Enameling Inc. 208.20
Business & Legal Reports Inc. 428.58
Compass Computer Group 114,927.50
Computer Product Plus 3,648.89
Computer Product Plus 1,777.88
Control Master Products Inc. 460.74
Datascope Corp 2,094.13
Esna Biomedical Systems 1,378.10
Expo-3 1,455.40
FTG Data Systems 1,156.25
Future Care 750.00
GCX Corporation 1,064.56
Gregory & Gregory 697.50
Howard Stellar 3,869.44
ITT Hartford 778.78
Internet Technology 13,682.25
Kenneth Wilking 3,173.70
Lyben Computer Systems 41.45
LifeServ Sales Commissions 77,147.55
LifeServ Management Fees 187,500.00
M Michael Sikula 460.94
MDI Inc. 873.10
Modern Service Office Supply 2,277.68
Mouser Electronics 678.64
Nik Gupta, CPA 425.00
On-Line Electronics 1,396.64
Phon-Tronics 100.00
Pyramid Medical 7,861.00
Relsys 36,761.80
Snell & Wilmer 16,988.25
Sourcefile 1,500.00
Staples Direct 931.62
Steven's Air Transport 1,926.66
Sun Medical 17,420.50
Terminix 300.00
Uline Inc. 167.85
Unishippers 6,839.48
United Service Network 9,619.81
---------------------
Total: 596,729.09
=====================
<PAGE>
19
SCHEDULE B - PERITRONICS CUSTOMER LIST
Alta Bates - Oakland, CA
South Jersey - Cherry Hill, NJ
S.W. Washington - Vancouver, WA
University of Chicago - Chicago, IL
Sacred Heart Group - Spokane,
WA Holy Family - Spokane, WA
Our Lady of Lourdes - Pasco, WA
St. Lukes - Boise, ID West Lake
Community - Chicago, IL
Mt. Sinai - Chicago, IL
Genessee - Genessee, NY
McClaren - Detroit, MI
Charleston Area Medical Center - WV
Hancock Medical Center - Bay St. Louis, MS
E. Maine Medical Center - ME
Hamilton Health Sciences - Ontario, Canada
Credit Valley Hospital - Ontario, Canada
<PAGE>
20
SCHEDULE C - INSURANCE
<PAGE>
21
SCHEDULE D - UCC1 FINANCING STATEMENT
<PAGE>
22
SCAHEDULE E - ASSIGNMENT AGREEMENT
<PAGE>
1
THIS AGREEMENT dated for reference the 1st day of May, 1998.
BETWEEN:
PERITRONICS MEDICAL LTD. a company duly incorporated pursuant to the
laws of British Columbia and having its registered and records office
at Suite 2700, 700 West Georgia Street, Vancouver, British Columbia,
V7Y1B8
(hereinafter referred to as the "Company")
OF THE FIRST PART
AND:
HENRY RATHJE, Businessman, of 5649-124A Street, Surrey,
British Columbia V3X 2S6
(hereinafter referred to as the "Creditor")
OF THE SECOND PART
AND:
562577 B.C. LTD., a company duly incorporated pursuant to the
laws of British Columbia and having its registered and records
office at Suite 2700, 700 West Georgia Street, Vancouver,
British Columbia, V7Y 1B8
(hereinafter referred to as the "Assignee")
OF THE THIRD PART
WHEREAS:
The Company is indebted to the Creditor for the reasons and in the amount
set out in Schedule "A" hereto, to this agreement (the "Debt");
Eron Mortgage Corporation (the "Trustee") holds in trust for the Creditor
certain security over the assets of the Company's subsidiary Peritronics Medical
Inc. (the "Security") for the repayment of the debt as described in Schedule "B"
to this agreement (the "Debt");
<PAGE>
2
The Company wishes to assign the Debt and obtain an assignment of the
Security from the Creditor to the Assignee in consideration for allotting and
issuing shares in the capital of the Company to the Creditor; and
The Creditor is prepared to accept shares and assign the Debt and its
interest in the Security to the Assignee, which form of assignment is attached
as Schedule "C".
NOW THEREFORE WITNESSETH that in consideration of the premises and of the
covenants and agreements set out herein, the parties hereto covenant and agree
as follows:
ACKNOWLEDGMENT OF DEBT
1. The Company acknowledges and agrees that it is indebted to the Creditor
in the amount of the Debt. The Company further acknowledges the debt is in
default and both Peritronics Medical Inc. ("PMI") and the Company are incapable
of repaying the Debt.
ALLOTMENT AND ISSUANCE OF SHARES
1. The Company agrees to allot and issue to the Creditor those numbers of
shares in the capital of the Company (the "Shares") set out in Schedule "A" to
this agreement as full and final consideration for the assignment by the
Creditor to the Assignee of Debt and Security and the Creditor agrees to release
the Company from payment of the Debt.
2. For the purposes of this agreement, "issue Date" shall mean the fifth
business day after the date that the Company receives notification from the
Vancouver Stock Exchange (the "Exchange") that it has accepted this agreement
for filing and has approved the issuance of the Shares.
3. On the Issue Date, the Company shall deliver to or to the direction of
the Creditor, share certificates representing the Shares.
4. The number of Shares shall be subject to adjustment in the following
events and manner:
(a) In the event of any subdivision or subdivisions of the Shares as
such are constituted on the Issue Date, into a greater number of Shares,
the Company will thereafter deliver at the time of the issuance of Shares
under this agreement, such additional number of Shares as result from said
subdivision or subdivisions without the Creditor giving any other
consideration therefor;
<PAGE>
3
(b) In the event of any consolidation or consolidations of the Shares
as such are constituted on the Issue Date, into a lesser number of Shares,
the Company shall thereafter deliver and the Creditor shall accept the
lesser number of Shares as result from such consolidation or consolidations
in lieu of the Shares the Creditor were to receive under this agreement;
(c) In the event of any change of the Shares as such are constituted
on the Issue Date, the Company shall thereafter deliver the number of
Shares of the appropriate class resulting from the said change as the
Creditor would have been entitled to receive in respect of the number of
Shares to be issued pursuant to this agreement;
(d) In the event of any capital reorganization or reclassification of
the Shares (other than a change in the par value thereof) of the Company or
in the event of any merger or amalgamation of the Company with or into any
other company or in the event of any sale of the assets of the Company as
or substantially as an entirety, then the Creditor shall thereafter have
the right to receive the kind and amount of shares and other securities and
property receivable upon such, capital reorganization, reclassification,
merger, amalgamation or sale which a shareholder of a number of Shares
equal to the number of Shares receivable pursuant to this agreement would
have received as a result of such. The subdivision or consolidation of
Shares at any time outstanding into a greater or lesser number of Shares
(whether with or without par value) shall not be deemed to be a capital
reorganization or a reclassification of the capital of the Company for the
purposes of this paragraph (d);
(e) The adjustments provided for in this agreement are cumulative; and
(f) The Company shall not be required to issue fractional Shares or
other securities in satisfaction of its obligations hereunder. If any
fractional interest in a Share or other security would, except for the
provisions of this paragraph (f), be deliverable on the Issue Date, the
Company shall, at its option, in lieu of delivering a fractional Share or
other security therefor, satisfy the right to receive such fractional
interest by payment to the Creditor of an amount in cash equal (computed in
the case of a fraction of a cent to the next lower cent) to the current
market value of the right to subscribe for such fractional interest
(computed on the basis of the most recent closing price On the Vancouver
Stock Exchange for Shares).
(g) Determination of Adjustments: If any questions shall at any time
arise with respect to any adjustments to be made hereunder, such question
shall be conclusively determined by a firm of Chartered Accountants, in
Vancouver, B.C. that the Company and the Creditor shall jointly select, and
who shall have access to all appropriate records and such determination
shall be binding upon the Company and the Creditor;
<PAGE>
4
5. The Creditor hereby understands and agrees to a hold restriction to be
placed on the share certificate issued pursuant to this distribution which is 12
months past the date in which the debt was incurred, pursuant to Section
142(2)(d) of the Securities Rules under the Securities Act, R.S.B.C. 1996, c.o
418 (the "Rules").
6. The Creditor agrees to cause the Trustee to assign absolutely the
Security to the Assignee and undertakes to execute all further documents
necessary to carry out the assignment so that the Assignee has full title and
right to the Security.
REGULATORY APPROVALS AND RESTRICTIONS ON DISPOSITION
1. The rights and obligations of the Company and the Creditor is subject to
and conditional upon receipt of the acceptance for filing of this agreement by
the Exchange.
2. The Company shall use its best efforts to obtain the acceptance for
filing of this agreement by the Exchange.
3. The Company is relying on Section 128(e) of the Rules.
4. The Creditor represents and warrants to the Company that:
(i) the Debt constitutes the entire amount due and payable by the
Company and PMI to him;
(ii) upon delivery of the Shares by the Company in accordance with the
provisions of this agreement, the Debt and Security will be fully
assigned to the Assignee to hold the same with power to take all
lawful measures which we might have taken for full recovery of
the Debt through execution under the Security;
(iii)releases the Company from any and all covenants and obligations
relating to the Debt;
(iv) he has not preciously assigned, encumbered, parted with
possession of or otherwise granted any interest in the Debt or
any of his rights relating thereto ;
(v) he will be the beneficial owner of the Shares;
(vi) the Shares are not being acquired as a result of any material
information that has not been generally disclosed to the public;
<PAGE>
5
(vii)he will seek his own independent legal advice with regard to
this agreement as well as any restrictions imposed by the Rules
or the British Columbia Securities Act on his respecting
disposition of the Shares.
GENERAL PROVISIONS
1. Time shall be of the essence of this agreement.
2. The Company and the Creditor shall execute any and all such further
deeds, documents and assurances and shall do any and all such further and other
things as may be necessary to implement and carry out the intent of this
agreement.
3. The provisions herein contained constitute the entire agreement between
the parties and supersede all previous understandings, communications,
representations and agreements, whether written or verbal, between the parties
with respect to the subject matter of this agreement.
4. This agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia.
5. In the event the Creditor is a resident of the United States, the shares
represented by this agreement, once issued, will not have been registered under
the United States Securities Act of 1933 (the "Act") or any State securities
laws, and will be "RESTRICTED SECURITIES" as that term is defined in Rule 144
under the Act. The shares, once issued, may not be offered for sale, sold or
otherwise transferred within the United States except pursuant to an Effective
Registration Statement under the Act and any applicable State securities laws,
or pursuant to an exemption from registration under the Act, the availability of
which will be established to the satisfaction of the Company.
6. All dollar amounts referred to in Schedule "A" to this agreement have
been expressed in Canadian currency, unless otherwise indicated.
7. This agreement shall enure to the benefit of and be binding upon each of
the parties and their respective heirs, executors, administrators, successors
and permitted assigns, as the case may be.
<PAGE>
6
IN WITNESS WHEREOF the parties hereto have executed these presents on the day
and year first above written.
THE CORPORATE SEAL of )
PERITRONICS MEDICAL LTD. was )
hereto affixed in the presence of: )
)
) c/s
- --------------------------- )
Authorized Signatory )
)
- --------------------------- )
Authorized Signatory )
)
)
SIGNED, SEALED AND DELIVERED by )
HENRY RATHJE in the presence )
of: )
) ---------------------------
) HENRY RATHJE
- --------------------------- )
Witness )
)
- --------------------------- )
Address )
)
- ---------------------------
Occupation
<PAGE>
1
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
IN RE:
MEDICATION MANAGEMENT TECHNOLOGIES, INC., CASE NO: 97-11340-8G1
Debtor.
- ------------------------------------------------/
FIRST AMENDED PLAN OF REORGANIZATION OF
MEDICATION MANAGEMENT TECHNOLOGIES, INC.
MEDICATION MANAGEMENT TECHNOLOGIES, INC., the above-captioned debtor
and debtor-in-possession and LifeServ Technologies, Inc., hereby file and
propose their First Amended Plan of Reorganization in the form and content set
forth herein.
MASSARI LAW GROUP
Domenic L. Massari, III, Esquire
Florida Bar Number 238988
Caryl E. Delano, Esquire
Florida Bar Number 0040721
601 South Fremont Avenue
Tampa, Florida 33606
(813) 253-3400
Attorneys for Debtor
<PAGE>
2
TABLE OF CONTENTS
Page No.
ARTICLE 1 - Definitions ...................................3
ARTICLE 2 - Classes of Creditors ..........................5
ARTICLE 3 - (Class I) Administrative Expense Claims .......5
ARTICLE 4 - (Class II) Secured Claim of William D. Long....6
ARTICLE 5 - (Class III) Secured claim of SouthTrust Bank...6
ARTICLE 6 - (Class IV) Claims of Unsecured Creditors ......7
ARTICLE 7 - (Class V) Insider Claims.......................7
ARTICLE 8 - (Class VI) Stockholder Claims .................7
ARTICLE 9 - Anticipated Means of Execution ................7
ARTICLE 10 - Classes Provided For .........................8
ARTICLE 11 - Classes Impaired ..............................8
ARTICLE 12 - Conditions to Confirmation ....................8
ARTICLE 13 - Executory Contracts ...........................8
ARTICLE 14 - Recoveries ....................................8
ARTICLE 15 -Debtor's Claims Against Others .................8
ARTICLE 16 - Retention of Jurisdiction of the Court.........8
ARTICLE 17 - General Provisions ............................8
<PAGE>
3
12
ARTICLE I - Definitions
1.1 "Allowed Claim" means a Claim filed on or before the last date set by the
Court for filing proofs of claim and allowed by Court Order in accordance with
Bankruptcy Code Section 502(a), or, if no proof of claim is filed, a Claim which
is listed by the Debtor as liquidated in amount and not disputed or contingent,
and, in either case, a Claim to which no objection to the allowance thereof has
been timely filed or to which an objection is timely filed and such Claim has
been allowed in whole or in part by a Final Order of the Bankruptcy Court 1.2
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as amended, 11 U.S.C.
'101, et seq. -- --- 1.3 "Bankruptcy Court" means the United States Bankruptcy
Court for the Middle District of Florida, Tampa Division.
1.4 "Claim" means any right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, legal, equitable, secured or unsecured; or any right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
1.5 AConfirmation" means entry by the Bankruptcy Court of the Confirmation
Order.
1.6 "Confirmation Date" means the date upon which the Bankruptcy Court enters
the Confirmation Order.
1.7 "Confirmation Order" means the Order of the presiding Bankruptcy Court judge
confirming this Plan and finding that it has been accepted by the requisite
majority of creditors, was accepted in good faith, is in the best interest of
creditors, is feasible or is otherwise a confirmable plan within the meaning of
the Bankruptcy Code.
<PAGE>
4
1.8 "Consummation Date" means the 11th day after the entry of the Confirmation
Order and at which time no motion for rehearing, notice of appeal, stay pending
appeal, proceeding for review or appeal, nor posting of a supercede bond, nor
other challenge against the Confirmation Order is pending, at which time the
Confirmation Order has become final and non-appealable. For the purposes of this
Plan the Consummation date shall also be the "Effective Date@ of the Plan for
purposes of Bankruptcy Code '1129. ---------------
1.9 "Creditor" means all Persons within the meaning of Section 101(10) of the
Bankruptcy Code.
1.10 "Debtor" means Medication Management Technologies, Inc., the
debtor-in-possession and proponent of this Plan.
1.11 "Debtor's Property" means all assets and property of the Debtor, whether
legal or equitable, tangible or intangible, real or personal, that constitute
property of the Debtor's estate within the meaning of Section 541 of the
Bankruptcy Code, including, without limitation, those assets described in the
Debtor's Schedules.
1.12 ALifeServ@ means LifeServ Technologies, Inc., a newly formed subsidiary of
Debtor=s parent, Medical Technology Systems, Inc.
1.13 "Person" means any individual, corporation, partnership, joint venture,
trust, estate or unincorporated organization, or any government or agent or
political subdivision thereof.
1.14 "Plan" means this Plan of Reorganization as currently filed or hereafter
amended pursuant to Chapter 11 of the Bankruptcy Code or any applicable Rule
promulgated thereunder.
1.15 "Settlement Offer" means (a) any offer of settlement or compromise, or
offer to purchase any outstanding Unsecured Claim or the interest of any
Claimant under this Plan, or (b) any compromise or agreement to otherwise
effectuate any full or partial satisfaction of any Unsecured Claim outside the
terms of this Plan.
<PAGE>
5
1.16 "Unsecured Creditors" means all persons and entities holding unsecured
claims including claims against the Debtor.
ARTICLE 2 - Classes of Creditors
2.1 For the purposes of this Plan, there shall be the following classes of
Creditors of the Debtor:
CLASS I Administrative Expense Claims
CLASS II Secured Claim of The Long Family Trust, William
D. Long, Trustee
CLASS III Secured Claim of SouthTrust Bank
CLASS IV Claims of Unsecured Creditors
CLASS V Insider Claims
CLASS VI Stockholder Claims
2.2 Including any Creditor by name in any class herein is solely for purposes of
description and shall include all assignees, heirs, devisees, transferees or
successors-in-interest of any kind or nature of the named Creditor.
COMPOSITION AND TREATMENT OF CREDITOR CLASSES
ARTICLE 3 - (Class I) Administrative Expense Claims
3.1 The Claims of this Class of Creditors shall be unimpaired.
3.2 The Debtor shall pay all Allowed administrative expenses in full and in cash
within thirty (30) days after the Consummation Date of this Plan or make
satisfactory payment arrangements with administrative claimants by the
consummation date of Debtor's Plan.
<PAGE>
6
ARTICLE 4 - (Class II) Secured Claim of The Long Family Trust, William D. Long,
Trustee
- --------------------------------------------------------------------------------
4.1 William D. Long (ALong@) is the holder of a secured claim in the approximate
unpaid amount of $45,150.56 and the beneficiary of a royalty agreement secured
by the Debtor's furniture and fixtures. The secured claim of Long is impaired.
4.2 In resolution of this claim, the Debtor will pay Long as follows:
(a) $45,150.56 with interest thereon at 7% per annum in monthly
installments over two (2) years commencing on the Effective Date;
(b) Royalty of 5% of net collections of Debtor prior to December 31, 2002,
from the sale of software that is a part of Debtor=s fetal monitoring
and point of care documentation designed for use in labor and
delivery, neonatal intensive care units are special care units
ARTICLE 5 - (Class III) Secured Claim of SouthTrust Bank
5.1 The Claims of this Class of Creditor shall be impaired.
5.2 SouthTrust holds a claim in the amortized principal amount of $15,000,000.00
(the ASouthTrust Claim@) against the Debtor and certain affiliates of the
Debtor, pursuant to the Second Amended and Restated Loan and Security Agreement,
dated as of September 4, 1996, as amended (the ASouthTrust Loan Agreement@). The
SouthTrust Claim is secured by all of the Debtor=s assets. Pursuant to a
Subordination and Conditional Waiver Agreement, dated as of June 19, 1997,
SouthTrust subordinated its security interest in certain of the assets of the
Debtor to those in favor of The Long Family Trust which secure the Secured Claim
of the Long Family Trust. The assets covered by this subordination are defined
in the Subordination Agreement referred to above as the ACygnet Collateral.@
Except as modified pursuant to the Amendment to Second Amended and Restated Loan
and Security Agreement (the AAmendment@) approved by the Bankruptcy Court by
Order entered April 16, 1998, the legal, equitable and contractual rights to
which SouthTrust is entitled under the SouthTrust Loan Agreement shall remain
unaltered by confirmation of this Plan. In furtherance of the foregoing, (a) the
liens, pledges and security interests securing the SouthTrust Claim shall
survive confirmation of this Plan, (b) the Debtor reaffirms its obligations to
SouthTrust under the SouthTrust Loan Agreement, as the same may be amended in
accordance with the Amendment and the Amendment Motion, and (c) the SouthTrust
Claim shall, upon confirmation of this Plan, be Allowed in the amount of
$15,000,000 plus accrued and unpaid interest on such sum (if any), or such other
amounts as may be specified in the Amendment. No distribution upon Confirmation
will be made to SouthTrust pursuant to or as a result of the Plan. However,
SouthTrust will continue to receive the payments called for under the SouthTrust
Loan Agreement.
<PAGE>
7
ARTICLE 6 - (Class IV) Claims of Unsecured Creditors
6.1 The Claims of this Class of Creditor shall be impaired.
6.2 As a full treatment for, and in full settlement thereof, the holders Allowed
Class IV claims shall receive the following:
An amount equal to 15% of such Class III allowed claim payable in three annual
installments. The first installment of 5% shall be paid on the date which is
three months after the Effective date with installments of 5% being paid on the
second and third anniversary of the Effective date.
ARTICLE 7- (Class V) Insider Claims
7.1 The Claims of this Class of Creditor shall be impaired.
7.2 Class VI, shall consist of all Secured Claims and Unsecured Claims of
shareholders, officers, directors, managers and all other insiders of the Debtor
as defined in '101(30) of the Code whether or not the same constitute Allowed
Claims, except weekly wages and salaries (not including bonuses, severance pay,
vacation pay or the like) earned by Class V Claimants, which wages and salaries
shall be treated as administrative expense claims to the extent such claims
arose after the Filing Date. Other than Administrative Expense Claims, there
shall be no distribution to Class V Claims.
ARTICLE 8- (Class VI) Stockholder Claims
8.1 The Claims of this Class of Creditor shall be impaired.
8.2 The Claims of all Persons holding a legal or equitable right to an interest
in Debtor, shall receive no distribution under this Plan until such time as all
other Classes of Creditors under this Plan are paid in accordance with the terms
of this Plan.
ARTICLE 9 - Anticipated Means of Execution
9.1 The Debtor=s parent, Medical Technology Systems, Inc., is in the process of
transferring its 100% stock ownership in the Debtor to a newly formed wholly
owned subsidiary of the parent, LifeServ Technologies, Inc. (LifeServ). LifeServ
intends to issue a private placement of securities, not to exceed 40% of its
stock, in order to generate net proceeds to LifeServ of $3,000,000.00. The net
proceeds will be utilized to fund further development of LifeServ=s
subsidiaries= products, expand its sales force and provide working capital,
allowing the Debtor to fund the Plan from income generated by its continued
business operations. In addition, LifeServ will continue to provide the Debtor
with ongoing sales and administrative support, having a minimum value of
$10,000.00 per month. However, no funding from affiliates other than LifeServ is
anticipated or permitted by the SouthTrust Loan Agreement.
<PAGE>
8
ARTICLE 10- Classes Provided For
10.1 All classes of the Debtor's creditors are provided for by this Plan, or are
not affected, or are unimpaired.
ARTICLE 11 - Classes Impaired
11.1 It is anticipated that Creditors in Class I are unimpaired or have
consented to their treatment under the Plan. All other Classes under this Plan
may be impaired.
ARTICLE 12 - Conditions to Confirmation
12.1 There are no conditions to the confirmation of this Plan other than the
Bankruptcy Court entering the Confirmation Order confirming the Plan and the
execution and delivery of all documents contemplated by the Amendment Motion.
ARTICLE 13 - Executory Contracts
13.1 Pursuant to this Plan, all rights of the Debtor shall be reserved through
the Confirmation Date with respect to the assumption or rejection of executory
contracts that the Debtor has not heretofore assumed or rejected upon notice to
the parties to any such agreements and to such other parties-in-interest as the
Court may designate. The Debtor hereby assumes the executory royalty agreement
with the Long Family Trust.
ARTICLE 14 - Recoveries
15.1 The right to bring all Preference and Transfer Actions or to forsake,
forego, or compromise and settle all such actions or claims, held by the Debtor,
the Debtor-in-Possession and the Estate prior to confirmation, are expressly
preserved by the Debtor.
ARTICLE 15 - Debtor's Claims Against Others
15.1 The Debtor shall enforce and have the sole right to enforce all rights,
claims, suits and causes of action possessed by Debtor whether arising prior to
or subsequent to the filing in its own name.
ARTICLE 16 - Retention of Jurisdiction of the Court
16.1 The Bankruptcy Court shall retain jurisdiction over the Debtor and all
parties provided for in this Plan for up to three (3) years after the
Confirmation Date in order to effect the terms of the Plan and resolve any
disputes in connection with the Confirmation of the Plan. Except for claims
which this Plan recites are to be allowed upon confirmation of this Plan, Debtor
shall have up to sixty (60) days after the entry of the Confirmation Order to
object to all scheduled or filed claims or they shall be deemed allowed.
<PAGE>
9
16.2 The Bankruptcy Court shall retain and have exclusive jurisdiction of all
matters arising out of, and related to, the Chapter 11 Case and the Plan
pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy
Code and for, among other things, the following purposes:
(1) To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
(2) To determine any and all pending adversary proceedings, applications,
and contested matters;
(3) To ensure that distributions to holders of Allowed Administrative
Claims, Allowed Priority Tax Claims, Allowed Priority Non-Tax Claims, Allowed
Unsecured Claims, Allowed Secured Claims (including in particular the SouthTrust
Claim), and Allowed Equity Interests are accomplished as provided herein;
(4) To hear and determine any timely objections to Administrative Claims or
to proofs of Claim and Equity Interests filed, both before and after the
Confirmation Date, including any objections to the classification of any Claim
or Equity Interest, and to allow or disallow any Contested Claim or Equity
Interest, in whole or in part;
(5) To enter and implement such orders as may be appropriate in the event
the Confirmation Order is for any reason stayed, revoked, modified, or vacated;
(6) To issue such orders in aid of execution of the Plan, to the extent
authorized by section 1142 of the Bankruptcy Code;
(7) To consider any modifications of the Plan, to cure any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy Court,
including, without limitation, the Confirmation Order;
(8) To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331, and 503(b)
of the Bankruptcy Code incurred prior to the Effective Date;
(9) To hear and determine disputes arising in connection with the
interpretation, implementation, or enforcement of the Joint Plan;
(10) To recover all assets of the Debtors and property of the Estate, where
located;
<PAGE>
10
(11) To enforce and interpret the terms and conditions of the Plan
Documents, including, without limitation, the waivers and agreements contained
in the Plan Documents and described in Article XII of this Joint Plan;
(12) To hear and determine matters concerning state, local and federal
taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;
(13) To hear any other matter not inconsistent with the Bankruptcy Code;
and
(14) To enter a final decree closing the Chapter 11 Cases.
ARTICLE 17 - General Provisions
17.1 Should any payment under the Plan come due on a non-business day, then such
due date shall be extended to the next business day.
17.2 Non-business days shall include Saturday, Sunday and any day on which
commercial banks in the State of Florida are required or authorized by State or
Federal law to close.
17.3 Any and all notices hereunder shall be in writing. If such notice is sent
by telegram, telex or facsimile transmission, it shall be deemed to have been
given when sent, and if by mail, shall be deemed to have been given three days
after the postmarked date when sent by registered or certified mail, postage
prepaid, and addressed as follows:
With a copy to:
Medication Management Technologies, Inc.
12920 Automobile Boulevard
Clearwater, FL 34622
Attention: Todd Siegel
and
Massari Law Group
Counsel to Medication Management Technologies, Inc.
601 South Fremont Avenue
Tampa, Florida 33606
Attention: Caryl E. Delano, Esquire
or at such other address, if any, as the Debtor may have designated as its
address for such service.
<PAGE>
11
DATED: MEDICATION MANAGEMENT
TECHNOLOGIES, INC.
------------------------
BY: Todd Siegel, Secretary
LIFESERV TECHNOLOGIES, INC.
-------------------------
BY: Todd Siegel, Secretary
MASSARI LAW GROUP
------------------------
DOMENIC L. MASSARI, III
Florida Bar Number 0238988
CARYL E. DELANO
Florida Bar Number 0040721
601 South Fremont Avenue
Tampa, Florida 33606
(813) 253-3400
Attorneys for Debtor
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished by Regular U.S. Mail and facsimile to the U.S. Trustee, 4919 Memorial
Hwy., #110, Tampa, Fl 33634, Mark J. Wolfson, Esquire, Post Office Box 3391,
Tampa, FL 33601 (221-4210); Marsha Griffin Rydberg, Esquire, Post Office Box
3391, Tampa, FL 33601 (221-4210); Jonathan J. Ellis, Esquire, Post Office Box
3310, Tampa, FL 33601 (225-3039) and to Virginia Patterson, Esquire, 420 North
20th Street, Suite 2000, Birmingham, AL 35203-3208 (205) 521-8500, this ____ day
of May, 1998. ------------------------------
CARYL E. DELANO, ESQUIRE
<PAGE>
1
STOCK SUBSCRIPTION AGREEMENT
This is an agreement (the "Agreement") between Medical Technology Systems,
Inc., a Florida corporation ("Med Tech") and LifeServ Technologies, Inc., a
Florida corporation (the "Company") dated April__, 1998. Med Tech and the
Company are referred to collectively as the "Parties".
Background
Med Tech owns all of the issued and outstanding capital stock of the
entities listed on Exhibit A to this Agreement (the "Subsidiaries"). Med Tech
desires to transfer this stock as a capital contribution to the Company in
exchange for 8,499,900 shares of the Company's common stock, par value $.01 per
share (the "Company Common Stock"). Accordingly, in consideration of the mutual
covenants and agreements set forth below, the Parties agree as follows:
Terms
1. (a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, Med Tech will transfer all of its right, title, and interest in
the issued and outstanding capital stock of the subsidiaries in exchange for
8,499,900 shares of the Company Common Stock.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Med Tech,
commencing at 9:30 a.m. local time on April___, 1997, or such other date as
Med Tech and the Company may mutually determine (the "Closing Date").
(c) Deliveries at the Closing. At the Closing, (i) Med Tech will
deliver to the Company the various notices, consents, authorizations, or
approvals referred to in '2(c) below, (ii) Med Tech will deliver to the
Company stock certificates representing all of the issued and outstanding
capital stock of the Subsidiaries, endorsed in blank or accompanied by duly
executed assignment documents, and (iii) the Company will deliver to Med
Tech the consideration specified in '1(a) above.
2. Representations and Warranties of Med Tech. Med Tech represents and
warrants to the Company that the statements contained in this '2 are correct and
complete as of the date of this Agreement.
(a) Organization of the Company. Med Tech is a corporation duly
organized, validly existing, and in good standing under the laws of
Florida.
(b) Authorization of Transaction. Med Tech has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of Med Tech,
enforceable in accordance with its terms and conditions, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles. Med Tech need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Med Tech is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Med
Tech is a party or by which any of those entities is bound or to which any
of those entities' assets is subject. Med Tech has obtained any consents,
authorizations, or approvals of third parties, governments, or governmental
agencies necessary for the Parties to consummate the transactions
contemplated by this Agreement.
<PAGE>
2
3. Representations and Warranties of the Company. The Company represents
and warrants to Med Tech that the statements contained in this '3 are correct
and complete as of the date of this Agreement.
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of
Florida.
(b) Authorization of Transaction. The Company has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Company, enforceable in accordance with its terms and conditions, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles. The Company need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(c) Capitalization. The entire authorized capital stock of the Company
consists of 25,000,000 shares of common stock, par value $.01 per share, of
which 100 shares will be issued and outstanding prior to the consummation
of the transactions contemplated by this Agreement. All shares of the
issued and outstanding Company Common Stock have been duly authorized, are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that
could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the Company. There are no voting trusts,
proxies, or other agreements or understandings with respect to the voting
of the capital stock of the Company.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company is subject
or (B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Company is a party or by which it is bound or to which any of its assets is
subject. The Company has obtained any consents, authorizations, or
approvals of third parties, governments, or governmental agencies necessary
for the Parties to consummate the transactions contemplated by this
Agreement.
4. Termination.
(a) Termination of Agreement. Either Med Tech or the Company may
terminate this Agreement with the prior authorization of its board of
directors at any time prior to the Closing Date.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to '4(a) above, all rights and obligations of all of the Parties
under this Agreement shall terminate without any liability of any Party to
any other Party (except for any liability of any Party then in breach).
5. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
<PAGE>
3
(b) Entire Agreement. This Agreement (including the documents referred
to in this Agreement) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations by
or among the Parties, written or oral, to the extent they relate in any way
to the subject matter hereof.
(c) Successors. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and
permitted assigns.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
communications under this Agreement will be in writing. Any notice,
request, demand, claim, or other communication hereunder shall be deemed
duly given if (and then two business days after) it is sent by hand
delivery and addressed to the intended recipient as set forth below:
If to the Company: 12920 Automobile Boulevard
Clearwater, Florida 33762
Attention: Mr. Michael T. Felix
If to Med Tech: 12920 Automobile Boulevard
Clearwater, Florida 33762
Attention: Mr. Todd E. Siegel
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, facsimile, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and construed
under the domestic laws of Florida without giving effect to any choice or
conflict of law provision or rule (whether of Florida or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than Florida.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless it is in writing and signed by Med Tech and
the Company.
(i) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
<PAGE>
4
(j) Expenses. Med Tech will bear costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated by this Agreement.
(k) Incorporation of Exhibits. The Exhibits identified in this
Agreement are incorporated by reference in this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective as of the date first above written.
MEDICAL TECHNOLOGY LIFESERV TECHNOLOGY, INC.
SYSTEMS, INC.
By: By:
--------------------------------- ------------------------------------
Its: Its:
--------------------------------- -----------------------------------
<PAGE>
5
EXHIBIT A
Medication Management Technologies, Inc.
Performance Pharmacy Systems, Inc.
Systems Professionals, Inc.
Cart-Ware Industries, Inc.
Medication Management Systems, Inc.
<PAGE>
1
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of May 13, 1998, by and
among Ella Kedan ("Lender") the Borrowers described below and the Guarantor
described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Lender and Borrowers agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:
A. Borrower(s): Lifeserv Technologies, Inc., Performance Pharmacy
Systems, Inc., Medication Management Systems, Inc., Cart-Ware,
Inc., and Systems Professionals, Inc.
B. Borrowers' Address: 12910 Automobile Boulevard Clearwater,
Florida 33762
C. Guarantor: Todd E. Siegel
D. Hazardous Materials. Hazardous Materials include all materials
defined as hazardous materials or substances under any local,
state or federal environmental laws, rules or regulations, and
petroleum, petroleum products, oil and asbestos.
E. Loan. Any loan described in Section 2 hereof and any subsequent
loan which states that it is subject to this Loan Agreement.
F. Loan Documents. Loan Documents means this Loan Agreement and any
and all promissory notes executed by any Borrower in favor of
Lender and all other documents, instruments (including, without
limitation, warrants), guarantees, certificates and agreements
executed and/or delivered by any Borrower in connection with the
Loan.
G. Accounting Terms. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed
to such terms under generally accepted accounting principles
("GAAP"), as in effect from time to time, consistently applied,
with respect to the financial statements referenced in Section
3.H. hereof.
<PAGE>
2
2. LOANS.
A. Loan. Lender hereby agrees to make a term loan to Borrowers in the
principal amount of $500,000.00. The obligation to repay the loan is
evidenced by a promissory note of even date herewith (the promissory note
together with any and all renewals, extensions or rearrangements thereof
being hereafter collectively referred to as the "Note") having a maturity
date, repayment terms and interest rate as set forth in the Note.
B. Use of Proceeds. Borrowers agree that the proceeds of the Loan
shall be used solely for working capital purposes and shall not be used to
satisfy any obligations of any Borrower other than obligations incurred in
the normal course of business of any Borrower and those obligations listed
on the current listing of accounts payable of Borrowers that is attached
hereto as Exhibit "A."
C. Extension of Loan. The maturity of the Note shall be automatically
extended from July 31, 1998 until October 31, 1998 if Lifeserv
Technologies, Inc. ("Lifeserv") has not raised at least $3,500,000.00
pursuant to a private placement or other debt offering before July 31, 1998
provided that: (a) no events of default have occurred under the loan
agreement between the Borrowers and Southtrust Bank; (b) the pending
Chapter 11 case of Medical Management Technologies, Inc. has not been
converted to a Chapter 7 case; (c) no events of default have occurred under
the loan agreement and/or royalty agreement with the Long Family Trust; (d)
Jesup & Lamont has not withdrawn from its engagement with the Borrowers;
(e) no defaults exist under this Agreement; and (f) the Borrowers have
delivered to Lender a certificate of their respective Chief Executive
Officer that all of the foregoing items (a) through (e) above have been
satisfied and that the Loan is not subject to any setoff, defense or
counterclaim by any Borrower.
3. REPRESENTATIONS AND WARRANTIES OF BORROWERS. Borrowers hereby represent
and warrant to Lender as follows:
A. Good Standing. Each Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of the state of its
respective incorporation and has the power and authority to own its
property and to carry on its business in each jurisdiction in which
Borrower does business.
B. Authority and Compliance. Each Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and
perform the obligations provided for therein, all of which have been duly
authorized by all proper and necessary action of the appropriate governing
body of such Borrower. No consent or approval of any public authority or
other third party is required as a condition to the validity of any Loan
Document, and each Borrower is in compliance with all laws and regulatory
requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by each Borrower constitute valid and legally binding obligations
of each such Borrower, enforceable in accordance with their terms.
<PAGE>
3
D. Litigation. There is no proceeding involving any Borrower pending
or, to the knowledge of any Borrower, threatened before any court or
governmental authority, agency or arbitration authority, except as
disclosed to Lender in writing and acknowledged by Lender prior to the date
of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of any Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on any Borrower
or affecting its respective properties, which would conflict with or in any
way prevent the execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
F. Ownership of Assets. Each Borrower has good title to its assets,
and its assets are free and clear of liens, except those granted to Lender
and as disclosed to Lender prior to the date of this Agreement.
G. Taxes. All taxes and assessments due and payable by each Borrower
have been paid or are being contested in good faith by appropriate
proceedings and each Borrower has filed all tax returns which it is
required to file.
H. Financial Statements. The financial statements of Borrowers
heretofore delivered to Lender have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrowers' financial condition as of the date or dates thereof, and
there has been no material adverse change in any Borrower's financial
condition or operations since December 31, 1997. All factual information
furnished by Borrowers to Lender in connection with this Agreement and the
other Loan Documents is and will be accurate and complete on the date as of
which such information is delivered to Lender and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
I. Place of Business. Each Borrower's chief executive office is
located at 12910 Automobile Boulevard, Clearwater, Florida 33762.
J. Environmental The conduct of each Borrower's business operations
and the condition of each Borrower's property does not and will not violate
any federal laws, rules or ordinances for environmental protection,
regulations of the Environmental Protection Agency, any applicable local or
state law, rule, regulation or rule of common law or any judicial
interpretation thereof relating primarily to the environment or Hazardous
Materials.
K. Solvency. The value of the assets of each Borrower exceeds the
amount of the liabilities of each such Borrower as of the date hereof.
<PAGE>
4
L. Continuation of Representations and Warranties. All representations
and warranties made under this Agreement shall be deemed to be made at and
as of the date hereof and at and as of the date of any advance under any
Loan.
4. REPRESENTATIONS AND WARRANTIES OF GUARANTOR. Guarantor hereby represents
and warrants to Borrowers that: (a) the stock certificate or certificates that
will be delivered to Lender pursuant to the Pledge Agreement of even date
herewith between Guarantor and Lender (the "Pledge Agreement") have been sent to
the transfer agent for reissuance in the name of Guarantor without any
restrictive legend printed on such reissued certificate or certificates, (b)
that a copy of the transmittal letter from the Guarantor to the transfer agent
has been delivered to Lender, and (c) a copy of an opinion of counsel has been
delivered to Lender requesting removal of any restrictive legends and directing
the transfer agent to deliver new certificates representing such securities to
Mark Wolfson, as attorney for Lender, on or before ten (10) days from the date
hereof.
5. REPRESENTATIONS AND WARRANTIES OF LENDER. Lender hereby represents and
warrants to Borrowers that Lender: (a) is an "accredited investor," as that term
is defined in Exhibit "B" to this Agreement, (b) has such knowledge and
experience in financial and business matters rendering the Lender capable of
evaluating the merits and risks of an investment in securities of the Company (a
"sophisticated investor"), or (c) is not an accredited or sophisticated
investor, but has appointed a "purchaser representative," as that term is
defined in Exhibit "B," in connection with evaluating the merits and risks of an
investment in securities of the Company.
6. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrowers under the Note, each Borrower will, unless Lender
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Lender and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Lender's officers
or authorized representatives to visit and inspect such Borrower's books of
account and other records at such reasonable times and as often as Lender
may desire, and pay the reasonable fees and disbursements of any
accountants or other agents of Lender selected by Lender for the foregoing
purposes. Unless written notice of another location is given to Lender,
each Borrower's books and records will be located at such Borrower's chief
executive office set forth above. All financial statements called for below
shall be prepared in form and content acceptable to Lender.
<PAGE>
5
In addition, each Borrower will:
i. Furnish to Lender audited financial statements of such
Borrower for each fiscal year of such Borrower, within
ninety (90) days after the close of each such fiscal year.
ii. Furnish to Lender Borrower-prepared financial statements of
such Borrower for each quarter of each fiscal year of such
Borrower, within forty-five (45) days after the close of
each such period.
iii. Furnish to Lender promptly such additional financial
information and reports with respect to the business
operations and financial condition of each Borrower as
Lender may reasonably request.
B. Insurance. Maintain insurance with responsible insurance companies
on such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets, business interruption insurance, workers compensation
insurance and liability insurance, all to be with such companies and in
such amounts as are satisfactory to Lender and providing for at least 30
days prior notice to Lender of any cancellation thereof. Satisfactory
evidence of such insurance will be supplied to Lender prior to funding
under the Loan(s) and 30 days prior to each policy renewal.
C. Existence and Compliance. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
D. Adverse Conditions or Events. Promptly advise Lender in writing of
(i) any condition, event or act which comes to its attention that would or
might materially adversely affect such Borrower's financial condition or
operations or Lender's rights under the Loan Documents, (ii) any litigation
filed by or against such Borrower, (iii) any event that has occurred that
would constitute an event of default under any Loan Documents and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $50,000.00.
E. Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
<PAGE>
6
F. Maintenance. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.
G. Environmental. Immediately advise Lender in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting such Borrower's business
operations; and (ii) all claims made or threatened by any third party
against such Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials. Each
Borrower shall immediately notify Lender of any remedial action taken by
Borrower with respect to such Borrower's business operations. Borrower will
not use or permit any other party to use any Hazardous Materials at any of
such Borrower's places of business or at any other property owned by such
Borrower except such materials as are incidental to such Borrower's normal
course of business, maintenance and repairs and which are handled in
compliance with all applicable environmental laws. Each Borrower agrees to
permit Lender, its agents, contractors and employees to enter and inspect
any of such Borrower's places of business or any other property of such
Borrower at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that such Borrower is complying with
this covenant and Borrower shall reimburse Lender on demand for the costs
of any such environmental investigation and audit. Each Borrower shall
provide Lender, its agents, contractors, employees and representatives with
access to and copies of any and all data and documents relating to or
dealing with any Hazardous Materials used, generated, manufactured, stored
or disposed of by such Borrower's business operations within five (5) days
of the request therefore.
7. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrowers under the Note, no Borrower will, without the prior
written consent of Lender (and without limiting any requirement of any other
Loan Documents):
A. Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its
business, or enter into any merger or consolidation, or transfer control or
ownership of any Borrower.
B. Liens. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in its assets, except in favor of Lender and
those previously disclosed to Lender and which are described in Exhibit "C"
attached hereto, or fail to promptly pay when due all lawful claims,
whether for labor, materials or otherwise.
<PAGE>
7
C. Character of Business. Change the general character of business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
D. Extensions and Credit. Make or permit any subsidiary to make any
loan or advance to any person or entity, or purchase or otherwise acquire,
or permit any subsidiary to purchase or otherwise acquire, any capital
stock, assets, obligations or other securities of, make any capital
contribution to, or otherwise invest or acquire any interest in any entity,
or participate as a partner or joint venturer with any person or any
entity, except for the purchase or direct obligations in the United States
or for any agency thereof with maturities of less than one year.
E. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase
of assets, lease payments, as surety or guarantor for the debt of another,
or otherwise) other than to Lender except for (i) existing obligations of
Borrowers that are described in Exhibit "D" attached hereto, and (ii)
normal trade debts incurred in the ordinary course of each Borrower's
business.
F. Dividends and Distributions. Make any distribution or pay any
dividends (other than dividends payable in common stock of any Borrower) on
any shares of any class of its capital stock, or apply any of its property
or assets to the purchase, redemption or the retirement of any shares of
any class of its capital stock.
G. Management Change. Make any change in the president of any Borrower
or the chief executive officer of any Borrower, if applicable.
H. Payments to SouthTrust Bank. Make any payments to SouthTrust Bank,
National Association ("SouthTrust") pursuant to any existing indebtedness
of any Borrower to SouthTrust.
I. Preferred Stock. Authorize or issue additional shares of preferred
stock, except for the issuance of up to 35,000 shares of Series A Preferred
Stock through Jesup & Lamont Securities Corporation pursuant to a private
placement memorandum issued by LifeServ Technologies, Inc.
J. Consideration for Issuance of Stock. Issue or sell shares of its
capital stock or rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase its capital
stock (other than pursuant to an employee benefit plan) for a consideration
consisting, in whole or in part, of property other than cash.
<PAGE>
8
8. DEFAULT. Borrowers shall be in default under this Agreement and under
each of the other Loan Documents if they shall default in the payment of any
amounts due and owing under the Loan or should any of them fail to timely and
properly observe, keep or perform any term, covenant, agreement or condition in
any Loan Document or in any other loan agreement, promissory note, security
agreement, deed of trust, deed to secure debt, mortgage, assignment or other
contract securing or evidencing payment of any indebtedness of any Borrower to
Lender. Borrower shall also be in default under this Agreement if (a) any
Borrower defaults under the Second Amended and Restated Loan and Security
Agreement dated as of September 5, 1996, as amended, by and among SouthTrust,
certain of the Borrowers, Medical Technology Systems, Inc. ("MTS"), and certain
other parties, (b) if any Borrower or MTS defaults under or refuses to issue any
shares of stock pursuant to any stock warrant that is issued to Lender in
connection with the loan transaction contemplated by this Loan Agreement, or (c)
the Lender's attorney does not receive the original stock certificate or
certificates that are subject to the Pledge Agreement within ten (10) days from
the date of this Agreement.
9. REMEDIES UPON DEFAULT. If an event of default shall occur, Lender shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
10 NOTICES. All notices, requests or demands which any party is required or
may desire to give to any other party under any provision of this Agreement must
be in writing delivered to the other party at the following address:
Borrowers and Guarantor:
LifeServ Technologies, Inc.,
Performance Pharmacy Systems, Inc.,
Medication Management Systems, Inc.,
Cart-Ware, Inc., and
Todd E. Siegel
Systems Professionals, Inc.
12910 Automobile Boulevard
Clearwater, Florida 33762
Fax. No.(813) 573-1100
Lender:
Ella Kedan
611 Druid Road, Suite 306
Clearwater, Florida 33616
Fax No. (813) 536-6458
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
<PAGE>
9
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means , upon delivery.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrowers shall pay to Lender
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees incurred by Lender in connection with (a) negotiation
and preparation of this Agreement and each of the Loan Documents, and (b) all
other costs and attorneys' fees incurred by Lender for which Borrowers are
obligated to reimburse Lender in accordance with the terms of the Loan
Documents.
12. MISCELLANEOUS. Borrowers and Lender further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
Lender under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Lender, and no delay in exercising any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Lender of
any right preclude any other or future exercise thereof or the exercise of
any other right. Borrowers expressly waive any presentment, demand, protest
or other notice of any kind, including but not limited to notice of intent
to accelerate and notice of acceleration. No notice to or demand on
Borrowers in any case shall, of itself, entitle Borrowers to any other or
future notice or demand in similar or other circumstances.
B. Applicable Law. This Loan Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in accordance
with the laws of Florida and applicable United States federal law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrowers
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Lender, and then shall be effective only in the
specified instance and for the purpose for which given. This Loan Agreement
is binding upon Borrowers, their respective successors and assigns, and
inures to the benefit of Lender, its successors and assigns; however, no
assignment or other transfer of any Borrower's rights or obligations
hereunder shall be made or be effective without Lender's prior written
consent, nor shall it relieve any such Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. Documents. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Lender shall
be in form and content satisfactory to Lender and its counsel.
<PAGE>
10
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary contained
in Section 12(G), each Borrower shall indemnify, defend and hold Lender and
its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions contemplated
hereby, including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous
Materials, arising from any Borrower's business operations, any other
property owned by any such Borrower or in the surface or ground water
arising from any such Borrower's business operations, or gaseous emissions
arising from any such Borrower's business operations or any other condition
existing or arising from any such Borrower's business operations resulting
from the use or existence of Hazardous Materials, whether such claim proves
to be true or false. Each Borrower further agrees that its indemnity
obligations shall include, but are not limited to, liability for damages
resulting from the personal injury or death of an employee of such
Borrower, regardless of whether such Borrower has paid the employee under
the workmen' s compensation laws of any state or other similar federal or
state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage
to any real or personal property of the Borrower, the Lender, and of any
third parties. Each Borrower's obligations under this paragraph shall
survive the repayment of the Loan.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loan and shall continue in full force and effect so long as
the Loan is outstanding or the obligation of the Lender to make any
advances under the Line shall not have expired.
<PAGE>
11
H. Bankruptcy. In the event any Borrower files a petition for relief
under any chapter of the United States Bankruptcy Code, each Borrower
agrees that Lender shall be entitled to, and each such Borrower hereby
consents to, immediate relief from the automatic stay imposed by the
Bankruptcy Code to take any and all actions necessary to enforce any rights
Lender may have under this Agreement or the Loan Documents without further
notice to, or order of any bankruptcy court, including, but not limited to,
enforcing the security interest of the Lender in the assets of each of the
Borrowers, or otherwise compel the specific performance of any obligation
of any Borrower under this Agreement or the other Loan Documents. Each
Borrower further agrees that the filing of any partition for relief under
the Bankruptcy Code shall be deemed to have filed in bad faith and subject
to dismissal.
I. Counterparts. This Agreement may be executed in two or more
counterparts any by facsimile transmission of signed counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13. WAIVER OF JURY TRIAL. AFTER CONSULTING WITH COUNSEL AND CAREFUL
CONSIDERATION, EACH BORROWER, GUARANTOR AND LENDER KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY LITIGATION ARISING OUT OF THIS AGREEMENT, THE NOTE, OR ANY OTHER
LOAN DOCUMENTS, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(ORAL OR WRITTEN), OR ACTIONS OF ANY BORROWER OR LENDER. THIS WAIVER IS A
MATERIAL INDUCEMENT TO LENDER'S AGREEMENT TO MAKE THE LOAN TO BORROWERS.
14. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
15. JOINT VENTURE. Neither this Loan Agreement nor any other Loan Document
creates or evidences a partnership or joint venture between the Borrowers and
the Lender. The relationship between Borrowers and Lender is solely that of a
debtor and creditor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
LENDER:
Ella Kedan
<PAGE>
12
BORROWERS:
LIFESERV TECHNOLOGIES, INC.
By: , as its
------------------------
-----------------------------------
PERFORMANCE PHARMACY SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
MEDICATION MANAGEMENT SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
CART-WARE, INC.
By: , as its
------------------------
-----------------------------------
SYSTEMS PROFESSIONALS, INC.
By: , as its
------------------------
-----------------------------------
GUARANTOR:
-----------------------------------
Todd E. Siegel
<PAGE>
13
EXHIBIT "A"
ACCOUNTS PAYABLE
<PAGE>
14
EXHIBIT "B"
With respect to individuals, an "accredited investor" is defined by Rule
501(a) of Regulation D, promulgated under the Securities Act of 1933, as amended
("Reg D"), as (i) "any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds
$1,000,000," (ii) "any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year," or (iii)
"any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer or general
partner of a general partner of that issuer."
"Purchaser representative" is defined by Reg D as a person that is "not an
affiliate, director, officer or other employee of the issuer, or beneficial
owner of 10 percent or more of any class of the equity securities or 10 percent
or more of the equity interest in the issuer," unless the purchaser is (a) a
relative of the purchaser representative by blood, marriage, or adoption, and is
not more remote than a first cousin; (b) a trust or estate in which the
purchaser representative and any persons related to him as described in sections
(a) or (c) of this paragraph collectively have more than 50% of the beneficial
interest (excluding contingent interest) or of which the purchaser
representative serves as trustee, executor, or in any similar capacity; (c) a
corporation or other organization of which the purchaser representative and any
persons related to him as described in sections (a) or (b) of this paragraph
collectively are the beneficial owners of more than 50% of the equity securities
(excluding directors' qualifying shares) or equity interests. A "purchaser
representative" must have such knowledge and experience in financial and
business matters that he is capable of evaluating (together with the purchaser
or other purchaser representatives of the purchaser) the merits and risks of the
prospective investment. A "purchaser representative" must also meet certain
acknowledgement and disclosure requirements described in Reg D.
<PAGE>
15
EXHIBIT "C"
1. The prior rights and interests of Linc Capital, Inc., in a certain
rental agreement with the Connecticut Valley Hospital dated October 27,
1997.
2. The rights and interests of SouthTrust Bank, N.A. in the assets of
Debtor, which rights and interests have been subordinated to the lien
and security interests in favor of Lender.
3. The prior rights and interests of Colonial Pacific Leasing Corporation
in certain equipment of the Debtor as described in Financing Statement
No. 94000259677 filed with the Florida Secretary of State.
4. The rights and interests of Linc Capital, Inc., in certain equipment of
Debtor as disclosed by Financing Statement No. 980000055896 and
Financing Statement No. 980000074289 both filed with the Florida
Secretary of State.
<PAGE>
16
EXHIBIT "D"
EXISTING OBLIGATIONS
1. The obligations of Borrowers to the lenders or the secured parties that
are listed in Exhibit "C" attached hereto.
<PAGE>
1
Promissory Note
Date May 13, 1998
Amount $500,000.00 Maturity Date July 31, 1998
================================================================================
Lender: Borrowers:
Ella Kedan Lifeserv Technologies, Inc., Performance Pharmacy
611 Druid Road Systems, Inc., Medication Management Systems, Inc.,
Suite 306 Cart-Ware, Inc., and Systems Professionals, Inc.
Clearwater, Florida 33616 12910 Automobile Boulevard
Clearwater, Florida 33762
================================================================================
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Lender, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Lender,
the principal amount of Five Hundred Thousand and No/100 Dollars ($500,000.00),
or so much thereof as may be advanced from time to time in immediately available
funds, together with interest computed daily on the outstanding principal
balance hereunder, at an annual interest rate, and in accordance with the
payment schedule, indicated below.
1. Rate.
Fixed Rate. The Rate shall be fixed at ten percent (10.0%) per annum.
Notwithstanding any provision of this Note, Lender does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of Florida;
if any higher rate ceiling is lawful, then that higher rate ceiling shall apply.
Any payment in excess of such maximum shall be refunded to Borrower or credited
against principal, at the option of Lender.
2. Accrual Method. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder).
3. Payment Schedule. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Lender
shall determine at its option.
Single Payment. Principal and interest shall be paid in full in a single
payment on July 31, 1998. The maturity date of this Note shall be automatically
extended from July 31, 1998, to October 31, 1998, if the Borrower satisfies all
of the terms and conditions of a Loan Agreement of even date herewith between
Borrower and Lender.
4. Waivers, Consents and Covenants. Borrower, any indorser or guarantor hereof,
or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to
Lender (the "Loan Documents"); (b) consent to all delays, extensions, renewals
or other modifications of this Note or the Loan Documents, or waivers of any
term hereof or of the Loan Documents, or release or discharge by Lender of any
of Obligors, or release, substitution or exchange of any security for the
payment hereof, or the failure to act on the part of Lender, or any indulgence
shown by Lender (without notice to or further assent from any of Obligors), and
agree that no such action, failure to act or failure to exercise any right or
remedy by Lender shall in any way affect or impair the obligations of any
Obligors or be construed as a waiver by Lender of, or otherwise affect, any of
Lender's rights under this Note, under any indorsement or guaranty of this Note
or under any of the Loan Documents; and (c) agree to pay, on demand, all costs
and expenses of collection or defense of this Note or of any indorsement or
guaranty hereof and/or the enforcement or defense of Lender's rights with
respect to, or the administration, supervision, preservation, or protection of,
or realization upon, any property securing payment hereof, including, without
limitation, reasonable attorney's and paralegal=s fees, including fees related
to any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such
amount as may be determined reasonable by any arbitrator or court, whichever is
applicable.
5. Indemnification. Obligors agree to promptly pay, indemnify and hold Lender
harmless from all State and Federal taxes of any kind and other liabilities with
respect to or resulting from the execution and/or delivery of this Note or any
advances made pursuant to this Note. If this Note has a revolving feature and is
secured by a mortgage, Obligors expressly consent to the deduction of any
applicable taxes from each taxable advance extended by Lender.
6. Prepayments. Prepayments may be made in whole or in part at any time without
premium or penalty. All prepayments of principal shall be applied in the inverse
order of maturity, or in such other order as Lender shall determine in its sole
discretion.
7. Delinquency Charge. To the extent permitted by law, a delinquency charge may
be imposed in an amount not to exceed four percent (4%) of any payment that is
more than fifteen days late.
8. Events of Default. The following are events of default hereunder: (a) the
failure to pay any obligation, liability or indebtedness of any Obligor to
Lender, whether under this Note or any Loan Documents, as and when due (whether
at maturity or by acceleration); (b) the failure to perform any other
obligation, liability or indebtedness of any Obligor to Lender, which failure is
not cured within fifteen (15) days from the date on which Lender provides
Borrower written notice of such failure to the extent that any such default can
be cured by Borrower; (c) the commencement of a proceeding against any Obligor
for dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor with or
into another entity; (d) the insolvency of, the business failure of, the
appointment of a custodian, trustee, liquidator or receiver for or for any of
the property of, the assignment for the benefit of creditors by, or the filing
<PAGE>
2
of a petition under bankruptcy, insolvency or debtor's relief law or the filing
of a petition for any adjustment of indebtedness, composition or extension by or
against any Obligor; (e) the determination by Lender that any representation or
warranty made to Lender by any Obligor in any Loan Documents or otherwise or in
any financial statement or financial information submitted to Lender by any
Borrower is or was, when it was made, untrue or materially misleading; (f) the
entry of a judgment against any Obligor in excess of $50,000.00, which judgment
is not satisfied or bonded off within thirty (30) days from the date of entry of
the judgment; (g) the seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment which writ relates to any damage in excess
of $50,000.00 and which writ is not dismissed within thirty (30) days from the
date of issuance of any such writ; or (h) the failure of any Borrower's business
to comply in any material respect with any law or regulation controlling its
operation.
9. Remedies upon Default. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Lender (however acquired or evidenced) shall, at the option of Lender, become
immediately due and payable and any obligation of Lender to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Lender's discretion up to the maximum rate allowed by law, or if
none, 18% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Lender's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note,
Lender is hereby authorized at any time, at its option and without notice or
demand, to set off and charge against any deposit accounts of any Obligor (as
well as any money, instruments, securities, documents, chattel paper, credits,
claims, demands, income and any other property, rights and interests of any
Obligor), which at any time shall come into the possession or custody or under
the control of Lender or any of its agents, affiliates or correspondents, any
and all obligations due hereunder. Additionally, Lender shall have all rights
and remedies available under each of the Loan Documents, as well as all rights
and remedies available at law or in equity. Any judgment rendered on this Note
shall bear interest at the highest rate of interest permitted pursuant to
Chapter 687, Florida Statutes.
10. Non-waiver. The failure at any time of Lender to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Lender shall be cumulative and may be pursued singly,
successively or together, at the option of Lender. The acceptance by Lender of
any partial payment shall not constitute a waiver of any default or of any of
Lender's rights under this Note. No waiver of any of its rights hereunder, and
no modification or amendment of this Note, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on behalf of Lender; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Lender or the obligations of Obligors to
Lender in any other respect at any other time.
11. Applicable Law, Venue and Jurisdiction. This Note and the rights and
obligations of Borrower and Lender shall be governed by and interpreted in
accordance with the law of the State of Florida. In any litigation in connection
with or to enforce this Note or any indorsement or guaranty of this Note or any
Loan Documents, Obligors, and each of them, irrevocably consent to and confer
personal jurisdiction on the courts of the State of Florida or the United States
located within the State of Florida and expressly waive any objections as to
venue in any such courts. Nothing contained herein shall, however, prevent
Lender from bringing any action or exercising any rights within any other state
or jurisdiction or from obtaining personal jurisdiction by any other means
available under applicable law. The interest rate charged on this Note is
authorized by Chapter 655, Florida Statutes and Section 687.12, Florida
Statutes.
12. Partial Invalidity. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
13. Binding Effect. This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Lender and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of Borrower
or Obligors hereunder can be assigned without prior written consent of Lender.
14. Controlling Document. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
15. WAIVER OF JURY TRIAL. AFTER CONSULTING WITH COUNSEL AND CAREFUL
CONSIDERATION, BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS NOTE OR THE LOAN
DOCUMENTS, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (ORAL
OR WRITTEN), OR ACTIONS OF BORROWER OR LENDER. THIS WAIVER IS A MATERIAL
INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS NOTE. Borrower represents to Lender
that the proceeds of this loan are to be used primarily for business. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note and hereby executes this Note under seal as of the
date here above written.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If this Note is secured by a mortgage on real property, documentary stamp taxes
have been paid and affixed to the mortgage.
EXECUTION DATE: May 13, 1998
BORROWERS:
LIFESERV TECHNOLOGIES, INC.
By: , as its
------------------------
-----------------------------------
PERFORMANCE PHARMACY SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
MEDICATION MANAGEMENT SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
CART-WARE, INC.
By: , as its
------------------------
-----------------------------------
SYSTEMS PROFESSIONALS, INC.
By: , as its
------------------------
-----------------------------------
<PAGE>
1
Security Agreement
Date: May 13, 1998
================================================================================
Lender/Secured Party: Debtor(s)/Pledgor(s):
Ella Kedan Lifeserv Technologies, Inc., Performance Pharmacy
611 Druid Road Systems, Inc., Medication Management Systems, Inc.,
Suite 306 Cart-Ware, Inc., and Systems Professionals, Inc.
Clearwater, Florida 33616 12910 Automobile Boulevard
Clearwater, Florida 33762
================================================================================
Debtor/Pledgor is: [ ] Individual [X] Corporation [ ] Partnership [ ]
Other_________________________________ Address is Debtor=s/Pledgor's: [ ]
Residence [ ] Place of Business [X] Chief Executive Office if more than one
place of business Collateral (hereinafter defined) is located at: [X]
Debtor's/Pledgor=s address shown above and the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
1. Security Interest. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred
to as "Debtor") assigns and grants to Lender (also known as "Secured Party"), a
security interest and lien in the Collateral (hereinafter defined) to secure the
payment and the performance of the Obligation (hereinafter defined).
2. Collateral. A security interest is granted in the following collateral
described in this Item 2 (the ACollateral"):
A. Types of Collateral
Accounts: Any and all accounts and other rights of Debtor to the payment
for goods sold or leased or for services rendered whether or not earned by
performance, including, without limitation, contract rights, book debts, checks,
notes, drafts, instruments, chattel paper, acceptances, and any and all amounts
due to Debtor from a factor or other forms of obligations and receivables, now
existing or hereafter arising;
Inventory:
Blanket Lien: Any and all of Debtor's goods held as inventory, now existing
or hereafter arising;
Equipment:
Blanket Lien: Any and all of Debtor's property held as equipment, now
existing or hereafter arising;
Fixtures:
Blanket Lien: Any and all of Debtor's goods held as fixtures, now existing
or hereafter arising;
Instruments and/or Investment Documents:
Blanket Lien: Any and all of Debtor's instruments, documents, and other
writings of any type, now existing or hereafter arising (other than any shares
of stock of any Debtor owned by Lifeserv Technologies, Inc.); and
General Intangibles:
Blanket Lien: Any and all of Debtor's general intangible property, now
existing or hereafter arising, including, but not limited to, all copyrights,
patents, trademarks, and licenses of Debtor, including Patent No. 4,695,954 that
is owned by Lifeserv Technologies, Inc., and the trademarks that are listed on
Exhibit "A" attached hereto.
B. Substitutions, Proceeds and Related Items. Any and all substitutes and
replacements for, accessions, attachments and other additions to, tools, parts
and equipment now or hereafter added to or used in connection with, and all cash
or non-cash proceeds and products of, the Collateral (including, without
limitation, all income, benefits and property receivable, received or
distributed which results from any of the Collateral, such as dividends payable
or distributable in cash, property or stock; insurance distributions of any kind
related to the Collateral, including, without limitation, returned premiums,
interest, premium and principal payments; redemption proceeds and subscription
rights; and shares or other proceeds of conversions or splits of any securities
in the Collateral); any and all choses in action and causes of action of Debtor,
whether now existing or hereafter arising, relating directly or indirectly to
the Collateral (whether arising in contract, tort or otherwise and whether or
not currently in litigation); all certificates of title, manufacturer's
statements of origin, other documents, accounts and chattel paper, whether now
existing or hereafter arising directly or indirectly from or related to the
Collateral; all warranties, wrapping, packaging, advertising and shipping
materials used or to be used in connection with or related to the Collateral;
all of Debtor's books, records, data, plans, manuals, computer software,
computer tapes, computer systems, computer disks, computer programs, source
codes and object codes containing any information, pertaining directly or
indirectly to the Collateral and all rights of Debtor to retrieve data and other
information pertaining directly or indirectly to the Collateral from third
parties, whether now existing or hereafter arising; and all returned, refused,
stopped in transit, or repossessed Collateral, any of which, if received by
Debtor, upon request shall be delivered immediately to Lender.
C. Balances and Other Property. The balance of every deposit account of
Debtor maintained with Lender and any other claim of Debtor against Lender, now
or hereafter existing, liquidated or unliquidated, and all money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Debtor which at any time shall come into
the possession or custody or under the control of Lender or any of its agents or
affiliates for any purpose, and the proceeds of any thereof. Lender shall be
deemed to have possession of any of the Collateral in transit to or set apart
for it or any of its agents or affiliates.
3. Description of Obligation(s). The following obligations ("Obligation" or
AObligations@) are secured by this Agreement: (a) All debts, obligations,
liabilities and agreements of Debtor to Lender with respect to the $500,000.00
loan from Lender to Debtor or that is evidenced by a promissory note of even
date herewith from Debtor in favor of Lender (the "Note"); (b) All costs
incurred by Lender to obtain, preserve, perfect and enforce this Agreement and
maintain, preserve, collect and realize upon the Collateral; (c) All other costs
and attorney's fees incurred by Lender, for which Debtor is obligated to
reimburse Lender in accordance with the terms of the Loan Documents (hereinafter
defined), together with interest at the maximum rate allowed by law, or if none,
18% per annum; and (d) All amounts which may be owed to Lender pursuant to all
other Loan Documents executed between Lender and any other Debtor. If Debtor is
not the obligor of the Obligation, and in the event any amount paid to Lender on
any Obligation is subsequently recovered from Lender in or as a result of any
bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor shall be
liable to Lender for the amounts so recovered up to the fair market value of the
Collateral whether or not the Collateral has been released or the security
interest terminated. In the event the Collateral has been released or the
security interest terminated, the fair market value of the Collateral shall be
determined, at Lender's option, as of the date the Collateral was released, the
security interest terminated, or said amounts were recovered.
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4. Debtor's Warranties. Debtor hereby represents and warrants to Lender as
follows:
A. Financing Statements. Except as may be noted by schedule attached hereto
and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. Ownership. Debtor owns, or will use the proceeds of any loans by Lender
to become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder.
C. Fixtures and Accessions. None of the Collateral is affixed to real
estate or is an accession to any goods, or will become a fixture or accession,
except as expressly set out herein.
D. Claims of Debtors on the Collateral. To the best of Debtor's knowledge,
all account debtors and other obligors whose debts or obligations are part of
the Collateral have no right to setoffs, counterclaims or adjustments, and no
defenses in connection therewith.
E. Environmental Compliance. The conduct of Debtor's business operations
and the condition of Debtor's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or any materials defined as hazardous
materials or substances under any local, state or federal environmental laws,
rules or regulations, and petroleum, petroleum products, oil and asbestos
("Hazardous Materials").
F. Power and Authority. Debtor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. Debtor's Covenants. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of
Lender to make advances or loans to Debtor, unless Lender otherwise consents in
writing:
A. Obligation and This Agreement. Debtor shall perform all of its
agreements herein and in any other agreements between it and Lender.
B. Ownership and Maintenance of the Collateral. Debtor shall keep all
tangible Collateral in good condition. Debtor shall defend the Collateral
against all claims and demands of all persons at any time claiming any interest
therein adverse to Lender. Debtor shall keep the Collateral free from all liens
and security interests except those for taxes not yet due, those liens and
security interests that are described in Exhibit "B" attached hereto, and the
security interest hereby created.
C. Insurance. Debtor shall insure the Collateral with companies acceptable
to Lender. Such insurance shall be in an amount not less than the fair market
value of the Collateral and shall be against such casualties, with such
deductible amounts as Lender shall reasonably approve. All insurance policies
shall be written for the benefit of Debtor and Lender as their interests may
appear, payable to Lender as loss payee, or in other form satisfactory to
Lender, and such policies or certificates evidencing the same shall be furnished
to Lender. All policies of insurance shall provide for written notice to Lender
at least thirty (30) days prior to cancellation. Risk of loss or damage is
Debtor's to the extent of any deficiency in any effective insurance coverage.
D. Lender's Costs. Debtor shall pay all reasonable costs necessary to
obtain, preserve, perfect, defend and enforce the security interest created by
this Agreement, collect the Obligation, and preserve, defend, enforce and
collect the Collateral, including but not limited to taxes, assessments,
insurance premiums, repairs, rent, storage costs and expenses of sales, legal
expenses, reasonable attorney's fees and other fees or expenses for which Debtor
is obligated to reimburse Lender in accordance with the terms of the Loan
Documents. Whether the Collateral is or is not in Lender's possession, and
without any obligation to do so and without waiving Debtor's default for failure
to make any such payment, Lender at its option may pay any such costs and
expenses, discharge encumbrances on the Collateral, and pay for insurance of the
Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Debtor agrees to reimburse
Lender on demand for any costs so incurred.
E. Information and Inspection. Debtor shall (i) promptly furnish Lender any
information with respect to the Collateral requested by Lender; (ii) allow
Lender or its representatives to inspect the Collateral, at any time and
wherever located, and to inspect and copy, or furnish Lender or its
representatives with copies of, all records relating to the Collateral and the
Obligation; (iii) promptly furnish Lender or its representatives such
information as Lender may request to identify the Collateral, at the time and in
the form requested by Lender; and (iv) deliver upon request to Lender shipping
and delivery receipts evidencing the shipment of goods and invoices evidencing
the receipt of, and the payment for, the Collateral.
F. Additional Documents. Debtor shall sign and deliver any papers deemed
necessary or desirable in the judgment of Lender to obtain, maintain, and
perfect the security interest hereunder and to enable Lender to comply with any
federal or state law in order to obtain or perfect Lender's interest in the
Collateral or to obtain proceeds of the Collateral.
G. Parties Liable on the Collateral. Debtor shall preserve the liability of
all obligors on any Collateral, shall preserve the priority of all security
therefor, and shall deliver to Lender the original certificates of title on all
motor vehicles or other titled vehicles constituting the Collateral. Lender
shall have no duty to preserve such liability or security, but may do so at the
expense of Debtor, without waiving Debtor's default.
H. Records of the Collateral. Debtor at all times shall maintain accurate
books and records covering the Collateral. Debtor immediately will mark all
books and records with an entry showing the absolute assignment of all
Collateral to Lender, and Lender is hereby given the right to audit the books
and records of Debtor relating to the Collateral at any time and from time to
time. The amounts shown as owed to Debtor on Debtor's books and on any
assignment schedule will be the undisputed amounts owing and unpaid.
I. Disposition of the Collateral. If disposition of any Collateral gives
rise to an account, chattel paper or instrument, Debtor immediately shall notify
Lender, and upon request of Lender shall assign or indorse the same to Lender.
No Collateral may be sold, leased, manufactured, processed or otherwise disposed
of by Debtor in any manner without the prior written consent of Lender, except
the Collateral sold, leased, manufactured, processed or consumed in the ordinary
course of business.
J. Accounts. Each account held as Collateral will represent the valid and
legally enforceable obligation of third parties and shall not be evidenced by
any instrument or chattel paper.
K. Notice/Location of the Collateral. Debtor shall give Lender written
notice of each office of Debtor in which records of Debtor pertaining to
accounts held as Collateral are kept, and each location at which the Collateral
is or will be kept, and of any change of any such location. If no such notice is
given, all records of Debtor pertaining to the Collateral and all Collateral of
Debtor are and shall be kept at the address marked by Debtor above.
<PAGE>
3
L. Change of Name/Status and Notice of Changes. Without the written consent
of Lender, Debtor shall not change its name, change its corporate status, use
any trade name or engage in any business not reasonably related to its business
as presently conducted. Debtor shall notify Lender immediately of (i) any
material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a change in any matter warranted or represented by Debtor in
this Agreement, or in any of the Loan Documents or furnished to Lender pursuant
to this Agreement, and (iv) the occurrence of an Event of Default (hereinafter
defined).
M. Use and Removal of the Collateral. Debtor shall not use the Collateral
illegally. Debtor shall not, unless previously indicated as a fixture, permit
the Collateral to be affixed to real or personal property without the prior
written consent of Lender. Debtor shall not permit any of the Collateral to be
removed from the locations specified herein without the prior written consent of
Lender, except for the sale of inventory in the ordinary course of business.
N. Possession of the Collateral. Debtor shall deliver all investment
securities and other instruments, documents and chattel paper which are part of
the Collateral and in Debtor's possession to Lender immediately, or if hereafter
acquired, immediately following acquisition, appropriately indorsed to Lender's
order, or with appropriate, duly executed powers. Debtor waives presentment,
notice of acceleration, demand, notice of dishonor, protest, and all other
notices with respect thereto.
O. Power of Attorney. Debtor appoints Lender and any officer thereof as
Debtor's attorney-in-fact with full power in Debtor's name and behalf to do
every act which Debtor is obligated to do or may be required to do hereunder;
however, nothing in this paragraph shall be construed to obligate Lender to take
any action hereunder nor shall Lender be liable to Debtor for failure to take
any action hereunder. This appointment shall be deemed a power coupled with an
interest and shall not be terminable as long as the Obligation is outstanding
and shall not terminate on the disability or incompetence of Debtor.
P. Waivers by Debtor. Debtor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Lender in its
discretion, without notice to Debtor. Debtor waives any right to require that
any action be brought against any other person or to require that resort be had
to any other security or to any balance of any deposit account. Debtor further
waives any right of subrogation or to enforce any right of action against any
other Debtor until the Obligation is paid in full.
Q. Other Parties and Other Collateral. No renewal or extension of or any
other indulgence with respect to the Obligation or any part thereof, no release
of any security, no release of any person (including any maker, indorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising any
right or power with respect to the Obligation or any security therefor or
guaranty thereof or under this Agreement shall in any manner impair or affect
the rights of Lender under the law, hereunder, or under any other agreement
pertaining to the Collateral. Lender need not file suit or assert a claim for
personal judgment against any person for any part of the Obligation or seek to
realize upon any other security for the Obligation, before foreclosing or
otherwise realizing upon the Collateral. Debtor waives any right to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that Lender shall have no duty or obligation to Debtor to
apply to the Obligation any such other security or proceeds thereof.
R. Collection and Segregation of Accounts and Right to Notify. Lender
hereby authorizes Debtor to collect the Collateral, subject to the direction and
control of Lender, but Lender may, without cause or notice, curtail or terminate
said authority at any time after the occurrence of an Event of Default. After
the occurrence of an Event of Default and upon written notice by Lender to
Debtor, Debtor shall forthwith upon receipt of all checks, drafts, cash, and
other remittances in payment of or on account of the Collateral, deposit the
same in one or more special accounts maintained with Lender over which Lender
alone shall have the power of withdrawal. The remittance of the proceeds of such
Collateral shall not, however, constitute payment or liquidation of such
Collateral until Lender shall receive good funds for such proceeds. Funds placed
in such special accounts shall be held by Lender as security for all Obligations
secured hereunder. These proceeds shall be deposited in precisely the form
received, except for the indorsement of Debtor where necessary to permit
collection of items, which indorsement Debtor agrees to make, and which
indorsement Lender is also hereby authorized, as attorney-in-fact, to make on
behalf of Debtor. In the event Lender has notified Debtor to make deposits to a
special account, pending such deposit, Debtor agrees that it will not commingle
any such checks, drafts, cash or other remittances with any funds or other
property of Debtor, but will hold them separate and apart therefrom, and upon an
express trust for Lender until deposit thereof is made in the special account.
Lender will, from time to time, apply the whole or any part of the Collateral
funds on deposit in this special account against such Obligations as are secured
hereby as Lender may in its sole discretion elect. At the sole election of
Lender, any portion of said funds on deposit in the special account which Lender
shall elect not to apply to the Obligations, may be paid over by Lender to
Debtor. At any time, whether Debtor is or is not in default hereunder, Lender
may notify persons obligated on any Collateral to make payments directly to
Lender and Lender may take control of all proceeds of any Collateral. Until
Lender elects to exercise such rights, Debtor, as agent of Lender, shall collect
and enforce all payments owed on the Collateral.
S. Compliance with State and Federal Laws. Debtor will maintain its
existence, good standing and qualification to do business, where required, and
comply with all laws, regulations and governmental requirements, including
without limitation, environmental laws applicable to it or any of its property,
business operations and transactions.
T. Environmental Covenants. Debtor shall immediately advise Lender in
writing of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Debtor's business operations; and
(ii) all claims made or threatened by any third party against Debtor relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Debtor shall immediately notify Lender of any
remedial action taken by Debtor with respect to Debtor's business operations.
Debtor will not use or permit any other party to use any Hazardous Materials at
any of Debtor's places of business or at any other property owned by Debtor
except such materials as are incidental to Debtor's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Debtor agrees to permit Lender, its agents, contractors and
employees to enter and inspect any of Debtor's places of business or any other
property of Debtor at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Debtor is complying with this covenant
and Debtor shall reimburse Lender on demand for the costs of any such
environmental investigation and audit. Debtor shall provide Lender, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Debtor's business operations
within five (5) days of the request therefor.
6. Rights and Powers of Lender.
A. General. Lender, after the occurrence of an Event of Default, without
liability to Debtor may: obtain from any person information regarding Debtor or
Debtor's business, which information any such person also may furnish without
liability to Debtor; require Debtor to give possession or control of any
Collateral to Lender; indorse as Debtor's agent any instruments, documents or
chattel paper in the Collateral or representing proceeds of the Collateral;
contact account debtors directly to verify information furnished by Debtor; take
control of proceeds, including stock received as dividends or by reason of stock
splits; release the Collateral in its possession to any Debtor, temporarily or
otherwise; require additional Collateral; reject as unsatisfactory any property
hereafter offered by Debtor as Collateral; set standards from time to time to
govern what may be used as after acquired Collateral; designate, from time to
time, a certain percent of the Collateral as the loan value and require Debtor
to maintain the Obligation at or below such figure; take control of funds
generated by the Collateral, such as cash dividends, interest and proceeds or
refunds from insurance, and use same to reduce any part of the Obligation and
exercise all other rights which an owner of such Collateral may exercise, except
the right to vote or dispose of the Collateral before an Event of Default; at
any time transfer any of the Collateral or evidence thereof into its own name or
that of its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose or realize upon the Collateral, in its
own name or in the name of Debtor, as Lender may determine. Lender shall not be
liable for failure to collect any account or instruments, or for any act or
omission on the part of Lender, its officers, agents or employees, except for
its or their own willful misconduct or gross negligence. The foregoing rights
and powers of Lender will be in addition to, and not a limitation upon, any
rights and powers of Lender given by law, elsewhere in this Agreement, or
otherwise. If Debtor fails to maintain any required insurance, to the extent
permitted by applicable law Lender may (but is not obligated to) purchase single
interest insurance coverage for the Collateral which insurance may at Lender's
option (i) protect only Lender and not provide any remuneration or protection
for Debtor directly and (ii) provide coverage only after the Obligation has been
declared due as herein provided. The premiums for any such insurance purchased
by Lender shall be a part of the Obligation and shall bear interest as provided
in 3(d) hereof.
<PAGE>
4
B. Convertible Collateral. Lender may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Lender shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. Default.
A. Event of Default. An event of default ("Event of Default") shall
occur if: (i) there is a loss, theft, damage or destruction of any material
portion of the Collateral for which there is no insurance coverage or for which,
in the opinion of Lender, there is insufficient insurance coverage; (ii) Debtor
or any other obligor on all or part of the Obligation shall fail to timely and
properly pay or observe, keep or perform any term, covenant, agreement or
condition in this Agreement or in any other agreement between Debtor and Lender
including, but not limited to, any other note or instrument, loan agreement,
security agreement, deed of trust, mortgage, promissory note, guaranty,
certificate, assignment, instrument, document or other agreement concerning or
related to the Obligation (collectively, the "Loan Documents"), and such failure
is not cured within any applicable cure period established by the Note, if any;
or (iii) Debtor or such other obligor abandons any leased premises at which any
Collateral is located or stored and the Collateral is either moved without the
prior written consent of Lender or the Collateral remains at the abandoned
premises.
B. Rights and Remedies. If any Event of Default shall occur, then, in each
and every such case, Lender may, without presentment, demand, or protest; notice
of default, dishonor, demand, non-payment, or protest; notice of intent to
accelerate all or any part of the Obligation; notice of acceleration of all or
any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this Agreement,
any other Loan Document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies at Lender's option:
i. Acceleration. The Obligation shall, at Lender's option, become
immediately due and payable, and the obligation, if any, of Lender to permit
further borrowings under the Obligation shall at Lender's option immediately
cease and terminate.
ii. Possession and Collection of the Collateral. At its option: (a) take
possession or control of, store, lease, operate, manage, sell, or instruct any
Agent or Broker to sell or otherwise dispose of, all or any part of the
Collateral; (b) notify all parties under any account or contract right forming
all or any part of the Collateral to make any payments otherwise due to Debtor
directly to Lender; (c) in Lender's own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the agent of
Debtor any check, note, chattel paper, documents, or instruments forming all or
any part of the Collateral; (e) make formal application for transfer to Lender
(or to any assignee of Lender or to any purchaser of any of the Collateral) of
all of Debtor's permits, licenses, approvals, agreements, and the like relating
to the Collateral or to Debtor's business; (f) take any other action which
Lender deems necessary or desirable to protect and realize upon its security
interest in the Collateral; and (g) in addition to the foregoing, and not in
substitution therefor, exercise any one or more of the rights and remedies
exercisable by Lender under any other provision of this Agreement, under any of
the other Loan Documents, or as provided by applicable law (including, without
limitation, the Uniform Commercial Code as in effect in Florida (hereinafter
referred to as the "UCC")). In taking possession of the Collateral Lender may
enter Debtor's premises and otherwise proceed without legal process, if this can
be done without breach of the peace. Debtor shall, upon Lender's demand,
promptly make the Collateral or other security available to Lender at a place
designated by Lender, which place shall be reasonably convenient to both
parties.
Lender shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Lender's willful and malicious
act. Lender shall have no duty to take any action to preserve or collect the
Collateral.
iii. Receiver. Obtain the appointment of a receiver for all or any of the
Collateral, Debtor hereby consenting to the appointment of such a receiver and
agreeing not to oppose any such appointment.
iv. Right of Set Off. Without notice or demand to Debtor, set off and apply
against any and all of the Obligation any and all deposits (general or special,
time or demand, provisional or final) and any other indebtedness, at any time
held or owing by Lender or any of Lender's agents or affiliates to or for the
credit of the account of Debtor or any guarantor or indorser of Debtor's
Obligation.
Lender shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Lender may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Lender for any
deficiency. The proceeds of any disposition after default available to satisfy
the Obligation shall be applied to the Obligation in such order and in such
manner as Lender in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Lender of all
or part of the Collateral pursuant to the terms of this Agreement may be
effected by Lender at times and in manners which could result in the proceeds of
such sale as being significantly and materially less than might have been
received if such sale had occurred at different times or in different manners,
and Debtor hereby releases Lender and its officers and representatives from and
against any and all obligations and liabilities arising out of or related to the
timing or manner of any such sale.
If, in the opinion of Lender, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities law,
Lender may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Lender shall be deemed "commercially reasonable".
8. General.
A. Parties Bound. Lender's rights hereunder shall inure to the benefit of
its successors and assigns. In the event of any assignment or transfer by Lender
of any of the Obligation or the Collateral, Lender thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but Lender shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
B. Waiver. No delay of Lender in exercising any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof or the exercise of any
other power or right. No waiver by Lender of any right hereunder or of any
default by Debtor shall be binding upon Lender unless in writing, and no failure
by Lender to exercise any power or right hereunder or waiver of any default by
Debtor shall operate as a waiver of any other or further exercise of such right
or power or of any further default. Each right, power and remedy of Lender as
provided for herein or in any of the Loan Documents, or which shall now or
hereafter exist at law or in equity or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by Lender of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by Lender of any or all other such rights, powers or remedies.
<PAGE>
5
C. Agreement Continuing. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Lender and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this Agreement.
D. Definitions. Unless the context indicates otherwise, definitions in the
UCC apply to words and phrases in this Agreement; if UCC definitions conflict,
Article 9 definitions apply.
E. Notices. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action (or if the UCC elsewhere specifies
a longer period, such longer period) to the address of Debtor given above, or to
such other address as any party may designate by written notice to the other
party. Each notice, request and demand shall be deemed given or made, if sent by
mail, upon the earlier of the date of receipt or five (5) days after deposit in
the U.S. Mail, first class postage prepaid, or if sent by any other means, upon
delivery.
F. Modifications. No provision hereof shall be modified or limited except
by a written agreement expressly referring hereto and to the provisions so
modified or limited and signed by Debtor and Lender. The provisions of this
Agreement shall not be modified or limited by course of conduct or usage of
trade.
G. Applicable Law and Partial Invalidity. This Agreement has been
delivered in the State of Florida and shall be construed in accordance with the
laws of that State. Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Agreement. The invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
H. Financing Statement. To the extent permitted by applicable law, a
carbon, photographic or other reproduction of this Agreement or any financing
statement covering the Collateral shall be sufficient as a financing statement.
I. Controlling Document. To the extent that this Security Agreement
conflicts with or is in any way incompatible with any other Loan Document
concerning the Obligation, any promissory note shall control over any other
document, and if such note does not address an issue, then each other document
shall control to the extent that it deals most specifically with an issue.
J. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
K. WAIVER OF JURY TRIAL. AFTER CONSULTING WITH COUNSEL AND CAREFUL
CONSIDERATION, DEBTOR AND LENDER KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
ARISING OUT OF THIS AGREEMENT OR THE NOTE, OR OUT OF ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (ORAL OR WRITTEN), OR ACTIONS OF DEBTOR OR LENDER.
THIS WAIVER IS A MATERIAL INDUCEMENT TO LENDER'S AGREEMENT TO ENTER INTO THIS
AGREEMENT.
L. Counterparts. This Security Agreement may be executed in two or more
counterparts any by facsimile transmission of signed counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
Lender/Secured Party: Debtor(s)/Pledgor(s):
LIFESERV TECHNOLOGIES, INC.
__________________________ By: , as its
Ella Kedan ------------------------
-----------------------------------
PERFORMANCE PHARMACY SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
MEDICATION MANAGEMENT SYSTEMS, INC.
By: , as its
------------------------
-----------------------------------
CART-WARE, INC.
By: , as its
------------------------
-----------------------------------
SYSTEMS PROFESSIONALS, INC.
By: , as its
------------------------
-----------------------------------
<PAGE>
1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
DATED: May 13, 1998 NO. I
FORM OF WARRANT
LIFESERV TECHNOLOGIES, INC.
Warrant to Purchase 200,000 Shares, Subject to Adjustment,
of Common Stock, par value $.01 per share
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME
ON MAY 13, 2008 OR SUCH LATER DATE AS
DESCRIBED IN THE FIRST PARAGRAPH BELOW
This certifies that, for value received, Ella Kedan ("Kedan") or registered
assigns (collectively with Kedan, the "Holder"), is entitled to purchase from
LifeServ Technologies, Inc., a Florida corporation (the "Company"), 200,000
shares (which become exercisable on the date hereof) plus an additional number
of fully paid and nonassessable shares (collectively, the "Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), equal to
two percent of the outstanding shares of Common Stock immediately before the
issuance of up to 35,000 shares of the Company's Series A Preferred Stock
through Jesup & LaMont Securities Corporation pursuant to a private placement
memorandum (the "Private Placement") less 200,000 Shares (this warrant will
become exercisable with respect to such additional Shares, if any, immediately
before the issuance of shares in the Private Placement), at a price of $1.00 per
Share (the "Exercise Price") for ten years after the warrant becomes exercisable
with respect to such shares (the "Exercise Period"), subject to the terms,
conditions, and adjustments set forth in this warrant (the "Warrant"). If two
percent of the outstanding shares of the Company's Common Stock immediately
before the issuance of shares in the Private Placement is less than or equal to
200,000 shares, then the total number of Shares issuable pursuant to this
Warrant will be 200,000, subject to the adjustments set forth below.
1. Exercise of Warrants. This Warrant may be exercised in whole or in part
by the Holder during the applicable Exercise Period upon presentation and
surrender hereof, with the Purchase Form attached hereto as Exhibit A duly
executed, at the office of the Company located at 12920 Automobile Boulevard,
Clearwater, Florida 33762, accompanied by full payment of the Exercise Price
multiplied by the number of Shares of the Company being purchased (the "Purchase
<PAGE>
2
Price"), whereupon the Company shall cause the appropriate number of Shares to
be issued and shall deliver to the Holder, within 10 days of surrender of the
Warrant, a certificate representing the Shares being purchased. Upon each
partial exercise hereof, a new Warrant evidencing the remainder of the Shares
will be issued to the Holder, at the Company's expense, as soon as reasonably
practicable, at the same Exercise Price, for the same Exercise Period(s), and
otherwise on the same terms and conditions as the Warrant partially exercised.
The Purchase Price shall be payable by delivery of a certified or bank cashier's
check payable to the Company, or by wire transfer of immediately available funds
to an account designated in writing by the Company, in the amount of the
Purchase Price, or, if the Company's Common Stock is listed on a securities
exchange or market, in the manner set forth in the following paragraph if
requested by the Holder in the Purchase Form. The Holder shall be deemed for all
purposes to have become the holder of record of Shares so purchased upon
exercise of this Warrant as of the close of business on the date as of which
this Warrant, together with a duly executed Purchase Form, was delivered to the
Company and payment of the Purchase Price was made, regardless of the date of
delivery of any certificate representing the Shares so purchased, except that if
the Company were subject to any legal requirements prohibiting it from issuing
shares of Common Stock on such date, the Holder shall be deemed to have become
the record holder of such Shares on the next succeeding date as of which the
Company ceased to be so prohibited.
If the Company's Common Stock is listed on a securities exchange or market,
in addition to the method of payment set forth above and in lieu of any cash
payment required, the Holder shall have the right to exercise this Warrant in
full or in part by surrendering this Warrant in the manner specified above in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which this Warrant is being exercised multiplied by (y) a fraction,
the numerator of which is the Market Price (as defined below) less the Purchase
Price, and the denominator of which is the Market Price. For purpose of this
Warrant, "Market Price" shall mean the average closing sale price quoted on a
share of Common Stock on the Nasdaq National Market or the principal stock
exchange on which the Common Stock is then traded for the three trading days
immediately prior to the date of the delivery to the Company of a purchase form
(or if the Company's Common Stock is not traded or listed on the Nasdaq National
Market or any other principal securities market, the average of the closing bid
prices on the Nasdaq SmallCap Market, the OTC Electronic Bulletin Board, or
otherwise in the over-the-counter market on such days as reported by Nasdaq, the
National Quotation Bureau Incorporated or any comparable system, or if not so
reported, as reported by any New York Stock Exchange member firm selected in
good faith by the Company for such purpose).
2. Exchange; Restrictions on Transfer or Assignment. This Warrant is
exchangeable, without expense, at the option of the Holder, upon surrender
hereof to the Company for other Warrants of different denominations entitling
the Holder to purchase in the aggregate the same number of Shares purchasable
hereunder. Subject to compliance with the Act, applicable state securities laws,
and the requirements pertaining to transfer described in Section 5, this Warrant
and the Holder's rights hereunder are transferrable. To effect a transfer of
this Warrant, the Holder shall surrender the Warrant to the Company at its
<PAGE>
3
principal office with the Assignment Form attached hereto as Exhibit B duly
completed and executed (with signature guaranteed), whereupon the Company, if
the proposed assignment is permitted pursuant to the provisions hereof, shall
register the assignment of this Warrant in accordance with the information
contained in the assignment instrument and shall, without charge, execute and
deliver a new Warrant or Warrants in the name(s) of the assignee or assignees
named in such assignment instrument (and, if applicable, a new Warrant in the
name of the Holder evidencing any remaining portion of the Warrant not
theretofore exercised, transferred, or assigned) and this Warrant shall promptly
be cancelled. The term "Warrant" as used herein includes any Warrants into which
this Warrant may be divided or exchanged.
3. Rights and Obligations of Warrant Holders. This Warrant does not confer
upon the Holder any rights as a shareholder of the Company, either at law or in
equity. The rights of the Holder are limited to those expressed herein and the
Holder, by acceptance hereof, consents to and agrees to be bound by and to
comply with all the provisions of this Warrant. Each Holder, by acceptance of
this Warrant, agrees that the Company and its transfer agent, if any, may, prior
to any presentation of this Warrant for registration of transfer, deem and treat
the person in whose name this Warrant is registered as the absolute, true, and
lawful owner of this Warrant for all purposes whatsoever and neither the Company
nor any transfer agent shall be affected by any notice to the contrary.
4. Covenants and Warranties of the Company. The Company covenants and
agrees that (i) any and all Shares that are issued and delivered upon exercise
of this Warrant and payment of the Purchase Price will, upon delivery, be duly
authorized, validly issued, fully-paid, and nonassessable shares of Common Stock
and (ii) the Company shall at all times during the Exercise Period reserve and
keep available a number of authorized but unissued shares of Common Stock
sufficient to permit the exercise in full of this Warrant. The Company will take
all such actions as may be necessary to assure that all shares of Common Stock
may be so issued without violation by the Company of any applicable law or
government regulation or any requirement of any securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance,
which the Company will transmit promptly upon issuance of such shares).
The Company represents and warrants that (i) the Company is a corporation
duly organized, validly existing, and of active status under the laws of the
State of Florida, (ii) the Company has all requisite corporate power and
authority to issue this Warrant and to consummate the transactions contemplated
hereby, and such issuance and consummation will not conflict with, result in a
material breach of, constitute a material default under, or material violation
of any provision of the Company's Articles of Incorporation or Bylaws, or any
law or regulation of any governmental authority or any provision of any
agreement, judgment, or decree affecting the Company and (iii) all corporate
action required to be taken by the Company in connection with the execution and
delivery of this Warrant and the performance of the Company's obligations
hereunder has been taken.
<PAGE>
4
5. Disposition of Warrants or Shares. The Holder acknowledges that this
Warrant and the Shares issuable upon exercise thereof have not been registered
under the Act or applicable state law. The Holder agrees, by acceptance of this
Warrant, (i) that no sale, transfer, or distribution of this Warrant or the
Shares shall be made except in compliance with the Act and the rules and
regulations promulgated thereunder, including any applicable prospectus delivery
requirements and the restrictions on transfer set forth herein, and (ii) that if
any distribution or any other transfer of this Warrant or any Shares is proposed
to be made by it otherwise than pursuant to an effective registration statement
under the Act, such action shall be taken only after submission to the Company
of an opinion of counsel, reasonably satisfactory in form and substance to the
Company and its counsel, to the effect that the proposed distribution will not
be in violation of the Act or of applicable state law.
6. Adjustment. The number of Shares purchasable upon the exercise of this
Warrant and the Exercise Price per Share are subject to adjustment from time to
time as provided in this Section 6.
(a) Subdivision or Combination of Shares. If the Company shall at any time
subdivide its outstanding shares of Common Stock into a greater number of shares
(including a stock split effected as a stock dividend) or combine its
outstanding shares of Common Stock into a lesser number of shares, the number of
Shares issuable upon exercise of this Warrant shall be adjusted to such number
as is obtained by multiplying the number of shares issuable upon exercise of
this Warrant immediately prior to such subdivision or combination by a fraction,
the numerator of which is the aggregate number of shares of Common Stock
outstanding immediately after giving effect to such subdivision or combination
and the denominator of which is the aggregate number of shares of Common Stock
outstanding immediately prior to such subdivision or combination, and the
Exercise Price per Share shall be correspondingly adjusted to such amount as
shall, when multiplied by the number of Shares issuable upon full exercise of
this Warrant (as increased or decreased to reflect such subdivision or
combination of outstanding shares of Common Stock, as the case may be), equal
the product of the Exercise Price per Share in effect immediately prior to such
subdivision or combination multiplied by the number of Shares issuable upon
exercise of this Warrant immediately prior to such subdivision or combination.
(b) Effect of Sale, Merger, or Consolidation. If any capital reorganization
or reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation, or sale of all or substantially
all of the Company's assets to another corporation shall be effected after the
date hereof in such a way that holders of Common Stock shall be entitled to
receive stock, securities, or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger, or sale, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to purchase and receive, upon
the basis and the terms and conditions specified in this Warrant and in lieu of
the Shares immediately theretofore purchasable and receivable upon the exercise
of this Warrant, such shares of stock, securities, or assets as may be issued or
<PAGE>
5
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of this Warrant, and in
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions of this Warrant
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of Shares issuable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be possible, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of this Warrant. The Company shall not effect any such consolidation, merger, or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume,
by written instrument executed and delivered to the Holder at its last address
appearing on the books of the Company, the obligation to deliver to the Holder
such shares of stock, securities or assets as, in accordance with the foregoing
sentence, the Holder may be entitled to purchase.
(c) Issuance of Common Stock Below Exercise Price. If the Company shall
issue or sell shares of Common Stock or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock ("Common Stock Equivalents") (other than upon
conversion of up to 35,000 shares of Series A Preferred Stock having an interest
rate of up to 15% issued pursuant to the Private Placement or pursuant to the
exercise of any Common Stock Equivalents outstanding on the date of the Note
under any of the Company's employee benefit plans), at a price per share of
Common Stock (determined, in the case of Common Stock Equivalents, by dividing
(A) the total amount receivable by the Company in consideration of the issuance
and sale of such Common Stock Equivalent, plus the total consideration payable
to the Company upon exercise, conversion, or exchange thereof, by (B) the total
number of shares of Common Stock covered by such Common Stock Equivalent), that
is lower (calculated the date of such sale or issuance) than the Exercise Price,
or for no consideration, then:
(i) in each case the number of shares of Common Stock thereafter
issuable upon the exercise of this Warrant (whether or not presently
exercisable) shall be increased in a manner determined by multiplying the
number of shares of Common Stock issuable upon the exercise of the Warrant
by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior to the sale or issuance plus the
number of additional shares of Common Stock offered for subscription or
purchase or to be issued upon exercise, conversion, or exchange of such
Common Stock Equivalent, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately prior to the sale or
issuance plus the number of shares of Common Stock that the "aggregate
consideration to be received by the Company" (as defined below) in
connection with such sale or issuance would purchase at the Exercise Price.
For the purpose of such adjustments the "aggregate consideration to be
received by the Company" shall be the consideration received by the Company
for such Common Stock or Common Stock Equivalents, plus any consideration
or premiums stated in the Common Stock Equivalents to be paid for the
shares of Common Stock covered thereby; and
<PAGE>
6
(ii) in each case the Exercise Price will be reduced to the price
calculated by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately before such issuance or sale
multiplied by the then existing Exercise Price plus (2) the aggregate
consideration, if any, received by the Company upon such issuance or sale,
by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale plus the number of shares of Common Stock
issuable upon the exercise, conversion, or exchange of any Common Stock
Equivalents issued or sold in the transaction for which the Company is
making this adjustment.
If the Company shall issue or sell shares of Common Stock or Common Stock
Equivalents for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price per share of
Common Stock" and the "consideration" receivable by or payable to the Company
for purposes of this Section 6(c), the Board of Directors of the Company shall
determine, in good faith, the fair value of such property. If the Company shall
issue and sell Common Stock Equivalents, together with one or more other
securities as part of a unit at a price per unit, then in determining the "price
per share of Common Stock" and the "consideration" receivable by or payable to
the Company for purposes of this Section 6(c), the Board of Directors of the
Company shall determine, in good faith, the fair value of the Common Stock
Equivalents then being sold as part of such unit.
(d) If any event occurs as to which the preceding Sections 6(a) through (c)
are not strictly applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by this Warrant in
accordance with the essential intent and principles of this Warrant, as
determined by the Company or as requested by the Holder in accordance with the
notice provisions of Section 12, then, in each such case, the Company shall
select an independent investment bank or firm of independent public accountants,
such investment bank or firm of independent public accountants to be selected
from a group of three nationally recognized investment banks or firms of public
accountants chosen by the Holder, which will give its opinion as to the
adjustment,if any, on a basis consistent with the essential intent and
principles established in this Warrant. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the Holder and will make
the adjustments described in such opinion. The fees and expenses of such
investment bank or independent public accountants will be borne by the Company.
If the adjustment is requested by the Holder, however, and the investment bank
or firm of independent public accountants selected by the Company pursuant to
this paragraph determines that no adjustment is necessary, then the fees and
expenses described in the preceding sentence shall be borne by the Holder.
(e) Notice to Holder of Adjustment. Whenever the number of Shares
purchasable upon exercise of this Warrant or the Exercise Price per Share is
adjusted as herein provided, the Company shall cause to be mailed to the Holder
within 5 days of such adjustment, in accordance with the provisions of Section
12, notice setting forth the adjusted number of Shares purchasable upon the
exercise of the Warrant and the adjusted Exercise Price and showing in
reasonable detail the computation of the adjustment and the facts upon which
such adjustment is based.
<PAGE>
7
(f) Notices to Holder of Certain Events. If at any time after the date
hereof:
(i) the Company shall declare any dividend or other distribution upon
or with respect to the Common Stock, including any dividend payable in
cash, shares of Common Stock or other securities of the Company; or
(ii) the Company shall offer for subscription to the holders of its
Common Stock any additional shares of stock of any class or any other
securities convertible into Common Stock or any rights to subscribe
thereto; or
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company (other than a change in par value, or from
par value to no par value, or from no par value to par value or as result
of the subdivision or combination of shares), or any conversion of the
Shares into securities of another corporation, or a sale of all or
substantially all of the assets of the Company, or a consolidation or
merger of the Company with another corporation (other than a merger with a
subsidiary in which the Company is the continuing corporation and which
does not result in any reclassification or change of the Shares issuable
upon exercise of the Warrants); or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, not less than 15 days before any record date or other date set for
the definitive action, written notice of the date upon which the books of the
Company shall close or a record shall be taken for purposes of such dividend,
distribution or subscription rights or upon which such reorganization,
reclassification, conversion, sale, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also set forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the number of
Shares and the kind and amount of the shares of stock and other securities and
property deliverable upon exercise of the Warrants. Such notice shall also
specify the date as of which the holder of record of the shares of Common Stock
shall participate in such dividend, distribution, or subscription rights or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
conversion, sale, consolidation, merger, dissolution, liquidation, or winding
up, as the case may be (on which date in the event of voluntary or involuntary
dissolution, liquidation, or winding up of the Company, the right to exercise
the Warrants shall terminate).
<PAGE>
8
7. Piggy-Back Registration.
(a) If the Company shall, at any time prior to the expiration of this
Warrant, authorize a registration of its Common Stock with the Securities
and Exchange Commission (the "SEC"), the Company shall furnish the Holder
with at least 30 days prior written notice thereof and the Holder shall
have the option to include the Shares to be issued to the Holder upon the
exercise of this Warrant in such registration statement. The Holder shall
exercise the "piggy-back registration rights" granted pursuant to this
Section 7 by giving written notice to the Company within 20 days of the
receipt of the written notice from the Company described above.
(b) Notwithstanding any other provision of this Warrant, the Company's
obligations under this Section 7 shall be subject to the following terms
and conditions:
(i) The obligations of the Company set forth under this Section 7
shall not arise upon the filing of a registration statement that
covers any of the following: (A) securities proposed to be issued in
exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common
Stock; (C) securities to be issued pursuant to a transaction
registered on Form S-4 (or any registration form promulgated by the
SEC in substitution of that form); or (D) a stock option, stock bonus,
stock purchase, or other employee benefit or compensation plan or
securities issued or issuable pursuant to any such plan.
(ii) If the Company files a registration statement in connection
with an underwritten public offering of Common Stock, the Company
shall use its best efforts to cause the managing underwriter of the
proposed offering to grant any request by the Holder that Shares
purchased by the Holder upon the exercise of this Warrant be included
in the proposed public offering on terms and conditions that are
customary under industry practice. Notwithstanding any other provision
of this Agreement, if the managing underwriter of the public offering
of the Common Stock gives written notice to the Company that, in the
reasonable opinion of such managing underwriter, marketing factors
require a limitation of the total number of shares of Common Stock to
be underwritten, then the number of Shares purchased by the Holder
upon the exercise of this Warrant that the Company shall be obligated
to include in the registration statement shall be reduced in
accordance with the limitations imposed by the managing underwriter.
(iii) The Holder must provide to the Company all information, and
take all action, the Parent reasonably requests with reasonable
advance notice, to enable it to comply with any applicable law or
regulation or to prepare the registration statement that will cover
the Shares that will be included in the registration.
<PAGE>
9
(c) The Company will pay all Registration Expenses (as defined below)
in connection with the registration of the Shares pursuant to this Section
7. For purposes of this Warrant, the term "Registration Expenses" shall
mean all expenses incurred by the Company in complying with this Section 7,
including, without limitation, all registration and filing fees, exchange
listing fees, printing expenses, fees and disbursements of counsel for the
Company, state Blue Sky fees and expenses, transfer agent fees, cost of
engraving of stock certificates, costs for mailing and tombstone
advertising, cost of preparing the registration statement, related
exhibits, amendments and supplements thereto, underwriting documents,
selected dealer agreements, preliminary and final prospectuses, and the
expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions
attributable to the Shares and the fees and expenses of the Holder's own
counsel and accountants, which shall be borne by the Holder.
8. Indemnification and Notification.
(a) The Company will indemnify and hold harmless the Holder from and
against any and all losses, claims, damages, expenses, and liabilities
caused by any untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by any omission to state a material fact necessary to make any
statement therein not misleading. The foregoing indemnification and
agreement to hold harmless shall not apply, however, insofar as such
losses, claims, damages, expenses, and liabilities are caused by an untrue
statement or omissions based upon information furnished in writing to the
Company by the Holder expressly for use in any registration statement or
prospectus.
(b) The Holder will indemnify the Company, and each person who
controls the Company within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses, and liabilities
caused by an untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by an omission to state a material fact necessary to make any
statement therein not misleading insofar as such losses, claims, damages,
expenses, and liabilities are caused by an untrue statement or omission
based upon information furnished in writing to the Company by the Holder
expressly for use in any registration statement or prospectus.
(c) Each indemnified party promptly shall notify each indemnifying
party of any claim asserted or action commenced against it that is subject
to the indemnification provisions of this Section, but failure to so notify
an indemnifying party will not relieve the indemnifying party from any
liability pursuant to these indemnity provisions or otherwise, unless and
only to the extent that the failure materially prejudices the rights or
obligations of the indemnifying party. Without limiting what might be
materially prejudicial to an indemnifying party, the failure of an
indemnified party to notify an indemnifying party of a lawsuit within ten
days after the date when the indemnified party is served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim
will be considered materially prejudicial to the rights and obligations of
any indemnifying party who was not also served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim.
<PAGE>
10
The indemnifying party may participate at its own expense in the
defense, or, if the indemnifying party so elects within a reasonable time,
the indemnifying party may assume the defense, of any action commenced
against the indemnified party that is the subject of indemnification under
this Section. If the indemnifying party elects to assume the defense of an
indemnified action, however, the indemnifying party shall engage to defend
the action legal counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to assume the defense of any indemnified
action, the indemnified party, and each controlling person who is a
defendant in the action, will be entitled to employ separate counsel
participate in the defense of the action at its own expense.
An indemnified party shall not settle an indemnified claim or action
without the prior written consent of the indemnifying party and the
indemnifying party will not be liable for any settlement made without its
consent. The indemnifying party shall notify the indemnified party whether
or not it will consent to a proposed settlement within ten days after it
receives from the indemnified party notice of the proposed settlement,
summarizing all the terms and conditions of settlement. The indemnifying
party's failure to notify the indemnified party within that ten-day period
whether or not it consents to the proposed settlement will constitute its
consent to the proposed settlement.
This indemnity does not apply to any untrue statement or omission, or
any alleged untrue statement or omission that was made in a preliminary
prospectus but remedied or eliminated in the final prospectus (including
any amendment or supplement to it), if a copy of the definitive prospectus
(including any amendment or supplement to it) was delivered to the person
asserting the claim at or before the time required by the Securities Act
and the delivery of the definitive prospectus (including any amendment or
supplement to it) constitutes a defense to the claim asserted by the
person.
9. No Impairment. The Company will not by any action including, without
limitation, amending or permitting the amendment of the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary action,
avoid or seek to avoid the observance or performance of any of the express terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary to
protect the rights of the Holder against impairment or dilution. Without
limiting the generality of the foregoing, the Company will (i) take all such
action as may be reasonably necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon exercise
of the Warrant, free and clear of all liens, encumbrances, equities, and claims
and (ii) use all reasonable efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body having jurisdiction over
the Company as may be necessary to enable the Company to perform its obligations
under this Warrant.
<PAGE>
11
10. Dilution Fee. If, during the Exercise Period, the Company pays any cash
dividends or makes any cash distribution to any holder of any class of its
Common Stock with respect to such Common Stock and the Exercise Price exceeds
the Market Price, then the Holder of this Warrant will be entitled to receive in
respect of this Warrant a dilution fee in cash (the "Dilution Fee") on the date
of payment of such dividend or distribution, which Dilution Fee will be equal to
the amount per share paid to the holders of Common Stock times the number of
Shares currently exercisable under this Warrant.
11. Survival. The various rights and obligations of the Holder and of the
Company as set forth in Sections 4 and 5 hereof shall survive the exercise of
this Warrant and the surrender of this instrument upon such exercise.
12. Notice. All notices required by this Warrant to be given or made by the
Company shall be given or made by first class mail, postage prepaid, addressed
to the registered Holder hereof at the address of such Holder as shown on the
books of the Company.
13. Loss or Destruction. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
and its counsel, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be changed, waived,
discharged, or terminated except by a written instrument executed by the
Company and the Holder.
(b) This Warrant shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Florida, without regard
to principles of conflicts of laws thereof.
<PAGE>
12
(c) Each provision of this Warrant shall be interpreted in such a
manner as to be effective, valid, and enforceable under applicable law, but
if any provision of this Warrant is held to be invalid, illegal, or
unenforceable under any applicable law or rule in any jurisdiction, such
provision will be ineffective only to the extent of such invalidity,
illegality, or unenforceability in such jurisdiction, without invalidating
the remainder of this Warrant in such jurisdiction or any provision hereof
in any other jurisdiction.
(d) No course of dealing or delay or failure to exercise any right
hereunder on the part of the Holder shall operate as a waiver of such right
or otherwise prejudice the Holder's rights, power, or remedies.
(e) The Company shall pay all expenses incurred by it in connection
with, and all documentary stamp and other taxes (other than stock transfer
taxes) and other governmental charges that may be imposed in respect of,
the issue, sale and delivery of this Warrant and the Shares issuable upon
the exercise hereof.
(f) This Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors and assigns of the Company
and the successors and permitted assigns of the Holder.
15. Further Assurances. The Company agrees that it will execute and record
such documents as the Holder shall reasonably request to secure for the Holder
any of the rights represented by this Warrant.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed by
its duly authorized officer as of the 13th day of May, 1998.
LIFESERV TECHNOLOGIES, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
13
EXHIBIT "A"
PURCHASE FORM
To be executed upon exercise of the Warrant. Capitalized terms have the
same meanings ascribed to them in the Warrant.
TO: LifeServ Technologies, Inc.
The undersigned hereby exercises the right to purchase _____________
Shares of Common Stock evidenced by the Warrant, according to the terms and
conditions thereof, and hereby makes payment of the Purchase Price. If the
Company's Common Stock is listed on a securities exchange or market, the
undersigned [does] [does not] choose to pay the Purchase Price pursuant to a
cashless exercise of the Warrant. The undersigned requests that certificates for
the Shares shall be issued in the name set forth below:
Dated: Name:
-----------------------------
(Address)
-----------------------------
Social Security No.
-----------------------
or other identifying number
<PAGE>
14
EXHIBIT "B"
ASSIGNMENT
To be executed by the registered holder to effect a permitted transfer of
the Warrant. Capitalized terms have the same meanings ascribed to them in the
Warrant.
FOR VALUE RECEIVED ("Assignor")
------------------------------------------------
hereby sells, assigns and transfers unto
("Assignee")
- -----------------------------
(Name)
- -----------------------------
(Address)
the right to purchase __________ shares of Common Stock of LifeServ
Technologies, Inc. evidenced by the Warrant, together with all right, title, and
interest therein, and does irrevocably constitute and appoint
_____________________________ attorney to transfer the said right on the books
of said corporation with full power of substitution in the premises.
Date: Assignor:
----------------------------- -----------------------------
By:
-----------------------------
Its:
-----------------------------
Signature:
-----------------------------
<PAGE>
1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
DATED: May 13, 1998 NO. I
FORM OF WARRANT
MEDICAL TECHNOLOGY SYSTEMS, INC.
Warrant to Purchase 25,000 Shares
of Common Stock, par value $.01 per share
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME
ON SEPTEMBER 30, 2001
This certifies that, for value received, Ella Kedan ("Kedan") or registered
assigns (collectively with Kedan, the "Holder"), is entitled to purchase from
Medical Technology Systems, Inc., a Florida corporation (the "Company"), if a
promissory note in favor of Kedan, a copy of which is attached hereto as Exhibit
A (the "Note"), is not paid in full on or before September 30, 1998, 25,000
fully paid and nonassessable shares (the "Shares") of the Common Stock, par
value $.01 per share, of the Company ("Common Stock") at a price of $.45 per
Share (the "Exercise Price") until September 30, 2001 (the "Exercise Period"),
subject to the terms, conditions, and adjustments set forth in this Warrant (the
"Warrant").
1. Exercise of Warrants. This Warrant may be exercised in whole or in part
by the Holder during the Exercise Period upon presentation and surrender hereof,
with the Purchase Form attached hereto as Exhibit B duly executed, at the office
of the Company located at 12920 Automobile Boulevard, Clearwater, Florida 33762,
accompanied by full payment of the Exercise Price multiplied by the number of
Shares of the Company being purchased (the "Purchase Price"), whereupon the
Company shall cause the appropriate number of Shares to be issued and shall
deliver to the Holder, within 15 days of surrender of the Warrant, a certificate
representing the Shares being purchased. Upon each partial exercise hereof, a
new Warrant evidencing the remainder of the Shares will be issued to the Holder,
at the Company's expense, as soon as reasonably practicable, at the same
Exercise Price, for the same Exercise Period, and otherwise on the same terms
and conditions as the Warrant partially exercised. The Purchase Price shall be
payable by delivery of a certified or bank cashier's check payable to the
Company, or by wire transfer of immediately available funds to an account
designated in writing by the Company, in the amount of the Purchase Price, or,
if the Company's Common Stock is listed on a securities exchange or market, in
<PAGE>
2
the manner set forth in the following paragraph if requested by the Holder in
the Purchase Form. The Holder shall be deemed for all purposes to have become
the holder of record of Shares so purchased upon exercise of this Warrant as of
the close of business on the date as of which this Warrant, together with a duly
executed Purchase Form, was delivered to the Company and payment of the Purchase
Price was made, regardless of the date of delivery of any certificate
representing the Shares so purchased, except that if the Company were subject to
any legal requirements prohibiting it from issuing shares of Common Stock on
such date, the Holder shall be deemed to have become the record holder of such
Shares on the next succeeding date as of which the Company ceased to be so
prohibited.
If the Company's Common Stock is listed on a securities exchange or market,
in addition to the method of payment set forth above and in lieu of any cash
payment required, the Holder shall have the right to exercise this Warrant in
full or in part by surrendering this Warrant in the manner specified above in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which this Warrant is being exercised multiplied by (y) a fraction,
the numerator of which is the Market Price (as defined below) less the Purchase
Price, and the denominator of which is the Market Price. For purpose of this
Warrant, "Market Price" shall mean the average closing sale price quoted on a
share of Common Stock on the Nasdaq National Market or the principal stock
exchange on which the Common Stock is then traded for the three trading days
immediately prior to the date of the delivery to the Company of a purchase form
(or if the Company's Common Stock is not traded or listed on the Nasdaq National
Market or any other principal securities market, the average of the closing bid
prices on the Nasdaq SmallCap Market, the OTC Electronic Bulletin Board, or
otherwise in the over-the-counter market on such days as reported by Nasdaq, the
National Quotation Bureau Incorporated or any comparable system, or if not so
reported, as reported by any New York Stock Exchange member firm selected in
good faith by the Company for such purpose).
2. Exchange; Restrictions on Transfer or Assignment. This Warrant is
exchangeable, without expense, at the option of the Holder, upon surrender
hereof to the Company for other Warrants of different denominations entitling
the Holder to purchase in the aggregate the same number of Shares purchasable
hereunder. Subject to compliance with the Act, applicable state securities laws,
and the requirements pertaining to transfer described in Section 5, this Warrant
and the Holder's rights hereunder are transferrable. To effect a transfer of
this Warrant, the Holder shall surrender the Warrant to the Company at its
principal office with the Assignment Form attached hereto as Exhibit C duly
completed and executed (with signature guaranteed), whereupon the Company, if
the proposed assignment is permitted pursuant to the provisions hereof, shall
register the assignment of this Warrant in accordance with the information
contained in the assignment instrument and shall, without charge, execute and
deliver a new Warrant or Warrants in the name(s) of the assignee or assignees
named in such assignment instrument (and, if applicable, a new Warrant in the
name of the Holder evidencing any remaining portion of the Warrant not
theretofore exercised, transferred, or assigned) and this Warrant shall promptly
be cancelled. The term "Warrant" as used herein includes any Warrants into which
this Warrant may be divided or exchanged.
<PAGE>
3
3. Rights and Obligations of Warrant Holders. This Warrant does not confer
upon the Holder any rights as a shareholder of the Company, either at law or in
equity. The rights of the Holder are limited to those expressed herein and the
Holder, by acceptance hereof, consents to and agrees to be bound by and to
comply with all the provisions of this Warrant. Each Holder, by acceptance of
this Warrant, agrees that the Company and its transfer agent, if any, may, prior
to any presentation of this Warrant for registration of transfer, deem and treat
the person in whose name this Warrant is registered as the absolute, true, and
lawful owner of this Warrant for all purposes whatsoever and neither the Company
nor any transfer agent shall be affected by any notice to the contrary.
4. Covenants and Warranties of the Company. The Company covenants and
agrees that (i) any and all Shares that are issued and delivered upon exercise
of this Warrant and payment of the Purchase Price will, upon delivery, be duly
authorized, validly issued, fully-paid, and nonassessable shares of Common Stock
and (ii) the Company shall at all times during the Exercise Period reserve and
keep available a number of authorized but unissued shares of Common Stock
sufficient to permit the exercise in full of this Warrant. The Company will take
all such actions as may be necessary to assure that all shares of Common Stock
may be so issued without violation by the Company of any applicable law or
government regulation or any requirement of any securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance,
which the Company will transmit promptly upon issuance of such shares).
The Company represents and warrants that (i) the Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware, (ii) the Company has all requisite corporate power and
authority to issue this Warrant and to consummate the transactions contemplated
hereby, and such issuance and consummation will not conflict with, result in a
material breach of, constitute a material default under, or material violation
of any provision of the Company's Certificate of Incorporation or Bylaws, or any
law or regulation of any governmental authority or any provision of any
agreement, judgment, or decree affecting the Company and (iii) all corporate
action required to be taken by the Company in connection with the execution and
delivery of this Warrant and the performance of the Company's obligations
hereunder has been taken.
5. Disposition of Warrants or Shares. The Holder acknowledges that this
Warrant and the Shares issuable upon exercise thereof have not been registered
under the Act or applicable state law. The Holder agrees, by acceptance of this
Warrant, (i) that no sale, transfer, or distribution of this Warrant or the
Shares shall be made except in compliance with the Act and the rules and
regulations promulgated thereunder, including any applicable prospectus delivery
requirements and the restrictions on transfer set forth herein, and (ii) that if
any distribution or any other transfer of this Warrant or any Shares is proposed
to be made by it otherwise than pursuant to an effective registration statement
under the Act, such action shall be taken only after submission to the Company
of an opinion of counsel, reasonably satisfactory in form and substance to the
Company and its counsel, to the effect that the proposed distribution will not
be in violation of the Act or of applicable state law.
<PAGE>
4
6. Adjustment. The number of Shares purchasable upon the exercise of this
Warrant and the Exercise Price per Share are subject to adjustment from time to
time as provided in this Section 6.
(a) Subdivision or Combination of Shares. If the Company shall at any
time subdivide its outstanding shares of Common Stock into a greater number
of shares (including a stock split effected as a stock dividend) or combine
its outstanding shares of Common Stock into a lesser number of shares, the
number of Shares issuable upon exercise of this Warrant shall be adjusted
to such number as is obtained by multiplying the number of shares issuable
upon exercise of this Warrant immediately prior to such subdivision or
combination by a fraction, the numerator of which is the aggregate number
of shares of Common Stock outstanding immediately after giving effect to
such subdivision or combination and the denominator of which is the
aggregate number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, and the Exercise Price per Share shall be
correspondingly adjusted to such amount as shall, when multiplied by the
number of Shares issuable upon full exercise of this Warrant (as increased
or decreased to reflect such subdivision or combination of outstanding
shares of Common Stock, as the case may be), equal the product of the
Exercise Price per Share in effect immediately prior to such subdivision or
combination multiplied by the number of Shares issuable upon exercise of
this Warrant immediately prior to such subdivision or combination.
(b) Effect of Sale, Merger, or Consolidation. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of
all or substantially all of the Company's assets to another corporation
shall be effected after the date hereof in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
and adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase and receive, upon the basis and the terms and
conditions specified in this Warrant and in lieu of the Shares immediately
theretofore purchasable and receivable upon the exercise of this Warrant,
such shares of stock, securities, or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this Warrant, and in any
such case appropriate provision shall be made with respect to the rights
and interests of the Holder to the end that the provisions of this Warrant
(including, without limitation, provisions for adjustments of the Exercise
Price and of the number of Shares issuable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant. The Company shall not effect
any such consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume, by written instrument executed and
delivered to the Holder at its last address appearing on the books of the
Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing sentence, the
Holder may be entitled to purchase.
<PAGE>
5
(c) Issuance of Common Stock Below Exercise Price. If the Company
shall issue or sell shares of Common Stock or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock ("Common Stock Equivalents") (other
than pursuant to the exercise of any Common Stock Equivalents outstanding
on the date of the Note under any of the Company's employee benefit plans),
at a price per share of Common Stock (determined, in the case of Common
Stock Equivalents, by dividing (A) the total amount receivable by the
Company in consideration of the issuance and sale of such Common Stock
Equivalent, plus the total consideration payable to the Company upon
exercise, conversion, or exchange thereof, by (B) the total number of
shares of Common Stock covered by such Common Stock Equivalent), that is
lower (calculated the date of such sale or issuance) than the Exercise
Price, or for no consideration, then:
(i) in each case the number of shares of Common Stock thereafter
issuable upon the exercise of this Warrant shall be increased in a
manner determined by multiplying the number of shares of Common Stock
issuable upon the exercise of the Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
immediately prior to the sale or issuance plus the number of
additional shares of Common Stock offered for subscription or purchase
or to be issued upon exercise, conversion, or exchange of such Common
Stock Equivalent, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the sale or
issuance plus the number of shares of Common Stock that the "aggregate
consideration to be received by the Company" (as defined below) in
connection with such sale or issuance would purchase at the Exercise
Price. For the purpose of such adjustments the "aggregate
consideration to be received by the Company" shall be the
consideration received by the Company for such Common Stock or Common
Stock Equivalents, plus any consideration or premiums stated in the
Common Stock Equivalents to be paid for the shares of Common Stock
covered thereby; and
(ii) in each case the Exercise Price will be reduced to the price
calculated by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately before such
issuance or sale multiplied by the then existing Exercise Price plus
(2) the aggregate consideration, if any received by the Company upon
such issuance or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issuance or sale plus the
number of shares of Common Stock issuable upon the exercise,
conversion, or exchange of any Common Stock Equivalents issued or sold
in the transaction for which the Company is making this adjustment.
<PAGE>
6
If the Company shall issue or sell shares of Common Stock or
Common Stock Equivalents for a consideration consisting, in whole or
in part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes
of this Section 6(c), the Board of Directors of the Company shall
determine, in good faith, the fair value of such property. If the
Company shall issue and sell Common Stock Equivalents, together with
one or more other securities as part of a unit at a price per unit,
then in determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes
of this Section 6(c), the Board of Directors of the Company shall
determine, in good faith, the fair value of the Common Stock
Equivalents then being sold as part of such unit.
(d) If any event occurs as to which the preceding Sections 6(a)
through (c) are not strictly applicable, but as to which the failure to
make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of this Warrant, as determined by the Company or as requested by
the Holder in accordance with the notice provisions of Section 12, then, in
each such case, the Company shall select an independent investment bank or
firm of independent public accountants, such investment bank or firm of
independent public accountants to be selected from a group of three
nationally recognized investment banks or firms of public accountants
chosen by the Holder, which will give its opinion as to the adjustment,if
any, on a basis consistent with the essential intent and principles
established in this Warrant. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holder and will make the
adjustments described in such opinion. The fees and expenses of such
investment bank or independent public accountants will be borne by the
Company. If the adjustment is requested by the Holder, however, and the
investment bank or firm of independent public accountants selected by the
Company pursuant to this paragraph determines that no adjustment is
necessary, then the fees and expenses described in the preceding sentence
shall be borne by the Holder.
(e) Notice to Holder of Adjustment. Whenever the number of Shares
purchasable upon exercise of this Warrant or the Exercise Price per Share
is adjusted as herein provided, the Company shall cause to be mailed to the
Holder within 5 days of such adjustment, in accordance with the provisions
of Section 12, notice setting forth the adjusted number of Shares
purchasable upon the exercise of the Warrant and the adjusted Exercise
Price and showing in reasonable detail the computation of the adjustment
and the facts upon which such adjustment is based.
(f) Notices to Holder of Certain Events. If at any time after the date
hereof: (i) the Company shall declare any dividend or other distribution
upon or with respect to the Common Stock, including any dividend payable in
cash, shares of Common Stock or other securities of the Company; or
(ii) the Company shall offer for subscription to the holders of
its Common Stock any additional shares of stock of any class or any
other securities convertible into Common Stock or any rights to
subscribe thereto; or
<PAGE>
7
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company (other than a
change in par value, or from par value to no par value, or from no par
value to par value or as result of the subdivision or combination of
shares), or any conversion of the Shares into securities of another
corporation, or a sale of all or substantially all of the assets of
the Company, or a consolidation or merger of the Company with another
corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and which does not result in any
reclassification or change of the Shares issuable upon exercise of the
Warrants); or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, not less than 15 days before any record date or other date set for
the definitive action, written notice of the date upon which the books of the
Company shall close or a record shall be taken for purposes of such dividend,
distribution or subscription rights or upon which such reorganization,
reclassification, conversion, sale, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also set forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the number of
Shares and the kind and amount of the shares of stock and other securities and
property deliverable upon exercise of the Warrants. Such notice shall also
specify the date as of which the holder of record of the shares of Common Stock
shall participate in such dividend, distribution, or subscription rights or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
conversion, sale, consolidation, merger, dissolution, liquidation, or winding
up, as the case may be (on which date in the event of voluntary or involuntary
dissolution, liquidation, or winding up of the Company, the right to exercise
the Warrants shall terminate).
7. Piggy-Back Registration.
(a) If the Company shall, at any time prior to the expiration of this
Warrant, authorize a registration of its Common Stock with the Securities
and Exchange Commission (the "SEC"), the Company shall furnish the Holder
with at least 30 days prior written notice thereof and the Holder shall
have the option to include the Shares to be issued to the Holder upon the
exercise of this Warrant in such registration statement. The Holder shall
exercise the "piggy-back registration rights" granted pursuant to this
Section 7 by giving written notice to the Company within 20 days of the
receipt of the written notice from the Company described above.
(b) Notwithstanding any other provision of this Warrant, the Company's
obligations under this Section 7 shall be subject to the following terms
and conditions:
<PAGE>
8
(i) The obligations of the Company set forth under this Section 7
shall not arise upon the filing of a registration statement that
covers any of the following: (A) securities proposed to be issued in
exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common
Stock; (C) securities to be issued pursuant to a transaction
registered on Form S-4 (or any registration form promulgated by the
SEC in substitution of that form); or (D) a stock option, stock bonus,
stock purchase, or other employee benefit or compensation plan or
securities issued or issuable pursuant to any such plan.
(ii) If the Company files a registration statement in connection
with an underwritten public offering of Common Stock, the Company
shall use its best efforts to cause the managing underwriter of the
proposed offering to grant any request by the Holder that Shares
purchased by the Holder upon the exercise of this Warrant be included
in the proposed public offering on terms and conditions that are
customary under industry practice. Notwithstanding any other provision
of this Agreement, if the managing underwriter of the public offering
of the Common Stock gives written notice to the Company that, in the
reasonable opinion of such managing underwriter, marketing factors
require a limitation of the total number of shares of Common Stock to
be underwritten, then the number of Shares purchased by the Holder
upon the exercise of this Warrant that the Company shall be obligated
to include in the registration statement shall be reduced in
accordance with the limitations imposed by the managing underwriter.
(iii) The Holder must provide to the Company all information, and
take all action, the Parent reasonably requests with reasonable
advance notice, to enable it to comply with any applicable law or
regulation or to prepare the registration statement that will cover
the Shares that will be included in the registration.
(c) The Company will pay all Registration Expenses (as defined below)
in connection with the registration of the Shares pursuant to this Section
7. For purposes of this Warrant, the term "Registration Expenses" shall
mean all expenses incurred by the Company in complying with this Section 7,
including, without limitation, all registration and filing fees, exchange
listing fees, printing expenses, fees and disbursements of counsel for the
Company, state Blue Sky fees and expenses, transfer agent fees, cost of
engraving of stock certificates, costs for mailing and tombstone
advertising, cost of preparing the registration statement, related
exhibits, amendments and supplements thereto, underwriting documents,
selected dealer agreements, preliminary and final prospectuses, and the
expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions
attributable to the Shares and the fees and expenses of the Holder's own
counsel and accountants, which shall be borne by the Holder.
<PAGE>
9
8. Indemnification and Notification.
(a) The Company will indemnify and hold harmless the Holder from and
against any and all losses, claims, damages, expenses, and liabilities
caused by any untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by any omission to state a material fact necessary to make any
statement therein not misleading. The foregoing indemnification and
agreement to hold harmless shall not apply, however, insofar as such
losses, claims, damages, expenses, and liabilities are caused by an untrue
statement or omissions based upon information furnished in writing to the
Company by the Holder expressly for use in any registration statement or
prospectus.
(b) The Holder will indemnify the Company, and each person who
controls the Company within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses, and liabilities
caused by an untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by an omission to state a material fact necessary to make any
statement therein not misleading insofar as such losses, claims, damages,
expenses, and liabilities are caused by an untrue statement or omission
based upon information furnished in writing to the Company by the Holder
expressly for use in any registration statement or prospectus.
(c) Each indemnified party promptly shall notify each indemnifying
party of any claim asserted or action commenced against it that is subject
to the indemnification provisions of this Section, but failure to so notify
an indemnifying party will not relieve the indemnifying party from any
liability pursuant to these indemnity provisions or otherwise, unless and
only to the extent that the failure materially prejudices the rights or
obligations of the indemnifying party. Without limiting what might be
materially prejudicial to an indemnifying party, the failure of an
indemnified party to notify an indemnifying party of a lawsuit within ten
days after the date when the indemnified party is served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim
will be considered materially prejudicial to the rights and obligations of
any indemnifying party who was not also served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim.
The indemnifying party may participate at its own expense in the
defense, or, if the indemnifying party so elects within a reasonable time,
the indemnifying party may assume the defense, of any action commenced
against the indemnified party that is the subject of indemnification under
this Section. If the indemnifying party elects to assume the defense of an
indemnified action, however, the indemnifying party shall engage to defend
the action legal counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to assume the defense of any indemnified
action, the indemnified party, and each controlling person who is a
defendant in the action, will be entitled to employ separate counsel
participate in the defense of the action at its own expense.
<PAGE>
10
An indemnified party shall not settle an indemnified claim or action
without the prior written consent of the indemnifying party and the
indemnifying party will not be liable for any settlement made without its
consent. The indemnifying party shall notify the indemnified party whether
or not it will consent to a proposed settlement within ten days after it
receives from the indemnified party notice of the proposed settlement,
summarizing all the terms and conditions of settlement. The indemnifying
party's failure to notify the indemnified party within that ten-day period
whether or not it consents to the proposed settlement will constitute its
consent to the proposed settlement.
This indemnity does not apply to any untrue statement or omission, or
any alleged untrue statement or omission that was made in a preliminary
prospectus but remedied or eliminated in the final prospectus (including
any amendment or supplement to it), if a copy of the definitive prospectus
(including any amendment or supplement to it) was delivered to the person
asserting the claim at or before the time required by the Securities Act
and the delivery of the definitive prospectus (including any amendment or
supplement to it) constitutes a defense to the claim asserted by the
person.
9. No Impairment. The Company will not by any action including, without
limitation, amending or permitting the amendment of the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary action,
avoid or seek to avoid the observance or performance of any of the express terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary to
protect the rights of the Holder against impairment or dilution. Without
limiting the generality of the foregoing, the Company will (i) take all such
action as may be reasonably necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon exercise
of the Warrant, free and clear of all liens, encumbrances, equities, and claims
and (ii) use all reasonable efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body having jurisdiction over
the Company as may be necessary to enable the Company to perform its obligations
under this Warrant.
10. Dilution Fee. If, during the Exercise Period, the Company pays any cash
dividends or makes any cash distribution to any holder of any class of its
Common Stock with respect to such Common Stock and the Exercise Price exceeds
the Market Price, then the Holder of this Warrant will be entitled to receive in
respect of this Warrant a dilution fee in cash (the "Dilution Fee") on the date
of payment of such dividend or distribution, which Dilution Fee will be equal to
the amount per share paid to the holders of Common Stock times the number of
Shares currently exercisable under this Warrant.
11. Survival. The various rights and obligations of the Holder and of the
Company as set forth in Sections 4 and 5 hereof shall survive the exercise of
this Warrant and the surrender of this instrument upon such exercise.
<PAGE>
11
12. Notice. All notices required by this Warrant to be given or made by the
Company shall be given or made by first class mail, postage prepaid, addressed
to the registered Holder hereof at the address of such Holder as shown on the
books of the Company.
13. Loss or Destruction. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
and its counsel, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be changed, waived,
discharged, or terminated except by a written instrument executed by the
Company and the Holder.
(b) This Warrant shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Florida, without regard
to principles of conflicts of laws thereof.
(c) Each provision of this Warrant shall be interpreted in such a
manner as to be effective, valid, and enforceable under applicable law, but
if any provision of this Warrant is held to be invalid, illegal, or
unenforceable under any applicable law or rule in any jurisdiction, such
provision will be ineffective only to the extent of such invalidity,
illegality, or unenforceability in such jurisdiction, without invalidating
the remainder of this Warrant in such jurisdiction or any provision hereof
in any other jurisdiction.
(d) No course of dealing or delay or failure to exercise any right
hereunder on the part of the Holder shall operate as a waiver of such right
or otherwise prejudice the Holder's rights, power, or remedies.
(e) The Company shall pay all expenses incurred by it in connection
with, and all documentary stamp and other taxes (other than stock transfer
taxes) and other governmental charges that may be imposed in respect of,
the issue, sale and delivery of this Warrant and the Shares issuable upon
the exercise hereof.
(f) This Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors and assigns of the Company
and the successors and permitted assigns of the Holder.
15. Further Assurances. The Company agrees that it will execute and record
such documents as the Holder shall reasonably request to secure for the Holder
any of the rights represented by this Warrant.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed by
its duly authorized officer as of the 13th day of May, 1998.
MEDICAL TECHNOLOGY SYSTEMS, INC.
LIFESERV TECHNOLOGIES, INC.
By:-----------------------------
Name:-----------------------------
Title:-----------------------------
<PAGE>
12
EXHIBIT "A"
PROMISSORY NOTE
<PAGE>
13
EXHIBIT "B"
PURCHASE FORM
EXHIBIT "B"
PURCHASE FORM
To be executed upon exercise of the Warrant. Capitalized terms have the
same meanings ascribed to them in the Warrant.
TO: LifeServ Technologies, Inc.
The undersigned hereby exercises the right to purchase _____________ Shares
of Common Stock evidenced by the Warrant, according to the terms and conditions
thereof, and hereby makes payment of the Purchase Price. If the Company's Common
Stock is listed on a securities exchange or market, the undersigned [does] [does
not] choose to pay the Purchase Price pursuant to a cashless exercise of the
Warrant. The undersigned requests that certificates for the Shares shall be
issued in the name set forth below:
Dated: Name:
----------------------------- -----------------------------
-----------------------------
(Address)
Social Security No. --------------
or other identifying number
<PAGE>
14
EXHIBIT "C"
ASSIGNMENT
To be executed by the registered holder to effect a permitted transfer of
the Warrant. Capitalized terms have the same meanings ascribed to them in the
Warrant.
FOR VALUE RECEIVED ("Assignor")
-----------------------------
hereby sells, assigns and transfers unto
-----------------------------("Assignee")
(Name)
-----------------------------
(Address)
the right to purchase __________ shares of Common Stock of LifeServ
Technologies, Inc. evidenced by the Warrant, together with all right, title, and
interest therein, and does irrevocably constitute and appoint
_____________________________ attorney to transfer the said right on the books
of said corporation with full power of substitution in the premises.
Date: Assignor:
----------------------------- -----------------------------
By:
-----------------------------
Its:
-----------------------------
Signature:
-----------------------
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
DATED: May 13, 1998 NO. I
FORM OF WARRANT
LIFESERV TECHNOLOGIES, INC.
Warrant to Purchase up to 45,000 Shares
of Common Stock, par value $.01 per share
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME
ON OR BEFORE SEPTEMBER 30, 2008
This certifies that, for value received, Ella Kedan ("Kedan") or registered
assigns (collectively with Kedan, the "Holder"), is entitled to purchase from
LifeServ Technologies, Inc., a Florida corporation (the "Company"), if a
promissory note of Medication Management Technologies, Inc., Performance
Pharmacy Systems, Inc., Medication Management Systems, Inc., Cart-Ware, Inc.,
and System Professionals, Inc. in favor of Kedan, a copy of which is attached
hereto as Exhibit A (the "Note"), is not paid in full as described below, up to
45,000 fully paid and nonassessable shares (the "Shares") of the Common Stock,
par value $.01 per share, of the Company ("Common Stock"), which will become
exercisable as follows: 15,000 Shares if the Note (including any accrued
interest) is not paid in full on or before July 31, 1998, an additional 15,000
Shares if the Note (including any accrued interest) is not paid in full on or
before August 31, 1998, and an additional 15,000 Shares if the Note (including
any accrued interest) is not paid in full on or before September 30, 1998, in
each case at a price of $1.00 per Share (the "Exercise Price") for ten years
after the warrant becomes exercisable with respect to such Shares (the "Exercise
Period"), subject to the terms, conditions, and adjustments set forth in this
Warrant (the "Warrant").
1. Exercise of Warrants. This Warrant may be exercised in whole or in part
by the Holder during the applicable Exercise Period upon presentation and
surrender hereof, with the Purchase Form attached hereto as Exhibit B duly
executed, at the office of the Company located at 12920 Automobile Boulevard,
Clearwater, Florida 33762, accompanied by full payment of the Exercise Price
multiplied by the number of Shares of the Company being purchased (the "Purchase
Price"), whereupon the Company shall cause the appropriate number of Shares to
be issued and shall deliver to the Holder, within 10 days of surrender of the
<PAGE>
2
Warrant, a certificate representing the Shares being purchased. Upon each
partial exercise hereof, a new Warrant evidencing the remainder of the Shares
will be issued to the Holder, at the Company's expense, as soon as reasonably
practicable, at the same Exercise Price, for the same Exercise Periods, and
otherwise on the same terms and conditions as the Warrant partially exercised.
The Purchase Price shall be payable by delivery of a certified or bank cashier's
check payable to the Company, or by wire transfer of immediately available funds
to an account designated in writing by the Company, in the amount of the
Purchase Price, or, if the Company's Common Stock is listed on a securities
exchange or market, in the manner set forth in the following paragraph if
requested by the Holder in the Purchase Form. The Holder shall be deemed for all
purposes to have become the holder of record of Shares so purchased upon
exercise of this Warrant as of the close of business on the date as of which
this Warrant, together with a duly executed Purchase Form, was delivered to the
Company and payment of the Purchase Price was made, regardless of the date of
delivery of any certificate representing the Shares so purchased, except that if
the Company were subject to any legal requirements prohibiting it from issuing
shares of Common Stock on such date, the Holder shall be deemed to have become
the record holder of such Shares on the next succeeding date as of which the
Company ceased to be so prohibited.
If the Company's Common Stock is listed on a securities exchange or market,
in addition to the method of payment set forth above and in lieu of any cash
payment required, the Holder shall have the right to exercise this Warrant in
full or in part by surrendering this Warrant in the manner specified above in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which this Warrant is being exercised multiplied by (y) a fraction,
the numerator of which is the Market Price (as defined below) less the Purchase
Price, and the denominator of which is the Market Price. For purpose of this
Warrant, "Market Price" shall mean the average closing sale price quoted on a
share of Common Stock on the Nasdaq National Market or the principal stock
exchange on which the Common Stock is then traded for the three trading days
immediately prior to the date of the delivery to the Company of a purchase form
(or if the Company's Common Stock is not traded or listed on the Nasdaq National
Market or any other principal securities market, the average of the closing bid
prices on the Nasdaq SmallCap Market, the OTC Electronic Bulletin Board, or
otherwise in the over-the-counter market on such days as reported by Nasdaq, the
National Quotation Bureau Incorporated or any comparable system, or if not so
reported, as reported by any New York Stock Exchange member firm selected in
good faith by the Company for such purpose).
2. Exchange; Restrictions on Transfer or Assignment. This Warrant is
exchangeable, without expense, at the option of the Holder, upon surrender
hereof to the Company for other Warrants of different denominations entitling
the Holder to purchase in the aggregate the same number of Shares purchasable
hereunder. Subject to compliance with the Act, applicable state securities laws,
and the requirements pertaining to transfer described in Section 5, this Warrant
and the Holder's rights hereunder are transferrable. To effect a transfer of
this Warrant, the Holder shall surrender the Warrant to the Company at its
principal office with the Assignment Form attached hereto as Exhibit C duly
completed and executed (with signature guaranteed), whereupon the Company, if
<PAGE>
3
the proposed assignment is permitted pursuant to the provisions hereof, shall
register the assignment of this Warrant in accordance with the information
contained in the assignment instrument and shall, without charge, execute and
deliver a new Warrant or Warrants in the name(s) of the assignee or assignees
named in such assignment instrument (and, if applicable, a new Warrant in the
name of the Holder evidencing any remaining portion of the Warrant not
theretofore exercised, transferred, or assigned) and this Warrant shall promptly
be cancelled. The term "Warrant" as used herein includes any Warrants into which
this Warrant may be divided or exchanged.
3. Rights and Obligations of Warrant Holders. This Warrant does not confer
upon the Holder any rights as a shareholder of the Company, either at law or in
equity. The rights of the Holder are limited to those expressed herein and the
Holder, by acceptance hereof, consents to and agrees to be bound by and to
comply with all the provisions of this Warrant. Each Holder, by acceptance of
this Warrant, agrees that the Company and its transfer agent, if any, may, prior
to any presentation of this Warrant for registration of transfer, deem and treat
the person in whose name this Warrant is registered as the absolute, true, and
lawful owner of this Warrant for all purposes whatsoever and neither the Company
nor any transfer agent shall be affected by any notice to the contrary.
4. Covenants and Warranties of the Company. The Company covenants and
agrees that (i) any and all Shares that are issued and delivered upon exercise
of this Warrant and payment of the Purchase Price will, upon delivery, be duly
authorized, validly issued, fully-paid, and nonassessable shares of Common Stock
and (ii) the Company shall at all times during the Exercise Period reserve and
keep available a number of authorized but unissued shares of Common Stock
sufficient to permit the exercise in full of this Warrant. The Company will take
all such actions as may be necessary to assure that all shares of Common Stock
may be so issued without violation by the Company of any applicable law or
government regulation or any requirement of any securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance,
which the Company will transmit promptly upon issuance of such shares).
The Company represents and warrants that (i) the Company is a corporation
duly organized, validly existing, and of active status under the laws of the
State of Florida, (ii) the Company has all requisite corporate power and
authority to issue this Warrant and to consummate the transactions contemplated
hereby, and such issuance and consummation will not conflict with, result in a
material breach of, constitute a material default under, or material violation
of any provision of the Company's Articles of Incorporation or Bylaws, or any
law or regulation of any governmental authority or any provision of any
agreement, judgment, or decree affecting the Company and (iii) all corporate
action required to be taken by the Company in connection with the execution and
delivery of this Warrant and the performance of the Company's obligations
hereunder has been taken.
<PAGE>
4
5. Disposition of Warrants or Shares. The Holder acknowledges that this
Warrant and the Shares issuable upon exercise thereof have not been registered
under the Act or applicable state law. The Holder agrees, by acceptance of this
Warrant, (i) that no sale, transfer, or distribution of this Warrant or the
Shares shall be made except in compliance with the Act and the rules and
regulations promulgated thereunder, including any applicable prospectus delivery
requirements and the restrictions on transfer set forth herein, and (ii) that if
any distribution or any other transfer of this Warrant or any Shares is proposed
to be made by it otherwise than pursuant to an effective registration statement
under the Act, such action shall be taken only after submission to the Company
of an opinion of counsel, reasonably satisfactory in form and substance to the
Company and its counsel, to the effect that the proposed distribution will not
be in violation of the Act or of applicable state law.
6. Adjustment. The number of Shares purchasable upon the exercise of this
Warrant and the Exercise Price per Share are subject to adjustment from time to
time as provided in this Section 6.
(a) Subdivision or Combination of Shares. If the Company shall at any
time subdivide its outstanding shares of Common Stock into a greater number
of shares (including a stock split effected as a stock dividend) or combine
its outstanding shares of Common Stock into a lesser number of shares, the
number of Shares issuable upon exercise of this Warrant shall be adjusted
to such number as is obtained by multiplying the number of shares issuable
upon exercise of this Warrant immediately prior to such subdivision or
combination by a fraction, the numerator of which is the aggregate number
of shares of Common Stock outstanding immediately after giving effect to
such subdivision or combination and the denominator of which is the
aggregate number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, and the Exercise Price per Share shall be
correspondingly adjusted to such amount as shall, when multiplied by the
number of Shares issuable upon full exercise of this Warrant (as increased
or decreased to reflect such subdivision or combination of outstanding
shares of Common Stock, as the case may be), equal the product of the
Exercise Price per Share in effect immediately prior to such subdivision or
combination multiplied by the number of Shares issuable upon exercise of
this Warrant immediately prior to such subdivision or combination.
(b) Effect of Sale, Merger, or Consolidation. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of
all or substantially all of the Company's assets to another corporation
shall be effected after the date hereof in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
and adequate provision shall be made whereby the Holder shall thereafter
have the right to purchase and receive, upon the basis and the terms and
conditions specified in this Warrant and in lieu of the Shares immediately
theretofore purchasable and receivable upon the exercise
<PAGE>
5
of this Warrant, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the exercise
of this Warrant, and in any such case appropriate provision shall be made
with respect to the rights and interests of the Holder to the end that the
provisions of this Warrant (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of Shares issuable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written instrument
executed and delivered to the Holder at its last address appearing on the
books of the Company, the obligation to deliver to the Holder such shares
of stock, securities or assets as, in accordance with the foregoing
sentence, the Holder may be entitled to purchase.
(c) Issuance of Common Stock Below Exercise Price. If the Company
shall issue or sell shares of Common Stock or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock ("Common Stock Equivalents") (other
than upon conversion of up to 35,000 shares of Series A Preferred Stock
having an interest rate of up to 15% issued through Jesup & Lamont
Securities Corporation pursuant to a private placement memorandum or
pursuant to the exercise of any Common Stock Equivalents outstanding on the
date of the Note under any of the Company's employee benefit plans), at a
price per share of Common Stock (determined, in the case of Common Stock
Equivalents, by dividing (A) the total amount receivable by the Company in
consideration of the issuance and sale of such Common Stock Equivalent,
plus the total consideration payable to the Company upon exercise,
conversion, or exchange thereof, by (B) the total number of shares of
Common Stock covered by such Common Stock Equivalent), that is lower
(calculated the date of such sale or issuance) than the Exercise Price, or
for no consideration, then:
(i) in each case the number of shares of Common Stock thereafter
issuable upon the exercise of this Warrant (whether or not presently
exercisable) shall be increased in a manner determined by multiplying
the number of shares of Common Stock issuable upon the exercise of the
Warrant by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding immediately prior to the sale or
issuance plus the number of additional shares of Common Stock offered
for subscription or purchase or to be issued upon conversion,
exercise, or exchange of such Common Stock Equivalent, and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately prior to the sale or issuance plus the number
of shares of Common Stock that the "aggregate consideration to be
received by the Company" (as defined below) in connection with such
sale or issuance would purchase at the Exercise Price. For the purpose
of such adjustments the "aggregate consideration to be received by the
Company" shall be the consideration received by the Company for such
Common Stock or Common Stock Equivalents, plus any consideration or
premiums stated in the Common Stock Equivalents to be paid for the
shares of Common Stock covered thereby; and
<PAGE>
6
(ii) in each case the Exercise Price will be reduced to the price
calculated by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately before such
issuance or sale multiplied by the then existing Exercise Price Plus
(2) the aggregate consideration, if any, received by the Company upon
such issuance or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issuance or sale plus the
number of shares of Common Stock issuable upon the exercise,
conversion, or exchange of any Common Stock Equivalents issued or sold
in the transaction for which the Company is making this adjustment.
If the Company shall issue or sell shares of Common Stock or
Common Stock Equivalents for a consideration consisting, in whole or
in part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes
of this Section 6(c), the Board of Directors of the Company shall
determine, in good faith, the fair value of such property. If the
Company shall issue and sell Common Stock Equivalents, together with
one or more other securities as part of a unit at a price per unit,
then in determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes
of this Section 6(c), the Board of Directors of the Company shall
determine, in good faith, the fair value of the Common Stock
Equivalents then being sold as part of such unit.
(d) If any event occurs as to which the preceding Sections 6(a)
through (c) are not strictly applicable, but as to which the failure to
make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of this Warrant, as determined by the Company or as requested by
the Holder in accordance with the notice provisions of Section 12, then, in
each such case, the Company shall select an independent investment bank or
firm of independent public accountants, such investment bank or firm of
independent public accountants to be selected from a group of three
nationally recognized investment banks or firms of public accountants
chosen by the Holder, which will give its opinion as to the adjustment,if
any, on a basis consistent with the essential intent and principles
established in this Warrant. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holder and will make the
adjustments described in such opinion. The fees and expenses of such
investment bank or independent public accountants will be borne by the
Company. If the adjustment is requested by the Holder, however, and the
investment bank or firm of independent public accountants selected by the
Company pursuant to this paragraph determines that no adjustment is
necessary, then the fees and expenses described in the preceding sentence
shall be borne by the Holder.
(e) Notice to Holder of Adjustment. Whenever the number of Shares
purchasable upon exercise of this Warrant or the Exercise Price per Share
is adjusted as herein provided, the Company shall cause to be mailed to the
Holder within 5 days of such adjustment, in accordance with the provisions
of Section 12, notice setting forth the adjusted number of Shares
purchasable upon the exercise of the Warrant and the adjusted Exercise
Price and showing in reasonable detail the computation of the adjustment
and the facts upon which such adjustment is based.
<PAGE>
7
(f) Notices to Holder of Certain Events. If at any time after the date
hereof:
(i) the Company shall declare any dividend or other distribution
upon or with respect to the Common Stock, including any dividend
payable in cash, shares of Common Stock or other securities of the
Company; or
(ii) the Company shall offer for subscription to the holders of
its Common Stock any additional shares of stock of any class or any
other securities convertible into Common Stock or any rights to
subscribe thereto; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company (other than a
change in par value, or from par value to no par value, or from no par
value to par value or as result of the subdivision or combination of
shares), or any conversion of the Shares into securities of another
corporation, or a sale of all or substantially all of the assets of
the Company, or a consolidation or merger of the Company with another
corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and which does not result in any
reclassification or change of the Shares issuable upon exercise of the
Warrants); or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, not less than 15 days before any record date or other date set for
the definitive action, written notice of the date upon which the books of the
Company shall close or a record shall be taken for purposes of such dividend,
distribution or subscription rights or upon which such reorganization,
reclassification, conversion, sale, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also set forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the number of
Shares and the kind and amount of the shares of stock and other securities and
property deliverable upon exercise of the Warrants. Such notice shall also
specify the date as of which the holder of record of the shares of Common Stock
shall participate in such dividend, distribution, or subscription rights or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
conversion, sale, consolidation, merger, dissolution, liquidation, or winding
up, as the case may be (on which date in the event of voluntary or involuntary
dissolution, liquidation, or winding up of the Company, the right to exercise
the Warrants shall terminate).
<PAGE>
8
7. Piggy-Back Registration.
(a) If the Company shall, at any time prior to the expiration of this
Warrant, authorize a registration of its Common Stock with the Securities
and Exchange Commission (the "SEC"), the Company shall furnish the Holder
with at least 30 days prior written notice thereof and the Holder shall
have the option to include the Shares to be issued to the Holder upon the
exercise of this Warrant in such registration statement. The Holder shall
exercise the "piggy-back registration rights" granted pursuant to this
Section 7 by giving written notice to the Company within 20 days of the
receipt of the written notice from the Company described above.
(b) Notwithstanding any other provision of this Warrant, the Company's
obligations under this Section 7 shall be subject to the following terms
and conditions:
(i) The obligations of the Company set forth under this Section 7
shall not arise upon the filing of a registration statement that
covers any of the following: (A) securities proposed to be issued in
exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common
Stock; (C) securities to be issued pursuant to a transaction
registered on Form S-4 (or any registration form promulgated by the
SEC in substitution of that form); or (D) a stock option, stock bonus,
stock purchase, or other employee benefit or compensation plan or
securities issued or issuable pursuant to any such plan.
(ii) If the Company files a registration statement in connection
with an underwritten public offering of Common Stock, the Company
shall use its best efforts to cause the managing underwriter of the
proposed offering to grant any request by the Holder that Shares
purchased by the Holder upon the exercise of this Warrant be included
in the proposed public offering on terms and conditions that are
customary under industry practice. Notwithstanding any other provision
of this Agreement, if the managing underwriter of the public offering
of the Common Stock gives written notice to the Company that, in the
reasonable opinion of such managing underwriter, marketing factors
require a limitation of the total number of shares of Common Stock to
be underwritten, then the number of Shares purchased by the Holder
upon the exercise of this Warrant that the Company shall be obligated
to include in the registration statement shall be reduced in
accordance with the limitations imposed by the managing underwriter.
(iii) The Holder must provide to the Company all information, and
take all action, the Parent reasonably requests with reasonable
advance notice, to enable it to comply with any applicable law or
regulation or to prepare the registration statement that will cover
the Shares that will be included in the registration.
<PAGE>
9
(c) The Company will pay all Registration Expenses (as defined below)
in connection with the registration of the Shares pursuant to this Section
7. For purposes of this Warrant, the term "Registration Expenses" shall
mean all expenses incurred by the Company in complying with this Section 7,
including, without limitation, all registration and filing fees, exchange
listing fees, printing expenses, fees and disbursements of counsel for the
Company, state Blue Sky fees and expenses, transfer agent fees, cost of
engraving of stock certificates, costs for mailing and tombstone
advertising, cost of preparing the registration statement, related
exhibits, amendments and supplements thereto, underwriting documents,
selected dealer agreements, preliminary and final prospectuses, and the
expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions
attributable to the Shares and the fees and expenses of the Holder's own
counsel and accountants, which shall be borne by the Holder.
8. Indemnification and Notification.
(a) The Company will indemnify and hold harmless the Holder from and
against any and all losses, claims, damages, expenses, and liabilities
caused by any untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by any omission to state a material fact necessary to make any
statement therein not misleading. The foregoing indemnification and
agreement to hold harmless shall not apply, however, insofar as such
losses, claims, damages, expenses, and liabilities are caused by an untrue
statement or omissions based upon information furnished in writing to the
Company by the Holder expressly for use in any registration statement or
prospectus.
(b) The Holder will indemnify the Company, and each person who
controls the Company within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses, and liabilities
caused by an untrue statement of a material fact contained in any
registration statement or contained in a prospectus furnished thereunder or
caused by an omission to state a material fact necessary to make any
statement therein not misleading insofar as such losses, claims, damages,
expenses, and liabilities are caused by an untrue statement or omission
based upon information furnished in writing to the Company by the Holder
expressly for use in any registration statement or prospectus.
(c) Each indemnified party promptly shall notify each indemnifying
party of any claim asserted or action commenced against it that is subject
to the indemnification provisions of this Section, but failure to so notify
an indemnifying party will not relieve the indemnifying party from any
liability pursuant to these indemnity provisions or otherwise, unless and
only to the extent that the failure materially prejudices the rights or
obligations of the indemnifying party. Without limiting what might be
materially prejudicial to an indemnifying party, the failure of an
indemnified party to notify an indemnifying party of a lawsuit within ten
days after the date when the indemnified party is served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim
will be considered materially prejudicial to the rights and obligations of
any indemnifying party who was not also served with a copy of the
complaint, petition, or other pleading asserting the indemnifiable claim.
<PAGE>
10
The indemnifying party may participate at its own expense in the
defense, or, if the indemnifying party so elects within a reasonable time,
the indemnifying party may assume the defense, of any action commenced
against the indemnified party that is the subject of indemnification under
this Section. If the indemnifying party elects to assume the defense of an
indemnified action, however, the indemnifying party shall engage to defend
the action legal counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to assume the defense of any indemnified
action, the indemnified party, and each controlling person who is a
defendant in the action, will be entitled to employ separate counsel
participate in the defense of the action at its own expense.
An indemnified party shall not settle an indemnified claim or action
without the prior written consent of the indemnifying party and the
indemnifying party will not be liable for any settlement made without its
consent. The indemnifying party shall notify the indemnified party whether
or not it will consent to a proposed settlement within ten days after it
receives from the indemnified party notice of the proposed settlement,
summarizing all the terms and conditions of settlement. The indemnifying
party's failure to notify the indemnified party within that ten-day period
whether or not it consents to the proposed settlement will constitute its
consent to the proposed settlement.
This indemnity does not apply to any untrue statement or omission, or
any alleged untrue statement or omission that was made in a preliminary
prospectus but remedied or eliminated in the final prospectus (including
any amendment or supplement to it), if a copy of the definitive prospectus
(including any amendment or supplement to it) was delivered to the person
asserting the claim at or before the time required by the Securities Act
and the delivery of the definitive prospectus (including any amendment or
supplement to it) constitutes a defense to the claim asserted by the
person.
9. No Impairment. The Company will not by any action including, without
limitation, amending or permitting the amendment of the charter documents,
bylaws, or similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities, or any other similar voluntary action,
avoid or seek to avoid the observance or performance of any of the express terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be reasonably
necessary to protect the rights of the Holder against impairment or dilution.
Without limiting the generality of the foregoing, the Company will (i) take all
such action as may be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon exercise
of the Warrant, free and clear of all liens, encumbrances, equities, and claims
and (ii) use all reasonable efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body having jurisdiction over
the Company as may be necessary to enable the Company to perform its obligations
under this Warrant.
<PAGE>
11
10. Dilution Fee. If, during the Exercise Period, the Company pays any cash
dividends or makes any cash distribution to any holder of any class of its
Common Stock with respect to such Common Stock and the Exercise Price exceeds
the Market Price, then the Holder of this Warrant will be entitled to receive in
respect of this Warrant a dilution fee in cash (the "Dilution Fee") on the date
of payment of such dividend or distribution, which Dilution Fee will be equal to
the amount per share paid to the holders of Common Stock times the number of
Shares currently exercisable under this Warrant.
11. Survival. The various rights and obligations of the Holder and of the
Company as set forth in Sections 4 and 5 hereof shall survive the exercise of
this Warrant and the surrender of this instrument upon such exercise.
12. Notice. All notices required by this Warrant to be given or made by the
Company shall be given or made by first class mail, postage prepaid, addressed
to the registered Holder hereof at the address of such Holder as shown on the
books of the Company.
13. Loss or Destruction. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
and its counsel, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be changed, waived,
discharged, or terminated except by a written instrument executed by the
Company and the Holder.
(b) This Warrant shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Florida, without regard
to principles of conflicts of laws thereof.
(c) Each provision of this Warrant shall be interpreted in such a
manner as to be effective, valid, and enforceable under applicable law, but
if any provision of this Warrant is held to be invalid, illegal, or
unenforceable under any applicable law or rule in any jurisdiction, such
provision will be ineffective only to the extent of such invalidity,
illegality, or unenforceability in such jurisdiction, without invalidating
the remainder of this Warrant in such jurisdiction or any provision hereof
in any other jurisdiction.
(d) No course of dealing or delay or failure to exercise any right
hereunder on the part of the Holder shall operate as a waiver of such right
or otherwise prejudice the Holder's rights, power, or remedies.
<PAGE>
12
(e) The Company shall pay all expenses incurred by it in connection
with, and all documentary stamp and other taxes (other than stock transfer
taxes) and other governmental charges that may be imposed in respect of,
the issue, sale and delivery of this Warrant and the Shares issuable upon
the exercise hereof.
(f) This Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors and assigns of the Company
and the successors and permitted assigns of the Holder.
15. Further Assurances. The Company agrees that it will execute and record
such documents as the Holder shall reasonably request to secure for the Holder
any of the rights represented by this Warrant.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed by
its duly authorized officer as of the 13th day of May, 1998.
LIFESERV TECHNOLOGIES, INC.
By:-----------------------------
Name:-----------------------------
Title:-----------------------------
<PAGE>
13
EXHIBIT "A"
PROMISSORY NOTE
<PAGE>
14
EXHIBIT "B"
PURCHASE FORM
To be executed upon exercise of the Warrant. Capitalized terms have the
same meanings ascribed to them in the Warrant.
TO: LifeServ Technologies, Inc.
The undersigned hereby exercises the right to purchase _____________ Shares
of Common Stock evidenced by the Warrant, according to the terms and conditions
thereof, and hereby makes payment of the Purchase Price. If the Company's Common
Stock is listed on a securities exchange or market, the undersigned [does] [does
not] choose to pay the Purchase Price pursuant to a cashless exercise of the
Warrant. The undersigned requests that certificates for the Shares shall be
issued in the name set forth below:
Dated: Name:
----------------------------- -----------------------------
-----------------------------
(Address)
Social Security No. --------------
or other identifying number
<PAGE>
15
EXHIBIT "C"
ASSIGNMENT
To be executed by the registered holder to effect a permitted transfer of
the Warrant. Capitalized terms have the same meanings ascribed to them in the
Warrant.
FOR VALUE RECEIVED ("Assignor")
-----------------------------
hereby sells, assigns and transfers unto
-----------------------------("Assignee")
(Name)
-----------------------------
(Address)
the right to purchase __________ shares of Common Stock of LifeServ
Technologies, Inc. evidenced by the Warrant, together with all right, title, and
interest therein, and does irrevocably constitute and appoint
_____________________________ attorney to transfer the said right on the books
of said corporation with full power of substitution in the premises.
Date: Assignor:
----------------------------- -----------------------------
By:
-----------------------------
Its:
-----------------------------
Signature:
-----------------------
<PAGE>
1
LINC CAPITAL, INC. LINC Capital, Inc.
MASTER LEASE AGREEMENT 303 East Wacker Drive, #1000
Chicago, Illinois 60601
(312) 946-1000
Lessee: PERFORMANCE PHARMACY SYSTEMS, INC. Master Lease Agreement No. 7193
Address: MEDICATION MANAGEMENT SYSTEMS, INC.
D/B/A "LIFESERV TECHNOLOGIES" AND
LIFESERV TECHNOLOGIES, INC
Jointly and severally, as Co-Lessees
12920 Automobile Blvd. Date: February 23, 1998
Clearwater, Florida 34622
LINC Capital, Inc. ("Lessor") hereby leases to Lessee and Lessee leases from
Lessor, in accordance with the terms and conditions hereinafter set forth, the
equipment and property purchased by Lessor for lease to the Lessee hereunder
together with all replacement parts, additions, accessories, alterations and
repairs incorporated therein or now or hereafter affixed theretoAdd-on Items (as
defined herein) (herein collectively referred to as the "Equipment") described
in each Schedule which may be executed by Lessor and Lessee from time to time
(individually a "Schedule" and collectively, the "Schedules"), each of which is
made a part hereof. For all purposes of this Master Lease Agreement ("Lease"),
each Schedule relating to one or more items of Equipment shall be deemed a
separate lease incorporating all of the terms and provisions of this Lease. In
the event of a conflict between the terms of this Lease and the terms and
conditions of an Schedule, the terms and conditions of the Schedule shall govern
and control that Schedule.
1. Term and Rental. The term of this Lease (the "Initial Lease Term") for any
item of Equipment shall be set forth in the Schedule relating to such item of
Equipment and shall commence (the "Commencement Date") on the Acceptance Date.
The "Acceptance Date" with respect to each Schedule shall be the applicable of
either: (1) the date of delivery to Lessee of all of the Equipment to be leased
thereunder; (2) in the case of Equipment which is the subject of a sale and
leaseback between Lessor and Lessee, the date upon which Lessor purchases such
Equipment from Lessee; or (3) in the case of Equipment requiring installation,
the date of installation of the Equipment. If the Acceptance Date is other than
the first day of a calendar quarter, then the Commencement Date of the Initial
Lease Term set forth in any Schedule shall be the first day of the calendar
quarter following the month which includes the Acceptance Date and Lessee shall
pay to Lessor, in addition to all other sums due hereunder, an amount equal to
one-thirtieth of the amount of the average monthly rental payment due or to
become due hereunder multiplied by the number of days from and including the
Acceptance Date to the Commencement Date of the Initial Lease Term set forth in
the Schedule. During the entire Initial Lease Term and any extension or renewal
of the term of this Lease, Lessee agrees to pay the total rental due hereunder
which shall be the total amount of all rental payments set forth in the Schedule
plus such additional amounts as may become due hereunder or pursuant to any
written modification hereof or additional written agreement hereto. Except as
otherwise specified in the Schedule, rental payments payable hereunder shall be
due monthly and shall be payable in advance on the first day of each month
during the term of this Lease beginning with the Commencement Date of the
Initial Lease Term. All rental payments due hereunder shall be sent to the
address of the Lessor specified in this Lease or in the Schedule or as otherwise
directed by the Lessor in writing. Rental payments or any other payments due
hereunder not made by their scheduled due date shall be overdue and shall be
subject to a service charge in an amount equal to two percent (2%) per month or
the maximum rate permitted by law whichever is less (the "Service Charge Rate")
applied to amount of the overdue payments from the date due until paid. If
Lessor shall at any time accept a rental payment after it shall become due, such
acceptance shall not constitute or be construed as a waiver of any or all of
Lessor's rights hereunder, including without limitation those rights of Lessor
set forth in Sections 12 and 13 hereof.
2. Title. This is an agreement of lease only. Except as otherwise provided in
any applicable Schedule, Lessee shall have no right, title or interest in or to
the Equipment leased hereunder, except as to the lawful use thereof subject to
the terms and conditions of this Lease. All of the Equipment shall remain
personal property (whether or not the Equipment may at any time become attached
or affixed to real property). The Equipment is and shall remain the sole and
exclusive property of Lessor or its assignees. All replacement parts,
modifications, repairs, alterations, additions and accessories now or hereafter
incorporated in or affixed to the Equipment whether before or after the
Commencement Date (herein collectively called "Add-on Items") are hereby
included in the definition of "Equipment". All Add-on Items shall become the
property of Lessor upon being so incorporated or affixed to the Equipment and
shall be returned to Lessor as provided in Section 3 (other than alterations,
additions and accessions that are attached or affixed by Lessee with notice to
Lessor after the Commencement Date for which the Lessor has not given value or
purchased and which are readily removable by Lessee from the Equipment without
any diminution of value or functionality to the Equipment). Upon the request of
Lessor, Lessee will affix to the Equipment labels or other markings supplied by
Lessor indicating its ownership of the Equipment and shall keep the same affixed
for the entire term of this Lease. Lessee agrees to promptly execute and deliver
or cause to be executed and delivered to Lessor and Lessor is hereby authorized
to record or file, any statement and/or instrument reasonably requested by
Lessor for the purpose of showing Lessor's interest in the Equipment, including
without limitation, financing statements, security agreements, and waivers with
respect to rights in the Equipment from any owners or mortgagees of any real
estate where the Equipment may be located. In the event that Lessee fails or
refuses to execute and/or file Uniform Commercial Code financing statements or
other instruments or recordings which Lessor or its assignee reasonably deems
necessary to perfect or maintain perfection of Lessor's or its assignee's
interests hereunder, Lessee hereby appoints Lessor as Lessee's limited
attorney-in-fact to execute and record all documents necessary to perfect or
maintain the perfection of Lessor's interests hereunder. Lessee shall pay Lessor
for any costs or fees relating to any filings hereunder including, but not
limited to actual out of pocket costs, fees, searches, documentation
preparation, documentary stamps, privilege taxes and reasonable attorneys' fees.
If any item of Equipment includes computer software purchased by Lessor or for
which Lessor has given Lessee value, Lessee shall upon request made by Lessor,
execute and deliver and shall cause Seller (as hereinafter defined) to deliver
all such documents as are necessary to effectuate assignment of all software
licenses to Lessor.
3. Acceptance and Return of Equipment. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to cancel
this Lease with respect to such Equipment (and if the Equipment or any portion
thereof has not previously been delivered, Lessor may refuse to pay for the
Equipment or any portion thereof or refuse to cause the same to be delivered)
if: (a) the Acceptance Date with respect to any item of Equipment to be leased
pursuant to any Schedule has not occurred within ninety (90) days of the
estimated Acceptance Date set forth in such Schedule or (b) there shall be, in
the reasonable judgment of Lessor, a material adverse change in the financial
condition or credit standing of Lessee or of any guarantor of Lessee's
performance under this Lease since the date of the most recent financial
statements of Lessee or of such guarantor submitted to Lessor. Upon any
cancellation by Lessor pursuant to this Section or the provisions of any
Schedule, Lessee shall forthwith reimburse to Lessor all sums paid by Lessor
with respect to such Equipment plus all costs and expenses of Lessor incurred in
connection with such Equipment and any interest or rentals due hereunder in
connection with such Equipment and shall pay to Lessor all other sums then due
hereunder, whereupon if Lessee is not then in default and has fully performed
all of its obligations hereunder, Lessor will, upon request of Lessee, transfer
to Lessee without warranty or recourse any rights that Lessor may then have with
respect to such Equipment.
<PAGE>
2
Lessee agrees to promptly execute and deliver to Lessor (in no event later than
15 days after the Acceptance Date) a confirmation by Lessee of unconditional
acceptance of the Equipment in the form supplied by Lessor (the "Equipment
Acceptance"). Lessee agrees, before execution of the aforesaid Equipment
Acceptance, to inform Lessor in writing of any defects in the Equipment, or in
the installation thereof, which have come to the attention of Lessee or its
agents and which might give rise to a claim by Lessee against the Seller or any
other person. If Lessee fails to give notice to Lessor of any such defects or
fails to deliver to Lessor the Equipment Acceptance as provided herein, it shall
be deemed an acknowledgment by Lessee (for purposes of this Lease only) that no
such defects in the Equipment or its installation exist and it shall be
conclusively presumed, solely as between Lessor and its assignees and Lessee,
that such Equipment has been unconditionally accepted by Lessee for lease
hereunder.
Except as otherwise provided in any Schedule, upon expiration or the
cancellation or termination of the Lease with respect to any Equipment, Lessee
shall return the Equipment to Lessor as provided herein. Lessee shall provide
Lessor with not less than ninety (90) days prior written notice of its intention
to return the Equipment upon expiration of the Initial Lease Term. Upon
expiration or the cancellation or termination of the Lease with respect to any
Equipment, Lessee shall, at its own expense, assemble, crate, insure and deliver
all of the Equipment and all of the service records and all software and
software documentation subject to this Lease and any Schedules hereto to Lessor
in the same good condition and repair as when received, reasonable wear and tear
resulting only from proper use thereof excepted, to such reasonable destination
within the continental United States as Lessor shall designate with all packing,
drayage and freight charges to the return destination designated by Lessor
pre-paid by Lessee with evidence of transit insurance on all items of Equipment
at their original Cost. Lessee shall, immediately prior to such return of each
item of Equipment or commercial unit of Equipment, provide to Lessor a letter
from the manufacturer of the equipment or another service organization
reasonably acceptable to Lessor certifying that said item is in good working
order, with reasonable wear and tear resulting only from proper use thereof
excepted, whether such item is eligible for a maintenance agreement by such
manufacturer, and all software and related attachments are included thereon. If
any computer software requires relicensing when removed from Lessee's premises,
Lessee shall bear all costs of such relicensing. Except as otherwise expressly
provided in the Schedule, if Lessee fails for any reason to provide the notice
set forth above or Lessee fails to redeliver the Equipment back to Lessor in
accordance with the terms set forth above, Lessee shall pay to Lessor, at
Lessor's election, an amount equal to the highest monthly payment set forth in
the Schedule for a period of not less than three (3) months and at the end of
such period of time ("Holdover Period"). Except as otherwise expressly provided
in the Schedule, if Lessee fails or refuses to return the Equipment as provided
herein at the end of any Holdover Period, Lessee shall pay to Lessor, at
Lessor's option, an amount equal to the highest monthly rental payment set forth
in the Schedule for each month or portion thereof, until Lessee so returns the
Equipment to Lessor. Should Lessor permit use by Lessee of any Equipment beyond
the Initial Lease Term, or, if applicable, any exercised extension or renewal
term, the lease obligations of Lessee shall continue and such permissive use
shall not be construed as a renewal of the term thereof, or as a waiver of any
right or continuation of any obligation of Lessor hereunder, and Lessor may take
possession of any such Equipment at any time upon demand.
4. Disclaimer of Warranties. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE SCHEDULES. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, ANY IMPLIED WARRANTY OF QUIET
ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY PARTICULAR PURPOSE, AND,
LESSEE LEASES, HIRES AND RENTS THE EQUIPMENT AAS IS, WHERE IS." Lessee
understands and agrees that neither Seller, nor any agent of Seller, is an agent
of Lessor or is in any manner authorized to waive or alter any term or condition
of this Lease. Lessor shall not be liable for any loss or damage suffered by
Lessee or by any other person or entity, direct or indirect or consequential,
including, but not limited to, business interruption and injury to persons or
property, resulting from non-delivery or late delivery, installation, failure or
faulty operation, condition, suitability or use of the Equipment leased by
Lessee hereunder, or for any failure of any representations, warranties or
covenants made by the Seller. Any claims of Lessee, with respect to claims
discussed in the preceding sentences, shall not be made against Lessor but shall
be made, if at all, solely and exclusively against Seller, or any persons other
than the Lessor. Lessor hereby authorizes Lessee to enforce during the term of
this Lease, in its name, but at Lessee's sole effort and expense, all
warranties, agreements or representations, if any, which may have been made by
Seller to Lessor or to Lessee, and Lessor hereby assigns to Lessee solely for
the limited purpose of making and prosecuting any such claim, all rights which
Lessor may have against Seller for breach of warranty or other representation
respecting the Equipment.
5. Care, Transfer and Use of Equipment. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all laws and
regulations applicable to the Equipment, Lessee and its business and shall
protect the Equipment from deterioration except for reasonable wear and tear
resulting only from proper use thereof. When generally offered with respect to
the Equipment, Lessee shall, at its expense, keep a maintenance contract in full
force and effect, throughout the term of this Lease and any Schedule hereto
unless otherwise agreed on the Schedule. The disrepair or inoperability of the
Equipment regardless of the cause thereof shall not relieve Lessee of the
obligation to pay rental hereunder. Lessee shall not make any modification,
alteration or addition to the Equipment (other than normal operating accessories
or controls). Lessee will not, and will not permit anyone other than the
authorized field engineering representatives of Seller or other maintenance
organization reasonably acceptable to Lessor to effect any inspection,
adjustment, preventative or remedial maintenance or repair to the Equipment.
Lessee may not (a) relocate or operate the Equipment at locations other than the
premises of Lessee specified in the applicable Schedule (the "Premises"), except
with Lessor's prior written consent, which shall not be unreasonably withheld if
such other location within the continental United States, or (b) SELL, CONVEY,
TRANSFER, ENCUMBER, PART WITH POSSESSION OF, OR ASSIGN ANY ITEM OF EQUIPMENT OR
ANY OF ITS RIGHTS HEREUNDER, AND ANY SUCH PURPORTED TRANSACTION SHALL BE NULL
AND VOID AND OF NO FORCE OR EFFECT. In the event of a relocation of the
Equipment or any item thereof to which Lessor consents, all costs (including any
additional property taxes or other taxes and any additional expense of insurance
coverage) resulting from any such relocation, shall be promptly paid by Lessee
upon presentation to Lessee of evidence supporting such cost. Lessor shall have
the right during normal hours upon reasonable notice to Lessee, subject to
applicable laws and regulations, to enter Lessee's Premises in order to inspect,
observe, affix labels or other markings, or to exhibit the Equipment to
prospective purchasers or future lessees thereof, or to otherwise protect
Lessor's interest therein.
<PAGE>
3
6. Net Lease. THIS LEASE AND ANY SCHEDULE HERETO IS A NET LEASE, AND ALL
PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes and sales,
use and leasing taxes and penalties and interest on such taxes) imposed, levied
or assessed on the ownership, possession, rental or use of the Equipment during
the term of this Lease and any Schedule hereto (except for Lessor's federal or
state net income taxes) shall be paid by Lessee when due and before the same
shall become delinquent, whether such taxes are assessed or would ordinarily be
assessed against Lessor or Lessee. To the extent possible under applicable law,
for personal property or ad valorem tax return purposes only, Lessee shall
include the Equipment on such reports and returns as may be required by local
law, which returns shall be timely filed by it. Lessee shall provide Lessor with
evidence that Lessee has complied with the foregoing provisions. In any event,
Lessee shall file all tax returns required for itself or Lessor with respect to
the Equipment and this Lease and Lessor hereby appoints Lessee as its
attorney-in-fact for such purpose. In case of failure by Lessee to so pay said
taxes, assessments, licenses or other charges, Lessor may pay all or any part of
such items, in which event the amount so paid by Lessor including any interest
or penalties thereon and reasonable attorneys' fees incurred by Lessor in
pursuing its rights against Lessee or defending against any claims or defenses
asserted by or through Lessee shall be immediately paid by Lessee to Lessor as
additional rental hereunder. Lessee shall promptly pay all costs, expenses and
obligations of every kind and nature incurred in connection with the use or
operation of the Equipment which may arise or become due during the term of this
Lease and any Schedule hereto, whether or not specifically mentioned herein. In
case of failure by Lessee to comply with any provision of this Lease and any
Schedule hereto, Lessor shall have the right, but not the obligation, to effect
such compliance on behalf of Lessee. In such event, all costs and expenses
incurred by Lessor in effecting such compliance shall be immediately payable by
Lessee to Lessor as additional rental hereunder.
7. Indemnity. Lessee shall at its expense: (i) indemnify, protect and defend
Lessor's title to the Equipment from and against all persons claiming against or
through Lessee; (ii) at all times keep the Equipment then subject to this Lease
free from any and all liens, encumbrances, attachments, levies, executions,
burdens, charges or legal process of any and every type whatsoever; (iii) give
Lessor immediate written notice of any breach of this Lease described in clause
(ii); and (iv) indemnify, protect and save Lessor harmless from any loss, cost
or expense (including reasonable attorneys' fees) caused by the Lessee's breach
of any of the provisions of this Lease, whether incurred by Lessor in pursuing
its rights against Lessee or defending against any claims or defenses asserted
by or through Lessee. Lessee shall and does hereby agree to indemnify, defend
and hold Lessor and its assigns harmless from and against any and all liability,
loss, costs, injury, damage, penalties, suits, judgements, demands, claims,
expenses and disbursements (including without limitation, reasonable attorneys'
fees incurred by Lessor in pursuing its rights against Lessee or defending
against any claims or defenses asserted by or through Lessee) of any kind
whatsoever arising out of, on account of, or in connection with this Lease and
the Equipment leased hereunder, including, without limitation, its manufacture,
selection, purchase, delivery, rejection, installation, ownership, possession,
leasing, renting, operation, control, use, maintenance and the return thereof
except for any such claims or damages from Lessor's gross negligence or willful
misconduct. This indemnity shall survive the Initial Lease Term or earlier
cancellation or termination of this Lease and any Schedule hereto.
8. Insurance. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller of any Equipment covered under this Lease and continuing
until Lessee has re-delivered possession of the Equipment to Lessor, Lessee
shall, at its own expense, keep the Equipment (including all Add-on Items
thereto) insured against all risks of loss or damage from every and any cause
whatsoever in such amounts (but in no event less than the greater of the
replacement value thereof or the amount set forth in any applicable Casualty
Schedule, whichever is higher) with such deductibles and exclusions as approved
by Lessor and in such form as is reasonably satisfactory to Lessor. All such
insurance policies shall protect Lessor and Lessor's assignee(s) as loss payees
as their interests may appear. Lessee shall also, at its own expense, carry
public liability insurance, with Lessor and Lessor's assignee(s) as an
additional insured, in such amounts with such companies and in such form as is
reasonably satisfactory to Lessor, with respect to injury to person or property
resulting from or based in any way upon or in any way connected with or relating
to the installation, use or alleged use, or operation of any or all of the
Equipment, or its location or condition.
Not less than ten days prior to the Acceptance Date, Lessee shall deliver to
Lessor satisfactory evidence of such insurance and shall further deliver
evidence of renewal of each such policy not less than thirty (30) days prior to
expiration thereof. Each such policy shall contain an endorsement providing that
the insurer will give Lessor not less than thirty (30) days prior written notice
of the effective date of any alteration, change, cancellation, or modification
of such policy or the failure by Lessee to timely pay all required premiums,
costs or charges with respect thereto. Upon Lessor's request, Lessee shall cause
its insurance agent(s) to execute and deliver to Lessor Loss Payable Clause
Endorsement and Additional Insured Endorsement (bodily injury and property
damage liability insurance) forms provided to Lessee by Lessor. In case of the
failure to procure or maintain such insurance, Lessor shall have the right, but
not the obligation, to obtain such insurance and any premium paid by Lessor
shall be immediately due and payable by Lessee to Lessor as additional rent
hereunder. The maintenance of any policy or policies of insurance pursuant to
this Section shall not limit any obligation or liability of Lessee pursuant to
Sections 7 or 9 or any other provision of this Lease and any Schedule hereto.
9. Risk of Loss. Until such time as the Equipment is returned and delivered to
and accepted by Lessor at the expiration of this Lease, pursuant to the terms of
this Lease and any Schedule hereto, Lessee hereby assumes and shall bear the
entire risk of loss, damage, theft and destruction of the Equipment, or any
portion thereof, from any cause whatsoever ("Equipment Loss"). Without
limitation of the foregoing, no Equipment Loss shall relieve Lessee in any way
from its obligations hereunder. Lessee shall promptly notify Lessor in writing
of any Equipment Loss. In the event of any such Equipment Loss, Lessee shall:
(a) in the event Lessor determines such Equipment to be repairable, promptly
place, at Lessee's expense, the Equipment in good repair, condition and working
order in accordance with Seller's specifications and to the satisfaction of
Lessor; or (b) in the event of an actual or constructive total loss of any item
of Equipment, at Lessor's option: (i) promptly replace, at Lessee's expense, the
Equipment with like equipment of the same or a later model with the same Add-on
Items as the Equipment, and in good repair, condition and working order in
accordance with the Seller's specifications and to the satisfaction of Lessor;
or (ii) immediately pay to Lessor the amount obtained by multiplying the actual
Equipment Cost as specified in the applicable Schedule by the percentage
contained in any applicable Casualty Schedule for the date of such Equipment
Loss plus, any unpaid rentals or any amounts due hereunder.
<PAGE>
4
If no Casualty Schedule has been made a part of any applicable Schedule, an
amount equal to the present value of the total amount of unpaid rentals and all
other amounts due and to become due under any applicable Schedule during the
term thereof as of the date of any payment, discounted at a rate equal to
discount rate of the Federal Reserve Bank of Chicago as of the Commencement Date
of the Lease with respect to each applicable Schedule, plus an additional amount
equal to the estimated fair market value of the Equipment at the end of the
Initial Lease Term applicable to such Equipment (the "End of Term Value"). In no
event shall the amount of such End of Term Value for the Equipment be less than
twenty percent (20%) of the actual cost of the Equipment unless a purchase
option is granted (or other end of term payment is required) under this Lease
for other than the fair market value of the Equipment then the actual amount of
such Purchase Option Price (or other end of term payment) specified in the
applicable Equipment Schedule shall be due and payable to Lessor as the End of
Term Value under this section or such lesser or greater amount specified in the
applicable Schedule.
In the event Lessee is required to repair or replace any such item of Equipment
pursuant to Subsections (a) or (b)(i) of the preceding sentence, the insurance
proceeds received by Lessor, if any, pursuant to Section 8, after the use of
such funds to pay any unpaid amounts then due hereunder, shall be paid to Lessee
or, if applicable, to a third party repairing or replacing the Equipment upon
Lessee's furnishing proof reasonably satisfactory to Lessor that such repair or
replacement has been completed in a reasonably satisfactory manner. In the event
Lessor elects option (b)(ii), Lessee shall be entitled to a credit against the
payment required by said Subsection in an amount equal to such insurance
proceeds actually received by Lessor pursuant to Section 8 on account of such
Equipment, and, upon payment by Lessee to Lessor of all of the sums required
pursuant to Subsection (b)(ii), the applicable Schedule shall terminate with
respect to such item of Equipment and Lessee shall be entitled to whatever
interest Lessor may have in such item AS IS, WHERE IS and WITH ALL FAULTS in its
then condition and location without warranties of any type whatsoever, express
or implied.
10. Covenants of Lessee. Lessee agrees that its obligations under this Lease and
any Schedule hereto, including without limitation, the obligation to pay rental,
are irrevocable and absolute, shall not abate for any reason whatsoever
(including any claims against Lessor), and shall continue in full force and
effect regardless of any inability of Lessee to use the Equipment or any part
thereof for any reason whatsoever including, without limitation, war, act of
God, storms, governmental regulations, strike or other labor troubles, loss,
damage, destruction, disrepair, obsolescence, failure of or delay in delivery of
the Equipment, or failure of the Equipment to properly operate for any cause. In
the event of any alleged claim (including a claim which would otherwise be in
the nature of a set-off) against Lessor, Lessee shall fully perform and pay its
obligations hereunder (including the payment of all rents, without set-off or
defense of any kind) and its only exclusive recourse against Lessor shall be by
a separate action. Lessee agrees to furnish promptly to Lessor the annual
financial statements of Lessee (and of any guarantors of Lessee's performance
under this Lease and any Schedule hereto), prepared in accordance with generally
accepted accounting principles and such interim financial statements of Lessee
as Lessor may reasonably require during the entire term of this Lease and any
Schedule hereto. Either independent certified public accountants or the Lessee's
chief financial officer as requested by Lessor shall certify all such annual
financial statements. Lessee, if requested by Lessor prior to the initial
purchase by Lessor of Equipment for lease hereunder, shall provide at Lessee's
expense an opinion of its counsel acceptable to Lessor affirming the covenants,
representations and warranties of Lessee under this Lease and any Schedule
hereto. So long as there are amounts due Lessor under this Lease, Lessee shall
supply Lessor with such other financial and operating performance data as is
provided to its outside investors or commercial lenders and, if applicable,
required to be provided to shareholders by the Security and Exchange Commission,
and Lessee shall immediately notify Lessor of any material adverse change in its
financial condition or business prospects
11. Representations and Warranties. In order to induce Lessor to enter into this
Lease and any Schedule hereto and to lease the Equipment to Lessee hereunder,
Lessee represents and warrants that: (a) Financial Statements. (i) applications,
financial statements, and reports which have been submitted by Lessee and any
Obligors (as hereinafter defined) to Lessor are, and all information hereafter
furnished by Lessee and Obligors to Lessor will be, true and correct in all
material respects as of the date submitted; (ii) as of the date hereof, the date
of any Schedule and any Acceptance Date, there has been no material adverse
change in any matter stated in such applications, financial statements and
reports; and, (iii) none of the foregoing omit or omitted to state any material
fact which would make any of the foregoing false or misleading. (b)
Organization. Lessee is an organizational entity described on the signature page
hereof and is duly organized, validly existing and is duly qualified to do
business and is in good standing or subsisting or in other similar active status
in each State in which the Equipment will be located. (c) Authority. Lessee has
full power, authority and right to execute, deliver and perform this Lease and
any Schedule hereto, and the execution, delivery and performance hereof has been
authorized by all necessary action of Lessee. (d) Enforceability. This Lease and
any Schedule or other document executed in connection therewith has been duly
executed and delivered by Lessee and any Obligor and constitutes a legal, valid
and binding obligation of Lessee and any Obligor enforceable in accordance with
its terms. (e) Consents. The execution, delivery and performance of this Lease
and any Schedule hereto does not require any approval or consent of any
stockholders, partners or proprietors or of any trustee or holders of any
indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate or
articles of incorporation, partnership agreement, by-laws or other governing
documents of Lessee, or contravene the provisions of, or constitute a default
under, or result in the creation of any lien upon any property of Lessee under
any mortgage, instrument or other agreement to which Lessee is a party or by
which Lessee or its assets may be bound or affected. Except as disclosed, no
authorization, approval, license, filing or registration with any court or
governmental agency or instrumentality is necessary in connection with the
execution, delivery, performance, validity and enforceability of this Lease and
any Schedule hereto. (f) Title. On each Commencement Date, Lessor shall have
good and marketable title to the items of Equipment which is subject to this
Lease and any Schedule hereto on such date, free and clear of all liens, except
the lien of Seller which will be released upon receipt of payment. Lessee
warrants that no party has a security interest in the Equipment which will not
be released on or before payment by Lessor to Seller of the Equipment and that
the Equipment is and shall at all times remain personal property regardless of
how it may be affixed to any real property. (g) Litigation. There is no action,
suit, investigation or proceeding by or before any court, arbitrator, agency or
governmental authority pending or threatened against or affecting Lessee: (i)
which involves the Equipment or the transactions contemplated by this Lease and
any Schedule hereto; or (ii) which, if adversely determined, could have a
material adverse effect on the financial condition, business or operation of
Lessee.
12. Events of Default. An event of default ("Event of Default") shall occur
hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor or
surety of any obligations of Lessee to Lessor under this Lease and any Schedule
hereto): (i) fails to pay any installment of rent or other payment required
hereunder within five (5) days after its due date; or (ii) attempts to or does
remove from the Premises (except a relocation with Lessor's consent as provided
in Section 5), sell, transfer, encumber, part with possession of, or sublet any
item of the Equipment; or (iii) shall suffer or have suffered, in the reasonable
judgment of Lessor, a material adverse change in its financial condition since
the date of the last financial statements submitted to Lessor, and as a result
thereof Lessor in good faith deems itself to be insecure; or (iv) breaches or
shall have breached any representation or warranty made or given by Lessee or
Obligor in this Lease or in any other document furnished to Lessor in connection
herewith, or any such representation or warranty shall be untrue or, by reason
of failure to state a material fact or otherwise, shall be misleading or any of
the statements or other documents or information submitted at any time
heretofore or hereafter by Lessee or Obligor to Lessor shall be untrue or, by
reason of failure to state a material fact or otherwise, shall be misleading or
(v) fails to perform or observe any other covenant, condition or agreement to be
performed or observed by it hereunder, and such failure or breach shall continue
unremedied for a period of ten days after the date on which notice thereof shall
be given by Lessor to Lessee (unless such remedial action cannot be completed
within such ten day period but Lessee has in good faith commenced to remedy such
breach or failure and such remedy is in fact achieved within a time period
agreed to by Lessor); or (vi) shall become insolvent or bankrupt or make an
assignment for the benefit of creditors or consent to the appointment of a
trustee or receiver, or a trustee or receiver shall be appointed for a
substantial part of its property without its consent, or bankruptcy or
reorganization or insolvency proceeding shall be instituted by or against Lessee
or Obligor and Lessee fails to continue to pay all rentals becoming due
hereunder during the pendency of such proceedings and fails to assume this Lease
within sixty (60) days after the commencement of such proceedings; or (vii)
conveys, sells, transfers or assigns substantially all of Lessee's or Obligor's
assets or ceases doing business as a going concern, or, if a corporation, ceases
to be in good standing or files a statement of intent to dissolve, or abandons
any or all of the Equipment; or (viii) shall be in breach of or default under
any lease or other agreement at any time executed with Lessor or any other
lessor or with any lender to Lessee or Obligor such that Lessee's obligations
thereunder have been or are being accelerated.
<PAGE>
5
13. Remedies. Upon the occurrence and during any continuance of an Event of
Default (the "Default Date") set forth in Section 12, Lessor may, in its sole
and absolute discretion, do any one or more of the following: (a) upon notice to
Lessee cancel all or any portion of this Lease or any Schedules executed
pursuant thereto; (b) enter Lessee's Premises and without removal of the
Equipment, render the Equipment unusable or, require Lessee to assemble the
Equipment and make it available to Lessor at a place designated by Lessor,
and/or dispose of the Equipment by sale or otherwise (all of which
determinations may be made by Lessor in its sole and absolute discretion); (c)
declare immediately due and payable all sums due and to become due hereunder for
the full term of the Lease (including any renewal or purchase obligations which
Lessee has contracted to pay); (d) with or without canceling this Lease, recover
from Lessee damages, in an amount equal to the sum of: (i) all unpaid rent and
other amounts that became due and payable on, or prior to, the Default Date,
(ii) the present value of all future rentals and other amounts described in the
Lease and not included in (i) above discounted to the Default Date at a rate
equal to the discount rate of the Federal Reserve Bank of Chicago as of the
Commencement Date of the Lease with respect to each Schedule (which discount
rate, Lessee agrees is a commercially reasonable rate which takes into account
the facts and circumstances at the time such Schedule commenced), (iii) all
commercially reasonable costs and expenses incurred by Lessor in enforcing
Lessor's rights under this Lease, or defending against any claims or defenses
asserted by or through Lessee, including but not limited to, costs of
repossession, recovery, storage, repair, sale, re-lease and reasonable
attorneys' fees, (iv) the estimated residual value of the Equipment as of the
expiration of the Lease, (v) any indemnity amount payable to Lessor hereunder;
and (vi) interest on all of the foregoing from the Default Date until the date
payment is received by Lessor at 2% per month or the highest rate permitted by
law, whichever is less; (e) exercise any other right or remedy which may be
available to it under the Uniform Commercial Code or any other applicable law.
If Lessor elects to dispose of any Equipment recovered from the possession of
Lessee after an Event of Default, Lessor shall dispose of such Equipment in a
commercially reasonable manner. Lessor reserves the right, in its sole and
absolute discretion, to control the timing and negotiate the terms of any
re-leasing or re-sale of any or all of the Equipment at a public auction or in a
private sale, at such time, on such terms and with such notice as Lessor shall
in its sole and absolute discretion deem commercially reasonable. In such event,
without any duty on Lessor's part to effect any such re-lease or sale of the
Equipment, Lessor will credit the present value of any proceeds from such sale
or re-lease actually received and retainable by it (net of any and all costs or
expenses) discounted from the date of Lessor's receipt thereof to the Default
Date at 2 1/2% in excess of the Prime Rate (or its equivalent) per annum in
effect at the First National Bank of Chicago on the date of such payment to the
amounts due to Lessor from Lessee under the provisions of (c), (d) and/or (e)
above. A cancellation of this Lease shall occur only upon notice by Lessor and
only as to such items of Equipment as Lessor specifically elects to cancel and
this Lease shall continue in full force and effect as to the remaining items of
Equipment, if any. If this Lease and/or any Schedule is deemed at any time to be
one intended as security, Lessee agrees that the Equipment shall secure, in
addition to the indebtedness set forth herein, any other indebtedness at any
time owing by Lessee to Lessor. No remedy referred to in this Section is
intended to be exclusive, but shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.
No express or implied waiver by Lessor of any default shall constitute a waiver
of any other default by Lessee or a waiver of any of Lessor's rights.
14. Assignment by Lessor. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS INTEREST
IN THIS LEASE, ANY SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY AMOUNT PAYABLE
HEREUNDER. In such an event, Lessee shall, upon receipt of written notice,
acknowledge any such sale, transfer, assignment or grant of a security interest
and shall pay its obligations hereunder or amounts equal thereto to the
respective transferee, assignee or secured party in the manner specified in any
instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no Event of
Default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a security interest in all or any part of this Lease and any Schedule
hereto, or in the Equipment or in sums payable hereunder, as aforesaid, Lessee
agrees to execute such documents as may be reasonably necessary to evidence,
secure and complete such sale, transfer, assignment or grant of a security
interest and to perfect the transferee's, assignee's or secured party's interest
therein (with any filing fees at Lessor's expense) and Lessee further agrees
that the rights of any transferee, assignee or secured party shall not be
subject to any defense, set-off or counterclaim that Lessee may have against
Lessor or any other party, including the Seller, which defenses, set-offs and
counterclaims shall be asserted only against such party, and that any such
transferee, assignee or secured party shall have all of Lessor's rights
hereunder, but shall assume none of Lessor's obligations hereunder. Lessee
acknowledges that any assignment or transfer by Lessor shall not materially
change Lessee's duties or obligations under this Lease and shall not materially
increase the burdens and risks imposed on Lessee.
15. Miscellaneous. All notices and demands relating hereto shall be in writing
and sent by either any nationally recognized overnight air courier or by
certified mail, return receipt requested, to Lessor or Lessee at their
respective addresses above or shown in the Schedule, or at any other address
designated by notice served in accordance herewith. Notice by overnight air
courier shall be effective one (1) business day after delivery. Notice by
certified mail shall become effective five (5) business days after deposit in
the United States mail, with proper postage prepaid, addressed to the party
intended to be served at the address designated herein. All obligations of
Lessee shall survive the termination or expiration of this Lease and any
Schedule hereto. If more than one Lessee is named in this Lease, the liability
of each hereunder to Lessor shall be joint and several. Any general partner
executing this Lease on behalf of the Lessee agrees that its liability to Lessor
hereunder shall be absolute, primary and direct, and that Lessor shall not be
required to pursue any right or remedy it may have against the Lessee under the
Lease (and shall not be required to first commence any action or obtain any
judgment against Lessee) before enforcing this liability against such general
partner, and that such general partner will, upon demand, pay Lessor the amount
of all sums then due under the Lease, the payment of which, by Lessee, is in
default under the Lease, and will, upon demand, perform all other obligations of
Lessee, the performance of which, by Lessee, is in default under the Lease.
Lessee shall, upon request of Lessor from time to time, perform all acts and
execute and deliver to Lessor all documents which Lessor deems reasonably
necessary to implement this Lease and any Schedule hereto, including, without
limitation, certificates addressed to such persons as Lessor may direct stating
that this Lease and the Schedule hereto is in full force and effect, that there
are no amendments or modifications thereto, that Lessor is not in default hereof
or breach hereunder, setting forth the date to which rentals due hereunder have
been paid, and stating such other matters as Lessor may reasonably request. This
Lease and any Schedule hereto shall be binding upon the parties and their
successors, legal representatives and assigns. Lessee's successors and assigns
shall include, without limitation, a receiver, debtor-in-possession, or trustee
of or for Lessee. If any person, firm, corporation or other entity shall
guarantee this Lease and the performance by Lessee of its obligations hereunder,
all of the terms and provisions hereof shall be duly applicable to such Obligor.
16. Conditions Precedent to Leasing. (i) Lessor shall have no obligation to
purchase any Equipment for lease to Lessee under any Schedule hereunder unless
or until acceptable documentation, the form of which will be provided by Lessor
has been executed by Lessee and delivered to Lessor; (ii) Lessor has confirmed
with Lessee that no material adverse change in Lessee's financial condition and
business prospects prior to each purchase of Equipment.
17. Invalidity. In the event that any provision of this Lease and any Schedule
hereto shall be unenforceable in whole or in part, such provision shall be
limited to the extent necessary to render the same valid, or shall be excised
from this Lease or any Schedule hereto, as circumstances may require, and this
Lease and the applicable Schedule shall be construed as if said provision had
been incorporated herein as so limited, or as if said provision had not been
included herein, as the case may be without invalidating any of the remaining
provisions hereof.
<PAGE>
6
18. End of Term Options. Provided that the Lease has not been terminated and
that no Event of Default or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and shall be continuing,
Lessee shall at the end of the Initial Lease Term of the first Schedule be
entitled to elect and to exercise one of the options, if any, indicated in the
applicable Schedule which election shall be binding on Lessee with respect to
all Schedules entered into between Lessor and Lessee under this Lease. The
foregoing options granted hereunder shall be exercised by written notice
delivered to Lessor by Lessee not more than 180 days and not less than ninety
(90) days prior to the expiration of the Initial Lease Term of the Equipment,
subject to Schedule No. 001.
19. Progress Payments. If requested by Lessee, progress payments will be made
for any amount over the Minimum Invoice Amount specified on each Progress
Payment Authorization per invoice to vendors in accordance with Lessor's
standard procedures. Unless otherwise agreed by Lessor the minimum progress
payment amount shall not be less than the Minimum Progress Payment Amount
specified on the Progress Payment Authorization. Interim rent, on progress
payments, shall be payable from the date progress payments are made by Lessor to
the Commencement Date of the corresponding Schedule. Interim rent shall be
calculated at the daily equivalent of the Monthly Lease Rate Factor. Lessee
shall deliver to Lessor a Progress Payment Authorization, not less than 30 days
prior to the due date thereof and in a form acceptable to Lessor, to make a
progress payment and, provided on such due date no Events of Default have
occurred and be continuing hereunder or under the Lease, Lessor shall make the
progress payment set forth to the manufacturer(s) or supplier(s) as set forth in
such authorization.
20. Law. This Lease and any Schedule hereto shall be binding only when accepted
by Lessor at its corporate headquarters in Illinois and shall in all respects be
governed and construed, and the rights and the liabilities of the parties hereto
determined, except for local filing requirements, in accordance with the laws of
the State of Illinois. LESSEE WAIVES TRIAL BY JURY AND SUBMITS TO THE
JURISDICTION OF THE FEDERAL DISTRICT COURT OR ANY STATE COURT LOCATED WITHIN
COOK COUNTY IN THE STATE OF ILLINOIS AND WAIVES ANY RIGHT TO ASSERT THAT ANY
ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN THE IMPROPER VENUE OR SHOULD
BE TRANSFERRED TO A MORE CONVENIENT FORUM.
Lessee's Initials _________
Lessee's Initials _________
Lessee's Initials _________
21. Amendments. This Lease and any Schedule hereto contain the entire agreement
between the parties with respect to the Equipment, this Lease and any Schedule
hereto and there is no agreement or understanding oral or written, which is not
set forth herein. This Lease and any Schedule hereto may not be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is sought.
Lessee's Initials _________
Lessee's Initials _________
Lessee's Initials _________
22. Lessee's Waivers. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a Lessee by Article 2A of
the Uniform Commercial Code as adopted in any jurisdiction, including but not
limited to Lessee's rights to: (i) cancel this Lease; (ii) repudiate this Lease;
(iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v) recover
damages from Lessor for any breaches of warranty or for any other reason related
to the Equipment; (vi) claim a security interest in the Equipment in Lessee's
possession or control for any reason (vii) deduct all or any part of any claimed
damages resulting from Lessor's default, if any, under this Lease; (viii) accept
partial delivery of the Equipment (ix) "cover" by making any purchase or lease
of or contract to purchase or lease Equipment in substitution for those due from
Lessor; (x) recover any general, special, incidental, or consequential damages
for any reason whatsoever; and (xi) specific performance, replevin, detinue ,
sequestration, claim, and delivery of the like for any Equipment identified to
this Lease. To the extent permitted by applicable law (unless expressly
otherwise agreed hereunder), Lessee also hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use any Equipment in mitigation of Lessor's damages as set
forth in Paragraph 13 or which may otherwise limit or modify any of Lessor's
rights or remedies under Paragraph 13. Any action by Lessee against Lessor for
any default by Lessor under this Lease, including breach of warranty or
indemnity, shall be commenced within one (1) year after any such cause of action
accrues.
Lessee's Initials _________
Lessee's Initials _________
Lessee's Initials _________
23. Counterparts. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original. Each Schedule shall be executed in three
(3) serially numbered counterparts each of which shall be deemed an original but
only counterpart number 1 shall constitute "chattel paper" or "collateral"
within the meaning of the Uniform Commercial Code in any jurisdiction.
24. Addendum. ("X" if applicable) [__] See Addendum (s) attached hereto and made
a part hereof.
<PAGE>
7
The person executing this Lease for and on behalf of Lessee warrants and
represents, which warranty and representation shall survive the expiration or
termination of this Lease, that this Lease and the execution hereof has been
duly and validly authorized by Lessee, constitutes a valid and binding
obligation of Lessee and that he has authority to make such execution for and on
behalf of Lessee.
IN WITNESS WHEREOF, this Lease has been executed by Lessee this
------------
day of 1998.
-----------------------------------
ACCEPTED AT CHICAGO, ILLINOIS
PERFORMANCE PHARMACY SYSTEMS, INC. LINC CAPITAL, INC.
Lessee Lessor
By: By:
--------------------------------- -----------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
------------------------------- -------------------------------
MEDICATION MANAGEMENT SYSTEMS, INC.
Lessee
By: _______________________________________________
Title: _____________________________________________
Date: _____________________________________________
LIFESERV TECHNOLOGIES, INC.
Lessee
By: _______________________________________________
Title: _____________________________________________
Date: _____________________________________________
<PAGE>
1
LINC CAPITAL, INC. LINC Capital, Inc.
EQUIPMENT SCHEDULE 303 East Wacker Drive
SCHEDULE NO. 001 Chicago, Illinois 60601
(312) 946-1000
- -------------------------------------------------------------------------------
Equipment Location:CONNECTICUT VALLEY HOSPITAL, Silver Street,
Middletown, CT 06457 Master Lease Agreement No.: 7193 Acceptance Date:
March ___, 1998
- -------------------------------------------------------------------------------
LINC Capital, Inc. (Lessor) hereby agrees to lease to the Lessee named below,
and Lessee hereby agrees to lease and rent from Lessor the Equipment identified
below, for the term and at the rental payments specified herein, all subject to
the terms and conditions set forth herein and on the reverse side hereof and in
the referenced Master Lease Agreement except as the same may be varied by the
terms of this Schedule.
- --------------------------------------------------------------------------------
Equipment Description: The Equipment will consist of Medication Dispensing and
Pharmacy Management ACTUAL Cost of Equipment: $ Systems, as more fully described
on Schedule "A" attached hereto and made a part hereof. 401,162.39
- --------------------------------------------------------------------------------
TERM AND RENTAL:
- --------------------------------------------------------------------------------
Commencement Date: April 1, 1998 Initial Payment: $23,256.19
Initial Lease Term: 42 months
- --------------------------------------------------------------------------------
Rental Payments*(plus, if applicable all sales, use or other taxes imposed upon
rental payments) shall be made monthly in advance as follows: $11,628.09 per
rental payment beginning on the Commencement Date until forty-two (42) rental
payments have been paid in full followed by exercise by Lessee of one of the two
options listed below in End of Term Options.
*Rental Payments are based on the Lease Rate Factor and are subject to
adjustment as described in Paragraph A on the REVERSE SIDE HEREOF. If
applicable, all freight, sales and use taxes, insurance and maintenance expense
paid by Lessor shall be paid by Lessee in accordance with the terms of the Lease
and this Schedule.
PROPERTY TAXES: Lessor shall report all Equipment for personal property or
advalorem tax return purposes as may be required under applicable law, and all
resulting taxes shall be paid by Lessee.
END OF TERM OPTIONS: At the end of the initial lease term the following options
are granted to Lessee in accordance with the terms described on the reverse side
hereof:
Option to Renew the Initial Lease Term at a Rental equal to the 1.25% of the
Equipment Cost specified above for a renewal period of eighteen (18) months.
Option to Purchase not less than all of the Equipment at the end of the Initial
Lease Term (as described above including any extension thereof) at a Purchase
Option Price equal to the then FAIR MARKET VALUE of the Equipment.
SPECIAL TERMS AND CONDITIONS:
1. Additional Collateral In order to secure the obligations of Lessee to
Lessor under this Equipment Schedule, Lessee shall enter into a collateral
assignment in form and substance acceptable to Lessor covering the rights
of Lessee to receive payment of monies arising out of its Contract with the
State of Connecticut, Department of Administrative Services, Procurement
Services, on behalf of Connecticut Valley Hospital.
<PAGE>
2
2. Maintenance of Equipment. Pursuant to Section 5 of the Master Lease
Agreement requiring the Lessee to keep the Equipment under a maintenance
contract during the term of the Lease, Lessee agrees that it has entered
into and will maintain during the term of the Lease, a maintenance contract
with National, MD, a subsidiary of GE Capital Services or an alternative
comparable maintenance provider, only upon Lessee's prior written consent.
3. Guaranty. This Equipment Schedule is contingent on Lessee furnishing to
Lessor a Guaranty from its parent, Medical Technology Systems, Inc., in
form and substance acceptable to Lessor.
ADDITIONAL TERMS AND CONDITIONS TO THIS EQUIPMENT SCHEDULE ARE ON THE REVERSE
SIDE HEREOF.
The person executing this Lease for and on behalf of Lessee warrants and
represents, which warranty and representation shall survive the expiration or
termination of this Lease, that this Lease and the execution hereof has been
duly and validly authorized by Lessee, constitutes a valid and binding
obligation of Lessee and that he has authority to make such execution for and on
behalf of Lessee.
- --------------------------------------------------------------------------------
Co-Lessee: ACCEPTED AT CHICAGO, ILLINOIS BY LESSOR:
PERFORMANCE PHARMACY SYSTEMS, INC. LINC CAPITAL, INC
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
Co-Lessee: Co-Lessee:
MEDICATION MANAGEMENT SYSTEMS, INC. LIFESERV TECHNOLOGIES, INC.
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
<PAGE>
3
ADDITIONAL TERMS AND CONDITIONS TO EQUIPMENT SCHEDULE
A. Adjustments to Rental Payments. Rental Payments are based on a Lease Rate
Factor of 2.8986% subject to adjustment as described below. The Monthly Lease
Rate Factor will be indexed to the yield for U.S. Treasury Notes maturing
closest to the date 3.5 years from the Commencement Date of this Equipment
Schedule (the "Index Instrument"). The yield of the Index Instrument is
currently 5.3% for the 6-5/8% Treasury Notes maturing July, 2001, as reported in
the Wall Street Journal dated January 14, 1997. The Monthly Lease Rate Factor
shall be adjusted by Lessor to provide for any increase in the yield of the
Index Instrument on the Commencement Date of this Equipment Schedule. At the
Commencement Date of this Equipment Schedule, the Monthly Lease Rate Factor (as
adjusted) shall be fixed for the Initial Lease Term of this Equipment Schedule.
B. Estimated Cost of Equipment, Estimated Acceptance Date, Estimated
Commencement Date and Adjustments in Rental. As used herein, "actual cost" means
the total cost to Lessor of purchasing and delivering the Equipment to Lessee
including, subject to Lessor's consent, taxes, transportation charges and other
charges, which may be applicable. The amount of each payment set forth in the
Schedule are based on an estimate of actual cost, which estimate may, but need
not, be set forth in the Schedule, and such amounts shall be adjusted
proportionately (increased or decreased) if the actual cost of the Equipment
differs from said estimate. Lessee hereby authorizes Lessor to adjust, if
necessary, the amounts set forth in the Schedule to reflect actual cost when the
actual cost is known and to add to the amount of each rental payment any sales,
use or leasing tax that may be imposed on or measured by the rental payments.
Lessor will inform Lessee of the adjustments in rent necessary to reflect actual
cost. If the Commencement Date and Acceptance Date are "estimated" Lessee agrees
to execute a replacement Equipment Schedule setting forth the actual
Commencement Date and Acceptance Date as soon as those dates become final.
C. Initial Payment and/or Security Deposit. Lessee shall make a security deposit
and/or initial payment as indicated in this Schedule upon execution of this
Schedule and lessor shall be authorized to apply funds held by Lessor and
otherwise payable to Lessee for such purposes. Any initial payments made by
Lessee shall be deemed to have been earned by Lessor immediately upon receipt
thereof and shall be deemed to have been applied immediately to satisfy Lessee's
obligations to make such payments hereunder. Initial Payments made by the Lessee
shall not be refundable under any circumstances. Any security deposit paid by
Lessee shall not be refundable to Lessee in the event that the term of this
Lease does not commence unless on account of Lessee's rightful refusal to accept
delivery of the Equipment and in that event such sums shall be deemed to have
been earned by Lessor immediately upon the receipt hereof. At Lessor's option
any security deposit made hereunder may be applied by Lessor to cure any default
of Lessee under the lease, in which event Lessee shall promptly restore the
security deposit to their full amounts as set forth in this Schedule. If all the
terms and conditions herein to be performed by Lessee are fully performed and
all of Lessee's obligations hereunder are fully complied with, that portion of
any security deposit not so applied shall be refunded to Lessee at the
termination or expiration of this Lease.
D. Purchase Option and/or Option for Renewal of Lease Term. [This section
applies only if this schedule indicates that an option to purchase the Equipment
or an option to renew the Lease Term is applicable.] Provided that the Lease,
this Schedule, or any option granted hereunder has not been terminated by Lessor
and that no Event of Default shall have occurred and shall be continuing, Lessor
agrees to grant Lessee an option to purchase the Equipment and/or renew the
Lease Term. See Section 18 of the Master Lease Agreement for additional terms
and conditions applicable to End of Term Options.
If an Event of Default has not occurred under the Lease, Lessee, by giving
Lessor not less than ninety (90) days written notice by registered or certified
mail prior to the expiration date of this Schedule, may, elect to (1) if
applicable, purchase not less than all of the Equipment then leased hereunder,
at the times and in the manner hereinafter specified, for an amount equal to the
Purchase Option Price stated on the face of this Schedule plus any accrued and
unpaid rental or other amounts due under the Lease and plus any applicable sales
tax with respect thereto or (2) if applicable, renew the lease term of not less
than all of the Equipment then leased hereunder for the period(s) and for the
renewal rental(s) (payable in advance) stated on the face of this Schedule. If
Lessee elects to exercise said purchase option, same shall be exercised on the
day immediately following the date of expiration of the minimum lease term, and
by the delivery at such time by Lessee to Lessor of payment, in cash or by
certified check, of the amount of the Purchase Price for the Equipment as
hereinbefore set forth.
Upon payment of said purchase price for the Equipment, Lessor shall, upon
request of Lessee, execute and deliver to Lessee a Bill of Sale for the
Equipment, on an "AS IS," "WHERE IS," "WITH ALL FAULTS" basis, without
representations or warranties of any kind whatsoever. If Lessee exercises its
purchase option and fails to make such payment, Lessee shall pay as additional
rent for each month or fraction thereof after the end of the Initial Lease Term,
an amount equal to the highest monthly payment set forth herein. If Lessee does
not elect to exercise either of said options; Lessee shall return each item of
equipment to Lessor, pursuant to and under the terms and conditions of Section 3
of the Lease. If Lessee fails to notify Lessor as provided herein or if Lessor
and Lessee cannot agree on the purchase or renewal terms, then the term of this
Lease shall be automatically extended at the highest rental provided in this
Schedule, for successive three month periods unless and until terminated by
either party giving to the other not less than three months prior written notice
by registered or certified mail of its intention to terminate at the end of the
next succeeding extension period, and upon termination of this Schedule, Lessee
shall return all of the Equipment as provided in the Lease.
This lease (and Equipment Schedule and Master Lease the terms of which it
incorporates) has been assigned, is subject to the security interests of, and is
held in trust for the benefit of Fleet Bank NA, as Agent, pursuant to the terms
and conditions of a security agreement dated September 28, 1994 and related
documents (as the same may be amended).
<PAGE>
1
LINC CAPITAL, INC. LINC Capital, Inc.
EQUIPMENT SCHEDULE 303 East Wacker Drive
SCHEDULE NO. 001 Chicago, Illinois 60601
(312) 946-1000
- -------------------------------------------------------------------------------
Equipment Location:CONNECTICUT VALLEY HOSPITAL, Silver Street,
Middletown, CT 06457 Master Lease Agreement No.: 7193 Acceptance Date:
March ___, 1998
- -------------------------------------------------------------------------------
LINC Capital, Inc. (Lessor) hereby agrees to lease to the Lessee named below,
and Lessee hereby agrees to lease and rent from Lessor the Equipment identified
below, for the term and at the rental payments specified herein, all subject to
the terms and conditions set forth herein and on the reverse side hereof and in
the referenced Master Lease Agreement except as the same may be varied by the
terms of this Schedule.
- --------------------------------------------------------------------------------
Equipment Description: The Equipment will consist of Medication Dispensing and
Pharmacy Management ACTUAL Cost of Equipment: Systems, as more fully described
on Schedule "A" attached hereto and made a part hereof. $ 156,007.60
- --------------------------------------------------------------------------------
TERM AND RENTAL:
- --------------------------------------------------------------------------------
Commencement Date: April 1, 1998 Initial Payment: $9,044.07
Initial Lease Term: 42 months
- --------------------------------------------------------------------------------
ACTUAL Rental Payments*(plus, if applicable all sales, use or other taxes
imposed upon rental payments) shall be made monthly in advance as follows:
$4,522.04 per rental payment beginning on the Commencement Date until forty-two
(42) rental payments have been paid in full followed by exercise by Lessee of
one of the two options listed below in End of Term Options.
*Rental Payments are based on the Lease Rate Factor and are subject to
adjustment as described in Paragraph A on the REVERSE SIDE HEREOF. If
applicable, all freight, sales and use taxes, insurance and maintenance expense
paid by Lessor shall be paid by Lessee in accordance with the terms of the Lease
and this Schedule.
PROPERTY TAXES: Lessor shall report all Equipment for personal property or
advalorem tax return purposes as may be required under applicable law, and all
resulting taxes shall be paid by Lessee.
END OF TERM OPTIONS: At the end of the initial lease term the following options
are granted to Lessee in accordance with the terms described on the reverse side
hereof:
Option to Renew the Initial Lease Term at a Rental equal to the 1.25% of the
Equipment Cost specified above for a renewal period of eighteen (18) months.
Option to Purchase not less than all of the Equipment at the end of the Initial
Lease Term (as described above including any extension thereof) at a Purchase
Option Price equal to the then FAIR MARKET VALUE of the Equipment.
SPECIAL TERMS AND CONDITIONS:
1. Additional Collateral In order to secure the obligations of Lessee to
Lessor under this Equipment Schedule, Lessee shall enter into a collateral
assignment in form and substance acceptable to Lessor covering the rights
of Lessee to receive payment of monies arising out of its Contract with the
State of Connecticut, Department of Administrative Services, Procurement
Services, on behalf of Connecticut Valley Hospital.
<PAGE>
2
2. Maintenance of Equipment. Pursuant to Section 5 of the Master Lease
Agreement requiring the Lessee to keep the Equipment under a maintenance
contract during the term of the Lease, Lessee agrees that it has entered
into and will maintain during the term of the Lease, a maintenance contract
with National, MD, a subsidiary of GE Capital Services or an alternative
comparable maintenance provider, only upon Lessee's prior written consent.
3. Guaranty. This Equipment Schedule is contingent on Lessee furnishing to
Lessor a Guaranty from its parent, Medical Technology Systems, Inc., in
form and substance acceptable to Lessor.
ADDITIONAL TERMS AND CONDITIONS TO THIS EQUIPMENT SCHEDULE ARE ON THE REVERSE
SIDE HEREOF.
The person executing this Lease for and on behalf of Lessee warrants and
represents, which warranty and representation shall survive the expiration or
termination of this Lease, that this Lease and the execution hereof has been
duly and validly authorized by Lessee, constitutes a valid and binding
obligation of Lessee and that he has authority to make such execution for and on
behalf of Lessee.
- --------------------------------------------------------------------------------
Co-Lessee: ACCEPTED AT CHICAGO, ILLINOIS BY LESSOR:
PERFORMANCE PHARMACY SYSTEMS, INC. LINC CAPITAL, INC
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
Co-Lessee: Co-Lessee:
MEDICATION MANAGEMENT SYSTEMS, INC. LIFESERV TECHNOLOGIES, INC.
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
<PAGE>
3
ADDITIONAL TERMS AND CONDITIONS TO EQUIPMENT SCHEDULE
A. Adjustments to Rental Payments. Rental Payments are based on a Lease Rate
Factor of 2.8986% subject to adjustment as described below. The Monthly Lease
Rate Factor will be indexed to the yield for U.S. Treasury Notes maturing
closest to the date 3.5 years from the Commencement Date of this Equipment
Schedule (the "Index Instrument"). The yield of the Index Instrument is
currently 5.3% for the 6-5/8% Treasury Notes maturing July, 2001, as reported in
the Wall Street Journal dated January 14, 1997. The Monthly Lease Rate Factor
shall be adjusted by Lessor to provide for any increase in the yield of the
Index Instrument on the Commencement Date of this Equipment Schedule. At the
Commencement Date of this Equipment Schedule, the Monthly Lease Rate Factor (as
adjusted) shall be fixed for the Initial Lease Term of this Equipment Schedule.
B. Estimated Cost of Equipment, Estimated Acceptance Date, Estimated
Commencement Date and Adjustments in Rental. As used herein, "actual cost" means
the total cost to Lessor of purchasing and delivering the Equipment to Lessee
including, subject to Lessor's consent, taxes, transportation charges and other
charges, which may be applicable. The amount of each payment set forth in the
Schedule are based on an estimate of actual cost, which estimate may, but need
not, be set forth in the Schedule, and such amounts shall be adjusted
proportionately (increased or decreased) if the actual cost of the Equipment
differs from said estimate. Lessee hereby authorizes Lessor to adjust, if
necessary, the amounts set forth in the Schedule to reflect actual cost when the
actual cost is known and to add to the amount of each rental payment any sales,
use or leasing tax that may be imposed on or measured by the rental payments.
Lessor will inform Lessee of the adjustments in rent necessary to reflect actual
cost. If the Commencement Date and Acceptance Date are "estimated" Lessee agrees
to execute a replacement Equipment Schedule setting forth the actual
Commencement Date and Acceptance Date as soon as those dates become final.
C. Initial Payment and/or Security Deposit. Lessee shall make a security deposit
and/or initial payment as indicated in this Schedule upon execution of this
Schedule and lessor shall be authorized to apply funds held by Lessor and
otherwise payable to Lessee for such purposes. Any initial payments made by
Lessee shall be deemed to have been earned by Lessor immediately upon receipt
thereof and shall be deemed to have been applied immediately to satisfy Lessee's
obligations to make such payments hereunder. Initial Payments made by the Lessee
shall not be refundable under any circumstances. Any security deposit paid by
Lessee shall not be refundable to Lessee in the event that the term of this
Lease does not commence unless on account of Lessee's rightful refusal to accept
delivery of the Equipment and in that event such sums shall be deemed to have
been earned by Lessor immediately upon the receipt hereof. At Lessor's option
any security deposit made hereunder may be applied by Lessor to cure any default
of Lessee under the lease, in which event Lessee shall promptly restore the
security deposit to their full amounts as set forth in this Schedule. If all the
terms and conditions herein to be performed by Lessee are fully performed and
all of Lessee's obligations hereunder are fully complied with, that portion of
any security deposit not so applied shall be refunded to Lessee at the
termination or expiration of this Lease.
D. Purchase Option and/or Option for Renewal of Lease Term. [This section
applies only if this schedule indicates that an option to purchase the Equipment
or an option to renew the Lease Term is applicable.] Provided that the Lease,
this Schedule, or any option granted hereunder has not been terminated by Lessor
and that no Event of Default shall have occurred and shall be continuing, Lessor
agrees to grant Lessee an option to purchase the Equipment and/or renew the
Lease Term. See Section 18 of the Master Lease Agreement for additional terms
and conditions applicable to End of Term Options.
If an Event of Default has not occurred under the Lease, Lessee, by giving
Lessor not less than ninety (90) days written notice by registered or certified
mail prior to the expiration date of this Schedule, may, elect to (1) if
applicable, purchase not less than all of the Equipment then leased hereunder,
at the times and in the manner hereinafter specified, for an amount equal to the
Purchase Option Price stated on the face of this Schedule plus any accrued and
unpaid rental or other amounts due under the Lease and plus any applicable sales
tax with respect thereto or (2) if applicable, renew the lease term of not less
than all of the Equipment then leased hereunder for the period(s) and for the
renewal rental(s) (payable in advance) stated on the face of this Schedule. If
Lessee elects to exercise said purchase option, same shall be exercised on the
day immediately following the date of expiration of the minimum lease term, and
by the delivery at such time by Lessee to Lessor of payment, in cash or by
certified check, of the amount of the Purchase Price for the Equipment as
hereinbefore set forth.
Upon payment of said purchase price for the Equipment, Lessor shall, upon
request of Lessee, execute and deliver to Lessee a Bill of Sale for the
Equipment, on an "AS IS," "WHERE IS," "WITH ALL FAULTS" basis, without
representations or warranties of any kind whatsoever. If Lessee exercises its
purchase option and fails to make such payment, Lessee shall pay as additional
rent for each month or fraction thereof after the end of the Initial Lease Term,
an amount equal to the highest monthly payment set forth herein. If Lessee does
not elect to exercise either of said options; Lessee shall return each item of
equipment to Lessor, pursuant to and under the terms and conditions of Section 3
of the Lease. If Lessee fails to notify Lessor as provided herein or if Lessor
and Lessee cannot agree on the purchase or renewal terms, then the term of this
Lease shall be automatically extended at the highest rental provided in this
Schedule, for successive three month periods unless and until terminated by
either party giving to the other not less than three months prior written notice
by registered or certified mail of its intention to terminate at the end of the
next succeeding extension period, and upon termination of this Schedule, Lessee
shall return all of the Equipment as provided in the Lease.
This lease (and Equipment Schedule and Master Lease the terms of which it
incorporates) has been assigned, is subject to the security interests of, and is
held in trust for the benefit of Fleet Bank NA, as Agent, pursuant to the terms
and conditions of a security agreement dated September 28, 1994 and related
documents (as the same may be amended).
<PAGE>
1
LINC CAPITAL, INC. LINC Capital, Inc.
EQUIPMENT SCHEDULE 303 East Wacker Drive
SCHEDULE NO. 001 Chicago, Illinois 60601
(312) 946-1000
- -------------------------------------------------------------------------------
Equipment Location:CONNECTICUT VALLEY HOSPITAL, Silver Street,
Middletown, CT 06457 Master Lease Agreement No.: 7193 Acceptance Date:
March ___, 1998
- -------------------------------------------------------------------------------
LINC Capital, Inc. (Lessor) hereby agrees to lease to the Lessee named below,
and Lessee hereby agrees to lease and rent from Lessor the Equipment identified
below, for the term and at the rental payments specified herein, all subject to
the terms and conditions set forth herein and on the reverse side hereof and in
the referenced Master Lease Agreement except as the same may be varied by the
terms of this Schedule.
- --------------------------------------------------------------------------------
Equipment Description: The Equipment will consist of Medication Dispensing and
Pharmacy Management ACTUAL Cost of Equipment: $ Systems, as more fully described
on Schedule "A" attached hereto and made a part hereof. 133,715.37
- --------------------------------------------------------------------------------
TERM AND RENTAL:
- --------------------------------------------------------------------------------
Commencement Date: April 1, 1998 Initial Payment: $7,751.74
Initial Lease Term: 42 months
- --------------------------------------------------------------------------------
ACTUAL Rental Payments*(plus, if applicable all sales, use or other taxes
imposed upon rental payments) shall be made monthly in advance as follows:
$3,875.87 per rental payment beginning on the Commencement Date until forty-two
(42) rental payments have been paid in full followed by exercise by Lessee of
one of the two options listed below in End of Term Options.
*Rental Payments are based on the Lease Rate Factor and are subject to
adjustment as described in Paragraph A on the REVERSE SIDE HEREOF. If
applicable, all freight, sales and use taxes, insurance and maintenance expense
paid by Lessor shall be paid by Lessee in accordance with the terms of the Lease
and this Schedule.
PROPERTY TAXES: Lessor shall report all Equipment for personal property or
advalorem tax return purposes as may be required under applicable law, and all
resulting taxes shall be paid by Lessee.
END OF TERM OPTIONS: At the end of the initial lease term the following options
are granted to Lessee in accordance with the terms described on the reverse side
hereof:
Option to Renew the Initial Lease Term at a Rental equal to the 1.25% of the
Equipment Cost specified above for a renewal period of eighteen (18) months.
Option to Purchase not less than all of the Equipment at the end of the Initial
Lease Term (as described above including any extension thereof) at a Purchase
Option Price equal to the then FAIR MARKET VALUE of the Equipment.
<PAGE>
2
SPECIAL TERMS AND CONDITIONS:
1. Additional Collateral In order to secure the obligations of Lessee to
Lessor under this Equipment Schedule, Lessee shall enter into a collateral
assignment in form and substance acceptable to Lessor covering the rights
of Lessee to receive payment of monies arising out of its Contract with the
State of Connecticut, Department of Administrative Services, Procurement
Services, on behalf of Connecticut Valley Hospital.
2. Maintenance of Equipment. Pursuant to Section 5 of the Master Lease
Agreement requiring the Lessee to keep the Equipment under a maintenance
contract during the term of the Lease, Lessee agrees that it has entered
into and will maintain during the term of the Lease, a maintenance contract
with National, MD, a subsidiary of GE Capital Services or an alternative
comparable maintenance provider, only upon Lessee's prior written consent.
3. Guaranty. This Equipment Schedule is contingent on Lessee furnishing to
Lessor a Guaranty from its parent, Medical Technology Systems, Inc., in
form and substance acceptable to Lessor.
ADDITIONAL TERMS AND CONDITIONS TO THIS EQUIPMENT SCHEDULE ARE ON THE REVERSE
SIDE HEREOF.
The person executing this Lease for and on behalf of Lessee warrants and
represents, which warranty and representation shall survive the expiration or
termination of this Lease, that this Lease and the execution hereof has been
duly and validly authorized by Lessee, constitutes a valid and binding
obligation of Lessee and that he has authority to make such execution for and on
behalf of Lessee.
- --------------------------------------------------------------------------------
Co-Lessee: ACCEPTED AT CHICAGO, ILLINOIS BY LESSOR:
PERFORMANCE PHARMACY SYSTEMS, INC. LINC CAPITAL, INC
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
Co-Lessee: Co-Lessee:
MEDICATION MANAGEMENT SYSTEMS, INC. LIFESERV TECHNOLOGIES, INC.
By:________________________________ By:________________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date: ____________________________
- --------------------------------------------------------------------------------
<PAGE>
3
ADDITIONAL TERMS AND CONDITIONS TO EQUIPMENT SCHEDULE
A. Adjustments to Rental Payments. Rental Payments are based on a Lease Rate
Factor of 2.8986% subject to adjustment as described below. The Monthly Lease
Rate Factor will be indexed to the yield for U.S. Treasury Notes maturing
closest to the date 3.5 years from the Commencement Date of this Equipment
Schedule (the "Index Instrument"). The yield of the Index Instrument is
currently 5.3% for the 6-5/8% Treasury Notes maturing July, 2001, as reported in
the Wall Street Journal dated January 14, 1997. The Monthly Lease Rate Factor
shall be adjusted by Lessor to provide for any increase in the yield of the
Index Instrument on the Commencement Date of this Equipment Schedule. At the
Commencement Date of this Equipment Schedule, the Monthly Lease Rate Factor (as
adjusted) shall be fixed for the Initial Lease Term of this Equipment Schedule.
B. Estimated Cost of Equipment, Estimated Acceptance Date, Estimated
Commencement Date and Adjustments in Rental. As used herein, "actual cost" means
the total cost to Lessor of purchasing and delivering the Equipment to Lessee
including, subject to Lessor's consent, taxes, transportation charges and other
charges, which may be applicable. The amount of each payment set forth in the
Schedule are based on an estimate of actual cost, which estimate may, but need
not, be set forth in the Schedule, and such amounts shall be adjusted
proportionately (increased or decreased) if the actual cost of the Equipment
differs from said estimate. Lessee hereby authorizes Lessor to adjust, if
necessary, the amounts set forth in the Schedule to reflect actual cost when the
actual cost is known and to add to the amount of each rental payment any sales,
use or leasing tax that may be imposed on or measured by the rental payments.
Lessor will inform Lessee of the adjustments in rent necessary to reflect actual
cost. If the Commencement Date and Acceptance Date are "estimated" Lessee agrees
to execute a replacement Equipment Schedule setting forth the actual
Commencement Date and Acceptance Date as soon as those dates become final.
C. Initial Payment and/or Security Deposit. Lessee shall make a security deposit
and/or initial payment as indicated in this Schedule upon execution of this
Schedule and lessor shall be authorized to apply funds held by Lessor and
otherwise payable to Lessee for such purposes. Any initial payments made by
Lessee shall be deemed to have been earned by Lessor immediately upon receipt
thereof and shall be deemed to have been applied immediately to satisfy Lessee's
obligations to make such payments hereunder. Initial Payments made by the Lessee
shall not be refundable under any circumstances. Any security deposit paid by
Lessee shall not be refundable to Lessee in the event that the term of this
Lease does not commence unless on account of Lessee's rightful refusal to accept
delivery of the Equipment and in that event such sums shall be deemed to have
been earned by Lessor immediately upon the receipt hereof. At Lessor's option
any security deposit made hereunder may be applied by Lessor to cure any default
of Lessee under the lease, in which event Lessee shall promptly restore the
security deposit to their full amounts as set forth in this Schedule. If all the
terms and conditions herein to be performed by Lessee are fully performed and
all of Lessee's obligations hereunder are fully complied with, that portion of
any security deposit not so applied shall be refunded to Lessee at the
termination or expiration of this Lease.
D. Purchase Option and/or Option for Renewal of Lease Term. [This section
applies only if this schedule indicates that an option to purchase the Equipment
or an option to renew the Lease Term is applicable.] Provided that the Lease,
this Schedule, or any option granted hereunder has not been terminated by Lessor
and that no Event of Default shall have occurred and shall be continuing, Lessor
agrees to grant Lessee an option to purchase the Equipment and/or renew the
Lease Term. See Section 18 of the Master Lease Agreement for additional terms
and conditions applicable to End of Term Options.
If an Event of Default has not occurred under the Lease, Lessee, by giving
Lessor not less than ninety (90) days written notice by registered or certified
mail prior to the expiration date of this Schedule, may, elect to (1) if
applicable, purchase not less than all of the Equipment then leased hereunder,
at the times and in the manner hereinafter specified, for an amount equal to the
Purchase Option Price stated on the face of this Schedule plus any accrued and
unpaid rental or other amounts due under the Lease and plus any applicable sales
tax with respect thereto or (2) if applicable, renew the lease term of not less
than all of the Equipment then leased hereunder for the period(s) and for the
renewal rental(s) (payable in advance) stated on the face of this Schedule. If
Lessee elects to exercise said purchase option, same shall be exercised on the
day immediately following the date of expiration of the minimum lease term, and
by the delivery at such time by Lessee to Lessor of payment, in cash or by
certified check, of the amount of the Purchase Price for the Equipment as
hereinbefore set forth.
Upon payment of said purchase price for the Equipment, Lessor shall, upon
request of Lessee, execute and deliver to Lessee a Bill of Sale for the
Equipment, on an "AS IS," "WHERE IS," "WITH ALL FAULTS" basis, without
representations or warranties of any kind whatsoever. If Lessee exercises its
purchase option and fails to make such payment, Lessee shall pay as additional
rent for each month or fraction thereof after the end of the Initial Lease Term,
an amount equal to the highest monthly payment set forth herein. If Lessee does
not elect to exercise either of said options; Lessee shall return each item of
equipment to Lessor, pursuant to and under the terms and conditions of Section 3
of the Lease. If Lessee fails to notify Lessor as provided herein or if Lessor
and Lessee cannot agree on the purchase or renewal terms, then the term of this
Lease shall be automatically extended at the highest rental provided in this
Schedule, for successive three month periods unless and until terminated by
either party giving to the other not less than three months prior written notice
by registered or certified mail of its intention to terminate at the end of the
next succeeding extension period, and upon termination of this Schedule, Lessee
shall return all of the Equipment as provided in the Lease.
<PAGE>
1
EMPLOYMENT AGREEMENT
This agreement, effective April 1, 1998 (the "Agreement"), is made by and
between LifeServ Technologies, Inc., a Florida corporation (the "Company") , and
Michael T. Felix, a resident of the State of Florida (the "Executive").
WITNESSETH:
WHEREAS, the Company, desires to employ Executive in accordance with the
terms and conditions contained in this Agreement and to ensure the availability
of the Executive's services to the Company;
WHEREAS, the Executive desires to accept such employment and render his
services in accordance with the terms and conditions contained in this
Agreement;
WHEREAS, the Executive and the Company desire to enter into this employment
agreement, which will fully recognize the contributions of the Executive and
assure harmonious management of the Company's affairs.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment
(a) Offer/Acceptance/Effective Date. The Company hereby offers
employment to the Executive and the Executive hereby accepts employment
subject to the terms and conditions set forth under this Agreement.
(b) Term. The term (the "Term") of this Agreement shall commence on
the date that this Agreement becomes effective, and shall continue without
interruption until terminated by either party as specified herein (see
Section 5), however, if not otherwise terminated in the interim., this
Agreement shall terminate on March 31, 2001, unless extended by amendment
and, in that case, said amendment must be in accord with Section 11(b).
2. Duties.
(a) General Duties. The Executive shall serve as President of the
Company and shall continue to serve in that position, with duties and
responsibilities that are customary for such executives including, without
limitation, ultimate responsibility for managing the Company, subject to
the approval, management and ratification of the Board of Directors.
(b) Best Efforts. The Executive covenants to use his best efforts to
perform his duties and discharge his responsibilities pursuant to this
Agreement in a competent, careful and faithful manner.
(c) Devotion of Time. The Executive will devote substantially all of
his time, attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and vacation
periods as have been established by the Companies) to the Company's
affairs.
<PAGE>
2
3. Compensation and Expenses.
(a) Base Salary. For the services of the Executive to be rendered
under this Agreement, the Company will pay the Executive an annual base
salary (the "Base Salary") as follows: [4% a year increases]
(i) For April 1, 1998 - March 31, 1999, the amount of $150,000;
(ii) For April 1, 1999 - March 31, 2000, the amount of $156,000;
(iii) For April 1, 2000 - March 31, 2001, the amount of $162,240.
Provided, however, that such Base Salary shall be pro rated
accordingly over the time period that the Executive performs services under
this Agreement in any calendar year during which this Agreement shall
terminate before March 31st thereof.
The Company shall pay the Executive his Base Salary in equal
installments no less than semi-monthly.
Should LifeServ become a public company, separate and distinct from
Medical Technology Systems, Inc. , the Executive shall have the right, at
his election and subject to compliance with all applicable security laws
including without limitation those laws governing insider trading, to
receive compensation in the form of the Company's restricted common stock.
Such stock shall be valued at sixty percent (60%) of the closing bid price
of the Company's common stock as quoted on an established exchange as of
the date of Executive's election. Such election may be for all or part of
the Executive's compensation. At the beginning of each quarter, Executive
shall give the Company notice of his election to exercise his option to
receive restricted common stock in lieu of cash compensation.
(b) Base Salary Adjustment. The Base Salary may not be decreased
hereunder during the term of this Agreement, but may be increased upon
review by and within the sole discretion of the Company's Board of
Directors.
(c) Bonus. Executive shall be entitled to receive bonus compensation
in an amount as approved by the Company's Board of Directors based upon the
performance criteria as may be established by the Compensation Committee
from time to time. Such bonuses may be paid in cash or issued in shares of
the Company's common stock on or before June 30th for the preceding fiscal
year on such terms as recommended by the Compensation Committee and
approved by the Board of Directors.
(i) Bonus for Fiscal Year Ending March 31, 1999
Performance Bonus Based on Net Revenue - The Executive shall
be entitled to a performance bonus equal to $50,000
multiplied by the quotient derived by dividing the actual
net revenue of the Company by $13.3 million. However, in the
event that the quotient is less than .80, the Executive
shall not be entitled to a performance bonus.
<PAGE>
3
Performance Bonus Based on Net Income - The Executive shall
be entitled to receive a performance bonus equal to $50,000
multiplied by the quotient derived by dividing the actual
net income from operations (before any extraordinary gains
or losses) of the Company by $266,000. However, in the event
that the quotient is less than .80, the Executive shall not
be entitled to a performance bonus. The maximum amount
payable under this provision is $75,000.
(ii) Bonus for Fiscal Years Ending March 31, 2000 and 20001
Bonuses for fiscal year 2000 and 2001 will be mutually
agreed upon by the Executive and the Company's Board of
Directors. Such bonuses will provide for a minimum of
$100,000 for reaching budgeted goals.
(d) Expenses. In addition to any compensation received pursuant to
Section 3, the Company will reimburse or advance funds to the Executive for
all reasonable, ordinary and necessary travel, educational, seminar, trade
shows, entertainment and miscellaneous expenses incurred in connection with
the performance of his duties under this Agreement, provided that the
Executive properly accounts for such expenses to the Company in accordance
with the Company's practices.
(e) Stock Options. Upon execution of this Agreement, Executive shall
receive a grant of 240,000 shares of restricted common stock of the Company
and an option to purchase 120,000 shares of the common stock of Company
with an exercise price of $1.00 per share, which is the fair market value
of such shares as of the date of this Agreement. The options shall have an
exercise period of ten (10) years from the date of this Agreement.
(f) Additional Equity Based Incentive Compensation. Executive shall be
entitled to additional annual equity based incentive compensation as set forth
in the Company's Management Incentive Compensation Plan as established by the
Compensation Committee.
4. Benefits.
(a) Vacation. For each calendar year during the Term during which the
Executive is employed, the Executive shall be entitled to vacation (which
shall accrue and vest, except as may be hereafter provided to the contrary,
on each January lst thereof) without loss of compensation or other benefits
to which he is entitled under this Agreement, as follows:
(i) For calendar year 1998, 15 work days; (ii) For calendar year
1999, 15 work days; (iii) For calendar year 2000, 15 work
days;
If the Executive is unable to take all of his vacation days
during a year for which he becomes vested, then the
Executive, at his sole option, may elect (i) to carry over
any unused vacation to the next calendar year to be used
solely in that next year or (ii) to receive an appropriate
pro rata portion of his Base Salary corresponding to the
year in which the vacation days vested.
<PAGE>
4
The Executive shall take his vacation at such times as the
Executive may select and the affairs of the Company or any
of its subsidiaries or affiliates may permit.
(b) Employee Benefit Programs. In addition to the compensation to
which the Executive is entitled pursuant to the provisions of Section 3
hereof, during the Term, the Executive will be entitled to participate in
any stock option plan, stock purchase plan, pension or retirement plan,
insurance or other employee benefit plan that is maintained at that time by
the Company for its employees, including programs of life, disability,
basic medical and dental, supplemental medical and dental insurance.
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not be obligated to provide the Executive with any of the
foregoing benefits contained in this Section 4 (b) if the Executive, for
whatever reason, is or becomes uninsurable with respect to coverage
relating to any such benefit(s).
(c) Automobile Allowance. During the term of this Agreement, the
Company shall pay Executive an additional $500 per month as an automobile
allowance to be applied to any automobile expense incurred by Executive.
(d) Life Insurance. During the term of this Agreement, and as
additional consideration hereunder, Executive shall be reimbursed for the
cost of life insurance premiums up to a maximum of $3,000.00 per year.
(e) Annual Physical. The Executive agrees to have an annual physical
examination performed by a physician of his choice during each year of this
Agreement. Executive will notify the Board of Directors if any serious
diseases or life threating conditions are diagnosed. The Company shall
reimburse Executive for the costs of his annual physical examination.
5. Termination.
(a) Termination for Cause. The Company may terminate the Executive's
employment pursuant to this Agreement at any time for cause upon written
notice. Such termination will become effective upon the giving of such
notice. Upon any such termination for cause, the Executive shall have no
right to compensation, bonus or reimbursement under Section 3 or to
participate in any employee benefit programs or other benefits to which he
may be entitled under Section 4 for any period subsequent to the effective
date of termination. For purposes of this Agreement, the term "cause" shall
mean:
(i) the Executive's conviction of a felony;
(ii) the Executive's indictment for misappropriating assets or
otherwise defrauding the Company or any of its subsidiaries
or affiliates; or
(iii)a material breach by the Executive of any provision of this
Agreement.
(b) Death or Disability. This Agreement and the Company's obligations
hereunder will terminate upon the death or disability of the Executive. For
purposes of this Section 5(c), "disability" shall mean that for a period of
six (6) months in any twelve (12) month period the Executive is incapable
of substantially fulfilling the duties set forth in this Agreement because
of physical, mental or emotional incapacity resulting from injury, sickness
or disease as determined by an independent physician mutually acceptable to
the Company and the Executive. Upon any such termination upon death or
disability, the Company will pay the Executive or his legal representative,
as the case may be, his Base Salary (which may include any accrued, but
<PAGE>
5
unused vacation time) at such time pursuant to Section 3(a) through the
date of such termination of employment (or, if terminated as a result of a
disability, until the date upon which the disability policy maintained
pursuant to Section 4 (b) (ii) begins payment of benefits) plus any other
compensation that may be due and unpaid. In the event of death or
disability of the Executive and any obligations that the Executive may owe
the Company for repayment of loans or other amounts shall be forgiven.
(c) Voluntary Termination. Prior to the termination of this Agreement,
the Executive may, on ninety (90) days prior written notice to the Company,
at any time terminate his employment. Upon any such termination, the
Company shall pay the Executive his Base Salary at such time pursuant to
Section 3(a) through the date of such termination of employment (which
shall include any vested and accrued, but unused vacation time).
6. Restrictive Covenants.
(a) Competition with the Companies. The Executive covenants and agrees
that, during the Term of this Agreement, the Executive will not, without
the prior written consent of Company, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee or in
any other capacity as principal or agent), compete with the Company.
Notwithstanding this restriction, Executive shall be entitled to invest in
stock of other competing public companies so long as his ownership is less
than 5% of such company's outstanding shares.
(b) Disclosure of Confidential Information. The Executive acknowledges
that during his employment he will gain and have access to confidential
information regarding the Company and its subsidiaries and affiliates. The
Executive acknowledges that such confidential information as acquired and
used by the Company or any of its subsidiaries or affiliates constitutes a
special, valuable and unique asset in which the Company or any of its
subsidiaries or affiliates, as the case may be, hold a legitimate business
interest. All records, files, materials and confidential informant (the
"Trade Secrets") obtained by the Executive in the course of his employment
with the Company shall be hereby deemed confidential and proprietary and
shall remain the exclusive property of the Company or any of its
subsidiaries or affiliates, as the case may be. The Executive will not,
except in connection with and as required by his performance of his duties
under this Agreement, for any reason use for his own benefit or the benefit
of any person or entity with which he may be associated, disclose any Trade
Secrets to any person, firm, corporation, association or other entity for
any reason or purpose whatsoever without the prior written consent of the
Board of Directors of the Companies, unless such information previously
shall have become public knowledge through no action by or omission of the
Executive.
(c) Subversion, Disruption or Interference. At no time during the term
hereof and thereafter, shall Executive, directly or indirectly, interfere,
induce, influence, combine or conspire with, or attempt to induce,
influence, combine or conspire with, any of the employees or sponsors of,
or consultants to, the Company to terminate their relationship with or
compete or ally against the Company or any of its subsidiaries or
affiliates of the Company in the business in which the Company or any one
of its subsidiaries or affiliates is presently engaged or in which the
Company or any one of its subsidiaries or affiliates desires to engage in
the future.
(d) Enforcement of Restrictions. The parties hereby agree that any
violation by Executive of the covenants contained in this Section 6 will
cause irreparable damage to the Company or any of its subsidiaries and
affiliates and may, as a matter of course, be restrained by process issued
out of a court of competent jurisdiction, in addition to any other remedies
provided by law.
<PAGE>
6
7. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control" shall be
deemed to have taken place if any person, other than Medical Technology
Systems, Inc. or its shareholders including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
owner or beneficial owner of companies securities, after the date of this
Agreement, having more than 50% of the combined voting power of the then
outstanding securities of the Company that may be cast for the election of
directors of the Company (other than as a result of an issuance of
securities specifically approved by Executive and specifically excluded
from the provisions of this Section 8 by subsequent written agreement of
the Executive); provided, however, that a Change of Control shall not be
deemed to have occurred if the person who becomes the owner of said more
than 50% of the combined voting power of the Company is Todd E. Siegel or
an entity (or entities) controlled by Todd E. Siegel.
(b) The Company and Executive hereby agree that, if Executive is in
the employ of the Company on the date on which a Change of Control occurs
(the "Change of Control Date") , the Company will continue to employ the
Executive and the Executive will remain in the employ of the Company for
the period commencing on the Change of Control Date and ending on the
expiration of the Term, to exercise such authority and perform such
executive duties as are commensurate with the authority being exercised and
duties being performed by the Executive immediately prior to the Change of
Control Date. If after a Change of Control, the Executive is requested,
and, in his sole and absolute discretion, consents to change his principal
business location, the Company will reimburse the Executive for his
relocation expenses, including without limitation, moving expenses,
temporary living and travel expenses for a time while arranging to move his
residence to the changed location, closing costs, if any, associated with
the sale of his existing residence and the purchase of a replacement
residence at the changed location, plus an additional amount representing a
gross-up of any state or federal taxes payable by Executive as a result of
any such reimbursements. If the Executive shall not consent to change his
business location, the Executive may continue to provide the services
required of him hereunder in Clearwater, Florida and the Company shall
continue to maintain an office for the Executive at that location
commensurate with the Company's office prior to the Change of Control Date.
(c) During the remaining Term after the Change of Control Date, the
Company will (i) continue to honor the terms of this Agreement, including
as to Base Salary and other compensation set forth in Section 3 hereof, and
(ii) continue employee benefits as set forth in Section 4 hereof at levels
in effect on the Change of Control Date (but subject to such reductions as
may be required to maintain such plans in compliance with applicable
federal law regulating employee benefits).
(d) If during the remaining Term on or after the Change of Control
Date (i) the Executive's employment is terminated by the Company other than
for cause (as defined in Section 5 hereof), or (ii) there shall have
occurred a material reduction in Executive's compensation or employment
related benefits, or a material change in Executive's status, working
conditions or management responsibilities, or a material change in the
business objectives or policies of the Company and the Executive
voluntarily terminates employment within sixty (60) days of any such
occurrence, or the last in a series of occurrences, then the Executive
shall be entitled to receive, subject to the provisions of subparagraphs
(e) and (f) below, a lump-sum payment equal to 250% of Executive's current
Base Salary in addition to any other compensation that may be due and owing
to the Executive under Section 3 hereof.
<PAGE>
7
(e) The amounts payable to the Executive under any other compensation
arrangement maintained by the Company which became payable, after payment
of the lump-sum provided for in paragraph (d), upon or as a result of the
exercise by Executive of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code
280G and regulations thereunder), shall be reduced to the extent necessary
so that such amounts, when added to such lump-sum, do not exceed 299% of
the Executive's Base Salary (as computed in accordance with provisions of
the Internal Revenue Code of 1986, as amended and any regulations
promulgated thereunder) for determining whether the Executive has received
an excess parachute payment. Any such excess amount shall be deferred and
paid in the next tax year.
(f) In the event of a proposed Change in Control, the Company will
allow the Executive to participate in all meetings and negotiations related
thereto.
8. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
rights and obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void and constitute a material breach
hereunder.
9. Severability. If any provision of this Agreement otherwise is deemed to
be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding and/or like effect as though such provision were not
included.
10. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or
telecopier to the following addresses:
To the Company:
Todd E. Siegel, Secretary
LifeServ Technologies, Inc.
12910 Automobile Boulevard
Clearwater, FL 33762
With copies to:
Robert Grammig Robert E. Burguieres
Holland & Knight Arnold & Burguireres
P.O. Box 1288 1701 9th Street North
Tampa, FL 33602-4300 St. Petersburg, FL 33704
To the Executive:
Michael T. Felix, President
LifeServ Technologies, Inc.
12910 Automobile Boulevard
Clearwater, FL 33762
<PAGE>
8
Either party may, from time to time, designate any other address to which
any such notice to it or him shall be sent. Any such notice shall be deemed to
have been delivered upon the earlier of actual receipt or four days after
deposit in the mail, if by certified mail.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal, substantive laws of the State
of Florida without giving effect to the conflict of laws rules thereof.
(b) Waiver/Amendment. The waiver by any party to this Agreement of a
breach of any provision hereof by any other party shall not be construed as
a waiver of any subsequent breach by any party. No provision of this
Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or
modification is sought.
(c) Attorney's Fees. In the event any action is commenced, the
prevailing party shall be entitled to a reasonable attorneys fee, costs and
expenses.
(d) Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter of this Agreement.
(e) Counterparts. This Agreement may be executed in counterparts, all
of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
WITNESSES: "EXECUTIVE"
- ------------------------------------- ---------------------------------------
Print Name: _________________________ MICHAEL T. FELIX
- -------------------------------------
Print Name: _________________________
"COMPANY"
LIFESERV TECHNOLOGIES, INC.,
_____________________________________ a Florida corporation
Print Name: ________________________
By:_____________________________________
_____________________________________ Print Name: ___________________________
Print Name: _________________________ As: ___________________________________
<PAGE>
1
EMPLOYMENT AGREEMENT
This agreement, dated as of March 1, 1998 (the "Agreement") is made by and
between MEDICAL TECHNOLOGY SYSTEMS, INC., a Delaware corporation (the "Company")
, and MICHAEL P. CONROY, a resident of the State of Florida (the "Executive").
WITNESSETH:
WHEREAS, the Company, desires to employ Executive in accordance with the
terms and conditions contained in this Agreement and to ensure the availability
of the Executives services to the Company;
WHEREAS, the Executive desires to accept such employment and render his
services in accordance with the terms and conditions contained in this
Agreement;
WHEREAS, the Executive and the Company desire to enter into this employment
agreement, which will fully recognize the contributions of the Executive and
assure harmonious management of the Company's affairs.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment
(a) Offer/Acceptance/Effective Date. The Company hereby offers
employment to the Executive and the Executive hereby accepts employment
subject to the terms and conditions set forth under this Agreement.
(b) Term. The term (the " Term") of this contract shall commence on
the date that this Agreement becomes effective, and shall continue without
interruption until February 28, 2001. Thereafter, this Agreement shall
continue for successive one (1) year periods, unless the Company or the
Executive elects to terminate the Agreement as provided in Section 5 below.
If either the Company or the Executive elects to terminate this agreement
upon the expiration of the term of employment, such party shall provide the
other party with written notice of election to terminate at least ninety
(90) days prior to the last day of the term of employment.
2. Duties.
(a) General Duties. The Executive shall serve as Vice President and
Chief Financial Officer of the Company and shall continue to serve in those
positions, with duties and responsibilities that are customarily performed
by the Chief Financial Officer of a corporation of the size and engaged in
the business of the Company.
(b) Best Efforts. The Executive covenants to use his best efforts to
perform his duties and discharge his responsibilities pursuant to this
Agreement in a competent, careful and faithful manner.
(c) Devotion of Time. The Executive will devote substantially all of
his time, attention and energies during normal business hours (exclusive of
periods of sickness and disability and of such normal holiday and vacation
periods as have been established by the Companies) to the Company's
affairs.
3. Compensation and Expenses.
(a) Base Salary. For the services of the Executive to be rendered
under this Agreement, the Company will pay the Executive an annual base
salary (the "Base Salary") as follows:
(i) For March 1, 1998 - February 28, 1999, the amount of
$125,000;
(ii) For March 1, 1999 - February 28, 2000, the amount of
$130,000; and
(iii)For March 1, 2000 - February 28, 2001, the amount of
$135,200.
Provided, however, that such Base Salary shall be pro rated accordingly
over the time period that the Executive performs services under this Agreement
in any calendar year during which this Agreement shall terminate before February
28th thereof.
The Company shall pay the Executive his Base Salary in equal installments
no less than semi-monthly.
The Executive shall have the right, at his election and subject to
compliance with all applicable securities laws including without limitation
those laws governing insider trading, to receive compensation in the form of the
Company's restricted common stock. Such stock shall be valued at sixty percent
(60%) of the closing bid price of the Company's common stock as quoted on an
established exchange as of the date of Executive's election. Such election may
for all or part of the Executive's compensation. At the beginning of each
quarter, Executive shall give the Company notice of his election to exercise his
option to receive restricted common stock in lieu of cash compensation.
(b) Base Salary Adjustment. The Base Salary may not be decreased
hereunder during the term of this Agreement, but may be increased upon
review by and within the sole discretion of the Company's Board of
Directors.
(c) Bonus. Executive shall be entitled to receive an annual
performance bonus as follows: 2% of the first $800,000 of the Company's net
income after income taxes plus 1.5% of the Company's net income after taxes
in excess of $800,000, but less than $1,600,000 plus 1% of the Company's
net income after taxes in excess of $1,600,000. Such bonuses may be paid in
cash or issued in shares of the Company's common stock subject to
compliance with all applicable securities laws including without limitation
those laws governing insider trading. Such stock shall be valued at sixty
percent (60%) of the closing bid price of the Company's common stock as
quoted on an established exchange as of the date of Executive's election.
For the purposes of this Agreement, "net income after income taxes" shall
mean with respect to each fiscal year of the Company, the sum of (y), the
net income after income taxes, but without taking into account any unusual,
non-recurring gains or losses recognized during such year including tax
benefits associated with deferred tax assets; and (z) any amount of the
performance bonus payable under this Section 3(b) for such fiscal year
which has been accrued as an expense and included in the Company's payroll
and related expenses for such fiscal year in arriving at the amount of the
Company's net income after income taxes. For purposes of this Agreement,
net income after income taxes for any year shall be as reported on a
consolidated basis in the Company's annual report filed with the Securities
and Exchange Commission for such fiscal year .
(d) Expenses. In addition to any compensation received pursuant to
Section 3, the Company will reimburse or advance funds to the Executive for
all reasonable, ordinary and necessary travel, educational, seminar, trade
shows, entertainment and miscellaneous expenses incurred in connection with
the performance of his duties under this Agreement, provided that the
Executive properly accounts for such expenses to the Company in accordance
with the Company's practices. Such reimbursement shall include travel,
lodging and food costs for Executive's immediate family to the extent they
accompany Executive on business related travel.
(e) Subsidiary and Affiliate Payments. In recognition of the fact that
in the course of the performance of his duties hereunder the Executive may
provide substantial benefits to the Company's subsidiaries or affiliated
companies, the Executive and the Company may at any time and from time to
time agree that all or any portion of the compensation due the Executive
hereunder may be paid directly to the Executive by one or more of the
Company's subsidiaries or affiliated companies.
(f) Stock Options. Upon execution of this Agreement, Executive shall
receive a nonqualified stock option to purchase 25,000 shares of the common
stock of Company with an exercise price of $1.00 per share. The options
granted hereunder shall be considered "non-qualified" and will be
immediately exercisable upon issuance. The options shall have an exercise
period of ten (10) years from the date of this Agreement.
(g) Additional Equity Based Incentive Compensation. Executive
shall be entitled to additional annual equity based incentive compensation as
set forth in the Company's Management Incentive Compensation Plan as established
by the Compensation Committee.
4. Benefits.
(a) Vacation. For each calendar year during the Term during which the
Executive is employed, the Executive shall be entitled to 15 work days
vacation (which shall accrue and vest, except as may be hereafter provided
to the contrary, on each January lst thereof) without loss of compensation
or other benefits to which he is entitled under this Agreement.
If the Executive is unable to take all of his vacation days during a
year for which he becomes vested, then the Executive, at his sole option,
may elect (x) to carry over any unused vacation to the next calendar year
to be used solely in that next year or (y) to receive an appropriate pro
rata portion of his Base Salary corresponding to the year in which the
vacation days vested. The Executive shall take his vacation at such times
as the Executive may select and the affairs of the Company or any of its
subsidiaries or affiliates may permit.
(b) Employee Benefit Programs. In addition to the compensation to
which the Executive is entitled pursuant to the provisions of Section 3
hereof, during the Term, the Executive will be entitled to participate in
any stock option plan, stock purchase plan, pension or retirement plan,
insurance or other employee benefit plan that is maintained at that time by
the Company for its employees, including programs of life, disability,
basic medical and dental, supplemental medical and dental insurance. The
entire cost of employee benefit programs shall be paid by the Company.
Notwithstanding any provision of this Agreement to the contrary, the
Company shall not be obligated to provide the Executive with any of the
foregoing benefits contained in this Section 4 (b) if the Executive, for
whatever reason, is or becomes uninsurable with respect to coverage
relating to any such benefit(s).
(c) Automobile Allowance. During the term of this Agreement, the
Company shall pay Executive an additional $500 per month as an automobile
allowance to be applied to any automobile expense incurred by Executive.
(d) Annual Physical. The Executive agrees to have an annual physical
examination performed by a physician of his choice during each year of this
Agreement. The Company shall reimburse Executive for the costs of his
annual physical examination.
5. Termination.
(a) Termination for Cause. The Company may terminate the Executive's
employment pursuant to this Agreement at any time for cause upon written
notice. Such termination will become effective upon the giving of such
notice. Upon any such termination for cause, the Executive shall have no
right to compensation, bonus or reimbursement under Section 3 or to
participate in any employee benefit programs or other benefits to which he
may be entitled under Section 4 for any period subsequent to the effective
date of termination. For purposes of this Agreement, the term "cause" shall
mean:
(i) the Executive's conviction of a felony;
(ii) the Executive's indictment for misappropriating assets or
otherwise defrauding the Company or any of its subsidiaries
or affiliates; and
(iii)materially breach by the Executive of any provision of this
Agreement.
(b) Death or Disability. This Agreement and the Company's obligations
hereunder will terminate upon the death or disability of the Executive. For
purposes of this Section 5(c), "disability" shall mean that for a period of
six (6) months in any twelve-month period the Executive is incapable of
substantially fulfilling the duties set forth in this Agreement because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease as determined by an independent physician mutually acceptable to
the Company and the Executive. Upon any such termination upon death or
disability, the Company will pay the Executive or his legal representative,
as the case may be, his Base Salary (which may include any accrued, but
unused vacation time) at such time pursuant to Section 3(a) through the
date of such termination of employment (or, if terminated as a result of a
disability, until the date upon which the disability policy maintained
pursuant to Section 4 (b) (ii) begins payment of benefits) plus any other
compensation that may be due and unpaid. In the event of death or
disability of the Executive and any obligations that the Executive may owe
the Company for repayment of loans or other amounts shall be forgiven.
(c) Voluntary Termination. Prior to the termination of this Agreement,
the Executive may, on sixty (60) days prior written notice to the Company,
at any time terminate his employment. Upon any such termination, the
Company shall pay the Executive his Base Salary at such time pursuant to
Section 3(a) through the date of such termination of employment (which
shall include any vested and accrued, but unused vacation time).
6. Restrictive Covenants.
(a) Competition with the Companies. The Executive covenants and agrees
that, during the Term of this Agreement, the Executive will not, without
the prior written consent of Company, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee or in
any other capacity as principal or agent) , compete with the Company.
Notwithstanding this restriction, Executive shall be entitled to invest in
stock of other competing public companies so long as his ownership is less
than 5% of such company's outstanding shares.
(b) Disclosure of Confidential Information. The Executive acknowledges
that during his employment he will gain and have access to confidential
information regarding the Company and its subsidiaries and affiliates. The
Executive acknowledges that such confidential information as acquired and
used by the Company or any of its subsidiaries or affiliates constitutes a
special, valuable and unique asset in which the Company or any of its
subsidiaries or affiliates, as the case may be, hold a legitimate business
interest. All records, files, materials and confidential informant (the
"Trade Secrets") obtained by the Executive in the course of his employment
with the Company shall be hereby deemed confidential and proprietary and
shall remain the exclusive property of the Company or any of its
subsidiaries or affiliates, as the case may be. The Executive will not,
except in connection with and as required by his performance of his duties
under this Agreement, for any reason use for his own benefit or the benefit
of any person or entity with which he may be associated, disclose any Trade
Secrets to any person, firm, corporation, association or other entity for
any reason or purpose whatsoever without the prior written consent of the
Board of Directors of the Companies, unless such information previously
shall have become public knowledge through no action by or omission of the
Executive.
(c) Subversion, Disruption or Interference. At no time during the term
hereof and thereafter, shall Executive, directly or indirectly, interfere,
induce, influence, combine or conspire with, or attempt to induce,
influence, combine or conspire with, any of the employees or sponsors of,
or consultants to, the Company to terminate their relationship with or
compete or ally against the Company or any of its subsidiaries or
affiliates of the Company in the business in which the Company or any one
of its subsidiaries or affiliates is presently engaged or in which the
Company or any one of its subsidiaries or affiliates desires to engage in
the future.
(d) Enforcement of Restrictions. The parties hereby agree that
any violation by Executive of the covenants contained in this Section 6 will
cause irreparable damage to the Company or any of its subsidiaries and
affiliates and may, as a matter of course, be restrained by process issued out
of a court of competent jurisdiction, in addition to any other remedies provided
by law. Violation of this Section 6 shall be conclusively deemed to be the basis
for termination of the Executive for "cause".
7. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control" shall be
deemed to have taken place if any person, other than the Siegel Family
Limited Partnership or Siegel Family Revocable Trust, including a "group"
as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, becomes the owner or beneficial owner of companies securities,
after the date of this Agreement, having more than 50% of the combined
voting power of the then outstanding securities of the Company that may be
cast for the election of directors of the Company (other than as a result
of an issuance of securities specifically approved by Executive and
specifically excluded from the provisions of this Section 8 by subsequent
written agreement of the Executive); provided, however, that a Change of
Control shall not be deemed to have occurred if the person who becomes the
owner of said more that 50% of the combined voting power of the Company is
Todd E. Siegel or an entity (or entities) controlled by Todd E. Siegel or
family member of Todd E. Siegel.
(b) The Company and Executive hereby agree that, if Executive is in
the employ of the Company on the date on which a Change of Control occurs
(the "Change of Control Date"), the Company will continue to employ the
Executive and the Executive will remain in the employ of the Company for
the period commencing on the Change of Control Date and ending on the
expiration of the Term, to exercise such authority and perform such
executive duties as are commensurate with the authority being exercised and
duties being performed by the Executive immediately prior to the Change of
Control Date. If after a Change of Control, the Executive is requested,
and, in his sole and absolute discretion, consents to change his principal
business location outside of Pinellas or Hillsborough Counties, Florida,
the Company will reimburse the Executive for his relocation expenses,
including without limitation, moving expenses, temporary living and travel
expenses for a time while arranging to move his residence to the changed
location, closing costs, if any, associated with the sale of his existing
residence and the purchase of a replacement residence at the changed
location, plus an additional amount representing a gross-up of any state or
federal taxes payable by Executive as a result of any such reimbursements.
If the Executive shall not consent to change his business location outside
of Pinellas or Hillsborough Counties, Florida, the Executive may continue
to provide the services required of him hereunder in Pinellas or
Hillsborough Counties, Florida, and the Company shall continue to maintain
an office for the Executive within those Counties commensurate with the
Company's office prior to the Change of Control Date.
(c) During the remaining Term after the Change of Control Date, the
Company will (i) continue to honor the terms of this Agreement, including
as to Base Salary and other compensation set forth in Section 3 hereof, and
(ii) continue employee benefits as set forth in Section 4 hereof at levels
in effect on the Change of Control Date (but subject to such reductions as
may be required to maintain such plans in compliance with applicable
federal law regulating employee benefits).
(d) If during the remaining Term on or after the Change of Control
Date (i) the Executive's employment is terminated by the Company other than
for cause (as defined in Section 5 hereof), or (ii) there shall have
occurred a material reduction in Executive's compensation or employment
related benefits, or a material change in Executive's status, working
conditions or management responsibilities, or a material change in the
business objectives or policies of the Company and the Executive
voluntarily terminates employment within sixty (60) days of any such
occurrence, or the last in a series of occurrences, then the Executive
shall be entitled to receive, subject to the provisions of subparagraphs
(e) and (f) below, a lump-sum payment equal to 299% of Executive's current
Base Salary in addition to any other compensation that may be due and owing
to the Executive under Section 3 hereof.
(e) The amounts payable to the Executive under any other compensation
arrangement maintained by the Company which became payable, after payment
of the lump-sum provided for in paragraph (d), upon or as a result of the
exercise by Executive of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code
280G and regulations thereunder), shall be reduced to the extent necessary
so that such amounts, when added to such lump-sum, do not exceed 299% of
the Executive's Base Salary (as computed in accordance with provisions of
the Internal Revenue Code of 1986, as amended and any regulations
promulgated thereunder) for determining whether the Executive has received
an excess parachute payment. Any such excess amount shall be deferred and
paid in the next tax year.
(f) In the event of a proposed Change in Control, the Company
will allow the Executive to participate in all meetings and negotiations related
thereto.
8. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
rights and obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void and constitute a material breach
hereunder.
9. Severability. If any provision of this Agreement otherwise is deemed to
be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding and/or like effect as though such provision were not
included.
10. Effectiveness/Enforceability. The enforceability and effectiveness of
this Agreement shall be conditioned upon the closing of the Stock Purchase
Agreement, and only upon such closing shall this Agreement create any binding
legal obligations hereunder on the parties hereto.
11. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or
telecopier to the following addresses:
To the Company:
Medical Technology Systems, Inc.
12920 Automobile Blvd.
Clearwater, FL 33762
With copy to:
Robert Grammig
Holland & Knight
400 North Ashley Street
Tampa, FL 33602
Either party may, from time to time, designate any other address to which
any such notice to it or him shall be sent. Any such notice shall be deemed to
have been delivered upon the earlier of actual receipt or four days after
deposit in the mail, if by certified mail.
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal, substantive laws of the State
of Florida without giving effect to the conflict of laws rules thereof.
(b) Waiver/Amendment. The waiver by any party to this Agreement of a
breach of any provision hereof by any other party shall not be construed as
a waiver of any subsequent breach by any party. No provision of this
Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or
modification is sought.
(c) Attorney's Fees. In the event any action is commenced, the
prevailing party shall be entitled to a reasonable attorneys fee, costs and
expenses.
(d) Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter of this Agreement.
(e) Counterparts. This Agreement may be executed in counterparts, all
of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
WITNESSES: "EXECUTIVE"
- -------------------------------- -----------------------------------------
Print Name: ____________________ MICHAEL P. CONROY
- --------------------------------
Print Name: ____________________
"COMPANY"
MEDICAL TECHNOLOGY SYSTEMS, INC.,
________________________________ a Delaware corporation
Print Name: ____________________
By: _____________________________________
________________________________ Print Name: _____________________________
Print Name: ____________________ As: _____________________________________
<PAGE>
1
AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Amendment"), dated as of ____________, 1998, by and among MEDICAL
TECHNOLOGY SYSTEMS, INC., a Delaware corporation ("MTS"), the following
subsidiaries of MTS: CLEARWATER MEDICAL SERVICES, INC., a Florida corporation
("Clearwater Medical"), MEDICAL TECHNOLOGY LABORATORIES, INC., a Florida
corporation ("MTS Labs"), MTS PACKAGING SYSTEMS, INC., a Florida corporation
("MTS Packaging"), PERFORMANCE PHARMACY SYSTEMS, INC., a Florida corporation
("Performance Pharmacy"), VANGARD LABS, INC., a Kentucky corporation ("Vangard
Labs"), and VANGARD PHARMACEUTICAL PACKAGING, INC., a Florida corporation
("Vangard Pharmaceutical"), CART-WARE, INC., a Florida corporation
("Cart-Ware"), MEDICATION MANAGEMENT SYSTEMS, INC., a Florida corporation
("MMS"), MEDICATION MANAGEMENT TECHNOLOGIES, INC., a Florida corporation and a
debtor and debtor-in-possession in proceedings pending under Chapter 11 of the
United States Bankruptcy Code ("MMT"), MTS SALES & MARKETING, INC., a Florida
corporation ("MTS Sales"), SYSTEMS PROFESSIONALS, INC., a Florida corporation
("Systems Professionals"), and LIFESERV TECHNOLOGIES, INC., a Florida
corporation ("LifeServ") (collectively referred to herein as the "MTS
Subsidiaries" and, together with MTS, as the "Borrowers"), TODD E. SIEGEL
("Siegel" or the "Guarantor"), and SOUTHTRUST BANK, NATIONAL ASSOCIATION,
formerly ASouthTrust Bank of Alabama, National Association, "a national banking
association (the "Lender" or "SouthTrust"):
R E C I T A L S:
WHEREAS, the parties hereto, other than LifeServ, have heretofore executed
and delivered that certain Second Amended and Restated Loan and Security
Agreement, dated as of September 5, 1996 (the "Loan Agreement"), and the various
security documents and instruments described therein (together with the Plan
Notes, as defined in the Loan Agreement, the "Loan Documents"); and
WHEREAS, certain defaults have occurred under the Loan Agreement and the
Borrowers and Siegel have requested that SouthTrust (i) waive the occurrence of
these defaults and, (ii) consent to certain transactions to be entered into by
certain of the Borrowers which are not permitted by the express terms of the
Loan Agreement; and
WHEREAS, MTS has formed LifeServ as a wholly-owned subsidiary of MTS, and
LifeServ has agreed to assume joint and several liability for all of the
Obligations (as defined in the Loan Agreement), on the terms and subject to the
conditions set forth herein; and
WHEREAS, in order to accommodate the Borrowers= various requests and to
evidence LifeServ=s assumption of liability for the Obligations, the parties
hereto have determined that it is necessary to amend the Loan Agreement on the
terms and conditions set forth herein;
<PAGE>
2
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
1. Definitions. (a) Except as otherwise defined herein, capitalized terms
used in this Amendment shall have the meanings ascribed to such terms in the
Loan Agreement.
(b) The Loan Agreement is hereby amended by adding the following
definitions to Section 1.1 thereof:
""Amendment" means the Amendment to Second Amended and Restated Loan
and Security Agreement, dated as of __________, 1998, among each of the
Borrowers, Siegel and SouthTrust."
""Consolidated Excess Cash Flow" means, for each fiscal quarter of the
Borrowers, net income of all Borrowers other than the LifeServ Companies,
on a consolidated basis, after taxes, minus principal, determined under
GAAP, payments and capital expenditures which are expressly permitted under
Section 6.2(L) of the Loan Agreement, plus, to the extent deducted in
determining such net income, (i) amortization of intangible assets and (ii)
depreciation and depletion, all as shown by the income statements of the
Borrowers for the relevant time period, calculated in accordance with
GAAP."
""LifeServ Bridge Loan" means the loan described in Section 3 of the
Amendment."
""LifeServ Companies" means LifeServ Technologies, Inc., a Florida
corporation, Performance Pharmacy, Cart-Ware, MMS, MMT and Systems
Professionals."
""LifeServ Companies Collateral" means all Collateral owned by the
LifeServ Companies (or in which they, or any of them, have any interest),
and all Pledged Notes of the LifeServ Companies."
""LifeServ Private Placement" means the proposed private placement of
securities by LifeServ described in Section 5 of the Amendment."
(c) Section 1.1 of the Loan Agreement is hereby amended further, by
amending the following definitions contained therein to read, in their
entirety, as follows:
""Capital Transaction" means (A) any sale, transfer or disposition of
all or substantially all the assets or business of any of the Borrowers,
whether by merger, sale, transfer, exchange or other disposition of capital
stock or assets, consolidation, or otherwise, (B) any refinance of the
indebtedness evidenced by the Plan Notes, (C) any offering, issuance or
sale of any capital stock or other securities of any of the Borrowers
through a private placement or public offering, and (D) any sale or other
disposition by MTS or any Affiliate thereof, of any shares of capital stock
or other securities of LifeServ or any of the other LifeServ Companies."
<PAGE>
3
""Fixed Charge Coverage" means the quotient which is obtained by
dividing (i) the sum of the Consolidated net income of the Borrowers (after
provision for federal and state income taxes) for the 12-month period
preceding the applicable date plus the interest, lease and rental expenses
of the Borrowers for the same period plus the sum of non-cash expenses or
allowances for such period (including, without limitation, amortization or
write-down of intangible assets, depreciation, depletion and deferred taxes
and expenses) by (ii) the sum of (a) the current portion of the Long-Term
Liabilities of the Borrowers as of the applicable date, and (b) interest
expense, lease and rental expenses of the Borrowers for the 12-month period
immediately following the applicable date; provided, that there shall not
be included in the foregoing calculation any amount attributable to
interest accruing on the LifeServ Bridge Loan, unless and until the
LifeServ Bridge Loan has matured."
""Net Proceeds" means,
(A) with respect to any Capital Transaction (other than the LifeServ
Private Placement and any Capital Transaction involving any one or more of
the LifeServ Companies which occurs after the consummation of the LifeServ
Private Placement), the gross proceeds received or derived from such
Capital Transaction, whether in cash, stock or other property, less (i) all
expenses (not including any payments or consideration of any kind paid to
any Affiliate of any Borrower) which are directly and actually incurred by
Borrowers in connection with such Capital Transaction, and which are
approved in writing by the Lender, and (ii) if such Capital Transaction
constitutes a sale of all of the capital stock, or all or substantially all
of the assets, of MTS Labs or any of the LifeServ Companies, and if prior
to such Capital Transaction, all or any portion of the Amortization
Principal Amount has been refinanced in compliance with all applicable
provisions of this Agreement (including Section 6.2(H)), the amount
required to repay such refinanced Indebtedness; provided, that the amount
deducted pursuant to this clause shall not exceed $2,000,000.00 in the case
of a Capital Transaction with respect to MTS Labs or $1,000,000.00 in the
case of a Capital Transaction with respect to one or more of the LifeServ
Companies; and
(B) with respect to any Capital Transaction involving any one or more
of the LifeServ Companies which occurs after the consummation of the
LifeServ Private Placement, the gross proceeds derived from such Capital
Transaction to the extent received by, or payable to, MTS or any Affiliate
of MTS then owning capital stock or other securities of any one or more of
the LifeServ Companies, whether in cash, stock or other property; and
(C) with respect to any Causes of Action, "Net Proceeds" means the
gross proceeds derived from any such Cause of Action, whether pursuant to
jury verdict, judgment or settlement, less all reasonable legal fees,
expenses and court costs actually incurred by the Borrowers which are
directly related to the prosecution of such Causes of Action."
2. Formation of LifeServ; Assumption of Liability by LifeServ.
(a) SouthTrust hereby consents to the formation by MTS of LifeServ
and, subject to the terms and conditions contained in this Amendment, to
the transfer by Performance Pharmacy, Cart-Ware, MMS, MMT and Systems
Professionals, of all or substantially all of their respective assets and
liabilities to LifeServ. The parties hereby agree that, upon such transfer,
<PAGE>
4
all of the assets and properties so transferred shall be and remain subject
in all respects to the security interest and lien in favor of SouthTrust as
described in the Loan Agreement. The Borrowers and the Guarantor hereby
agree to notify SouthTrust in writing upon the occurrence of such transfer
and, promptly upon request by SouthTrust, to execute and deliver to
SouthTrust all documents, instruments and things, including, without
limitation, UCC financing statements and amendment statements, reflecting
that the transfer described herein is subject to the prior security
interest in favor of SouthTrust under the Loan Agreement.
(b) LifeServ hereby assumes direct liability, jointly and severally as
a co-obligor with each other Borrower under the Loan Agreement, for all
Obligations under or in connection with the Loan Agreement, including,
without limitation, all Obligations arising under Plan Note I, subject only
to the provisions contained in Sections 6 and 7 hereof, and hereby
acknowledges and agrees that all of LifeServ=s assets are subject to valid
and enforceable security interests in favor of SouthTrust, as Collateral
securing the Obligations. In furtherance of the foregoing, and as further
security for the prompt satisfaction of all Obligations, in addition to any
other or further security provided under any of the Security Documents,
LifeServ hereby assigns and transfers to the Lender all of its right, title
and interest in and to, and grants the Lender a lien upon and security
interest in, all of the following property and rights of LifeServ, wherever
located, whether now owned or hereafter acquired, together with all
replacements therefor and proceeds (including, but without limitation,
insurance proceeds) and products thereof (all of which shall constitute
original Collateral under the Loan Agreement, as amended hereby): (i)
Accounts and accounts receivable; (ii) Chattel Paper; (iii) Contracts; (iv)
Contract rights; (v) Documents; (vi) Equipment, including all trucks,
automobiles, motor vehicles and machinery of all classes; (vii) Fixtures;
(viii) General Intangibles; (ix) Instruments; (x) Inventory, including all
goods held for sale or lease or to be furnished under contracts of service,
raw materials, work in process and materials to be used or consumed in
LifeServ=s business; (xi) Furniture; (xii) Patents, trademarks, copyrights
and other intellectual property (including software) and all rights under
licenses with respect to intellectual property of other Persons; (xiii)
Leasehold improvements; (xiv) Interests in partnerships and joint ventures;
(xv) Rights as seller of Goods and rights to returned or repossessed Goods;
and (xvi) All Records pertaining to any of the Collateral. As further
security for the prompt satisfaction of all Obligations, LifeServ hereby
assigns, transfers and sets over to the Lender all of its right, title and
interest in and to, and grants the Lender a lien on and a security interest
in, all amounts that may be owing from time to time by the Lender to
LifeServ in any capacity, including, but without limitation, any balance or
share belonging to LifeServ of or with respect to any deposit or other
account with the Lender, which lien and security interest shall be
independent of any right of set-off which the Lender may have.
(c) In furtherance of the foregoing, LifeServ hereby agrees to execute
and deliver to SouthTrust the allonge to Plan Note I, in substantially the
form set forth in Exhibit 2(c) attached hereto, and to execute and deliver
all such other documents, instruments and things as SouthTrust may
reasonably request in order to evidence (i) LifeServ=s joint and several
liability under the Loan Agreement and Plan Note I, and (ii) the security
interests in all of LifeServ=s assets in favor of SouthTrust, as collateral
for all Obligations.
(d) Each of the Borrowers hereby acknowledges that all of the
outstanding capital stock in each of the Borrowers (other than MTS) has
been pledged to SouthTrust as Collateral for the Obligations. MTS hereby
agrees to execute and deliver to SouthTrust (i) a stock pledge agreement,
in substantially the form set forth as Exhibit 2(d) hereto (the "LifeServ
Stock Pledge Agreement") evidencing the first priority pledge of all
outstanding capital stock of LifeServ in favor of SouthTrust, as Collateral
for the Obligations, together with (ii) the original stock certificates
evidencing all such capital stock and (iii) stock powers covering such
capital stock, executed in favor of SouthTrust or in blank.
<PAGE>
5
3. LifeServ Bridge Loan.
(a) The Borrowers have requested that SouthTrust consent to the
LifeServ Companies= incurring certain short term indebtedness, in principal
amount not to exceed $500,000.00, and which would be secured by
substantially all of their respective assets, and having the other terms
and conditions set forth on Exhibit 3(a) attached hereto (as so described,
the "LifeServ Bridge Loan"
(b) SouthTrust hereby consents to the incurrence of the LifeServ
Bridge Loan, and to the grant by the LifeServ Companies of security
interests in the assets described on Exhibit 3(a) attached hereto; provided
(i) that none of the Borrowers other than the LifeServ Companies shall be
liable in any way, whether as a borrower, guarantor or otherwise, for any
amounts owed under the LifeServ Bridge Loan, and (ii) all of the capital
stock of each of the LifeServ Companies, including, without limitation, any
capital stock issued to the LifeServ Bridge Loan lender pursuant to
warrants or otherwise, shall be and remain subject to a first priority
pledge in favor of SouthTrust as collateral security for all Obligations.
(c) In furtherance of the foregoing, on and as of the date on which
the LifeServ Bridge Loan is consummated, SouthTrust shall enter into a
subordination agreement with the Bridge Loan lender, in substantially the
form set forth in Exhibit 3(c)(i) attached hereto, pursuant to which (i)
SouthTrust shall subordinate its security interests in the assets of the
LifeServ Companies to the security interests, securing not more than
$500,000.00, plus accrued and unpaid interest thereon, in favor of the
LifeServ Bridge Loan lender, (ii) the LifeServ Bridge Loan lender will
agree to deliver to SouthTrust any original stock certificates which may be
issued to it by any of the LifeServ Companies pursuant to exercise of the
warrants described on Exhibit 3(a) attached hereto (the "Bridge Loan
Warrants"), together with a fully executed stock pledge agreement in
substantially the form set forth in Exhibit 3(c)(ii) hereto and fully
executed (in favor of SouthTrust or in blank) stock powers with respect to
such stock, and (iii) the LifeServ Bridge Loan lender will agree to provide
SouthTrust with notice of the occurrence of any default under the LifeServ
Bridge Loan, and its taking of any enforcement or collection action
thereunder.
(d) Notwithstanding any provision contained in the Loan Agreement to
the contrary, SouthTrust hereby consents to (i) the use of the proceeds
from the LifeServ Bridge Loan for general working capital purposes, and
(ii) the issuance by MTS to the Bridge Loan lender of warrants to purchase
shares of common stock in MTS in amounts and on the terms and conditions
set forth on Exhibit 3(a) attached hereto.
(e) Each of the Borrowers and the Guarantor hereby agree that the
occurrence of a default or event of default under the LifeServ Bridge Loan
and the commencement, by the LifeServ Bridge Loan lender, of any
enforcement or collection action (including, without limitation, any
self-help remedy) as a result thereof, shall constitute a Major Default
under the Loan Agreement, as amended hereby.
<PAGE>
6
4. Connecticut Valley Hospital Contract and Related Financing.
(a) The Borrowers have requested that SouthTrust consent to the
execution and delivery by the LifeServ Companies of certain agreements with
the State of Connecticut or agencies of the Connecticut State government,
covering the provision of certain equipment and services to the Connecticut
Valley Hospital. The Borrowers have also requested that SouthTrust consent
to the incurrence of certain indebtedness by the LifeServ Companies to
finance certain costs associated with the contract or agreement described
above.
(b) If and to the extent SouthTrust=s consent is required by the terms
of the Loan Agreement, SouthTrust hereby consents to the execution and
delivery, by LifeServ and any one or more of the other LifeServ Companies,
of the contracts and agreements which are listed or otherwise fully
described on Exhibit 4(b) attached hereto, true and correct copies of which
have been provided to SouthTrust (collectively, the "Connecticut Valley
Contract").
(c) SouthTrust hereby consents to the incurrence, by LifeServ and the
other LifeServ Companies, of indebtedness in principal amount not to exceed
$700,000.00, and which would be secured by a collateral assignment of the
Connecticut Valley Contract and by purchase money security interests in the
property described on Exhibit 4(c)(i) attached hereto (the "Connecticut
Valley Equipment"), and which has the other terms and conditions set forth
on Exhibit 4(c)(ii) attached hereto (as so described, the "Connecticut
Valley Debt"), and to the grant by the LifeServ Companies of security
interests in the assets described on Exhibit 4(c)(i) attached hereto;
provided, that none of the Borrowers other than the LifeServ Companies
shall be liable in any way, whether as a borrower, guarantor or otherwise,
for any amounts owed under the Connecticut Valley Debt, except that, if
required by the lender providing the Connecticut Valley Debt, MTS may
guarantee the repayment thereof on substantially the terms set forth in
Exhibit 4(c)(iii) attached hereto, so long as such guaranty obligation is
and remains unsecured.
(d) In furtherance of the foregoing, on and as of the date on which
the documentation governing the Connecticut Valley Debt is executed and
delivered (or as soon thereafter as is practicable), SouthTrust shall, if
requested by the lender thereunder, enter into a subordination agreement,
in substantially the form set forth in Exhibit 4(d) attached hereto,
pursuant to which (i) SouthTrust shall subordinate its security interests
in the Connecticut Valley Contract and the Connecticut Valley Equipment to
the security interests, securing not more than $700,000.00, plus accrued
and unpaid interest thereon, in favor of the lender under the Connecticut
Valley Debt, and (ii) the lender thereunder will agree to provide
SouthTrust with notice of the occurrence of any default under the
Connecticut Valley Debt, and its taking of any enforcement or collection
action thereunder.
(e) Notwithstanding any provision contained in the Loan Agreement to
the contrary, SouthTrust hereby consents to the use of the proceeds from
the Connecticut Valley Debt for the purposes specified in Exhibit 4(c)(ii)
attached hereto.
<PAGE>
7
(f) Each of the Borrowers and the Guarantor hereby agree that the
occurrence of a default or event of default under the Connecticut Valley
Debt shall constitute a Major Default under the Loan Agreement, as amended
hereby.
5. LifeServ Private Placement.
(a) The Borrowers have requested that SouthTrust consent to a private
placement of securities of LifeServ, which the Borrowers have represented
to SouthTrust (i) will generate net proceeds to LifeServ of at least
$3,000,000.00, (ii) will constitute an issuance and sale by LifeServ of not
more than 40% of the outstanding capital stock of LifeServ (including, for
purposes of this calculation, any shares which are issuable pursuant to
warrants, options or similar rights, including the Bridge Loan Warrants) at
the time of consummation thereof, and (iii) will permit MTS to retain
ownership of at least 60% of the outstanding capital stock of LifeServ (as
described above, the "LifeServ Private Placement"). The Borrowers have also
requested that, in connection with the LifeServ Private Placement,
SouthTrust consent to the LifeServ Companies engagement of Jessup & Lamont
Capital Markets, Inc. ("Jessup & Lamont") to serve as financial advisors
and investment bankers to the LifeServ Companies.
(b) SouthTrust hereby consents to the LifeServ Companies retaining
Jessup & Lamont, on the terms and conditions set forth in the engagement
letter dated December 12, 1997, a copy of which has been provided to
SouthTrust; provided, that Borrowers shall deliver to SouthTrust, within
ten (10) days after the execution and delivery of this Amendment, the
written agreement of Jessup & Lamont that none of the Borrowers, other than
the LifeServ Companies, will incur any obligation to Jessup & Lamont under
or in connection with such engagement for the payment of any fees or
expenses of Jessup & Lamont or otherwise.
(c) SouthTrust hereby consents to LifeServ completing the LifeServ
Private Placement; provided, that (i) MTS shall retain at all times
following the consummation of the LifeServ Private Placement voting capital
stock which constitutes at least 60% of the then outstanding capital stock
of LifeServ (including, for purposes of this calculation, any shares which
are issuable pursuant to warrants, options or similar rights, including the
Bridge Loan Warrants), and (ii) all capital stock of LifeServ and the other
LifeServ Companies which is owned by MTS or any Affiliate of MTS following
the consummation of the LifeServ Private Placement shall be and remain
subject to the first priority pledge in favor of SouthTrust, as Collateral
security for all Obligations.
(d) The parties hereby acknowledge that the LifeServ Private Placement
constitutes a Capital Transaction under the Loan Agreement. Nevertheless,
SouthTrust hereby agrees that, provided that no Default or Event of Default
occurs and is then continuing as of the date on which the LifeServ Private
Placement is consummated, the Borrowers shall not be obligated to make the
payments to SouthTrust that would otherwise be due and payable, under
Sections 2.4(B) and 2.4(E) of the Loan Agreement, on account of the
occurrence of the LifeServ Private Placement.
<PAGE>
8
(e) Section 6.1(A) of the Loan Agreement is hereby amended by
adding a new subsection (10) at the end thereof, to read in its
entirety as follows:
"(10)Upon the consummation of the LifeServ Private
Placement, MTS shall deliver to SouthTrust a certificate signed
by the President of MTS, certifying (i) the fact that the
LifeServ Private Placement has been consummated, (ii) that shares
of capital stock constituting not more than 40% of the then
outstanding capital stock of LifeServ have been issued in the
LifeServ Private Placement, (iii) that the LifeServ Private
Placement has generated net proceeds of at least $3,000,000.00 to
LifeServ, and (iv) that MTS continues to hold, beneficially and
of record, shares of LifeServ constituting at least 60% of the
outstanding capital stock of LifeServ (including, for purposes of
this calculation, any shares which are issuable pursuant to
warrants, options or similar rights, including the Bridge Loan
Warrants)."
6. Effect of LifeServ Private Placement. The Borrowers have requested that
SouthTrust agree that, upon the consummation of the LifeServ Private Placement,
LifeServ and the other LifeServ Companies (if and to the extent that the other
LifeServ Companies continue to exist) be released from their obligations under
the Loan Agreement, and that they no longer constitute "Borrowers" as that term
is defined in the Loan Agreement. In addition to the foregoing, the Borrowers
have requested that, upon such consummation, SouthTrust agree to release its
pledge of capital stock in LifeServ (if any) which has theretofore been issued
pursuant to the Bridge Loan Warrants. In order to accomplish the foregoing, the
parties hereto agree as follows:
(a) Upon the consummation of the LifeServ Private Placement and
SouthTrust's receipt of the certificate described in Section 5(e) hereof,
SouthTrust shall release from the pledge in favor of SouthTrust that is
described in Section 3(c) hereof, any and all capital stock of LifeServ
which has been issued pursuant to the Bridge Loan Warrants and pledged to
SouthTrust as required by Section 3(c) hereof. In furtherance of the
foregoing, as soon as practicable after the consummation of the Private
Placement, SouthTrust shall return to the Bridge Loan lender (i) any
certificates then in the possession of SouthTrust and evidencing capital
stock pledged to SouthTrust by the Bridge Loan lender, (ii) the original
stock powers described in Section 3(c) hereof, and (iii) the original
signed copy of the stock pledge agreement described in Section 3(c) hereof.
(b) Section 4.8(B) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(B) The LifeServ Companies. Provided that no Major Default
shall have occurred and be continuing hereunder, under the Plan
Notes, or under the Security Documents, on and as of the earlier
of (i) the date on which the requirements set forth in Section
4.8(D) have been satisfied, (ii) the date on which seventy-five
percent (75%) of all principal payments theretofore paid by the
Borrowers to the Lender with respect to the Amortization
Principal Amount, plus all additional amounts (if any) paid to
the Lender pursuant to the provisions of Section 2.4(B)(i),
equals, in the aggregate, $1,000,000.00, or (iii) the date on
which the LifeServ Private Placement shall have been consummated
and SouthTrust shall have received the certificate required to be
delivered pursuant to Section 6.1(A)(10) hereof, the liens,
security interests and pledges arising hereunder or under the
Security Documents in favor of the Lender with respect to the
LifeServ Companies Collateral shall be released. Upon the
<PAGE>
9
occurrence of such event, the Lender will execute any and all
UCC-3 release statements necessary to evidence such release which
are presented to the Lender by Borrowers (provided that such
release statements are in form and substance reasonably
acceptable to the Lender), and will return the same, together
with the Pledged Notes issued by the LifeServ Companies, to MTS
within thirty (30) days after the Lender's receipt of such
release statements. The Borrowers shall be entitled, at their
sole expense, to record or file the same in the applicable filing
offices."
(c) Section 4.8(E) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(E) Release of Collateral Not a Waiver or Release of the
Obligations. Except as expressly provided in Section 4.8(F)
below, in no event shall the Lender's release of its interest in
any Collateral, under this Section 4.8 or otherwise, constitute
or be deemed to constitute a waiver, release or modification of
the Obligations of the Borrowers hereunder or under the Plan
Notes or of the obligations of the Guarantor under the Guaranty
Agreement, nor shall any such release of Collateral impair or
have any effect upon the Lender's rights hereunder or under the
Guaranty Agreement, or its interests in any other Collateral not
expressly released by the Lender. In furtherance of the
foregoing, the Guarantor and each of the Borrowers hereby agree,
jointly and severally, that (i) all Obligations then remaining
hereunder or under the Plan Notes shall remain in full force and
effect after any such release of Collateral, (ii) except as
otherwise expressly provided in the Guaranty, the Guaranty
Agreement shall remain in full force and effect after any such
release of Collateral and will not be, and will not be deemed to
be, impaired by any such release of Collateral, and (iii) the
Three-Party Agreement, the Collateral Patent Assignment and the
Subordination Agreement shall remain in full force and effect
after any such release of Collateral."
(d) Section 4.8 of the Loan Agreement is hereby amended further by
adding, at the end thereof, a new subsection (F), to read in its entirety
as follows:
"(F) Release of LifeServ Companies and LifeServ Companies
Collateral Upon Consummation of the LifeServ Private Placement.
Notwithstanding any provision to the contrary contained herein,
provided that no Major Default shall have occurred and be
continuing hereunder, under the Plan Notes or under the Security
Documents, then upon the consummation of the LifeServ Private
Placement and SouthTrust's receipt of the certificate described
in Section 6.1(A)(10) hereof, the LifeServ Companies shall be
released from all further liability hereunder for the Obligations
(except for their obligations contained in Sections 6.2(H)(8) and
6.2(W) hereof), and from and after the date of such release, all
references contained herein or in the Plan Notes to the
"Borrowers" shall be deemed to exclude from that reference each
of the LifeServ Companies. Each of the Borrowers and the
Guarantor hereby agrees that any release of the LifeServ
Companies from the Obligations pursuant to this Section 4.8(F)
shall not constitute or be deemed to constitute a waiver, release
or modification of the Obligations of the remaining Borrowers
hereunder or under the Plan Notes or of the obligations of the
Guarantor under the Guaranty Agreement, nor shall any such
release impair or have any effect upon the Lender's rights
hereunder against or with respect to any of the remaining
<PAGE>
10
Borrowers, or under the Guaranty Agreement, or its interests in
any other Collateral not expressly released by the Lender. In
furtherance of the foregoing, the Guarantor and each of the
Borrowers hereby agree, jointly and severally, that (i) all
Obligations then remaining hereunder or under the Plan Notes
shall remain in full force and effect after any such release of
the LifeServ Companies, (ii) the Guaranty Agreement shall remain
in full force and effect after any such release and will not be,
and will not be deemed to be, impaired by any such release of the
LifeServ Companies from the Obligations, and (iii) the
Three-Party Agreement, the Collateral Patent Assignment and the
Subordination Agreement shall remain in full force and effect
after any such release."
7. Amendments With Respect to Plan Note I.
(a) Section 2.4(B) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(B) Mandatory Partial Prepayments Applied Against
Amortization Principal Amount. In addition to the monthly
installments referred to above, the Borrowers shall make
mandatory partial prepayments of the Amortization Principal
Amount as follows:
(i) If, at any time prior to the earlier of (a) the
Maturity Date or (b) the date on which the LifeServ Private
Placement is consummated, any Capital Transaction occurs
which involves, directly or indirectly, any one or more of
the LifeServ Companies (other than the LifeServ Private
Placement), then the Borrowers shall pay to the Lender an
amount equal to $1,000,000.00; provided, that there shall be
credited against such amount, an amount equal to
seventy-five percent (75%) of the aggregate amount of
principal payments theretofore made by Borrowers with
respect to the Amortization Principal Amount, up to a
maximum credit amount of $1,000,000.00 (the amount payable
under this Section 2.4(B)(i) is referred to as the "Software
Companies Release Payment");
(ii) Upon the occurrence of any Capital Transaction
which involves, directly or indirectly, any one or more of
the LifeServ Companies and which occurs after the
consummation of the LifeServ Private Placement, then MTS and
any other Borrower or Affiliate thereof then owning any
capital stock or other securities of the relevant LifeServ
Company(ies) shall pay the following amounts to SouthTrust
on the date on which each such Capital transaction is
consummated:
(1) If the Capital Transaction occurs on or prior to
September 5, 1998, an amount equal to 40% of the Net
Proceeds from such Capital Transaction;
(2) If the Capital Transaction occurs after September 5,
1998, but on or prior to September 5, 1999, an amount
equal to 30% of the Net Proceeds from such Capital
Transaction;
(3) If the Capital Transaction occurs after September 5,
1999, but on or prior to the Maturity Date, an amount
equal to 20% of the Net Proceeds from such Capital
Transaction;
(iii) If, at any time prior to the Maturity Date, any
Capital Transaction occurs which involves, directly or
indirectly, MTS Labs (or any Subsidiary thereof), then the
Borrowers shall pay to the Lender an amount equal to
$2,000,000.00; provided, that there shall be credited
against such amount, an amount equal to seventy-five percent
(75%) of the aggregate amount of principal payments
theretofore made by Borrowers with respect to the
Amortization Principal Amount in excess of $1,000,000.00, up
to a maximum credit amount of $2,000,000.00 (the amount
payable under this Section 2.4(B)(ii) is referred to as the
"MTS Labs Release Payment");
(iv) In addition to the foregoing, commencing on
November 1, 1998, and thereafter on the first day of
February, May, August and November in each year until (a)
all Obligations have been paid in full or (b) payments made
pursuant to this Section 2.4(B)(iv) have aggregated
$1,000,000.00, whichever first occurs, the Borrowers (other
than the LifeServ Companies) shall pay to SouthTrust an
amount equal to 25% of Consolidated Excess Cash Flow for the
fiscal quarter immediately preceding the relevant payment
date;
All Mandatory prepayments made under this Section 2.4(B) shall be
applied in the manner set forth in Section 2.4(C) hereof. Mandatory
prepayments made by Borrowers under Sections 2.4(B)(i) and 2.4(B)(iii)
shall be due and payable on the date on which the relevant Capital
Transaction is consummated, and shall have the effect set forth in
Sections 4.8(B) and (C) hereof. The Software Companies Release Payment
and the MTS Labs Release Payment, respectively, shall each be payable
only once, upon the consummation of the first Capital Transaction
including any of the LifeServ Companies or MTS Labs, as the case may
be. Mandatory prepayments made by Borrowers under Section 2.4(B)(ii)
shall be due and payable on the date on which each Capital Transaction
described therein is consummated. Mandatory prepayments made by
Borrowers under Section 2.4(B)(iv) shall be due and payable on the
dates specified in such Section."
<PAGE>
11
(b) The first sentence of Section 2.4(C) of the Loan Agreement is hereby
amended to read as follows:
"All prepayments under Plan Note I with respect to the Amortization
Principal Amount (whether mandatory partial prepayments under Section
2.4(B), optional prepayments under Section 2.4(D), or mandatory
prepayments with respect to the Pending Vangard Litigation under
Section 2.4(E)(iii)) shall be applied, first to accrued interest on
the then outstanding Amortization Principal Amount, and then to
installments of principal in inverse order of their maturity."
(c) Section 2.4(D) of the Loan Agreement is hereby amended by adding at the
end thereof the following:
"Except as expressly provided in the next succeeding sentence, no
prepayment under this Section 2.4(D) shall have the effect of releasing
the Borrowers from their other Obligations hereunder. If, on or prior
to June 30, 1998, the Borrowers prepay in full a sum equal to 85% of
the then outstanding Amortization Principal Amount under Plan Note I
plus accrued and unpaid interest on such sum, then SouthTrust agrees to
accept such sum, in full satisfaction of all Obligations under this
Loan Agreement."
(d) The first sentence of Section 2.4(E)(ii)(a) of the Loan Agreement is
hereby amended to read as follows:
"Upon the occurrence of any Capital Transaction (other than the
LifeServ Private Placement and any Capital Transaction which occurs
after the consummation of the LifeServ Private Placement) which
involves, directly or indirectly, any one or more of the LifeServ
Companies, then, in addition to any amounts payable under Section
2.4(B)(i) hereof, the Borrowers shall pay the following amounts to the
Lender on the date on which each such Capital Transaction is
consummated:"
(e) Section 2.4(E)(iii) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(iii) Mandatory Prepayment With Respect to Certain Causes
of Action. If the Borrowers (or any one or more of them) commence
the litigation or other prosecution of any Causes of Action at
any time or times prior to the Maturity Date of Plan Note I, the
Borrowers shall pay to the Lender an amount equal to (1) 50% of
the Net Proceeds derived from each such Cause of Action asserted
or held by any of the Borrowers other than Vangard Labs, and (2)
90% of the Net Proceeds derived from each such Cause of Action
asserted by, held by, or relating to Vangard Labs (including,
without limitation, any Cause of Action relating to Glasgow
Pharmaceutical Corporation), and in each case the amount to which
the Lender is entitled shall be paid within five (5) days after
receipt thereof by any Borrower. For purposes of this Section
2.4(E)(iii), the lawsuit or proceeding styled, _______________,
Case No. ______________ is referred to as the "Pending Vangard
Litigation." Except as expressly provided in Section 2.4(D)
hereof, if litigation or other prosecution of any such Cause of
Action is commenced prior to the Maturity Date of Plan Note I,
but as of such Maturity Date the Borrowers have not received any
recovery therefrom, the Borrowers' Obligation under this Section
2.4(E)(iii) to pay the applicable portion of the Net Proceeds
from such Cause of Action to the Lender shall survive such
Maturity Date and the termination of this Agreement.
<PAGE>
12
All amounts paid to the Lender under this Section 2.4(E),
other than payments with respect to the Pending Vangard
Litigation, shall be applied to reduce the Stated Principal
Amount and the Remaining MTS Debt, but shall not reduce or
otherwise affect the Amortization Principal Amount. All amounts
paid to the Lender under this Section 2.4(E) with respect to the
Pending Vangard Litigation shall be applied in the manner set
forth in Section 2.4(C) hereof, notwithstanding any other
provision contained herein to the contrary."
8. Amendments to the Borrowers= Covenants.
(a) Section 6.2(H)(8) of the Loan Agreement is hereby amended to read
in its entirety as follows:
"(8) Indebtedness of one Borrower to one or more other Borrowers if
(i) such Indebtedness is incurred in the ordinary course of
business and (ii) such Indebtedness is expressly subordinate
to the Indebtedness evidenced by the Plan Notes pursuant to
agreements containing terms substantially similar to those
contained in the Subordination Agreement; provided, that none
of the LifeServ Companies shall be permitted to incur any
Indebtedness of any kind to any other Borrower."
(b) Section 6.2(K) of the Loan Agreement is hereby amended, by
deleting the last clause thereof, and inserting the following in lieu
thereof:
"nor pay salary to those officers of the Borrowers who constitute
their respective chief executive officers, chief financial officers
and chief operating officers in amounts aggregating more than
$400,000.00 per year, on a consolidated basis."
(c) Section 6.2(L) of the Loan Agreement is hereby amended by adding,
at the end thereof, the following:
"Notwithstanding the foregoing, to the extent that purchases of
equipment by LifeServ and the other LifeServ Companies in connection
with the Connecticut Valley Contract, which are provided for under the
Connecticut Valley Debt, constitute the purchase or lease of Fixed
Assets, such purchases shall be permitted hereunder."
(d) Section 6.2(M) of the Loan Agreement is hereby amended by deleting
the figure, A$505,000.00" appearing therein and inserting the figure,
A$700,000.00" in lieu thereof.
<PAGE>
13
(e) Section 6.2(O) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(O) Except for (i) the issuance of the Bridge Loan Warrants by
LifeServ and the issuance of capital stock pursuant thereto, and (ii)
the issuance of capital stock in the LifeServ Private Placement, none
of the Borrowers will (1) issue, redeem, purchase or retire any of its
capital stock or grant or issue any warrant, right or option
pertaining thereto or other security convertible into any of the
foregoing, including, without limitation, any issuance, redemption,
re-purchase or retirement of the "debentures" described in Article VII
of the Joint Plan, or (2) permit any transfer, sale, redemption,
retirement, or other change in the ownership of the outstanding
capital stock of any of the MTS Subsidiaries."
(f) Section 6.2 of the Loan Agreement is hereby amended further by
adding a new subsection (W) at the end thereof, to read in its entirety as
follows:
"(W) In addition to the foregoing, (1) none of the Borrowers
(other than the LifeServ Companies) shall provide any cash, credit or
other financial accommodation of any kind (including, without
limitation, the provision of services of any kind except on terms
under which such services are fully paid or reimbursed by the LifeServ
Companies within the calendar month during which such services are
provided) to any of the LifeServ Companies, and (2) each of the
LifeServ Companies is and shall be prohibited from accepting any such
financial accommodation. Notwithstanding any provision contained
herein to the contrary, this covenant shall survive any release of the
LifeServ Companies from their other Obligations hereunder which may
occur under Section 4.8(F) hereof. Notwithstanding the foregoing, in
the event that a Capital Transaction involving MTS Labs is permitted
to occur under the terms of this Loan Agreement and, as a result of
such Capital Transaction the Borrowers are entitled to retain a
portion of the Net Proceeds thereof, the Borrowers may, in their sole
discretion, provide funding or other financial accommodation to the
LifeServ Companies solely from such Net Proceeds."
(g) Section 6.3(A) of the Loan Agreement is hereby amended by (i)
deleting the words, "and thereafter" from the last line thereof, and (ii)
by adding a new line at the end thereof to read, "During Fiscal 2001 and
thereafter ...................................$4,000,000."
(h) Section 6.3(B) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(B) Negative Net Worth not to exceed the following:
From January 31, 1998 through
March 31, 1998.............................$6,500,000
During Fiscal 1999......................... $6,500,000
During Fiscal 2000......................... $6,000,000
During Fiscal 2001 and thereafter.......... $5,500,000"
<PAGE>
14
(i) Section 6.3(D) of the Loan Agreement is hereby amended
to read in its entirety as follows:
"(D) Fixed Charge Coverage of not less than 1.5 to 1.0."
9. Amendment of Events of Default.
(a) Section 7.1(A)(3) of the Loan Agreement is hereby amended to read
in its entirety as follows:
"(3) The Borrowers (or any of them) shall fail to observe or
perform the covenants contained in Sections 6.2(A), (B), (C), (D),
(F), (G), (H), (I), (J), (K), (L), (M), (O), (Q), or (W);"
(b) Section 7.1(A)(15) of the Loan Agreement is hereby amended to read
in its entirety as follows:
"(15) Any financial statement or any representation or warranty
contained in this Agreement or in any of the other Plan Documents, or
otherwise made or delivered by any of the Borrowers or the Guarantor
to SouthTrust pursuant to this Agreement or any amendment thereto, in
order to induce SouthTrust to enter into the transactions contemplated
in this Agreement or in any such amendment, shall be false, incorrect
or incomplete, in any material respect, when made."
(c) Section 7.1(A) of the Loan Agreement is hereby amended further by
adding, at the end thereof, the following:
"(16) The occurrence of any default or event of default under the
Bridge Loan and the commencement, by the Bridge Loan lender, of any
enforcement or collection action (including, without limitation, any
self-help remedy) as a result thereof; or
(17) The occurrence of any default or event of default under the
Connecticut Valley Debt, or under any guaranty thereof executed and
delivered by MTS."
10. Waiver of Certain Events of Default. Subject to the prior satisfaction
of all conditions precedent contained in Section 13 hereof, SouthTrust hereby
waives the occurrence of the Events of Default which are expressly described in
the letter from William P. Carroll to the Borrowers dated December 5, 1997, a
copy of which is attached hereto as Exhibit 10. Nothing contained in this
Amendment shall, however, constitute or be deemed to constitute a waiver by
SouthTrust of the occurrence of any other Event of Default which may have
occurred under the Loan Agreement or any of the other Loan Documents.
<PAGE>
15
11. Representations and Warranties of Borrowers and Guarantor. In order to
induce SouthTrust to enter into the transactions contemplated by this Amendment,
each of the Borrowers and the Guarantor hereby, jointly and severally,
represents and warrants to SouthTrust as follows:
(a) That (i) none of the Borrowers, other than the LifeServ Companies,
has or will incur any liability of any kind under the Bridge Loan, (ii)
none of the Borrowers, other than the LifeServ Companies, has or will incur
any obligation or liability of any kind under the Connecticut Valley
Contract or, except as expressly set forth in Section 4(c) hereof, under
the Connecticut Valley Debt, and (iii) none of the Borrowers, other than
the LifeServ Companies, has or will incur any liability of any kind to
Jessup & Lamont for fees and charges, or otherwise, except for the initial
payment provided for in the engagement letter referred to in Section 5(b)
hereof (which has either been fully reimbursed by one or more of the
LifeServ Companies or is included within the funding referred to in Section
11(b) hereof);
(b) That since November 30, 1997, none of the Borrowers has provided
any funding or financial accommodation of any kind to any of the LifeServ
Companies, except for funding aggregating not more than $200,000.00;
(c) That, as of the date hereof, other than the Events of Default
referred to in Exhibit 10 attached hereto, no Event of Default exists under
the Loan Agreement or the other Loan Documents;
(d) That the representations and warranties of Borrowers and Guarantor
contained in the Loan Agreement and the other Loan Documents were true,
correct and complete in all respects when made and continue to be true and
correct in all respects on the date hereof;
(e) That the execution, delivery and performance by Borrowers and
Guarantor of this Amendment and the consummation of the transactions
contemplated hereby are within the corporate power of each of the
Borrowers, and have been duly authorized by all necessary corporate action
on the part of each of the Borrowers, do not require any approval or
consent, or filing with, any governmental agency or authority, do not
violate any provisions of any law, rule or regulation or any provision of
any order, writ, judgment, injunction, decree, determination or award
presently in effect in which any Borrower or Guarantor is named or any
provision of the organizational documents of any of the Borrowers, and do
not result in a breach of or constitute a default under any agreement or
instrument to which any Borrower or any Guarantor is a party or by which it
or any of its or their properties are bound;
(f) That this Amendment constitutes the legal, valid and binding
obligation of Borrowers and Guarantor, enforceable against each of them in
accordance with its terms; and
(g) That the Borrowers and the Guarantor are entering into this
Amendment freely and voluntarily with the advice of legal counsel of their
own choosing.
<PAGE>
16
12. Filing of Motions, Hearings, Etc. The Borrowers have heretofore filed,
or caused to be filed, in the Bankruptcy Court (a) the Emergency Motion of MTS
Packaging, MTS Labs, Vangard Labs, and MMT to Approve Modification of Loan
Agreement and Confirmation Order (the "Amendment Motion"), and (b) the Emergency
Motion of MMT Under Section 364(c) of the Bankruptcy Code to Authorize Pledge of
Collateral, Execution of Bridge Loan Documents and Incurrence of $500,000 of
Secured Indebtedness (the "Bridge Loan Motion"). The Bankruptcy Court has
scheduled hearings on the Amendment Motion and the Bridge Loan Motion for March
30, 1998. The Borrowers and the Guarantor hereby agree to use their respective
best efforts to obtain the Bankruptcy Court=s approval of both of the foregoing
motions as promptly as possible.
13. Conditions Precedent. Notwithstanding any provision contained herein to
the contrary, this Amendment shall not become effective unless and until the
hearings described in Section 12 hereof have occurred and the Bankruptcy Court
shall have (a) granted the Amendment Motion and the Bridge Loan Motion, and (b)
entered on order or orders in each of the Bankruptcy Cases, and in the pending
Chapter 11 Case of MMT (the "MMT Case"), in form and substance acceptable in all
respects to SouthTrust, approving this Amendment and providing that, upon the
occurrence of a Major Default under the Loan Agreement, as amended hereby, (i)
SouthTrust shall be entitled to immediately exercise all of its rights and
remedies arising under the Loan Agreement, as amended hereby and the other Loan
Documents, or otherwise against any one or more of the Borrowers and the
Guarantor, without further notice to, or order of, the Bankruptcy Court, and
(ii) SouthTrust shall automatically be entitled to relief from the automatic
stay (if then in effect) in the MMT Case.
14. Certain Acknowledgments by Borrowers and Guarantor. Each Borrower and
the Guarantor hereby acknowledges, stipulates and agrees that: (a) all of the
obligations of Borrowers under the Loan Agreement are absolutely due and owing
by Borrowers to SouthTrust without any defense, deduction, offset or
counterclaim (and, to the extent Borrowers or Guarantor had any defense,
deduction, offset or counterclaim on the date hereof, the same is hereby
waived); (b) the Loan Agreement and all other documents and instruments executed
in connection therewith or in connection with any predecessor agreement are
legal, valid and binding obligations of Borrowers and Guarantor, enforceable
against Borrowers and Guarantor in accordance with their respective terms; (c)
each of Borrowers and the Guarantor has consented to, and hereby ratifies any
and all prior consents given by them (or any of them) with respect to the Loan
Documents, including, without limitation, this Amendment, all transactions
contemplated thereby and all documents and instruments executed in connection
herewith and therewith; and (d) prior to executing this Amendment, Borrowers and
Guarantor consulted with and had the benefit of advice of legal counsel of their
own selection and each has relied upon the advice of such counsel, and in no
part upon any representation of SouthTrust concerning the legal effects of this
Amendment, any of the Loan Documents, or any provision hereof or thereof.
<PAGE>
17
15. Ratification and Reaffirmation of Releases and Waivers.
(a) Each of the Borrowers and the Guarantor hereby ratifies, confirms
and re-affirms each of the releases, waivers and undertakings set forth in
the Loan Agreement and the Loan Documents, each of which is hereby
incorporated herein by this reference, including, without limitation, those
contained in the following Sections of the Loan Agreement: Section 7.5
"Waiver of Right To Stay Foreclosure Upon Occurrence of Major Default,"
Section 7.6 "Relief from Automatic Stay," Section 8.3 "Indemnity," Section
8.7 "Waiver by the Borrowers," Section 8.10 "Submission to Jurisdiction;
Waivers," and Section 8.11 "Release."
(b) In addition to the foregoing, each of the Borrowers and the
Guarantor hereby agree that, in addition to SouthTrust=s other rights and
remedies under the Loan Agreement, upon the occurrence of a Major Default
under the Loan Agreement, as amended hereby, (i) SouthTrust shall be
entitled to immediately exercise all of its rights and remedies arising
under the Loan Agreement, as amended hereby, and the other Loan Documents,
or otherwise against any one or more of the Borrowers and the Guarantor,
without further notice to, or order of, the Bankruptcy Court, and (ii)
SouthTrust shall automatically be entitled to relief from the automatic
stay (if then in effect) in the MMT Case.
(c) Borrowers and Guarantor hereby acknowledge that the provisions
contained in this Section 15, and in the Sections of the Loan Agreement
referred to in subsection (a) hereof, were bargained for by the Lender, and
are being relied upon by the Lender in connection with its agreement to
enter into the transactions contemplated by the Loan Agreement and this
Amendment.
16. Ratification of Loan Agreement and Other Loan Documents. Borrowers and
the Guarantor hereby ratify and reaffirm the Loan Agreement, each of the other
Loan Documents and all of its or their obligations and liabilities thereunder.
Guarantor hereby ratifies and reaffirms the validity, legality and
enforceability of the Guaranty Agreement and agrees that the Guaranty Agreement
is and shall remain in full force and in effect until all the Obligations of
Borrowers under the Loan Agreement, as amended by this Amendment, and as the
same may hereafter be amended or modified, and all other Guaranteed Obligations
(as defined in the Guaranty Agreement) have been indefeasibly paid and satisfied
in full.
17. Debtor-Creditor Relationship. Nothing in this Amendment shall be
construed to alter the existing debtor-creditor relationship between Borrowers
and Lender, nor is this Amendment or any Loan Document intended to change or
affect in any way the relationship between Lender and the Guarantor to one other
than a debtor-creditor relationship. This Amendment, together with the other
Loan Documents, is not intended, nor shall any of them be construed to create, a
partnership or joint venture relationship between or among any of the parties
hereto. No person other than a party hereto is intended to be a beneficiary
hereof and no person other than a party hereto shall be authorized to rely upon
the contents of this Amendment.
18. Entire Agreement. This Amendment, the Loan Agreement as amended hereby
and the other Loan Documents constitute the entire understanding of the parties
with respect to the subject matter hereof and thereof. The Loan Agreement, as
amended hereby, may not be modified, altered or amended except by an agreement
in writing signed by all the parties hereto.
<PAGE>
18
19. No Waiver. No delay or failure on the part of Lender in the exercise of
any right, power or privilege granted under the Loan Agreement, as amended by
this Amendment, or any of the other Loan Documents, or available at law or in
equity, shall impair any such right, power or privilege or be construed as a
waiver of any Event of Default thereunder or any acquiescence therein. No single
or partial exercise of any such right, power or privilege shall preclude the
further exercise of such right, power or privilege. No waiver shall be valid
against Lender unless made in writing and signed by Lender, and then only to the
extent expressly specified therein.
20. No Novation, Etc.. This Amendment is not intended to be, nor shall it
be construed to create, a novation or accord and satisfaction, and, except as
otherwise expressly modified herein, the Loan Agreement and the other Loan
Documents shall remain in full force and effect.
21. Execution in Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto, each of which when so executed
shall constitute an original, but all of which taken together shall be one and
the same instrument. In proving this Amendment or any of the Loan Documents, it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought. Any signature delivered
by a party telecopy or facsimile transmission shall be deemed an original
signature hereto. Notice of Lender=s acceptance hereof is hereby waived.
22. Release. To induce the Lender to enter into this Amendment, each of the
Borrowers and the Guarantor, for themselves and their respective legal
representatives, successors, predecessors, heirs and assigns, and their
respective officers, directors, stockholders, agents, servants and employees,
hereby release, acquit and forever discharge the Lender and its Participants,
officers, directors, stockholders, agents, servants, employees, legal
representatives, successors and assigns, of and from any and all claims,
demands, debts, actions and causes of action of any kind, whether absolute or
contingent, due or to become due, disputed or undisputed, liquidated or
unliquidated, at law or in equity, or known or unknown, which they or any of
them now have or might hereafter have against the Lender or any of its
Participants, officers, directors, stockholders, agents, servants, employees,
legal representatives, successors or assigns, by reason of any act, matter,
contract, agreement or thing whatsoever up to the date of this Amendment,
including, without limitation, any claim, counterclaim, demand, debt, action or
cause of action of any kind, and whether arising, directly or indirectly, under
or in connection with the Loan Agreement, the Loan Documents, the Original
SouthTrust Loan Documents or the Original SouthTrust Indebtedness.
23. Governing Law. This Amendment is being delivered to the Lender, and is
performable, in Jefferson County, Alabama, and the substantive Laws of the
United States and the State of Alabama, without giving effect to its principles
of conflict of laws, shall govern the construction of this Amendment and the
documents executed and delivered pursuant hereto, and the rights and remedies of
the parties hereto and thereto, except to the extent that the location of any
Collateral in a state or jurisdiction other than Alabama requires that the
perfection of the Lender's security interest hereunder, and the enforcement of
certain of the Lender's remedies with respect to the Collateral, be governed by
the laws of such other state or jurisdiction.
<PAGE>
19
24. Survival. All representations and warranties contained in this
Amendment, the Loan Agreement or made or furnished on behalf of any Borrower or
Guarantor in connection herewith or therewith shall survive the execution and
delivery of this Amendment, and shall survive until the Obligations are
indefeasibly paid in full, and thereafter as and to the extent provided in the
Loan Agreement.
IN WITNESS WHEREOF, each of the undersigned parties has executed this
Amendment, or has caused the same to be executed on its behalf by its duly
authorized officer and agent, on and as of the date first above written.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By:
-------------------------------
Its:
-------------------------------
CLEARWATER MEDICAL SERVICES, INC.
By:
-------------------------------
Its:
-------------------------------
MEDICAL TECHNOLOGY LABORATORIES, INC.
By:
-------------------------------
Its:
-------------------------------
MTS PACKAGING SYSTEMS, INC.
By:
-------------------------------
Its:
-------------------------------
<PAGE>
20
VANGARD LABS, INC.
By:
-------------------------------
Its:
-------------------------------
VANGARD PHARMACEUTICAL PACKAGING, INC.
By:
-------------------------------
Its:
-------------------------------
PERFORMANCE PHARMACY SYSTEMS,
By:
-------------------------------
Its:
-------------------------------
CART-WARE, INC.
By:
-------------------------------
Its:
-------------------------------
MEDICATION MANAGEMENT SYSTEMS, INC.
By:
-------------------------------
Its:
-------------------------------
<PAGE>
21
MEDICATION MANAGEMENT TECHNOLOGIES, INC.
By:
-------------------------------
Its:
-------------------------------
MTS SALES & MARKETING, INC.
By:
-------------------------------
Its:
-------------------------------
SYSTEMS PROFESSIONALS, INC.
By:
-------------------------------
Its:
-------------------------------
LIFESERV TECHNOLOGIES, INC.
By:
-------------------------------
Its:
-------------------------------
-------------------------------
Todd E. Siegel
WITNESS:
-------------------------------
<PAGE>
22
SOUTHTRUST BANK, NATIONAL ASSOCIATION
By:
-------------------------------
Its:
-------------------------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated June 26, 1998 accompanying the
consolidated financial statements and schedule included in the Annual Report of
Medical Technology Systems, Inc. and Subsidiaries on Form 10-K for the year
ended March 31, 1998. We hereby consent to the incorporation by reference of
said reports in the registration Statements of Medical Technology Systems, Inc.
and Subsidiaries on Form S-8 (file No. 333-01853 effective March 14, 1996)
GRANT THORNTON LLP
Tampa, Florida
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited financial statements of Medical Technology Systems, Inc. for the twelve
months ended March 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000823560
<NAME> Medical Technology Systems, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 324
<SECURITIES> 0
<RECEIVABLES> 7,281
<ALLOWANCES> 2,004
<INVENTORY> 2,481
<CURRENT-ASSETS> 8,288
<PP&E> 8,610
<DEPRECIATION> 5,437
<TOTAL-ASSETS> 15,762
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0
1
<COMMON> 62
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<TOTAL-LIABILITY-AND-EQUITY> 15,762
<SALES> 24,072
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<CGS> 13,167
<TOTAL-COSTS> 25,196
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,109
<INCOME-PRETAX> (1,124)
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<INCOME-CONTINUING> (854)
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<EPS-PRIMARY> (.14)
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</TABLE>
