SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
_x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
or
_ Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-10768
-------
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 11-2209324
(State of other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1121 Old Walt Whitman Road
Melville, New York 11747-3005
(Address of Principal Executive Officer) (Zip Code)
(516) 423-7800
(Issuer's telephone number)
Securities registered under
Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value NASDAQ Small Cap Market
$.10 per share The Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Check 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 part
90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year, $18,519,000
The aggregate market value of Common Shares of the issuer held by non-affiliates
a September 2, 1997 was approximately $33,692,284.
-----------
Number of Common Shares outstanding at September 2, 1997: 5,514,542 shares.
---------
Documents Incorporated by Reference:
The Proxy Statement for the Registrant's 1997 Annual Meeting of Shareholders is
incorporated by reference in Part III of this Report.
<PAGE>
PART I
CAUTIONARY NOTE:
Statements made in this Report which are not historical or current
facts, such as descriptions of the COMPANY's intentions to market new products,
extend existing products, acquire or develop new products, and utilize new
channels of distribution, are forward-looking statements and are only
predictions or statements of current plans, which are constantly under review by
the COMPANY. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the forward looking statements. Some of the primary
risks and uncertainties are included under the heading "Risk Factors" in the
COMPANY's registration statement on Form SB-2, file No. 333-18277.
ITEM 1. BUSINESS
Mediware Information Systems, Inc. (together with its subsidiaries, the
"COMPANY" or "Mediware") was incorporated in 1980. The COMPANY develops, sells
and supports computer-based management information systems for use in various
clinical departments of hospitals. The systems are designed to automate the data
these departments provide hospital management and therefore increase
productivity, reduce operating costs, enhance revenues and improve quality
assurance and patient care. These benefits are of critical importance to
hospital administrators who face increasing financial and regulatory pressures.
At present, the COMPANY offers systems for three different departments: the
blood bank, the pharmacy and the surgical suite. The installed base of clinical
information systems is approximately 825 clients.
See "Financial Statements" for information about the COMPANY's
revenues, operating profit and loss and assets. The COMPANY's operations are
within one industry segment.
The COMPANY's Product Lines are managed through three operating
divisions: Hemocare Division (blood bank), Pharmacy Division, Digimedics and
Pharmakon (pharmacy), and Surgiware Division (surgical suite).
Product Lines
HEMOCARE -- The COMPANY's cornerstone product is one of North America's
leading "best of breed" blood bank information systems and is sold either
"stand-alone" or as part of an integrated "LAB/Blood Bank" system. The system
was originally designed in collaboration with Memorial Sloan-Kettering Cancer
Center in New York City. Hemocare's software programs are organized into
subsystems performing over 200 functions of which the major ones (a) manage and
control blood inventory; (b) perform long-term donor and transfusion record
keeping; (c) store and manage characteristics of blood products to be
transfused; (d) maintain patient and transfusion records; (e) maintain the
records of patient test results; and (f) automate billing and workload
recording.
Hemocare's core technology is the UNIX operating system and the "C"
programming language, allowing it to run on multiple hardware platforms. Current
versions of the system are ported to the IBM RS/6000 as well as Intel PC
technologies. The scalability of these platforms allows Hemocare to address the
needs of virtually any size hospital. Hemocare markets innovative product
enhancements such as Validation Templates, Video Validation, Standard
Integration Module, and Mock Regulatory Inspection. At this time Hemocare is the
only Blood Bank System to offer this suite of products which assist customers in
their efforts to remain compliant with regulatory agency guidelines. The
Standard Integration Module was instrumental in the growth of laboratory vendors
who have integrated and remarketed this product. The COMPANY currently has
remarketing agreements with HBO and Company, Citation Computer Systems, Inc.,
Dynamic Healthcare Technologies, Inc., Keane, Inc., NLFC, Inc., and Shared
Medical Systems, Inc.
The Hemocare system is installed in approximately 260 hospitals which
range in size from 100 beds to over 1,600 beds.
PHARMACY -- In May of 1990, the COMPANY acquired Digimedics
Corporation, one of the country's leading vendors of information management
systems for hospital pharmacies. Digimedics had been developing and selling
products and services to hospital pharmacies since 1976. In the mid-1980's,
Digimedics introduced the first open systems version of a comprehensive pharmacy
information management system. Digimedics Corporation is a wholly owned
subsidiary of the COMPANY. Over 150 Digimedics systems have been installed at
125 hospitals (some hospitals have separate systems for inpatient and outpatient
pharmacies).
In June of 1996, Digimedics Corporation acquired certain assets of the
U.S. based Pharmakon division ("Pharmakon") and a pharmacy management system
company operating in the United Kingdom, JAC Computer Service, LTD. ("JAC") of
Continental Healthcare Systems, Inc. ("Continental"). The Pharmakon operation
has been subsequently merged with the Digimedics operation to form the Pharmacy
Division of the COMPANY. The combination of client bases has increased the
COMPANY's installed base of clinical information systems to approximately 825
(over 500 of which are pharmacy system installations). Installations which were
already in existence in Canada together with the addition of the JAC client base
provide the COMPANY with a significant international presence.
Clients include leading research institutions such as the University of
California Medical Center, San Francisco; Mt. Sinai Hospital, New York City;
Columbia-Presbyterian Medical Center, New York City; University of Kansas
Medical Center, Kansas City; University of Michigan Hospitals and Clinics, Ann
Arbor; Sunnybrook Health Sciences Center, Toronto; and the Royal Free Hospital,
London.
During fiscal 1997, the Pharmacy Division introduced a new
client/server pharmacy system known as Digimedics WORx(TM). This advanced system
features a Microsoft Windows-based graphical user interface, point-and-click
ad-hoc report writing, integrated inpatient/outpatient profiles, and a
relational database management system. The COMPANY believes this system will be
a major factor in the next generation of drug therapy management systems.
Installation of this next generation system began in Fiscal 1997.
Other WORx features include:
A Cinical database and drug monographs (including foreign language
monographs). An extensive array of drug therapy monitoring including
drug interactions, allergy monitoring, dose range checking, therapeutic
duplication, and drug alerts. A reporting system that may be tailored
to local practice standards. Support for multiple drug delivery
mechanisms. Extensive integration with financial systems, other
clinical systems, and robotics.
By taking advantage of its open architecture, WORx is capable of
linking with expert systems, decision-support software, and clinical databases.
WORx acts as the central hub for drug therapy information throughout the
healthcare enterprise and will provide specialized tools for all aspects of
pharmaceutical care.
WORx can adapt to a diversity of hardware and networking environments.
Utilizing technologies such as UNIX, Powerbuilder, C++ programming language,
Informix Online Dynamic Server, Microsoft Windows, Windows 95, NT and Microsoft
ActiveX(TM), WORx is positioned as a state of the art client/server solution.
SURGIWARE -- In September 1990 the COMPANY licensed the right to market
and relicense the Surgiware system for use in surgical suites. Surgiware is a
comprehensive information system for managing the human resources, facilities,
equipment and supplies required for surgery. The Surgiware system integrates
clinical data capture, inventory and equipment control, scheduling, quality
assurance, and report writing. For example, the system contains a program that
presents a proprietary, real-time moving schedule on a color graphics display
allowing the user to visually identify potential scheduling conflicts based upon
what is happening in the surgical suite at the moment and to test alternative
solutions on the system. The core of the system is in its unique ability to
gather and disseminate data at the point of care, providing unique advantages to
hospitals in need of timely, accurate data on their surgical activities.
Additional modules and functions can be added, such as a clinical data module
that keeps track of all aspects of a patient's treatment, including
pre-operative and post-operative control. The COMPANY has recently introduced
PCCWIN, a Windows 95 based module that automates the preoperative case charting
process.
The benefits of a fully-implemented system include (a) improvement in
the efficiency and output of operating rooms; (b) improvement in the management
of staffing, equipment, and supplies; (c) improvement in inventory controls; and
(d) incremental billings resulting from procedures that, without Surgiware,
might be overlooked for billing purposes because they either were unplanned or
fall outside the billing category for the planned procedure. Surgiware also
integrates clinical data capture, and equipment control, scheduling, quality
assurance and report writing. These benefits can translate into significant
revenues and savings, since, usually, the surgical suite produces more revenue
than any other department and is the greatest cost center in the hospital. The
record keeping functions of Surgiware can also be of significant benefit in the
areas of quality assurance, risk management, and the accreditation of
physicians.
Surgiware uses the UNIX operating system, the "C" programming language,
the INFORMIX SQL 4th generation relational database manager, and a
fault-tolerant architecture that allows the personal computer that is placed in
each operating room to operate independently in the event of a failure of the
central Surgiware computer. The system has been ported to the IBM RS-6000 and
the Data General AViiON series and to 386, 486, and Pentium IBM compatible
personal computers.
<PAGE>
The COMPANY's marketing is concentrated on approximately 1,000
hospitals that have more than 300 beds and 10 operating rooms, where studies
indicate that approximately 80% of all surgical services in this country are
performed. The COMPANY has installed 25 Surgiware sites.
Sales and Marketing
The COMPANY's three products are sold directly by nine full-time sales
people, as well as four COMPANY officers, with the assistance of seven clinical
specialists who demonstrate the systems and address technical questions. Sales
leads and support are received from certain hardware manufacturers, especially
IBM Corporation and Data General Corporation, for whose product the COMPANY acts
as a Value Added Reseller. The COMPANY's products are also sold increasingly
through remarketers who are vendors of laboratory and other information systems
that offer COMPANY systems as subsystems of their product. The COMPANY has
entered into agreements with vendors such as HBO and COMPANY (for both STAR and
ALS product lines), Citation Computer Systems, Inc., Dynacor, Inc., Keane, Inc.,
NLFC, Inc., Shared Medical Systems, Inc., Triple G, and Dynamic Healthcare
Technologies, Inc..
Software Support and Hardware Maintenance Services
The COMPANY provides comprehensive service to its installed base of
customers through its own service organization. Virtually all of the COMPANY's
customers enter into software support agreements with either the COMPANY or its
resellers which are renewed annually or at longer intervals, but, in the case of
former Pharmakon customers, may be canceled by either party on 60 days notice.
These agreements generally provide for 24-hour access to customer support staff,
as well as periodic product enhancements and a limited product warranty for
which the customer pays a monthly or annual fee subject to cancellation after a
specified notice period. Some of the COMPANY's customers have also entered into
agreements for hardware maintenance, which the COMPANY generally subcontracts to
the hardware manufacturers.
HEMOCARE and DIGIMEDICS are trademarks of the COMPANY and its
subsidiary, Digimedics Corporation, respectively.
Competition
The competition in the market for clinical information systems is
intense. The principal competitive factors are the functionality of the system,
its design and capabilities, site references, reputation for ongoing support,
the potential for enhancements, price and salesmanship. Different dynamics and
competitors, however, affect each of the COMPANY's products.
HEMOCARE -- The COMPANY currently competes principally with one other
specialty vendor of stand-alone blood bank systems (Informedics, Inc.), which is
a company of comparable size, and with three vendors (Cerner Corporation,
Sunquest Information Systems, Inc. and Soft Computer Consultants) of laboratory
information systems ("LIS") that contain a blood bank subsystem. The LIS vendors
are much larger companies with greater technical, marketing,
financial and other resources than the COMPANY and have established reputations
for success in developing and selling hospital information systems.
DIGIMEDICS -- The COMPANY currently competes with numerous companies,
including some of the leading vendors of healthcare information systems. With
the acquisition of Pharmakon, the COMPANY believes that it has the largest
number of stand-alone hospital pharmacy systems in its market. Many competitors
have established reputations for success in developing and selling medical
information systems and have far greater resources than the COMPANY. The
principal competitors of the Digimedics system are believed to be Cerner
Corporation, BDM Corp., HCS Corp., and Pharmacy Computer Systems, Inc., as well
as numerous providers of complete healthcare information systems.
SURGIWARE -- The competitors of Surgiware have significantly larger
installed bases and have substantially greater technical, marketing, financial
and other resources than the COMPANY and have established reputations for
success in developing and selling hospital information systems. The principal
vendors competing with the Surgiware division are believed to be Serving
Software Incorporated, a wholly owned subsidiary of HBO Company, Enterprise
Systems Incorporated and Atwork Corporation, a wholly owned subsidiary of
Medaphis Corporation.
Copyright, Patents and Trade Secrets
The COMPANY has relied primarily on copyright, trade secret protection
and confidentiality agreements for protection of its software systems. Certain
features of the Surgiware Division are covered by a patent held by the licensor.
Government Regulation
The hospitals that comprise the primary market for the COMPANY's
products must comply with various federal, state and local statutes and
regulations. The adequacy of blood bank information management and record
keeping is subject to inspection and review by the FDA. Hemocare and other blood
bank systems are also subject to regulation by the FDA as medical devices.
Consequently, the COMPANY and its competitors who provide blood bank information
management systems are also subject to the jurisdiction of the FDA as suppliers
of medical devices. The COMPANY has dedicated substantial time and resources in
its attempts to comply with applicable guidelines and regulations and believes
that it is in substantial compliance therewith.
Hemocare experienced its first regular on-site FDA inspection in July,
1997. The Agency recommended minor changes to the in-house developed call
tracking system to allow for a more precise method of problem identification,
tracking and trending. These changes were put into practice on August 1, 1997.
The COMPANY had previously identified a notice of system limitation which it
updated in its user manual. This change to "documentation" was considered a
labeling change by the FDA and is therefore classified as a "recall." However, a
labeling recall does not require the customer to discontinue its use of the
system. The vendor is required to update its medical device documentation with a
more accurate description of its intended use. The Hemocare Product Center had
already complied with this as part of its normal Good Manufacturing Practices at
the time of its initial notification to customers in July.
The FDA is in the process of developing new guidelines that it intends
to apply to blood bank information systems and to the inspection of vendors of
such systems. The COMPANY cannot predict whether it will be in compliance with
these new guidelines or any future guidelines, regulations or inspection
procedures. Non-compliance with any such guidelines, regulations or procedures
could have a material adverse effect on the operations of vendors of blood bank
information systems including the COMPANY. Any of the COMPANY's other activities
could also become subject to Congressional or governmental agency efforts to
establish or expand governmental agency jurisdiction.
Miscellaneous
The COMPANY software development costs were $2,155,000 during fiscal
1997 and $1,438,000 in fiscal 1996. These costs included write downs and
amortization of software development costs. In addition, software costs of
$929,000 and $496,000, respectively, were capitalized in each year. The COMPANY
anticipates that it will continue to commit substantial resources to software
development in the future. Furthermore, the COMPANY purchased $3,891,000 of
research and development in the acquisition of Pharmakon and JAC, which was
charged to operations expense in fiscal 1996.
The COMPANY's business is not dependent on a single customer or a few
customers. The COMPANY considers that its market area and customer base is
United States, Canada and, through JAC Computer Services, LTD, in the U.K.
Employees
As of June 30, 1997, the COMPANY had 123 full-time employees and 10
part-time employees, including 24 in sales and marketing, 88 in customer support
and product development, and 21 in administration. None is represented by a
labor union and the COMPANY considers its employee relations to be good.
<PAGE>
ITEM 2. PROPERTIES
The COMPANY's corporate headquarters are in Melville, New York, where
the COMPANY occupies approximately 5,738 square feet under a lease that expires
on July 31, 1998. The Digimedics Division is headquartered in Scotts Valley,
California, where the COMPANY occupies approximately 11,646 square feet under a
lease expiring May 1, 2001. The Pharmakon Division is headquartered in Overland
Park, Kansas, where the COMPANY occupies approximately 13,683 square feet under
a lease expiring September 30, 1998. The United Kingdom group is head quartered
in Basildon, Essex, where the COMPANY occupies approximately 2,567 square feet
under a lease expiring September 26, 2004. The COMPANY believes that its
facilities are adequate for its current needs and that, if necessary, it will
have no difficulty in securing alternate facilities at the expiration of its
current leases.
ITEM 3. LEGAL PROCEEDINGS
The COMPANY is subject to legal proceedings and claims that arise in
the ordinary course of business. In addition, Mediware Information Systems,
Inc., ("Mediware") its wholly owned subsidiary, Digimedics, and Continental have
been named as co-defendants in a litigation, Cedars-Sinai Medical Center vs.
Mediware Information Systems, Inc. et al, commenced on March 26, 1997 in Los
Angeles County Superior Court. The litigation arises out of a contract between
Continental and the customer, under which Continental was to install certain
computer equipment and software. The plaintiff alleges that computer equipment
and software were not operational, and that the contract the plaintiff had with
Continental was assigned without its consent to Digimedics when it acquired
Continental's Pharmakon Division (See Note J and H to the Financial Statements).
The plaintiff also alleges that Digimedics failed to honor the contract and that
Mediware did not fulfill its promise to install and support the software as
prescribed in the contract. The plaintiff's claims against Digimedics are for
breach of contract, intentional interference with contract, and negligent
interference with contract. The plaintiff's claims against Mediware are for
promissory estoppel, intentional interference with contract, and negligent
interference with contract. The plaintiff is seeking unspecified compensatory,
consequential, and punitive damages. Management believes that the claims against
the COMPANY are without merit and is vigorously opposing those claims, however,
the outcome is presently undeterminable. In the opinion of management, the
amount of potential liability with respect to the above actions will not
materially affect the COMPANY's financial position or results of operations. The
COMPANY is not aware of any proceedings contemplated by government authorities
that would have a material adverse affect on the COMPANY or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The COMPANY did not submit any matter to a vote of its security holders
during the fourth quarter of its fiscal year ended June 30, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The COMPANY's Common Stock is traded in the over the counter market and
is quoted on the Nasdaq Small Cap market ("Nasdaq") under the symbol MEDW. It is
also traded on the Pacific Stock Exchange under the symbol MIS. Prior to August
1991, there was no established trading market for the COMPANY's Common Stock.
The table below indicates the high and low of quoted bid market prices
as reported by Nasdaq for the COMPANY's Common Stock for each quarter during the
fiscal years ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
ended 9/30 ended 12/31 ended 3/31 ended 6/30
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997 4 1/8 3 3/4 4 5/8 3 1/8 4 3/4 3 1/4 6 1/8 2 5/8
Fiscal 1996 1 1/8 5/8 1 1/2 7/8 3 5/8 7/8 4 1/4 3
</TABLE>
Such over-the-counter quotations reflect intra-dealers prices, without
retail mark-ups, mark downs or commissions, and may not represent actual
transactions.
The reported trading volume is low. As of June 30, 1997, the
approximate number of shareholders of record of the COMPANY's Common Stock was
300.
The listing maintenance standards of Nasdaq include a net tangible
assets test which will become effective at the end of a phase-in period. The
COMPANY believes that it meets the test by a small margin. The Pacific Stock
Exchange ("PSE"), on which the Common Stock also is listed, has imposed new
listing maintenance criteria based on net worth and tangible net assets. The
COMPANY does not meet the new criteria; however, the PSE has granted the COMPANY
a phase-in compliance period, until the end of 1997. If the COMPANY does not
meet the new criteria of the PSE after the extended compliance period, it is
subject to being delisted. If both listings are terminated because of failure to
meet the applicable criteria, the liquidity for the COMPANY's Common Stock will
be severely impaired in the absence of the development of a meaningful
alternative to Nasdaq.
Dividend Policy
The COMPANY has never paid dividends on its Common Stock and has no
present intention to pay cash dividends on its Common Stock. Earnings, if any,
will be used to finance the development and continued expansion of the COMPANY's
business.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
In June of 1996, Digimedics Corporation, a wholly-owned subsidiary of
the COMPANY, purchased the Pharmakon division and JAC, a U.K. affiliate, from
Continental Healthcare Systems, Inc. ("Continental"). The total purchase price,
net of acquisition costs, was approximately $9.7 million, $3.7 million of which
was paid in cash and the remaining $6.0 million of which was satisfied pursuant
to a promissory note issued to Continental, originally due November 30, 1996. On
October 28, 1996 the promissory note was amended, providing among other things,
an extension of the due date to August 1, 1997. The promissory note was further
amended, effective July 21, 1997, to provide for a reduced principal amount to
$4,196,000 and extended payment terms. The second amendment requires quarterly
principal payments of $150,000 commencing October 31, 1997, with the balance due
November 30, 1998, or earlier based upon a change in control or refinancing by
the COMPANY and a reduction in the interest rate to 8.5% payable monthly. The
COMPANY will review the financing needs of this promissory note and general cash
requirements on an ongoing basis. It is expected that the COMPANY will require
additional sources of liquidity to fund the payment of this promissory note
along with other financing needs including potential acquisitions.
The COMPANY entered into a service agreement with Continental as of the
acquisition date which requires the COMPANY to perform functions in satisfying
various in-process customer contracts, collection of Continental accounts
receivables and other activities related to fulfilling post-acquisition
Continental obligations. The service agreement provided that the COMPANY would
retain 30% of the monies collected on the receivables which the COMPANY services
plus $1,237,000. In connection with the amendment to the promissory note, the
service agreement with Continental was also amended on July 21, 1997. The
amended service agreement allows the COMPANY to retain 100% of accounts
receivable amounts collected after the amendment date which had not been
invoiced by Continental prior to the acquisition date. The promissory note was
reduced by $437,000 (to $4,196,000) through the application of the amount owing
from Continental to the COMPANY for completed services in accordance with the
service agreement. Total fiscal 1997 revenues recorded from this service
agreement approximate $1.2 million.
To finance the cash portion of the acquisition, the COMPANY made a
private placement of 1,692,308 shares of its Common Stock in June of 1996, at a
price of $3.25 per share, for total proceeds before expenses of $5,500,000.
Total expense for the June 1996 private placement aggregate $568,000. In order
to provide for general cash needs, the COMPANY completed in August, 1997, a
private placement of its securities. The COMPANY sold 400,000 shares of its
Common Stock for $6.00 per share and issued warrants to purchase 40,000 shares
of Common Stock at $6.00 per share (as part of its placement fee). The COMPANY
has agreed to register the shares sold in the private placement with the
Securities and Exchange Commission. Total proceeds before expenses were
$2,400,000. Expenses of the August 1997 private placement and registration of
the securities are estimated to be approximately $310,000.
The COMPANY's cash and cash equivalent position at June 30, 1997 was
$1,935,000, a decrease of $569,000 from fiscal year end 1996. At June 30, 1997
the net working capital was $2,487,000 and the current ratio was 1:4-1. The
impact of the August, 1997 private placement on the COMPANY's cash and working
capital position is shown (as if it had occurred on June 30, 1997) on an
unaudited Pro Forma balance sheet in the financial statements (see Note M to the
Financial Statements). The Pro Forma cash and cash equivalent position is
$4,025,000; the pro-forma net working capital was $4,577,000 and the Pro Forma
working capital ratio was 1.7 to 1. The Pro Forma balances are not prospective
information. Actual cash and working capital amounts at the time of the private
placement may differ significantly from such Pro Forma amounts.
In order to cover its cash needs during fiscal years 1994 and 1995, the
COMPANY carried out financing programs under which it borrowed an aggregate of
$1,299,000 from investors, including directors. As part of the financing package
such investors received promissory notes along with 1,040,025 warrants to
purchase shares of common stock, exercisable at $0.50 per share and 129,695
warrants exercisable at $1.25 per share. During fiscal year 1996, the COMPANY
repaid $120,000, leaving a balance of $1,179,000. In May of 1996, some of the
investors exercised 495,025 of the $0.50 warrants for a total of $247,512.50. A
portion of these funds was used by the COMPANY for the acquisition of Pharmakon
and JAC. In September of 1997, $325,000 of the $1,179,000 balance was repaid to
individuals whose notes were not subordinate to the Continental promissory note.
Effective September 15, 1997 these note holders agreed to reduce the interest on
this unpaid amount from 12% to 9% leaving the unpaid balance of $854,000 owing
to two directors and another person.
The COMPANY has procured a line of credit from a bank in the total sum
of $75,000. As of June 30, 1997, there were no balances outstanding under this
facility.
Material Changes in Results of Operations: Fiscal 1997 vs. Fiscal 1996
Total revenue increased by $8,087,000 or 78% from $10,432,000 in fiscal
1996 to $18,519,000 in fiscal 1997. The increase is primarily attributable to
the Pharmakon and JAC acquisition ("Acquisition"). Pharmakon and JAC contributed
$163,000 or less than one month in revenue in fiscal 1996 and $7,547,000 for a
full year in fiscal 1997.
System sales increased by $448,000 or 8% from $5,781,000 to $6,229,000
in fiscal 1997. Pharmakon and JAC system sales increased $1,361,000 in fiscal
1997 from the prior year. The sales increase from the Acquisition was offset
primarily from a decrease in Hemocare system sales. Hemocare shifted pricing
focus from initial system dollar revenue to increased long-term maintenance and
support service revenue.
Service revenues increased 164% or $7,639,000 in fiscal 1997 vs. fiscal
1996. Service revenue increases in fiscal 1997 vs. fiscal 1996 were principally
due to the Pharmakon and JAC Acquisition, which recorded an increase of
$6,023,000. Additionally, Hemocare service revenues increased by $1,018,000 in
fiscal 1997 over the prior year due largely to a focused marketing emphasis on
increasing service revenues.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers for delivery to
clients along with related transportation costs. As a percentage of related
sales, cost of systems increased 4% from 35% in fiscal 1996 to 39% in fiscal
1997. This increase reflects a higher proportion of third party software and
computer hardware in fiscal 1997 vs. fiscal 1996 which is sold at lower gross
margins than company produced product sales.
Cost of services include salaries of client service personnel,
communications expenses, unreimbursed travel, and training expenses along with
related office and other direct expenses. Cost of Services increased $1,510,000
or 108% in fiscal 1997 as compared to fiscal 1996. As a percentage of service
revenue, cost of services decreased 6% from 30% in fiscal 1996 to 24% in fiscal
1997. The increase in expense is principally due to the Acquisition. Due to the
relatively fixed staffing and other expense within cost of services, the
increase in corresponding service revenues resulted in higher gross margins.
Software development costs include salaries, documentation, office and
other expenses incurred in product development along with amortization of
software development costs. Software development costs increased 50% or $717,000
in fiscal 1997 vs. fiscal 1996. This increase is primarily the result of the
Pharmakon and JAC acquisition. Pharmakon and JAC development expenses were
$761,000 in fiscal 1997 and $21,000 in fiscal 1996 (from under one month of
activity in fiscal 1996). Total expenditures for software development, including
both capitalized and non-capitalized portions for fiscal 1997 and fiscal 1996
were $2,591,000 and $1,452,000. These amounts exclude amortization. Capitalized
software cost additions were $929,000 and $496,000 for fiscal 1997 and fiscal
1996 respectively. The increase in the percentage of costs capitalized is
primarily due to WORx product software development. The WORx development project
reached technical feasibility in early fiscal 1997. During fiscal 1996, the
COMPANY recorded a charge to operations of $3,891,000 for acquired research and
development from the Pharmakon acquisition. There was no such charge in fiscal
1997. Management expects continued increases in software development in the
future.
Selling, general and administrative expenses include marketing and
sales salaries, commissions, travel and advertising expenses. Also included is
bad debt expense; legal, accounting and professional fees; salaries and bonus
expenses for corporate, divisional, financial and administrative staffs;
utilities, rent, communications and other office expenses; and other related
direct administrative expenses. Selling, general and administrative expenses
increased 66% or $3,253,000 from $4,960,000 in fiscal 1996 to $8,213,000 in
fiscal 1997. The Pharmakon and JAC acquisition accounted for the majority, or
$2,924,000, of this increase.
Net interest expense increased $457,000 or 226.% from $202,000 in
fiscal 1996 to $659,000 in fiscal 1997. This increase is primarily due to the
promissory note issued in connection with the Acquisition.
In fiscal years ended 1997 and 1996 the COMPANY reported income tax of
$85,000 and $6,000 or an effective rate of 3.9% in fiscal 1997 (fiscal 1996 was
a loss year). Income tax for both years has principally been state and local.
The COMPANY utilized net operating loss carry forwards in fiscal 1997 (see note
I to the Financial Statements). The COMPANY has a deferred tax asset of
$3,781,000 at June 30, 1997 which is fully reserved as the likelihood of its
future utilization cannot be presently determined. Future utilization of the
deferred tax asset is dependent upon the COMPANY's future profitability as well
as the outcome of various acquisition and other strategies and planned increased
software development activities both of which management expects will result in
future tax deductions reducing or eliminating any taxable income.
The COMPANY had net earnings of $2,081,000 or $0.35 per share in fiscal
1997. In fiscal 1996, the COMPANY's reported net (loss) of ($3,491,000) or
($1.24) per share, which included $3,891,000 of acquired research and
development write-downs.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
Consolidated Financial Statements
Independent auditors' report .......................................... F-2
Balance sheet as of June 30, 1997 ..................................... F-3
Statements of operations for the years
ended June 30, 1997 and 1996 .......................................... F-4
Statements of stockholders' equity for
the years ended June 30, 1997 and 1996 ................................ F-5
Statements of cash flows for the years
ended June 30, 1997 and 1996 .......................................... F-6
Notes to financial statements ......................................... F-7
</TABLE>
F-1
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Mediware Information Systems, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheet of Mediware
Information Systems, Inc. and subsidiaries as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Mediware Information
Systems, Inc. and subsidiaries as of June 30, 1997 and the consolidated results
of their operations and their consolidated cash flows for each of the years in
the two-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
August 28, 1997
F-2
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
As of June 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical (Note M)
(Unaudited)
<S> <C> <C>
ASSETS (Note E)
Current assets:
Cash and cash equivalents (Note H) ................................................ $ 1,935,000 $ 4,025,000
Accounts receivable, less estimated doubtful accounts of $282,000 (Notes A and J) . 6,357,000 6,357,000
Inventories (Note A) .............................................................. 56,000 56,000
Prepaid expenses and other current assets ......................................... 304,000 304,000
------------ ------------
Total current assets ........................................................... 8,652,000 10,742,000
Fixed assets, at cost, less accumulated depreciation of $1,572,000 (Notes A and C) ... 752,000 752,000
Capitalized software costs (Notes A and D) ........................................... 1,448,000 1,448,000
Excess of cost over fair value of net assets acquired, net of accumulated amortization
of $732,000 (Notes A and B) ....................................................... 6,419,000 6,419,000
Other assets ......................................................................... 78,000 78,000
------------ ------------
$ 17,349,000 $ 19,439,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable .................................................................. $ 713,000 $ 713,000
Accrued expenses and other current liabilities (Note F) ........................... 2,032,000 2,032,000
Advances from customers (Note A) .................................................. 2,106,000 2,106,000
Current portion of capital leases payable ......................................... 102,000 102,000
Notes payable (Note E) ............................................................ 1,212,000 1,212,000
------------ ------------
Total current liabilities ...................................................... 6,165,000 6,165,000
Notes payable, less current portion (Note E) ......................................... 4,600,000 4,600,000
Capital leases payable, less current portion ......................................... 60,000 60,000
------------ ------------
Total liabilities .............................................................. 10,825,000 10,825,000
------------ ------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY (Note G)
Preferred stock - $.01 par value; authorized 10,000,000 shares; none issued and
outstanding
Common stock - $.10 par value; authorized 12,000,000 shares; 5,056,486 shares issued
and outstanding ................................................................... 506,000 510,000
Additional paid-in capital ........................................................... 13,621,000 15,707,000
Unearned compensation ................................................................ (91,000) (91,000)
Cumulative foreign currency translation adjustment ................................... 36,000 36,000
(Deficit) ............................................................................ (7,548,000) (7,548,000)
------------ ------------
Total stockholders' equity ..................................................... 6,524,000 8,614,000
------------ ------------
$ 17,349,000 $ 19,439,000
============ ============
See notes to financial statements F-3
</TABLE>
F-3
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
------ -----
<S> <C> <C>
Revenues:
System sales .............................................. $ 6,229,000 $ 5,781,000
Services .................................................. 12,290,000 4,651,000
------------ ------------
Total revenues ......................................... 18,519,000 10,432,000
------------ ------------
Costs and expenses:
Cost of systems ........................................... 2,413,000 2,023,000
Cost of services .......................................... 2,913,000 1,403,000
Purchased research and development (Note B) ............... 3,891,000
Software development costs ................................ 2,155,000 1,438,000
Selling, general and administrative ....................... 8,213,000 4,960,000
------------ ------------
Total costs and expenses ............................... 15,694,000 13,715,000
------------ ------------
Earnings (loss) before interest and provision for income taxes 2,825,000 (3,283,000)
Interest income .............................................. 81,000 14,000
Interest (expense) ........................................... (740,000) (216,000)
------------ ------------
Earnings (loss) before provision for income taxes ............ 2,166,000 (3,485,000)
Income tax provision (Notes A and I) ......................... 85,000 6,000
------------ ------------
Net earnings (loss) .......................................... $ 2,081,000 $ (3,491,000)
============ ============
Earnings (loss) per share (Note A) ........................... $ 0.35 $ (1.24)
============ ============
Weighted average number of common and common
equivalent shares ......................................... 5,917,441 2,817,405
============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Unearned
Portion of Foreign
Additional Compensatory Currency
Common Stock Paid-in Stock Translation
Shares Amount Capital Options (Deficit) Adjustment Total
-------- -------- -------- --------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1995 .................. 2,596,410 $ 260,000 $ 8,147,000 $ (6,138,000) $2,269,000
Shares issued to directors .............. 86,040 9,000 86,000 95,000
Exercise of warrants .................... 495,025 49,000 198,000 247,000
Shares issued in connection with
private placement (Note G) ........... 1,723,076 172,000 4,891,000 5,063,000
Shares issued as fees for acquisitions
(Note B) ............................. 30,769 3,000 97,000 100,000
Net loss ................................ (3,491,000) (3,491,000)
----------- ---------- ---------- ----------- -------- ---------
Balance - June 30, 1996 ................. 4,931,320 493,000 13,419,000 (9,629,000) 4,283,000
Shares issued to directors (to be
delivered during fiscal 1998) ........ 25,000 3,000 91,000 94,000
Exercise of stock options ............... 100,166 10,000 125,000 135,000
Compensatory stock options issued ....... 117,000 (91,000) 26,000
Registration costs incurred in connection
with private placement (Note G) ...... (131,000) (131,000)
Foreign currency translation ............ 36,000 36,000
Net earnings ............................ 2,081,000 2,081,000
---------- ---------- ----------- ----------- ----------- -------- ----------
Balance - June 30, 1997 ................. 5,056,486 $ 506,000 $13,621,000 $ (91,000) $(7,548,000) $ 36,000 $6,524,000
========== ========== =========== =========== =========== ======== ==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) .......................................................... $ 2,081,000 $ (3,491,000)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Shares issued to directors .............................................. 94,000 95,000
Compensatory stock options issued to consultants ........................ 26,000
Provision for doubtful accounts ......................................... 261,000 162,000
Depreciation and amortization ........................................... 1,058,000 709,000
Purchased research and development ...................................... 3,891,000
Changes in operating assets and liabilities, net of effects from
purchase of Pharmakon & JAC:
Accounts receivable ............................................... (2,729,000) (620,000)
Inventories ....................................................... 152,000 (53,000)
Prepaid and other assets .......................................... (151,000) (28,000)
Accounts payable, accrued expenses and customer advances .......... 1,209,000 665,000
------------ ------------
Net cash provided by operating activities ....................... 2,001,000 1,330,000
------------ ------------
Cash flows from investing activities:
Acquisitions of fixed assets ................................................. (262,000) (127,000)
Capitalized software costs ................................................... (929,000) (496,000)
Purchase of Pharmakon and JAC, net of cash acquired .......................... (3,893,000)
------------ ------------
Net cash used in investing activities ........................... (1,191,000) (4,516,000)
------------ ------------
Cash flows from financing activities:
Repayment of debt ............................................................ (1,383,000) (129,000)
Proceeds from exercise of options and warrants ............................... 135,000 247,000
Proceeds (expenses) of private placement ..................................... (131,000) 5,063,000
------------ ------------
Net cash provided by (used in) financing activities ............. (1,379,000) 5,181,000
------------ ------------
Net (decrease) increase in cash and cash equivalents ............................ (569,000) 1,995,000
Cash and cash equivalents - beginning of year ................................... 2,504,000 509,000
------------ ------------
Cash and cash equivalents - end of year ......................................... $ 1,935,000 $ 2,504,000
============ ============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest ................................................................. $ 582,000 $ 64,000
Income taxes ............................................................. $ 46,000 $ 6,000
Noncash transactions:
Equipment acquired with capital leases .................................... $ 120,000 $ 41,000
TheCompany made acquisitions for $3,893,000 of cash in the year ended June
30, 1996. The purchase price was allocated to the assets acquired and
liabilities
assumed based on their fair value as indicated in Note B .................. $ 10,004,000
Less cash acquired ........................................................... $ (11,000)
Promissory note issued ....................................................... $ (6,000,000)
Common stock issued .......................................................... $ (100,000)
------------
$ 3,893,000
============
</TABLE>
See notes to financial statements
F-6
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Mediware
Information Systems, Inc. and its wholly owned subsidiary, Digimedics
Corporation ("Digimedics") and its subsidiary J.A.C. Computer Services Limited
("JAC"). All significant intercompany transactions have been eliminated in
consolidation.
Mediware Information Systems, Inc. and subsidiaries (the "Company") develops,
installs and maintains computerized information systems for hospital blood
banks, pharmacies and surgical suites.
[1] Cash equivalents:
The Company considers all highly liquid short-term investments purchased
with a maturity of three months or less to be cash equivalents.
[2] Revenue recognition:
Revenues are derived primarily from the sale of clinical information
systems along with related service activities. Service activities
generally include installation, training, maintenance, and support. The
Company also derives revenue from the sale of computer hardware.
System sales contracts generally include the licensing of the company's
information system software, services related to the training and
installation of the software and sale of computer hardware. Pre-packaged
software revenue is recognized upon delivery. Computer hardware revenue
is recognized upon shipment. Training and system installation revenue is
recognized when services are performed. Support and maintenance revenue
is recognized on a pro-rata basis over the period of the contract.
Contracts for the Pharmakon software that pre-dated the acquisition of
Pharmakon (Note B) are recognized as revenue using the
percentage-of-completion method provided that collectibility is
determinable.
[3] Inventories:
Inventories, which consist of equipment purchased for resale, are valued
at the lower of cost or market. Cost is determined by the specific
identification method.
[4] Fixed assets:
Furniture and equipment are depreciated by the straight-line method over
their estimated useful lives of five years. Leasehold improvements are
amortized by the straight-line method over the remaining terms of the
respective leases.
[5] Software development costs:
In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalizes certain costs associated with the development of
computer software. Such costs, in addition to costs of purchased
software, are amortized over the software's estimated useful life of five
years. Management periodically evaluates the recoverability of
capitalized software development costs and write-downs are taken if
required.
Costs to maintain developed programs and other development costs incurred
prior to achievement of technical feasibility are expensed as incurred.
Such costs were $1,662,000 and $956,000 for the years ended June 30, 1997
and 1996, respectively. Software development costs reported on the
consolidated statements of operations include amortization (Note D).
F-7
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] Excess of cost over the fair value of net assets acquired:
The excess of cost over the fair value of net assets acquired, which
arose from the acquisitions of Digimedics, Pharmakon and JAC, is being
amortized on a straight-line basis over twenty years. Management
continually reevaluates the appropriateness of the amortization periods
and related carrying amount. Goodwill is adjusted if events and
circumstances indicate that an other than temporary decline in value
below the current unamortized historical cost has occurred. Several
factors are used to evaluate goodwill, including but not limited to
management's plans for future products and operations, market position
and continual acceptance, recent operating results and projected
undiscounted cash flows.
[7] Advances from customers:
Advances from customers represent contractual payments received by the
Company. Such amounts are recorded as income upon delivery of the system
with respect to system revenues or over the life of the service agreement
with respect to service revenue.
[8] Income taxes:
The Company utilizes the method of accounting for income taxes prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Pursuant to SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect
at the balance sheet date. The resulting asset or liability is adjusted
to reflect enacted changes in tax law.
[9] Earnings (loss) per share:
Earnings (loss) per share are based on the weighted average number of
shares outstanding during each year. Stock options and warrants are
included as share equivalents using the modified treasury stock method.
Earnings per share are computed on a primary basis since the fully
diluted basis does not result in further dilution.
[10] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[11] Impairment of long-lived assets:
During the year ended June 30, 1997 the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable assets, and goodwill related to
those assets. The adoption of SFAS 121 had no effect on the Company's
financial statements.
F-8
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] Financial instruments:
The carrying amounts of accounts receivable, accounts payable, accrued
expenses, capitalized lease obligations and long-term debt approximate
their fair value as the interest rates on the Company's indebtedness
appproximate current market rates and due to the short period to maturity
of these instruments.
[13] Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation". SFAS 123 encourages, but does
not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
continue to account for its employee stock-based compensation plans using
the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees" and
disclose the pro forma effects on net and earnings (loss) per share had
the fair value of options been expensed. Under the provisions of APB 25,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's common stock at the date of the
grant over the amount an employee must pay to acquire the stock (see Note
G).
[14] Recently issued accounting pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share". This new standard requires dual presentation of
basic and diluted earnings per share ("EPS") on the face of the statement
of income and requires reconciliation of the numerators and the
denominators of the basic and diluted EPS calculation. This statement
will be effective for the second quarter of the Company's 1998 fiscal
year and will require retroactive restatement of previously reported per
share data. The Company has not yet quantified what effect the adoption
of SFAS 128 will have on its earnings per share of common stock.
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", and No. 131, "Disclosures about Segments of an
Enterprise and Related Information". These statements will be effective
for the Company's 1999 fiscal year. Implementing SFAS 130 and SFAS 131
will not effect the Company's financial position or results of
operations.
NOTE B - ACQUISITIONS
On June 17, 1996, Digimedics and Information Handling Services Group, Inc.
("IHS") and its wholly owned subsidiary, Continental Healthcare Systems, Inc.
("Continental"), entered into an Asset Purchase Agreement whereby Digimedics
purchased from Continental its Pharmakon division ("Pharmakon") on that date.
Also on June 17, 1996, Digimedics purchased from Holland America Investment
Corporation, a wholly owned subsidiary of IHS, all of the issued and outstanding
capital stock of JAC, a United Kingdom corporation. Pharmakon and JAC develop,
install and maintain computerized information systems for hospital pharmacies.
Digimedics paid an aggregate of $3,666,000 in cash and issued a $6,000,000
secured promissory note (Note E) for both acquisitions.
F-9
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE B - ACQUISITIONS (CONTINUED)
Digimedics also incurred acquisition costs of $238,000 in cash (of which
approximately $76,000 was to a related party see Note K) and issued 30,769
shares of common stock valued at $100,000 as a fee to related parties.
The purchase price has been allocated to the assets acquired, including cash of
$11,000, and liabilities assumed based on their fair values as follows:
<TABLE>
<S> <C>
Purchase price:
Cash ................................................ $ 3,666,000
Note payable ........................................ 6,000,000
Costs of acquisition ................................ 338,000
------------
$ 10,004,000
============
Assets acquired and liabilities assumed:
Current assets ...................................... $ 638,000
Fixed assets ........................................ 248,000
Other assets ....................................... 151,000
Purchased research and development .................. 3,891,000
Excess of cost over fair value of net assets acquired 5,873,000
Current liabilities ................................. (797,000)
------------
$ 10,004,000
============
</TABLE>
The purchased research and development was charged to operations upon
acquisition. The acquisitions have been accounted for as a purchase and,
accordingly, the accompanying financial statements include the accounts of
Pharmakon and JAC from date of acquisition.
Pro forma summary consolidated results of operations, based on the original
agreement, assuming the acquisition of Pharmakon and JAC had taken place on July
1, 1995 is as follows:
<TABLE>
<CAPTION>
Year Ended
June 30, 1996
(Unaudited)
<S> <C>
Revenue ...................................................$18,965,000
===========
Net earnings ..............................................$ 26,000
======
Earnings per share ........................................$ .01
===
</TABLE>
F-10
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE C - FIXED ASSETS
Fixed assets consist of the following as at June 30, 1997:
<TABLE>
<S> <C>
Computer, machinery, and office equipment $1,996,000
Furniture ............................... 310,000
Leasehold improvements .................. 18,000
----------
2,324,000
Less accumulated depreciation ........... 1,572,000
---------
$ 752,000
==========
</TABLE>
NOTE D - CAPITALIZED SOFTWARE COSTS
<TABLE>
<CAPTION>
June 30,
1997 1996
----------- --------
<S> <C> <C>
Balance, beginning of year (net of accumulated
amortization) ..................................... $ 1,012,000 $ 998,000
Additions ............................................ 929,000 496,000
Amortization ......................................... (493,000) (482,000)
----------- -----------
Balance, end of year (net of accumulated amortization) $ 1,448,000 $ 1,012,000
=========== ===========
</TABLE>
NOTE E - NOTES PAYABLE
At June 30, 1997 the Company has outstanding notes payable as follows:
<TABLE>
<S> <C>
Promissory note issued in connection with the acquisition of Pharmakon and JAC
(the "Acquisition Note") (Note B) guaranteed by the Company, collateralized
by substantially all of the assets of Digimedics and all of the issued and
outstanding stock of Digimedics and JAC. The loan agreement, among other
matters, restricts the Company with respect to incurring any lien or
encumbrance on its property or assets, entering into new
indebtedness and paying any dividends (1) ................................... $4,633,000
Notes issued during the years ended June 30, 1995 and 1994, bearing interest at
12% per annum, due on demand, collateralized by the trade accounts receivable
of Digimedics (including $804,000 owed to directors)(2) ..................... 1,179,000
---------
5,812,000
Less current maturities ........................................................ 1,212,000
---------
Balance due during fiscal year ending June 30, 1999 ............................ $4,600,000
=========
</TABLE>
F-11
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE E - NOTES PAYABLE (CONTINUED)
(1) On October 28, 1996 the Acquisition Note was amended to provide
for an extension of the original due date to August 1, 1997. The
extension agreement provided for an immediate payment of $1
million and monthly payments of $100,000 for principal and
interest. In addition, the interest rate was increased to 15% on
approximately $3,763,000 and 8.25% on the remaining $1,237,000.
The agreement provided for the monthly payments to be first
applied to the interest on the $1,237,000 portion of the loan
and the remainder applied to the interest, then principal, of
the portion of the loan which bears interest at 15%.
Effective July 21, 1997, the Acquisition Note was further
amended. The second amendment provides for (i) a reduction of
the principal balance by $437,000, which amount was owing by
Continental to Digimedics pursuant to a service agreement (Note
J), (ii) extended payment terms which require quarterly
principal payments of $150,000 commencing October 31, 1997 with
the balance due on November 30, 1998, or earlier in the event of
a change in control or refinancing by the Company as described
in the amended agreement, and (iii) a reduction in the interest
rate to 8.5% payable monthly. The note is classified in the
accompanying financial statements based on the amended payment
terms.
(2) Of these notes, $854,000 are subordinated to the Acquisition
Note and are accordingly classified as long-term debt. In
conjunction with the issuance of these notes the Company issued
warrants to purchase 1,040,025 shares of common stock for $0.50
per share and 129,695 shares for $1.25 per share, exercisable
through September 30, 2004. During May 1996, 495,025 of the
$0.50 warrants were exercised.
NOTE F - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at June
30, 1997:
<TABLE>
<S> <C>
Wages and related benefits .................................. $ 895,000
Professional fees (including $96,000 due to a related party
see Note K) ................................................. 205,000
Interest (including $323,000 due to directors) .............. 469,000
Income tax .................................................. 42,000
Other ....................................................... 421,000
----------
$2,032,000
==========
</TABLE>
NOTE G - STOCKHOLDERS' EQUITY
[1] Stock options and warrants:
Pursuant to the Company's Stock Option Plan (the "Plan") the number of
shares which may be issued is equal to twenty percent of the outstanding
shares of common stock, except that no more than 500,000 shares may be
issued pursuant to incentive stock options. The options entitle holders to
purchase shares of common stock at an exercise price not less than the
fair value of the common stock at the date of grant. Up to 511,519
additional options may be issued under this plan.
F-12
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[1] Stock options and warrants: (continued)
The Company also has options outstanding pursuant to a 1982 Stock Option
Plan (the "1982 Plan") and a Non-Employee Directors Stock Option Plan (the
"Non-Employee Directors Plan"). No additional options may be granted under
the 1982 Plan or the Non-Employee Directors Plan. The options under the
Non-Employee Directors Plan entitle the holders to purchase shares of
common stock at a price equal to the fair value on the date of grant.
In November 1996, the Company granted a director of the Company options to
purchase 75,000 shares of common stock at $3.50 per share pursuant to a
consulting agreement. The options are exercisable at a rate of 25,000
options per annum commencing November 1, 1997 and expire on November 1,
2001. The Company determined the fair value of these options to be
approximately $117,000 which is being charged to operations over three
years.
The following table sets forth summarized information concerning the
Company's stock options:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
------ -----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 601,674 $1.37 578,565 $1.42
Granted 226,669 $3.22 80,002 $1.14
Exercised (100,166) $1.35 0
Cancelled (27,355) $2.29 (56,893) $1.54
---------- ---------
Options outstanding at end of year 700,822 $1.93 601,674 $1.37
======== ========
Options exercisable at end of year 408,915 $1.56 438,060 $1.50
======== ========
</TABLE>
The following table presents information relating to stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Life in Exercise
Exercise Price Shares Price Years Shares Price
-------------- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$1 - $1.76 460,124 $1.13 6.01 363,217 $1.17
$2.80 - $3.625 211,669 $3.22 7.55 16,669 $3.625
$5.25 29,029 $5.25 2.00 29,029 $5.25
------- --------
700,822 $1.93 6.31 408,915 $1.56
-------- ========
</TABLE>
The Company has outstanding warrants for the purchase of 545,000 shares of
its common stock at $.50 per share and for the purchase of 129,695 shares
at $1.25 per share exercisable through September 30, 2004 (Note E).
F-13
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[1] Stock options and warrants: (continued)
The weighted-average fair value at date of grant for options granted
during the year ended June 30, 1997 and 1996 was $1.89 and $0.73 per
option, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes option pricing model utilizing the
following assumptions:
<TABLE>
<CAPTION>
June 30,
1997 1996
------ -----
<S> <C> <C>
Risk-free interest rates 5.6% - 6.5% 5.9% - 6%
Expected option life in years 3 - 8 3 - 8
Expected stock price volatility 50% 80%
Expected dividend yield 0 0
</TABLE>
Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by SFAS 123, net
earnings (loss) for the years ended June 30, 1997 and 1996 would have been
$2,010,000 and $(3,521,000) or $0.34 per share and $(1.25) per share,
respectively.
[2] Private Placement:
During June 1996, the Company completed a private placement of its
securities. The Company issued 1,692,308 shares of its common stock for
$3.25 a share, yielding gross proceeds of approximately $5,550,000. In
connection with the private placement and the related registration of the
securities (pursuant to registration rights granted to the investors) the
Company incurred costs aggregating $568,000 (of which approximately
$118,000 was paid to a related party) ( see Note K). The Company recorded
$437,000 of these costs during the fiscal year ended June 30, 1996 and
$131,000 during the fiscal year ended June 30, 1997. The Company also
issued 30,768 sharesof common stock to related parties as a placement
fee valued at $100,000.
NOTE H - COMMITMENTS AND CONTINGENCIES
[1] Operating leases:
Rental commitments for the remaining term of the Company's noncancellable
leases relating to office space expiring at various dates through 2004 are
as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
<S> <C> <C>
1998 $ 489,000
1999 245,000
2000 191,000
2001 170,000
2002 48,000
Thereafter 97,000
-----------
$ 1,240,000
===========
</TABLE>
F-14
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[1] Operating leases: (continued)
Certain leases provide for additional payments for real estate taxes and
insurance and contain an escalation clause for increases in utilities and
services. Rental expense for the years ended June 30, 1997 and 1996
aggregated $442,000 and $213,000, respectively.
[2] Software license agreement:
In September 1990, the Company entered into an agreement to acquire a
perpetual license for a computerized information system for hospital
operating rooms. The Company is required to pay royalties of 5% to 15% of
sales of the product.
[3] Contingency:
Mediware Information Systems, Inc., ("Mediware") its wholly owned
subsidiary, Digimedics, and Continental have been named as co-defendants
in a litigation which has been commenced by a former customer of
Continental. The litigation arises out of a contract between Continental
and the customer, under which Continental was to install certain computer
equipment and software. The plaintiff alleges that computer equipment and
software were not operational, and that the contract the plaintiff had
with Continental was assigned without its consent to Digimedics when it
acquired Continental's Pharmakon Division (see Note J). The plaintiff also
alleges that Digimedics failed to honor the contract and that Mediware did
not fulfill its promise to install and support the software as prescribed
in the contract. The plaintiff's claims against Digimedics are for breach
of contract, intentional interference with contract, and negligent
interference with contract. The plaintiff's claims against Mediware are
for promissory estoppel, intentional interference with contract, and
negligent interference with contract. The plaintiff is seeking unspecified
compensatory, consequential, and punitive damages. Management believes
that the claims against the Company are without merit and is vigorously
opposing those claims, however, the outcome is presently undeterminable.
In the opinion of management any potential liability with respect to this
litigation will not materially affect the company's financial position or
results of operations.
[4] Other matters:
Substantially all of the Company's cash is held at two large financial
institutions.
NOTE I - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
------ -----
<S> <C> <C>
Federal ............................. $28,000
State ............................... 51,000 $6,000
Foreign ............................. 6,000
----- ------
$85,000 $6,000
======= ======
</TABLE>
F-15
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE I - INCOME TAXES (CONTINUED)
The principal components of deferred tax assets, liabilities and valuation
allowance are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards .............................. $ 2,312,000
Business tax credit carryforwards ............................. 359,000
Purchased research and development ............................ 1,449,000
Valuation reserves and accruals deductible in different periods 242,000
Other ......................................................... 28,000
-----------
4,390,000
Valuation allowance .............................................. (3,781,000)
----------
609,000
-------
Deferred tax liabilities:
Software cost capitalization .................................. 579,000
Amortization differences ...................................... 30,000
------
609,000
-------
Net deferred tax asset ........................................... $ 0
===========
</TABLE>
The Company has recorded a valuation allowance for the amount by which deferred
tax assets exceed deferred tax liabilities as the likelihood of its future
realization cannot be presently determined.
The difference between the tax provision and the amount that would be computed
by applying the statutory federal income tax rate to income before taxes is
attributable to the following:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996*
------ -----
<S> <C> <C>
Income tax provision (benefit) - statutory rate ........... $ 736,000 $(1,187,000)
Provision for state income taxes (benefit) - net of federal
benefit (expense) ...................................... 134,000 (181,000)
(Reduction) increase in valuation allowance on deferred
tax assets ............................................. (857,000) 1,374,000
Non deductible items ...................................... 66,000
Other ..................................................... 6,000
-------- ---------
$ 85,000 $ 6,000
========= ===========
*Reclassified to be comparative to the current year.
</TABLE>
At June 30, 1997 the Company has available net operating loss carryforwards to
reduce future federal taxable income of approximately $5,780,000. At June 30,
1997 the Company also has available general business tax credit carryforwards to
reduce future current federal income tax expense of approximately $359,000. The
net operating loss carryforwards and business tax credit carryforwards expire in
various amounts through 2009 and 2012, respectively.
F-16
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE J - SERVICE AGREEMENT
Concurrent with the acquisition of Pharmakon, Digimedics entered into an
agreement with Continental to perform Continental's obligation to provide
certain services for customers of Continental, such services to include
installation of systems, customizing systems, and providing hardware. The
agreement also provides for Digimedics to assist Continental in the collection
of certain billed and unbilled accounts receivable, principally due from the
customers who will receive the above mentioned services. Digimedics was to be
paid approximately $1,237,000 plus 30% of amounts collected for performing the
foregoing services.
Effective July 21, 1997 the above agreement was modified to provide that
Digimedics will be entitled to retain 100% of any amounts collected after July
21, 1997 with respect to accounts receivable which had not been billed by
Continental prior to the acquisition date. In addition, that amount to be paid
by Continental to Digimedics was reduced from $1,237,000 to $437,000. Such
amount ($437,000) was effectively received as of July 21, 1997 by the reduction
of principal amount of the Acquisition Note. This payment was for work performed
to date for servicing the various customers and is included in accounts
receivable at June 30, 1997 (Note E).
NOTE K - RELATED PARTY TRANSACTIONS
During the years ended June 30, 1997 and 1996 approximately $183,000 and
$166,000, respectively, was incurred for legal fees provided by a firm, a
counsel to which is also a director of the Company. The majority of these fees
represent costs incurred in connection with the Company's acquisitions referred
to in Note B and the private placement of the Company's securities referred to
in Note G.
NOTE L - INFORMATION ON BUSINESS SEGMENTS
The Company operates in only one business segment, specifically engaging in
development, installation and maintenance of computerized information systems
for hospitals. The Company's worldwide activities consist of operations in the
United States and the United Kingdom. Revenue, income and identifiable assets by
geographical area as at and for the year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
United United Consolidated
States Kingdom Total
<S> <C> <C> <C>
Revenues from unaffiliated customers $16,568,000 $ 1,951,000 $18,519,000
Net earnings (loss) ................ 2,099,000 (18,000) 2,081,000
Identifiable assets ................ 15,936,000 1,413,000 17,349,000
</TABLE>
F-17
<PAGE>
Notes to Financial Statements
June 30, 1997
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTE M - PRO FORMA BALANCE SHEET DATA (UNAUDITED)
In August 1997 the Company completed a private placement of its securities and
issued 400,000 shares of its common stock for $6.00 per share. The Company also
issued warrants to purchase 40,000 shares of common stock at $6.00 per share as
a placement fee and agreed to file a registration statement with the Securities
and Exchange Commission registering the private placement shares within 30 days
of the filing of its Annual Report on Form 10-KSB for the year ended June 30,
1997 and to use its best efforts to have the registration statement declared and
maintained effective for a specified period of time. Costs of the private
placement and the filing of the registration statement are estimated to be
$310,000. The pro forma balance sheet gives effect to this private placement as
if it occurred on June 30, 1997.
F-18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Information required by Part III will be
supplied by a supplemental filing of Part III
or by the incorporation by reference of a
Proxy Statement
meeting the requirements of Section 14(a).
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
Reports on Form 8-K
None
Exhibits
A list of the Exhibits is set forth in the Exhibit Index, which index
precedes such Exhibits, and which is incorporated herein by this reference
thereto.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIWARE Information Systems, Inc.
----------------------------------
(Registrant)
------------
By: /s/ Les N. Dace
-------------------------------------
Les N. Dace, President
-------------------------------------
In accordance with 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.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Les N. Dace
- ------------------------------------ President, CFO & CEO
(Les N. Dace) (Principal Executive Officer/Director) October 10, 1997
/s/ George J. Barry
- ------------------------------------ Chief Financial Officer October 10, 1997
(George J. Barry) (Principal Accounting Officer)
* Lawrence Auriana
- ------------------------------------ Chairman of the Board October 10, 1997
(Lawrence Auriana)
* Jonathan Churchill
- ------------------------------------ Director October 10, 1997
(Jonathan Churchill)
* Roger Clark
- ------------------------------------ Director October 10, 1997
(Roger Clark)
- ------------------------------------ Director October 10, 1997
(Joseph Delario)
* John C. Frieberg
- ------------------------------------ Director October 10, 1997
(John C. Frieberg)
- ------------------------------------ Director October 10, 1997
(Walter Kowsh, Jr.)
- ------------------------------------ Director October 10, 1997
(Hans Utsch)
* Clinton G. Weinman
- ------------------------------------ Director October 10, 1997
(Clinton G. Weinman)
By: * Les N. Dace October 10, 1997
- ------------------------------------
(Les N. Dace)
*Attorney-in-fact
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
3.1 Restated Certificate of Incorporation Incorporated by Reference to Exhibit No. 4 to
the Registration Statement (the "1996 Registration
Statement") on Form S-8 (File No. 333-7591.)
3.2 By-laws. *
10.1 Agreement between the Company and **
Intellimed Corporation dated
September 25, 1990
10.3.1 Asset Purchase Agreement dated June ***
17, 1996 among Digimedics
Corporation and Continental
Healthcare Systems, Inc. and
Information Handling Service Group,
Inc.
10.3.2 Stock Purchase Agreement dated June ***
17, 1996 among Digimedics
Corporation and Holland America
Investment Corporation and
Information Handling Services Group,
Inc.
10.3.3.1 Second Amended and Restated Secured
Promissory Note of Digimedics
Corporation dated July 21, 1997
in the principal amount of
$4,195,419 to Continental Healthcare
Systems, Inc.
10.3.4 Pledge Agreement dated June 17, 1996 ***
between Mediware and Continental
Healthcare Systems, Inc.
10.3.5 Charge dated June 17, 1996 between ***
Digimedics Corporation and
Continental Healthcare Systems, Inc.
10.3.6 General Security Agreement dated ***
June 17, 1996 between Mediware and
Continental Healthcare Systems, Inc.
10.3.7 Guaranty dated June 17, 1996 by ***
Mediware in favor of Continental
Healthcare Systems, Inc.
10.3.8 Agreement Regarding Collection
of Accounts Receivable and
Servicing of Customers as Related to
Deferred Revenues dated as
of June 17, 1996 between Digimedics
Corporation and Continental Healthcare
Systems, Inc.
10.3.8.1 Agreement dated July 21, 1997
between Digimedics Corporation and
Continental Healthcare Systems, Inc.
modifying the Agreement Regarding
Collection of Accounts Receivable
and Servicing of Customers
10.7.1 Letters outlining terms of
engagement for Les Dace, Thomas
Mulstay, John Esposito, George Barry
and Rodger Wilson
10.8 Employee Stock Option Plan, 1982, as **
amended
10.9 Form of Stock Option Agreement under **
1982 Plan
10.10 Form of Stock Option Agreement with **
Quadrocom, Inc.
10.13 1992 Employee Stock Option Plan Incorporated by reference to Exhibit C to
Company's Proxy Statement dated December 17,
1991
10.14 Stock Option Plan for Non-Employee Incorporated by reference to Exhibit B
Directors to Company's Proxy Statement
dated December 17, 1991
10.15 Form of Stock Option Agreement under *
1992 Employee Stock Option Plan
10.16.1 Form of Note for Interim Financing *
10.16.2 Form of Warrant for Interim Financing *
10.17 Form of Stock Option Agreement for Incorporated by reference to Exhibit 10.7 to the
Joseph Delario Registration Statement on Form SB-2
(File No. 333-18277)
10.18 Warrant issued to Oscar Gruss and
Son Incorporated to purchase 40,000
shares of Common Stock
11 Schedule of Computation of Net
income Per Share
21 Subsidiaries of the registrant *
23.2 Consent of Richard A. Eisner &
Company, LLP
24 Powers of Attorney
27 Financial Data Schedule
- --------------------------------
* Incorporated by reference to the Exhibit bearing the same designation
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1996.
** Incorporated by reference to the Exhibit bearing the same designation
in the Registration Statement on Form S-18 (File No. 33-40411).
*** Incorporated by reference to the Exhibits 2(a), 2(b), 2(d), 2(e), 2(f)
and 2(g), respectively, in the Company's Current Report on Form 8-K,
filed on July 1, 1996.
Exhibits 10.7.1, 10.8, 10.9, 10.10, 10.13, 10.14, 10.15, and 10.17 are
management contracts or compensatory plans or arrangements.
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE
$4,195,419 New York, New York
Issued June 17, 1996
Amended and Restated
July 21, 1997
FOR VALUE RECEIVED, DIGIMEDICS CORPORATION, a California corporation
(the "Debtor"), promises to pay to the order of CONTINENTAL HEALTHCARE SYSTEMS,
INC. (The "Payee"), c/o Information Handling Services Group, Inc., 15 Inverness
Way East, Englewood, Colorado, or at such other place as the Payee or any holder
hereof may from time to time designate in writing, the principal sum of Four
Million One hundred Ninety Five Thousand Four Hundred Nineteen Dollars and
00/100 cents ($4,195,419) in lawful money of the United States, on the earlier
to occur of (i) November 30, 1998 and (ii) the date of the Refinancing (as
hereinafter defined) or (iii) the date of a Change of Control Event. The Debtor
promises also to pay interest on the unpaid principal amount hereof in like
money at said office or place from the date hereof until maturity at a rate
equal to eight and one-half percent (8.50%) per annum. Any interest hereunder
shall be payable in arrears on the last day of each month, commencing July 31,
1997, and at maturity. After maturity (by declaration, acceleration or
otherwise). Interest on overdue principal and accrued interest shall be payable
on demand at a rate ("Default Rate") equal to four percent (4%) in excess of the
rate set forth above. Interest shall be calculated on the basis of a 360-day
year and actual days elapsed. In no event shall the interest payable hereunder
exceed the maximum amount permitted under applicable law.
This Note is an amendment and restatement of, and is being issued in
replacement and substitution for, the amended and Restated Secured Promissory
Note dated October 28, 1996 by the Debtor to the Payee in the original principal
amount of $5,000,000 (the "october '96 Note"), which itself was an amendment and
restatement of, and was issued in replacement and substitution for, the Secured
Promissory Note dated June 17, 1996 by the Debtor to the Payee in the original
principal amount of $6,000,000 (the "June '96 Note;" the June '96 Note and the
October '96 Note are collectively referred to as the "Original Note"). In
addition to the indebtedness evidenced by this Note, this Note shall also
evidence any accrued and unpaid interest on the Original Notes.
SECTION 1. TERMS OF PAYMENT; PURPOSE OF LOAN
ss.1.1. Mandatory Payments. On October 31, January 31, April 30 and
July 31 of each year, commencing October 31, 1997, the Debtor shall pay $150,000
to the Payee to be applied by the Payee to the unpaid principal balance of this
Note.
ss.1.2. Optional Prepayments. The Debtor may, at its option, at any
time and from time to time, prepay all or any part of the principal balance of
this Note, without penalty or premium, in multiples of $100,000, provided,
however, that concurrently with each such prepayment the Debtor shall pay
accrued interest on the principal so prepaid to the date of such prepayment;
Provided, further, however, that, in addition to the foregoing, any optional
prepayment made prior to November 30, 1997 shall be accompanied by a prepayment
penalty equal to the amount of interest that would have been earned on the
principal amount being prepaid from the date of such prepayment through November
30, 1997; no such penalty will exist for any prepayment made after November 30,
1997.
ss.1.3. Day of Payment. Whenever any payment to be made hereunder shall
become due and payable on a day which is not a Business Day (as defined below),
such payment may be made on the next succeeding Business Day and, in the case of
any payment of principal, such extension of time shall in such case be included
in computing interest on such payment. As used herein, "Business Day" shall mean
any day which is not a Saturday or Sunday and on which banks in the State of New
York are not authorized or required to close. Interest on past due principal and
accrued interest thereon shall be calculated as follows: The amount of principal
and interest past due multiplied by the Default Rate and multiplied by a
fraction, the numerator of which is the number of days such principal and
interest is past due and the denominator of which is 360.
ss.1.4. Use of Proceeds. This Note is the "Note" referred to in Section
2.04 of the Asset Purchase Agreement dated the date hereof (as amended, modified
or supplemented in accordance with its terms, the "Purchase Agreement") among
the Debtor, the Payee and Information Handling Services Group, Inc. and
evidences part of the "Purchase Price" as therein defined.
ss.1.5. Obligation to Pay. The Debtor shall make all payments hereunder
in full without offset, reduction or deduction of any kind or amount or for any
reason, including, without limitation, set off by any amounts which Debtor may
claim or be entitled to claim under Section 6.02 of the Purchase Agreement.
SECTION 2. COLLATERAL
ss.2.1. Security Documents. This Note is secured by the following
(collectively, the "Security Documents") and is entitled to the benefits
thereof: (i) General Security Agreement dated June 17, 1996 by Debtor in favor
of the Payee (as amended, modified or supplemented from time to time, the
"Security Agreement") covering all of the asset of Debtor therein described and
(ii) Charge dated June 17, 1996 by Debtor in favor of the Payee (as amended,
modified or supplemented from time to time, the "Charge") with respect to
certain shares of JAC. The Debtor shall duly execute and deliver the Security
Documents, all consents of third parties necessary to permit the effective
granting of the Liens created in such agreements, financing statements pursuant
to the Uniform Commercial Code and other documents, all in form and substance
satisfactory to the Payee, as may be reasonably required by the Payee to grant
to the Payee a valid, perfected and enforceable first priority Lien on and
security interest in the Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES
The Debtor represents and warrants (which representations and
warranties shall survive the execution and delivery of this Note) to the Payee
that :
ss.3.1. Organization; Corporate Power. The Debtor is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
organization, has the requisite power and authority to own its property and
assets and to carry on its business as now conducted and is qualified to do
business in every jurisdiction where such qualification is required except where
the failure to obtain such qualification would not have a Material Adverse
Effect. The Debtor has the power to execute, deliver and perform its obligations
under this Note and the other Loan Documents to which it is party.
ss.3.2. Authorization. The execution, delivery and performance by the
Debtor of this Note and the other Loan Documents to which it is party and the
grant of security interests in the Collateral created by the Security Documents
(a) have been duly authorized by all requisite action and (b) will not (i)
violate (A) any provision of law, statute, rule or regulation in any material
respect or the articles or certificate of incorporation of the Debtor, (B) any
order or decree of any court, or any rule, regulation or order of any other
agency of government, binding upon the Debtor, (C) any material provisions of
any indenture, agreement or other instrument to which the Debtor of any of its
properties or assets is or may be bound, (ii) be in material conflict with,
result in a breach of or constitute a default under any indenture, agreement or
other instrument referred to in (b)(i)(C) above or (iii) result in the creation
or imposition of any Lien (other than in favor of the Payee) upon any property
or assets of the Debtor.
ss.3.3. Governmental Approvals. No registration or filing with, or
consent or approval of, or other action by, any Federal, state or other
governmental agency, authority or regulatory body is or will be required on the
part of the Debtor in connection with the transactions contemplated hereby,
other than any which have been made or obtained.
ss.3.4. Binding Effect. This Note and the other Loan Documents when
duly executed and delivered will constitute legal, valid and binding obligations
of the Debtor enforceable in accordance with their respective terms except (i)
that enforceability may be subject to bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting the rights of creditors
generally and (ii) the remedy of specific performance and other forms of
equitable relief may be subject to equitable defenses and the discretion of any
court before which any proceeding therefor may be brought.
ss.3.5. Litigation: Compliance with Laws: etc. (a) There are not any
actions, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority now pending
or, to the knowledge of the Debtor, threatened against or affecting the Debtor
and which, if adversely determined, would have a material Adverse Effect.
(b) The Debtor is not in violation of any law, or in default with
respect to any judgment, write, injunction, decree, rule or regulation of any
court or governmental agency or instrumentality, which violation or default
would have a Material Adverse Effect.
ss.3.6. Federal Reserve Regulations. The Debtor is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying Margin Stock (as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve System
of the United States).
ss.3.7. Taxes. The Debtor has filed or caused to be filed (or filed or
caused to be filed extensions therefor) all Federal, state, local and foreign
tax returns which are required to be filed by it on or prior to the date hereof,
except tax returns in jurisdictions where the failure to file such returns would
not have a Material Adverse Effect. The Debtor has paid or caused to be paid all
taxes shown to be due and payable on such filed returns or on any assessments
received by it other than taxes that in the aggregate are not material and which
would not, if unpaid, result in the imposition of any Lien on any property or
assets of the Debtor.
ss.3.8. No Material Misstatements. Neither the most recent 10-K or 10-Q
reports of the Guarantor furnished by the Debtor to the Payee contains any
material misstatement of fact or omitted or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
ss.3.9. Investment Company Act: Public Utility Holding Company Act. The
Debtor is not an "investment company" as defined in, or is otherwise subject to
regulation under, the Investment Company Act of 1940. The Debtor is not a
"holding company" as that term is defined in or is otherwise subject to
regulation under, the Public Utility Holding Company Act of 1935.
ss.3.10. Security Interest. The Security Documents create and grant to
the Payee a legal, valid and, upon filing of UCC financing statements in the
appropriate jurisdictions and the taking of the other actions contemplated by
the Security Documents and taking all other actions, if any, required by
applicable law, perfected first priority security interest in the Collateral,
subject only to permitted Liens.
ss.3.11. Subsidiaries. The Debtor has no Subsidiaries other than JAC.
ss.3.12. Title to Properties. The Debtor has good and valid title to
all of its properties and assets, free and clear of any pledge, security
interest, Lien or other encumbrance or claim of any kind, except in favor of the
Payee and except Permitted Liens.
SECTION 4. CONDITIONS OF LENDING
ss.4.1. Conditions Precedent. The obligation of the Payee to make the
loan evidenced by this Note shall be subject to the following conditions
precedent: The Payee shall have received
(a) the written opinion of Winthrop, Stimpson, Putnam & Roberts,
counsel to the Debtor and the Guarantor, in form and substance
satisfactory to Payee;
(b) (i) copies of the certificate of incorporation and by-laws of
the Loan Parties, certified as to such certificate as of a
recent date by the Secretary of State or other appropriate
official of the state of its organization, and (ii) such other
charter documents and certificates as the payee may reasonably
request;
(c) the Security Documents and such instruments and other
documents as shall be required thereunder (including, without
limitation, Uniform Commercial Code financing statements), and
Uniform Commercial Code searches of each of the Loan Parties;
(d) the Guaranty, in form and substance satisfactory to it, from
the Guarantor;
(e) copies of the Director notes and the Subordination Agreement;
(f) evidence of compliance with the insurance provisions of the
Security Documents;
(g) executed original of the Purchase Agreement and of the Stock
Purchase Agreement dated the date hereof among the parties to
the Purchase Agreement, and each of the documents and
instruments executed and delivered in connection therewith;
and
(h) evidence that all required third party consents, if any, to
this Note and the other Loan Documents have been obtained.
SECTION 5. AFFIRMATIVE COVENANTS
The Debtor covenants and agrees with the Payee that, so long
as this note shall remain in effect, or the principal of or interest of
this Note or any fee, expense or amount payable hereunder or with
respect to this note shall be unpaid, it will:
ss.5.1. Existence. Do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal
existence.
ss.5.2. Taxes. Pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon
its income or profits or in respect of its property before the same
shall become delinquent or in default unless the validity or amount
thereof is being contested in good faith by appropriate proceedings and
the Debtor has maintained adequate reserves with respect thereto in
accordance with generally accepted accounting principals.
ss.5.3. Litigation and Other Notices. Upon knowledge by the
Debtor, give the Payee prompt written notice of the following:
(a) the issuance by any court or governmental agency or authority
of any injunction, order, decision or other restraint
prohibiting, or having the effect of prohibiting, the making
of the loan hereunder, or invalidating, or having the effect
of invalidating, any provision of this note or any of other
Loan Documents, or the initiation of any litigation or similar
proceeding seeking any such injunction, order, decision or
other restraint;
(b) the filing or commencement of any action, suite or proceeding
against the Debtor or any other Loan Party, whether at law or
in equity or by or before any court or any Federal, state,
municipal or other governmental agency or authority, which is
brought by or on behalf of any governmental agency or
authority, or in which injunctive or other equitable relief is
sought and such relief, if obtained, would materially impair
the right or ability of any Loan Party to perform its
obligations under this Note or the other Loan Documents; and
(c) any Event of Default (as hereinafter defined) or event or
condition which, with the giving of notice or lapse of time or
both, would constitute an Event of Default, specifying the
nature and extent thereof and the action 9if any) which is
proposed to be taken with respect thereto.
ss.5.4. Other Information. Deliver to the Payee (a) promptly upon (i)
the filing thereof with the Securities and Exchange Commission, a copy of each
report, notice or other filing (including, without limitation 10Q and 10K
filings), with respect to the Debtor and the Guarantor and (ii) receipt thereof,
all written communications received by Debtor or Guarantor from the Securities
and Exchange Commission; and (b) such other information as the Payee shall
reasonably request.
SECTION 6. NEGATIVE COVENANTS
The Debtor covenants and agrees with the Payee that, so long as this
Note shall remain in effect or the principal of or interest on this Note, any
fee, expense or amount payable hereunder or with respect to this Note shall be
unpaid, it will not:
ss.6.1. Liens. Incur, create, assume or permit to exist any Lien or
other encumbrance of any kind or nature on any of its property or assets
including, without limitation, the Collateral, whether owned at the date hereof
or hereafter acquired, except Liens created in favor of the Payee as
contemplated by this Note and the Security Documents and Permitted Liens.
ss.6.2. Indebtedness. Incur, create, assume or permit to exist any
indebtedness for borrowed money other than (i) indebtedness incurred hereunder,
(ii) indebtedness to trade creditors incurred in the ordinary course of
business, (iii) indebtedness pursuant to a Refinancing, (iv) unsecured
indebtedness subordinated on terms reasonably acceptable to Payee the proceeds
of which are used to repay the obligations under this Note, (v) purchase money
indebtedness secured by Liens permitted under clause (e) of the definition
Permitted Liens and (vi) indebtedness in existence of the date hereof and listed
on Schedule II hereto.
ss.6.3. Dividends and Distributions. Declare or pay, directly and
indirectly, any cash dividends or make any other distribution, whether in cash,
property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any share of its capital stock or directly or
indirectly redeem, purchase, retire or otherwise acquire for value (or permit
any Subsidiary to purchase or acquire) any shares of any class of its capital
stock or set aside any amount for any such purpose or make any principal payment
or prepayment on account of, or purchase, redeem or defease any indebtedness for
borrowed money or make any payment of interest thereon (other than prepayments
and payments permitted or required hereunder), or agree to do any of the
foregoing, or permit any Subsidiary to do any of the foregoing or agree to do
any of the foregoing.
ss.6.4. Consolidations, Mergers and Sales of Assets. Consolidate with
or merge into any other person, or sell, lease, transfer or assign to any
persons or otherwise dispose of (whether in one transaction or a series of
transactions) all or any part of its properties or assets (whether now owned or
hereafter acquired) other than inventory sold in the ordinary course of
business, or permit another person to merge into it, or acquire any stock or
assets of any other person (except pursuant to the Purchase Agreement and Stock
Purchase Agreement), except that any Subsidiary of the Debtor may merge with and
into Debtor with Debtor as the surviving corporation.
ss.6.5. Investments. Own, purchase or acquire any stock, obligations,
assets or securities of, or any interest in, or make any capital contribution or
loan or advance of money, credit or property to, any other person, or make any
other investments whatsoever, in excess of $100,000 in the aggregate for all of
the foregoing during the term of this Note, except that Debtor may purchase (a)
certificates of deposit in dollars of any commercial banks registered to do
business in any state of the United States (i) having capital and surplus in
excess of $1,000,000,000 and (ii) whose long-term debt rating is at least
investment grade as determined by either Standard & Poor's Corporation or
Moody's Investor Service, Inc., (b) readily marketable direct obligations of the
united States government or any agency thereof which are backed by the full
faith and credit of the United States, (c) investments in money market mutual
funds having assets in excess of $2,500,000,000, (d) commercial paper at the
time of acquisition having the highest rating obtainable from either Standard &
Poor's Corporation or Moody's Investor Service, Inc. and (e) federally tax
exempt securities rated A or better by either Standard & Poor's Corporation or
Moody's Investor Service, Inc.
ss.6.6. Guarantees. Guarantee, endorse, become surety for, or otherwise
in any way become or be responsible for the obligations of any other person,
except the endorsement for collection or collections for deposit and other
guarantees issued in the ordinary course of business.
ss.6.7. Subsidiaries. Create any Subsidiaries which have a net worth at
any time in excess of $5,000.
SECTION 7. EVENTS OF DEFAULT; REMEDIES
ss.7.1. Defaults. If any one or more of the following events ("Events
of Default") shall occur:
(a) If the Debtor shall default in the payment of any of the
principal of or interest on this Note when due and, in the
case of interest, such default shall continue for two (2) or
more Business Days; or
(b) If any Loan Party shall default in the observance or
performance of any covenants or agreements contained in this
Note or the other Loan Documents other than those specified in
clause (a) above, and such default shall continue for 15 or
more days; or
(c) If any representation or warranty made by or on behalf of any
Loan Party in this Note or any other Loan Document or in
connection with any of the transactions contemplated herein
shall prove to have been false or incorrect in any material
respect when made; or
(d) If any Loan Party shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts as they become due, or shall file a voluntary petition
in bankruptcy or shall be adjudicated a bankrupt or insolvent,
or shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present
or future statute, law or regulation, or shall file any answer
admitting or not contesting the material allegations of a
petition filed against it in any such proceeding, or shall
seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of any Loan Party of all or
any substantial part of the properties of any Loan Party; or
(e) If, within sixty (60) days after the commencement of an action
against any Loan Party seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, such action shall not have been
dismissed or stayed or if, within sixty (60) days after the
appointment, without the consent or acquiescence of any Loan
Party, of any trustee, receiver, or liquidator of any Loan
Party or any substantial part of any Loan Parties' properties,
such appointment shall not have been vacated; or
(f) If any order, judgment, or decree shall be entered in any
proceeding against any Loan Party requiring such Loan Party to
divest itself of a substantial part of its assets, or awarding
a money judgment or judgments against any Loan Party
aggregating more than $100,000, and if, within thirty (30)
days after entry thereof, such order, judgment or decree shall
not have been discharged or execution thereof stayed pending
appeal; or if, within thirty (30) days after the expiration of
any such stay, such judgment, order or decree shall not have
been discharged; or
(g) Default shall be made with respect to any indebtedness for
borrowed money of any Loan Party in excess of $100,000 if the
effect of any such default shall be to accelerate or permit
the acceleration of the maturity of such indebtedness; or any
amount of principal or interest in respect of such
indebtedness shall not be paid when and as due (after giving
effect to any period of grace specified for such payment in
the instrument evidencing or governing the same); provided,
however that with respect to capitalized leases, default of
amounts of more than $100,000 but less than $250,000 shall not
constitute a default hereunder so long as the Debtor is
contesting the default under the capitalized lease in good
faith and has set aside reserves therefore in accordance with
generally accepted accounting principals; or
(h) This Note or any other Loan Document shall for any reason
cease to be, or shall be asserted by any Loan Party not to be,
a legal, valid and binding obligation of any Loan Party,
enforceable in accordance with its terms, or the security
interest or Lien purported to be created by any of the
Security Documents shall for any reason cease to be, or be
asserted by any Loan Party not to be, a valid, first priority
perfected security interest in any Collateral (except to the
extent otherwise permitted under this Agreement or any of the
Security Documents); then in the case of an Event of Default
described in Section 3.1(d) or 3.1(e) above, the unpaid
balance of this Note and all interest accrued hereon shall
automatically (without any action on the part of the Payee and
without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived) forthwith become due
and payable, and in the case of any other Event of Default,
then and in any such event, and at any time thereafter, if
such or any other Event of Default shall then be continuing,
the Payee may, at its option, declare this Note to be due and
payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything
contained herein to the contrary notwithstanding. The Payee
shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code of the State of New York,
under the Uniform Commercial Code of any other state in which
any Collateral may be situated and, additionally, al of the
rights and remedies set forth in this Note and the other Loan
Documents and in any instrument or document referred to herein
or therein, and under any other applicable law relating to
this Note or the Collateral.
ss.7.2. Rights and Remedies Cumulative. No right or remedy herein
conferred upon the Payee is intended to be exclusive of any other right or
remedy contained herein or in any instrument or document delivered in connection
with or pursuant to this Note or the other Loan Documents, and every such right
or remedy contained herein and therein or now or hereafter existing at law or in
equity or by statute, or otherwise.
ss.7.3. Rights and Remedies Not Waived. No course of dealing between
the Debtor and the Payee or any failure or delay on the part of the Payee in
exercising any rights or remedies of the Payee and no single or partial exercise
of any rights or remedies hereunder or under the other Loan Documents shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder.
SECTION 8. CERTAIN DEFINITIONS
"Change of Control Event" shall be deemed to have occurred as of the
time any person (for purposes of this definition only, the term "person" shall
mean a "person" as defined in or for purposes of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision to either of the foregoing, including any
"group" acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act), together with
its Associates and Affiliates (as defined in the Exchange Act) (other than the
Guarantor, Subsidiaries of the Guarantor, employee benefit plans of the
Guarantor or Lawrence Auriana, Jonathan H. Churchill, Roger Clark, Joseph
Delario, Walter Kowsh, or Hans Utsch), (a) shall file or become obligated to
file a report under or in response to Schedule 13D or 14D-1 (or any successor
schedule, form or report) pursuant to the Exchange Act disclosing that such
person has become the beneficial owner (as the term "beneficial owner" is
defined in Rule 13d-3 under the Exchange Act, or any successor provision) of 33%
or more of the total voting power of all classes of capital stock of the
Guarantor having voting power for the election of directors of the Guarantor
("Voting Stock"); or (b) shall succeed in having a sufficient number of its
nominees elected to the Board of Directors of the Guarantor such that such
nominees so elected (whether new or continuing as director) shall constitute a
majority of the Board of Directors of the Guarantor.
"Collateral" shall mean the collateral described in the Security
Documents.
"Director Notes" shall mean the 12% Secured Notes of Mediware
Information Systems, Inc. made to the order of each of Lawrence Auriana, Joseph
Delario and Peter Lerner, respectively,
in each case as in effect on the date hereof, as more specifically described on
Schedule I to the Guaranty.
"Guarantor" shall mean Mediware Information Systems, Inc., a New York
corporation.
"Guaranty" shall mean the Guaranty dated the date hereof by Guarantor
in favor of Payee.
"JAC" shall mean JAC Computer Services Ltd., a corporation organized in
the United Kingdom.
"Lien" shall mean, with respect to any asset, (i) any mortgage, lien,
pledge, encumbrance, charge or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset, (iii) in the
case of securities, any purchase option, call or similar right of a third party
with respect to such securities or (iv) any other right of or arrangement with
any creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of the owner thereof.
"Loan Documents" shall mean this Note and any other instrument,
document or agreement executed and delivered at any time and from time to time
in connection herewith.
"Loan Party" shall mean the Debtor and its Subsidiaries and the
Guarantor and its Subsidiaries.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the businesses, assets, operations or financial or other condition of any Loan
Party, (ii) the ability of any Loan Party to perform or pay its respective
obligations under this Note or under the other Loan Documents, (iii) the rights
of, or benefits available to, the Payee under this Note or any of the other Loan
Documents or (iv) the Payee's Lien on any portion of the Collateral.
"Permitted Liens" shall mean such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments, governmental charges and
levies not yet due and payable; (b) Liens imposed by any Federal, state, local
or foreign statute, law, ordinance, regulation, rule, code, order or
requirement, such a materialmen's, mechanics, carriers', workmen's and
repairmen's Liens and other similar Liens arising in the ordinary course of
business that (i) are not overdue for a period of 30 or more days and (ii) are
not in excess of the cost of the assets to which such Lien relates; (c) pledges
or deposits to secure obligations under workers' compensation laws or similar
legislation to secure public or statutory obligations, (d) Liens in existence on
the date hereof and listed on Schedule I hereto and (e) Liens upon any equipment
acquired through the purchase or lease by Debtor which are created directly in
connection with such acquisition to secure or provide for the payment of any
part of the purchase price of, or lease payments on, such equipment (but no
other amounts and not in excess of the purchase price or lease payments),
providing, that such Lien shall not aply to any other property of the Debtor.
"Refinancing" shall mean the closing of a financing by Guarantor and/or
Debtor which yields not less than $4,195,419 in proceeds net of fees and
expenses.
"Subordination Agreement" shall mean the Subordination Agreement dated
June 17, 1996 among the Payee and Lawrence Auriana, Peter Lerner and Joseph
Delario, each a holder of a Director Note.
"Subsidiary" shall mean with respect to any person, the parent of such
person, any corporation, association or other business entity of which
securities or other ownership interests representing more than 505 of the
ordinary voting power are, at the time as of which any determination is being
made, owned or controlled, directly or indirectly, by the parent or one or more
subsidiaries of the parent.
SECTION 9. MISCELLANEOUS
ss.9.1. Collection Costs. In the event the Payee or any holder of this
Note shall refer this Note to an attorney for collection, the Debtor agrees to
pay, in addition to unpaid principal and interest, all the costs and expenses
incurred in attempting or effecting collection hereunder, including reasonable
attorneys' fees, whether or not suit is instituted.
ss.9.2. Waivers. Presentment, demand, protest or other notice of any
kind, except as may be other wise specifically provided herein, are all hereby
waived with respect to this Note.
ss.9.3. Modification. No modification or waiver of any provision of
this Note and no consent by the Payee to any departure therefrom by the Debtor
shall be effective unless such modification or waiver shall be in writing and
signed by the Payee, and the same shall then be effective only for the period
and on the conditions and for the specific instances and purposes specified in
such writing. No notice to or demand on the Debtor in any case shall entitle the
Debtor to any other or further notice or demand in similar or other
circumstances.
ss.9.4. Expenses: Indemnity. (a) The Debtor agrees to pay all
reasonable out-of-pocket expenses incurred by the Payee in connection with any
amendments, modifications or waivers of the provisions hereof or of the other
Loan Documents or incurred by the Payee in connection with the enforcement or
protection of its rights in connection with this Note or the other Loan
Documents or in connection with any pending or threatening action, proceeding,
or investigation relating to the foregoing, in each case including but not
limited to the reasonable fees and disbursements of counsel for the Payee. The
Debtor further agrees that it shall indemnify the Payee from and hold it
harmless against any documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this Note, but
not against any income or other tax attributable to the interest payable to the
Payee hereunder.
(B) The Debtor agrees to indemnify the Payee and its respective
directors, officers, employees and against against, and to hold the Payee and
each such person harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against the Payee or any such person arising out of, in any way
connected with, or as a result of (i) this Note or the other Loan Documents, the
performance by the parties hereto and thereto of their respective obligations
hereunder and thereunder (including but not limited to the making of the loan
hereunder) and consummation of the transactions contemplated hereby and thereby,
or (ii) any claim, litigation, investigation or proceedings relating to any of
the foregoing, whether or not the Payee or any such person is a party thereto;
provided that such indemnity shall not, as to the Payee and its respective
directors, officers, employees and agents, apply to any such losses, claims,
damages, liabilities or related expenses to the extent that they result from the
gross negligence or willful misconduct of the Payee; and , provided further,
that in no event shall the Debtor be liable for any special, exemplary, punitive
or consequential damages or any damages other than or in addition to actual
damages.
(c) The provisions of this Section 9.4 shall remain operative and in
full force and effect regardless of the expiration of the term of this Note, the
consummation of the transactions contemplated hereby, the repayment of the loan
evidenced by this Note, the invalidity or unenforceability of any term or
provision of this Note, or any investigation made by or on behalf of the Payee.
All amounts due under this Section 9.4 shall be payable on written demand
therefor.
ss.9.5. Entire Agreement: Waiver of Jury Trial, etc. (a) This Note, the
Security Documents and the Guaranty constitute the entire contract between the
parties relative to the subject matter hereof. Any previous agreement among the
parties with respect to the transactions contemplated herein is superseded by
this Note and the other Loan Documents. Except as expressly provided herein or
in the other Loan Documents, nothing in this Note or the other Loan Documents,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Note or the other Loan Documents.
(b) Except as prohibited by law, each party hereto hereby waives any
right it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with this Note or the other
Loan Documents.
(c) Except as prohibited by law, each party hereto hereby waives any right
it may have to claim or recover in any litigation referred to in paragraph
(b) of this Section 9.5 any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages.
(d) Each party hereto (i) certifies that neither any representative,
agent or attorney of the Payee has represented, expressly or otherwise, that the
Payee would not, in the event of litigation, seek to enforce the foregoing
waivers and (ii) acknowledges that it has been induced to enter into this Note
or the other Loan Documents, as applicable, by, among other things, the mutual
waivers and certifications herein.
ss.9.6. Consent of Jurisdiction. The Debtor hereby irrevocably consents
to the jurisdiction of the Courts of the State of New York and of any Federal
Court located in such State in connection with any action or proceeding arising
out of or relating to this Note.
ss.9.7. Benefit of Agreement. This Note shall be binding upon the
successors and assigns of the Debtor and inure to the benefit of the Payee and
its successors, endorsees and assigns.
ss.9.8. Notices. Notices, consents and other communications provided
for herein shall be in writing and shall be delivered or mailed (or in the case
of telegraphic communication, delivered by telex, graphic scanning or other
telegraphic communications equipment, with receipt confirmed) addressed:
(a) if to the Debtor, to Digimedics Corp., 1600 Green Hills Road,
Scotts Valley, California 95066, Telecopy No. 408-438-8422,
Attention: Mr. Les Dace, with a copy to (i) Mediware
Information Systems, Inc., 1121 Old Walt Whitman Road,
Melville, New York 11747-3005, Telecopy No. 516-423-0161,
Attention: President, (ii) Hackmyer & Nordlicht, Olympic
Tower, 645 Fifth Avenue, New York, NY 10022, Telecopy No.
212-421-0499, Attention: Ira Nordlicht, Esq. And (iii)
Winthrop, Stimpson, Putnam & Roberts, One Battery Park Plaza,
New York, NY 10004-1490, Telecopy No. 212-858-1500, Jonathan
M. Churchill, Esq.: and
(b) if to Payee, c/o TBG Services, Inc., at 565 Fifth Avenue, New
York, New York 10117, Attention: Stephen Green, Esq.
All notices and other communications given to any party hereto in
accordance with the provisions of this Note shall be deemed to have been given
on the date of receipt if hand delivered or three days after being sent by
registered or certified mail, postage prepaid, return receipt requested, if by
mail, or upon receipt if by any telegraphic or telex communications equipment,
in each case addressed to such party as provided in this Section 9.8 or in
accordance with the latest unrevoked direction from such party.
ss.9.9. New York Law. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LOCAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED IN SUCH STATE.
DIGIMEDICS CORPORATION
By: /s/Lawrence Auriana
---------------------------
Name: Lawrence Auriana
Title: Secretary
AGREEMENT REGARDING COLLECTION OF ACCOUNTS RECEIVABLE AND SERVICING OF
CUSTOMERS AS RELATED TO DEFERRED REVENUES
AGREEMENT REGARDING COLLECTION OF ACCOUNTS REEIVABLE AND SERVICING OF
CUSTOMERS AS RELATED TO DEFERRED REVENUES DATED AS OF June 17, 1996, among
Continental Healthcare Systems, Inc., a Delaware corporation, ("Continental")
and Digimedics Corp., a California corporation (Digimedics").
RECITALS
WHEREAS, Continental and Digimedics are parties to a certain Asset
Purchase Agreement dated June 17, 1996 providing for, among other things, the
purchase by Digimedics from Continental of certain assets related to
Continental's business of developing, selling and supporting computer software
systems and providing management information systems, for hospital pharmacies in
the United States and other countries (the "Business"); and
WHEREAS, while Digimedics is purchasing some accounts receivable of the
Business, Digimedics is not purchasing, and Continental is retaining, other
accounts receivable of the Business;
WHEREAS, relating to the accounts receivable retained by Continental,
additional work needs to be done;
WHEREAS, Continental wishes to contract with Digimedics to perform this
additional work relating to and to assist Continental in collecting the accounts
receivable that Continental is retaining, and Digimedics is willing to do so on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and sufficient consideration paid, the parties
hereby agree as follows:
1. Collection of Accounts Receivable.
a. In General. Continental is contracting with Digimedics as
provided in this agreement to assist with the collection of the
Receivables (defined below) and in consideration therefor Continental
will pay to Digimedics thirty percent (30%) of the amount of
Receivables actually collected.
b. Amount and Identification of Receivables. As of the date
hereof, certain receivables will be transferred and become the property
of Digimedics while the remaining receivables remain the property of
Continental. These remaining receivables, totaling Five Million One
Hundred Eighty Five Thousand Eight Hundred Nineteen Dollars
($5,185,819), remain the property of Continental and will be referred
to in this agreement as the "Receivables;" any one of the Receivables
will be referred to a "Receivable." A list of all of the Receivables is
set forth on Schedule A attached hereto.
c. Level and Extent of Effort.
i. Commercially Reasonable Efforts. Digimedics will
assume the primary responsibility for collecting the
Receivables and will use commercially reasonable efforts to
make such collections. During the period when Digimedics is
responsible for collecting the Receivables, Continental will
not make any efforts whatsoever to also collect the
Receivables that have not yet been billed to the customer by
Continental. Commercially reasonable efforts means that
Digimedics will contact the customers owing the Receivables
and attempt to collect the Receivables due from that customer
but does not mean that Digimedics is required to lose money in
this process, that is, to use a level of effort to collect
from a customer which costs (on a fully allocated basis
including a profit margin) more than the thirty percent (30%)
of the receivables owned by that customer. In no event will
Digimedics be required to [A] engage a collection agency, or
[B] to commence litigation against any account debtor, or [C]
attempt to enforce against a customer an existing contractual
obligation, such as to purchase a module, where after entering
the contract the customer has decided not to make such
purchase, in order to collect Receivables. However, should
Digimedics deem it advisable to engage a third party to
collect all or part of the Receivables and provided
Continental agrees in writing to do so, the costs of the third
party will be deducted from the Receivables and the remainder
will be allocated seventy percent (70%) to Continental and
thirty percent (30%) to Digimedics. The limitation on the
amount to be spent by Digimedics on collection provided in
this paragraph is independent of and not a limitation on
Digimedics' costs to perform the work for customers referred
to in paragraph 2 below.
ii. Uncollectible Receivables. The parties recognize
that it may be difficult to collect certain of the
Receivables. At any time, Digimedics may indicate in writing
to Continental that it is not able to collect a Receivable for
which customer work has been completed at which point
Digimedics will be relieved from any obligation to collect
such Receivable, which obligation will fall to Continental. In
any event, should Digimedics not be able to collect a
Receivable within twelve (12) months after Digimedics has
completed the work Continental is contracting with Digimedics
to do under paragraph 2 below, then Continental may by written
notice require that Digimedics cease its efforts and be
relieved from any obligation to collect such Receivable, which
obligation will fall to Continental. In the event the
obligation to collect a Receivable falls on Continental, then
whatever amount Continental collects shall be for the sole
benefit of Continental.
d. Mechanism for Payment of Receivables to Continental and of
Collection Fee to Digimedics.
i. Continental, Digimedics and Lock Box Procedure.
With respect to the Receivables that have been invoiced by
Continental prior to the date of this Agreement, it is
anticipated that the customer will pay the amount to
Continental as indicated on the invoice and Continental will
pay thirty percent (30%) of such funds to Digimedics on
receipt by Continental. Regarding the Receivables not so
billed by Continental prior to the date hereof, Digimedics
will instruct and use its best reasonable efforts to have
customers pay amounts related to Receivables directly into a
lock box or account (the "Lock Box") at a Bank (the "Bank")
pursuant to a lock box agreement attached hereto as Exhibit 1
(the "Lock Box Agreement"). Among other things, the Lock Box
Agreement provides that as promptly as practicable, depending
upon the Bank's standard practices, to the extent Receivables
are collected, 91) the Bank will provide to both Continental
and Digimedics a list of the deposits made into the Lock Box
during the prior period, identifying the name of the depositor
and the amount deposited and 92) the Bank will pay seventy
percent (70%) of such funds to Continental and thirty percent
(30%) of such funds to Digimedics.
ii. "True-Up" Mechanism. It is recognized that
despite the intentions and efforts of the parties otherwise,
customers may pay (1) Receivables directly to Digimedics, (2)
amounts that are not Receivables ("Non-Receivables") to the
Lock Box, or (3) Receivables plus Non-Receivables into the
Lock Box or directly to Digimedics. If Receivable are paid to
Digimedics, promptly after discovery Digimedics will pay those
Receivables into the Lock Box. If Non-Receivables are paid
into the Lock Box, promptly after discovery Continental will
pay to Digimedics seventy percent (70%) of the Non-Receivables
paid into the , representing the total of the Non-Receivables
Continental has received via operation of the Lock Box
Agreement. If an amount composed of both Receivables and
Non-Receivables is paid to Digimedics, then promptly after
discovery Digimedics will pay the Receivables portion into the
Lock Box. If a an amount composed of both Receivables an
Non-Receivables is paid to the Lock Box, then promptly after
discovery Continental will pay to Digimedics seventy percent
(70%) of the Non-Receivables portion paid into the Lock box,
representing the total of the Non-Receivables portion
Continental has received via operation of the Lock Box
Agreement.
e. Procedures for Avoidance of Confusion and Allocation of
Payments by Customers. Notwithstanding the foregoing, the party's
acknowledge that there may be confusion regarding payments from
customers which are intended to be applied to the Receivables and
payments from customers which are intended to be applied to new
receivables for work or services provided by Digimedics (other than
work referred to in paragraph 2 below) arising after Digimedics assumes
the conduct of the Business. To avoid such confusion, all payments
which are clearly identified (either by reference to an invoice number,
by exactly matching the amount of a specific invoice, or otherwise) as
payments for maintenance or service charges for the period starting on
the date of the closing of Digimedics' acquisition of the Business
shall be paid to and retained in its entirety by Digimedics. All
payments representing maintenance or support charges for the period
starting on the Closing Date shall be paid to and retained 100"% by
Digimedics. All payments which are identified by the customer hospital
as relating to a particular invoice shall be allocated to that invoice.
All payments which are identical in amount to an invoice shall be
allocated to such invoice. All items designated as maintenance or
relating to the amount of periodic maintenance will be allocated to
maintenance. In the event that the dollar amount of the payment
received is identical to one or more maintenance invoices the payment
will be allocated first to the oldest unpaid maintenance invoice which
is no more than 6 months overdue and after all maintenance 6 months or
less overdue are paid, then to the oldest maintenance invoice remaining
unpaid. In the event that payment is received which are not allocated
by the customer And which do not match the dollar amount of an
outstanding unpaid invoice, such payment will be applied to the oldest
outstanding invoice provided such invoice is not more than 6 months
overdue and further provided however, if all invoices are current
(including maintenance invoices), additional funds received from the
customer hospital will be allocated to the oldest unpaid invoice
regardless o whether or not more 6 months overdue. Doe purposes of this
Agreement the phrase "6 months overdue" shall refer to an invoice which
as not been paid for a period of 6 months after the due date for the
payment of such invoice established in accordance with Digimedics'
billing practices. Any invoice on which Digimedics charges interest
shall be considered due on the date that such interest charges
commence.
f. Procedures Regarding Certain Receivables. Regarding
Receivables from those agreements Continental has entered with
customers on or after January 1, 1996, Digimedics agrees that, until
June 17, 1997, should all or part of a Digimedics pharmacy system
substitute for the Pharmakon system then being used by the customer in
accordance with that agreement, such substitution will not reduce the
amount of the Receivable payable by the customer under that agreement
and the amounts paid by the customer for the Digimedics substitute
shall be deemed to be payment of the Receivable by the customer for
purposes of this Agreement, provided, however, that in no event will
the Receivable due from or paid by a customer exceed the amount set
forth for each customer on Schedule A hereto.
2. Performance of Additional Services Related to Deferred Revenues.
a. Assumption of Obligation to perform Work. As of the date of
this Agreement, substantial additional services must be performed by
the customers identified on Schedule B hereto, such as installation of
systems, customizing systems, training of customer personnel in the use
of the system and certain additional hardware (approximately $10,000 to
$20,000 at cost, in addition to hardware in inventory) must be provided
to the customers before the Receivables related to such services and
hardware can be billed and/or collected, which amount of work is
quantified on Continental's financial statements as of April 30, 1996
and identified by the term "Deferred Revenues." Deferred Revenues as of
the date of this Agreement equal $1,236,987 (one Million Two Hundred
Thirty Six Thousand Nine Hundred Eighty Seven Dollars). The performance
of such work is a condition to payment by those customers of certain of
the Receivables. Digimedics will agree to perform these services and
provide such hardware on behalf of Continental in exchange for the
payment to Digimedics of the Deferred Revenues. Digimedics agrees to
use commercially reasonable efforts to perform the services required in
connection with the Deferred Revenue in a reasonably prompt,
workmanlike and efficient manner. Schedule D sets forth Continental's
good faith estimate of the hours required as of the date set forth on
that schedule, based on Continental's current business practices, to
complete the services necessary to fulfill the requirements to bill the
Receivables in accordance with the underlying contracts.
b. Mechanism for Payment of Deferred Revenues. The
abovementioned 41,236,987 (One Million Two Hundred Thirty Six Thousand
Nine Hundred Eighty Seven Dollars) will be paid by Continental to
Digimedics simultaneous with the full payment of the Note 9as such term
is defined in the Asset Purchase Agreement of even date among the
parties and Information Handling Services Group, Inc. Such payment may
be made either (a) at the discre6tion of either party, after written
notice to the other, by offsetting the amount due on the Note, or (b)
by wire transfer to the account designated by Digimedics on Schedule C
hereto.
c. Each party will provide to the other with all records and
information that the other may reasonably request concerning the
collection of the Receivables and Digimedics will provide to
Continental with all records and information that Continental may
reasonably request concerning the status of the additional work to be
performed by Digimedics in accordance with paragraph 2 of this
Agreement. Each party will provide the other with reasonable access to
such records and information so that the parties can review same and
monitor progress. It is anticipated that the parties will meet on a
periodic basis so that each party will be informed by the other with
respect to the Receivables.
d. Certain Matters Related to Certain Contracts.
i. Henry Ford and Fairview. Continental's contract
with the Henry Ford Hospital potentially requires work to be
done concerning an MT Device. Continental's contract with the
Fairview Hospital potentially requires work to be done
concerning a clinical evaluation manage ("CLEM"). Should
either of these hospitals require that such work be done, any
and all obligations related to the work, including, without
limitation, refunding money, performing the work or defending
a litigation on the matter will be the sole responsibility of
Continental and Continental will indemnify and hold Digimedics
harmless from any and all claims and/or litigation and related
expense (including, without limitations, reasonable attorneys'
fees and disbursements and other obligation and settlement
costs, regardless of the outcome) arising out of or concerning
work to be done for the Henry Ford Hospital on the MT Device
or for Fairview Hospital on the CLEM.
ii. Pittsburgh. Continental's contract with the
University of Pittsburgh Medical Center ("Pittsburgh")
potentially requires joint development work to be done
concerning an Electronic MAR. Should Pittsburgh require that
work be done and Digimedics, after unsuccessfully attempting
to dissuade Pittsburgh from requiring the work be done, does
not wish to do the development work, any and al obligations
related to the work, including, without limitation, refunding
money, performing the work or defending a litigation on the
matter will be the sole responsibility of Continental and
Continental will indemnify and hold Digimedics harmless from
any and all claims and/or litigation and related expense
(including, without limitations, reasonable attorneys' fees
and disbursements and other obligation and settlement costs,
regardless of the outcome) arising out of or concerning work
for Pittsburgh to be done on the Electronic MAR.
iii. Indemnity Process. With regard to subparagraphs
i. and ii. Immediately above, as the indemnitor, Continental
may control the defense of any action or claim at its expense
and through counsel of its choice and may resolve or settle
the matter (requiring Digimedics agreement to do so only if
Digimedics is adversely affected by such resolution) and
Digimedics shall cooperate at Continental's expense as
reasonably required.
3. Representations and Warranties. Continental hereby represents and
warrants to Digimedics as follows:
a. Receivables. Schedule A hereto sets forth a true and
complete list of all of the Receivables. All of the Receivables which
have been billed as of the date of this Agreement arose from the sale
of inventory or services to persons, corporations, partnerships or
other entities not affiliated with Continental and in the ordinary
course of business consistent with past practice.
b. Deferred Revenue. The work to be performed in connection
with the Deferred Revenue arose under valid and existing contracts
which are binding on the respective parties thereto an are in full
force and effect.
4. Miscellaneous.
a. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred
in connection with this Agreement and the transactions contemplated
hereby shall be paid by the part incurring such costs and expenses.
b. Notices. All notices, requests, waivers, claims, demands
and other communications which are required or permitted hereunder
shall be in writing and shall be given or made (and shall be deemed to
have been duly given or made upon receipt) by delivery in person, by
courier service for which a written receipt is given, by cable, by
telecopy (providing evidence of receipt), by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given
in accordance with this Section 5.02):
i. if to Continental:
Continental Healthcare Systems, Inc.
C/o Information Handling Services Group,Inc.
15 Inverness Way East
Englewood, Colorado 80122
Telecopy No.: (303) 792-9034
Attention: President
with a copy to:
TBG Services, Inc.
565 Fifth Avenue
New York, NY 10017
Telecopy No.: (212) 850-8530
Attention: Stephen Green, Esq.
ii. if to Digimedics:
Digimedics Corp.
1600 Green Hills Road
Scotts Valley, CA 95066
Telecopy No.: (408) 438-8422
Attention: Les Dace
<PAGE>
with a copy to:
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, New York 11747-3005
Telecopy No.: (516) 423-0161
Attention: President
Hackmyer & Nordlicht
645 Fifth Avenue
New York, New York 10022
Telecopy No.: (212) 421-0499
Attention: Ira S. Nordlicht, Esq.
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telecopy No.: (212) 858-1500
Attention: Jonathan H. Churchill, Esq.
All such notices shall be deemed to have been given on the date
personally delivered, upon possession of a receipt establishing that a facsimile
transmission was received or five days after mailed in the manner provided
above. Any party may change its address for delivery of notice by providing
written notice to the other parties in the manner discussed above.
c. Public Announcements. No party to this Agreement shall
make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or
other wise communicate with any news media without prior consultation
with the other party except as required by applicable law. The parties
shall cooperate as to the timing and contents of any such press release
or public announcement.
d. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
e. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law
or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
f. Entire Agreement. This Agreement and the Asset Purchase
Agreement and other agreements referred to therein constitute the
entire agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and undertakings, both
written and oral, among Continental and Digimedics with respect to the
subject matter hereof.
g. Assignment. This Agreement may not be assigned by operation
of law or otherwise without the express written consent of Continental
and Digimedics (which consent may be granted or withheld in the sole
discretion of Continental and Digimedics); provided, however, that
Digimedics may assign this Agreement to an Affiliate of Digimedics or
to any entity of which it is a controlling stockholder without the
consent of Continental, in which case, such assignee shall thereafter
become obligated to all of the obligations herein set forth to be
performed by Digimedics, but Digimedics shall remain liable for its
obligations under this Agreement.
h. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and
their permitted assignees and nothing herein, express or implied, is
intended to or shall confer upon any other person, corporation,
partnership or other entity, any legal or equitable right, benefit or
remedy of any nature whatsoever.
i. Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of,
Continental and Digimedics. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be
bound thereby. No provision of this Agreement may be waived unless in
writing signed by the party to be charged therewith. Any waiver of any
term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a
waiver of any other term or condition, of this Agreement. The failure
of any party to assert any of its rights hereunder shall not constitute
a waiver of any of such rights.
j. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by, and construed in accordance with, the laws of the
State of New York applicable to contracts executed in and to be
performed entirely within that state. All actions and proceedings
arising out of or relating to this Agreement shall only be heard and
determined in any New York state or federal court sitting in the City
of New York. Any process or notice of motion or other application to
any of such courts may be served within or without such court's
jurisdiction by registered mail or by personal service, provided a
reasonable time for appearance is allows. With respect to such courts,
Digimedics and Continental hereby expressly waive any defense based on
doctrines of venue or forum non conveniens or similar rules or
doctrines.
k. Dispute Resolution.
i. In the event of any controversy, claim or dispute,
the party initiating the controversy, claim or dispute shall
provide to the other party a written notice containing a brief
and concise statement of the matter, together with relevant
supporting facts. During a period of thirty (30) days or such
longer period as mutually agreed, the parties shall attempt to
settle the matter by good faith negotiation. Such efforts
shall include, but not be limited to, full presentation by
each party of its claims, with or without counsel, to the
Presidents of Mediware information Systems, Inc. and of
Information Handling Services Group, Inc., which are the
parent companies of the parties.
ii. If efforts under Subsection 5.k.i. are not
successful, such dispute will be settled by binding
arbitration in New York, New York, under the Commercial Rules
of the American Arbitration Association then in effect (except
as otherwise set forth in the Agreement). The failure to
comply with Subsection 5.k.i. with respect to such dispute
shall be an absolute bar to the institution of arbitration
proceedings with respect thereto. The arbitration shall be
conducted in the English language before a panel of three
arbitrators, one of whom is selected by Continental, one of
whom is selected by Digimedics, and one of whom is selected by
Continental and Digimedics jointly (or by the other two
arbitrators, if the parties cannot agree). The parties will
cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable.
If either party fails to appoint an arbitrator in thirty days,
the other party may request that the American Arbitration
Association may be such appointment. The arbitrators will be
required to render a full and complete written report of their
decision. The decision of a majority of the arbitrators will
constitute the arbitrators' decision. Any award rendered by
the arbitrators shall be binding upon the parties hereto and
shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable
to arbitration. Judgment on the award may be entered in any
court of record having competent jurisdiction. Each party
shall pay its own expenses or arbitration and the expenses o
the arbitrators shall be equally shared except that if, in the
opinion of the arbitrators, any claim or position by a party
hereto, or any defense or objection thereto by another party
was unreasonable or frivolous, the arbitrators may in their
discretion assess as part of their award all or any art of the
arbitration expenses of the other party or parties (including
reasonable attorneys' fees) and expenses of the arbitrator
against such party. Nothing herein shall prevent the parties
from settling any dispute by mutual agreement at any time. The
law of the State of New York shall govern the validity, scope
and effect of this Subsection 5.k.
l. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
m. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity without the
necessity of demonstration the inadequacy of monetary damages.
n. Receipt of Money or Other Assets. If any money or other
assets are received by Continental or Digimedics to which the other
party is entitled pursuant to this Agreement, such party shall hold
such money or assets in trust and shall promptly notify and account
therefore to the other within fifteen (15) days of receipt.
o. Exhibits and Schedules. The Schedules to this Agreement
shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
IN WITNESS WHEREOF, Continental and Digimedics have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CONTINENTAL HEALTHCARE SYSTEMS, INC.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
DIGIMEDICS CORP.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
AGREEMENT dated July 21, 1997 between Continental Healthcare Systems,
Inc., a Delaware corporation ("Continental"), and Digimedics Corp., a California
corporation ("Digimedics").
WHEREAS, Continental and Digimedics are parties to a certain Asset
Purchase Agreement dated June 17, 1996 providing for, among other things, the
purchase by Digimedics from Continental of certain assets relating to
Continental's business of developing, selling and supporting computer software
systems and providing management information systems for hospital pharmacies in
the United States and other countries;
WHEREAS, in connection with said Asset Purchase Agreement Continental
and Digimedics also entered into a certain Agreement Regarding Collection of
Accounts Receivable and Servicing of Customers as Related to Deferred Revenues
dated June 17, 1996 ("Collection and Servicing Agreement"); and
WHEREAS, Continental and Digimedics desire to modify certain provisions
of the Collection and Servicing Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein and other good and sufficient consideration paid , the parties hereby
agree as follows:
1. The Collection and Servicing Agreement provides that Digimedics will
assist Continental with the collection of Receivables (as defined in the
Collection and Servicing Agreement) and in consideration therefor Continental
will pay to Digimedics thirty percent (30%) of the amount of the Receivables
actually collected. The Receivables are in two categories. "Billed Receivables"
shall mean those Receivables that had been invoiced by Continental prior to June
17, 1996. The Billed Receivables totaled $2,315,354.40 at June 17, 1996 and are
listed on the three pages of Schedule A to the Collection and Servicing
Agreement headed "JUNEADJ". "Other Receivables" shall mean all Receivables other
than the Billed Receivables. The Other Receivables totaled $2,870,465.21 at June
17, 1996 and are listed on the five pages of Schedule A to the Collection and
Servicing Agreement captioned "Deferred Progress Billing".
Continental hereby assigns to Digimedics all of the Other Receivables to the
extent they remain uncollected on the date of this Agreement. Digimedics shall
retain one hundred percent (100%) of any amounts collected after the date of
this Agreement with respect to the Other Receivables. This Agreement shall not
modify the terms of the Collection and Servicing Agreement with respect to the
Billed Receivables. Except as otherwise provided in the Collection and Servicing
Agreement, Continental shall be entitled to seventy percent (70%) and Digimedics
shall be entitled to thirty percent (30%) of the amount of Billed Receivables
actually collected.
2. The Collection and Servicing Agreement provides that Continental
will pay Digimedics Deferred Revenues in the amount of $1,236,987 simultaneously
with payment by Digimedics of its promissory note to Continental. Continental
and Digimedics hereby agree that the amount to be paid by Continental to
Digimedics with respect to the Deferred Revenues shall be reduced from
$1,236,987 to $437,000. Digimedics acknowledges that Continental's obligation to
pay the $437,000 has been satisfied in full on the date hereof. Continental
shall have no further obligation to pay any amounts with respect to Deferred
Revenues.
3. Except Collection and Servicing Agreement shall remain in full force
and effect, including without limitation the obligations of Mediware provided in
paragraph 2(a) of the Collection and Servicing Agreement and the obligations of
Continental provided in paragraph 2(d) of the Collection and Servicing
Agreement.
IN WITNESS WHEREOF, Continental and Digimedics have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CONTINENTAL HEALTHCARE SYSTEMS, INC.
By:____________________________________
Name:__________________________________
Title:___________________________________
DIGIMEDICS CORP.
By:_____________________________________
Name:___________________________________
Title:___________________________________
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, NY 11747
July 20, 1995
Mr. Les N. Dace
11211 Quivas Loop
Westminster, Colorado 80234
Dear Les:
Pursuant to your appointment as President and Chief Executive Officer of
MEDIWARE Information Systems, Inc., this letter describes the details of your
employment, as discussed in my office on July 14, 1995.
1. You will be employed as President and CEO of MEDIWARE Information Systems
effective July 1, 1995.
2. You will continue to act as General Manager for both the Digimedics and
Surgiware product centers.
3. You will report directly to the Chairman of the Board of MEDIWARE INFORMATION
SYSTEMS, Inc.
4. Your remuneration will be:
o A gross salary of $110,000 per year, less applicable taxes, paid
bi-weekly o A bonus based on the gross profits of MEDIWARE, including
the Hemocare, Digimedics, and
Surgiware Product Centers, less all extra ordinary corporate
overhead expenses, paid at a rate equal to 5% of the gross
profit, before interest and tax allocations. Your bonus will
be calculated in the same manner as the previous President of
Mediware, John Frieberg
o 50,000 MIS options, vesting over three years beginning July 1,
1995 @ $1.00 per share
o Previously granted options will continue to be in effect
o Four weeks vacation per year
o All employee benefits offered by MIS
o A $500 per month auto allowance
<PAGE>
5. Other elements of your employment are:
o Three months severance will be paid to you if you are involuntarily
terminated o You will devote substantially all your efforts to this
position o You will be based in Scotts Valley, California o Bonuses
will be paid every six months as an advance against audited year end
results
MEDIWARE Information Systems, Inc.
Lawrence Auriana I Agree to the Terms Offered Above:
Chairman of the Board Date: 7-20-95
Name: /s/ Les N. Dace
---------------
Les N. Dace
<PAGE>
EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
This Employment Agreement between Thomas Mulstay and Mediware
Information Systems, Inc., shall cover the period July 1, 1996 to June
30, 1997.
Title: Vice President and General Manager - Hemocare, Inc. and an
Officer of Mediware You will report directly to the President
of Mediware Information Systems.
Duties: To effectively manage the tangible and human resources of the
Hemocare product center, and to deliver to Mediware
information Systems, consistent and profitable performance
from those resources. You will be asked each year, to deliver
to the President of Mediware a revenue and expense budget,
which when agreed upon, will be the foundation of your
performance objectives. You will be reviewed at the end of
each fiscal year to determine how well you performed in
general, as well as how you performed against your performance
objectives.
Salary: 1) Gross Salary of $6,667 per month/$80,000 per year,
retroactive to July 1, 1996.
2) Auto allowance of $500.00 per month.
Bonus: 1) A bonus on the "Earnings before Interest & Taxes (EBIT)" of
Mediware Information System of One Percent (1%).
2) A bonus based on the "Earnings before Interest & Taxes (EBIT)"
of the Hemocare Product Center of Three Percent (3%).
3) Bonuses will be paid twice yearly. The first payment will be
made within 30 days of the filing of Mediware's 10QSB for the
2nd quarter. The second payment will be made within 30 days of
the filing of Mediware's 10KSB for the complete year.
Miscellaneous Expenses:
1) Mediware will reimburse you for all reasonable travel
expenses.
2) Mediware shall reimburse you for the use of a car and cellular
phone used for business purposes.
Other Elements of Employment:
1) You will be eligible for all employee benefit programs in
place for MIS employees.
2) You will earn four (4) weeks vacation per year.
3) You will devote substantially all your efforts to this
position.
4) You will honor the non-compete and confidential covenants that
are applicable to all MIS employees.
<PAGE>
Severance:
1) If you are involuntarily terminated from Mediware, the company
shall pay you three (3) months severance pay plus any accrued
vacation pay. Bonuses due at the time of termination will be
prorated to the date of termination.
Please indicate your acceptance of the above terms and conditions with your
signature below.
Accepted By: Accepted By:
Thomas Mulstay MEDIWARE Information Systems, Inc.
14 Berkley Street 1600 Green Hills Road, Suite 105
Nashua, New Hampshire 03060 Scotts Valley, California 95066
By:__________________________ By:_______________________________
Name:________________________ Name:_____________________________
Title:_______________________ Title:____________________________
<PAGE>
EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
This Employment Agreement between John Esposito and Mediware Information
Systems, Inc., shall cover the period July 1, 1996 to June 30, 1997.
Title: Vice President of Sales - Mediware Information Systems, Inc.
and an Officer of the Company. You will report directly to the
President of Mediware Information Systems.
Duties: To effectively manage the tangible and human resources of the
Mediware Information Systems Sales Force, and to deliver to
Mediware information Systems, consistent and profitable
performance from those resources. You will be asked each year,
to deliver to the President of Mediware a revenue and expense
budget, which when agreed upon, will be the foundation of your
performance objectives. You will be reviewed at the end of
each fiscal year to determine how well you performed in
general, as well as how you performed against your performance
objectives.
Salary:
1) Gross Salary of $6,667 per month/$80,000 per year, retroactive
to July 1, 1996.
2) Auto allowance of $500.00 per month.
Bonus:
1) A bonus on the "Earnings before Interest & Taxes (EBIT)" of
Mediware Information System of One Percent (1%).
2) A bonus based on the "System Sales of Mediware Information
Systems" (excluding sales from JAC, U.K.) of One-Half of One
Percent (0.5%).
3) Bonuses will be paid twice yearly. The first payment will be
made within 30 days of the filing of Mediware's 10QSB for the
2nd quarter. The second payment will be made within 30 days of
the filing of Mediware's 10KSB for the complete year.
Miscellaneous Expenses:
1) Mediware will reimburse you for all reasonable travel
expenses.
2) Mediware shall reimburse you for the use of a car and cellular
phone used for business purposes.
Other Elements of Employment:
1) You will be eligible for all employee benefit programs in
place for MIS employees.
2) You will earn four (4) weeks vacation per year.
3) You will devote substantially all your efforts to this
position. 4) You will honor the non-compete and confidential
covenants that are applicable to all MIS employees.
<PAGE>
Severance:
1) If you are involuntarily terminated from Mediware, the company
shall pay you three (3) months severance pay plus any accrued
vacation pay. Bonuses due at the time of termination will be
prorated to the date of termination.
Please indicate your acceptance of the above terms and conditions with your
signature below.
Accepted By: Accepted By:
John Esposito MEDIWARE Information Systems, Inc.
106 Willow Ave 1600 Green Hills Road, Suite 105
Hunington, New York 11743 Scotts Valley, California 95066
By:__________________________ By:_______________________________
Name:________________________ Name: Les N. Dace
-----------------------------
Title:_______________________ Title: President & CEO
---------------
Date:________________________ Date: 11-19-96
---------------
<PAGE>
Mediware Information Systems, Inc.
July 8, 1997
John Esposito
106 Willow Avenue
Huntington, New York 11743
Dear John:
In consideration of your continuing your position with us and
the circumstances, I am happy to confirm to that, Mediware will pay you $99,000
in the event of the sale of substantially all of its assets or all of its
outstanding stock of the Company to a third party, provided that you have
remained in the employ of the Company at the time of sale. We anticipate that
your past and future services in connection with the sale of the Company will
continue to be of special value to us.
If this is acceptable to you please so indicate in the space
provided below.
Very truly yours,
MEDIWARE INFORMATION SYSTEMS, INC.
By /s/ Lawrence Auriana
-----------------------
Lawrence Auriana, Chairman
OK - John Esposito 7/18/97
<PAGE>
August 5, 1997
Mr. George Barry
1113 Parkside Circle
Lawrence, KS 66049
Dear Bud:
I am very pleased to offer you the position of "Chief Financial Officer" of
MEDIWARE Information Systems. Let me outline the terms of the offer for you.
1. The title of this position is Chief Financial Officer of MEDIWARE Information
Systems.
2. Your hire date will be August 11, 1997.
3. You will be an integral member of the senior management team and a member of
the executive committee.
4. You will report directly to me, President and CEO of MEDIWARE Information
Systems.
5. You will receive a salary of $80,000 per year, paid every two weeks.
6. You will have full responsibility for the finance and accounting
division of all Mediware product centers, including our UK subsidiary,
JAC. You will also be responsible for the HR function within the
company, among other job responsibilities.
7. You will be entitled to fifteen (15) paid days of vacation each year,
per the MEDIWARE vacation policy. You can accumulate up to one year of
vacation time.
8. You will be grated 30,000 shares of stock in MEDIWARE'S stock option
program. These shares will fully vest over 4 years, with 25% of the
shares vesting each year from grant date, with a 10-year expiration
term from date of option grant. The exercise price will be the "market
price" on the day the option shares are granted.
9. You and your dependents will be entitled to participate in the MEDIWARE
Healthcare plan, consisting of both medical and dental benefits.
Currently, premiums are not deducted from your compensation in order
for you to participate in the plan. Your eligibility will begin on the
1st day of the month, 2 months following your hire date.
10. You will receive life insurance coverage equal to one year's salary,
premiums being paid by MEDIWARE.
11. You will be eligible to participate in MEDIWARE's 401-K plan following your
1st full year of employment.
12. In the event that you are released from the company, or you leave on
your own volition, you will have up to ninety days to purchase any
unexercised stock options that have vested during your employment.
13. MEDIWARE will provide you with three (3) months advance notice should
you be released from the company for any reason other than violation of
company policy or a felony conviction.
14. You will be eligible to participate in an executive bonus plan based on
three (3) distinct qualifiers, listed below.
a) A bonus paid once each year, within 2 months following
MEDIWARE'S financial audit, based on the successful execution
of "mutually agreed upon" objectives for this position. This
bonus equates to 15% of your annual salary or a maximum of
$12,000. These MBO's will be mutually agreed to for the Fiscal
1997-year between you and the President and CEO of MEDIWARE.
b) A bonus paid twice yearly, the first of which is paid no later
than February 28th for the first six months of the Fiscal 1997
year, and the second of which is paid no later than 2 months
following MEDIWARE'S financial audit for the second six months
of the Fiscal 1997 year. The audit is normally concluded by
September 1st of the next Fiscal year.
This bonus will be calculated at 3/4% of 1% (.75%) of MEDIWARE
Information Systems' "EBIT," or Earning Before Interest and
Taxes. Based on the Fiscal 1998 MEDIWARE business plan, this
bonus equals $37,500 at 100% attainment of our $5,000,000 EBIT
plan. Since there is no "top stop" for this bonus, the payout
could be higher. There will be NO bonuses paid should MEDIWARE
achieve 50% or less of its projected EBIT plan.
Bud, I believe this is a tremendous opportunity for both you and MEDIWARE.
MEDIWARE is poised on the opportunity of its corporate life and you can be one
of the individuals that can help make it happen. Please indicate your acceptance
by signing below.
Sincerely,
President and Chief Executive Officer
MEDIWARE Information Systems, Inc.
I have read the conditions of employment shown above and accept the offer
without modifications.
- ------------------------------------- ---------------------
Name Date
<PAGE>
July 3, 1996
Mr. Rodger Wilson
4655 Pawnee Place
Boulder, Colorado 80303
Dear Rodger:
I am very pleased to be able to offer you the position of "Vice President and
General Manager" for the pharmacy division of MEDIWARE Information Systems.
Although we have discussed this position on a number of occasions, it is
relevant you have a hard copy of the offer from which you can base your final
decision. Let me outline the terms of the offer for you.
1. The title of this position is Vice President and General Manager for
the Pharmacy Division of MEDIWARE Information Systems.
2. Your hire date will be July 15, 1996.
3. You will be an integral member of the senior management team and a member of
the executive committee.
4. It will be necessary for you to relocate to either Scotts Valley,
California or Kansas City, Kansas; MEDIWARE's preference being Kansas
City.
5. You will report directly to me, President and CEO of MEDIWARE Information
Systems.
6. You will receive a salary of $80,000 per year, paid every two weeks.
7. You will be entitled to fifteen (15) paid days of vacation each year,
per the MEDIWARE vacation policy. You can accumulate up to one year of
vacation time.
8. You will be granted 15,000 shares of stock in MEDIWARE's stock option
program. These shares will fully vest over 4 years, with 25% of the
shares vesting each year from grant date, with a 10 year expiration
term from date of option grant. The exercise price will be the "market
price" on the day the option shares are granted.
9. You will receive a call allowance of $500 per month, paid with the 1st
check of each month.
10. You and your dependents will be entitled to participate in the MEDIWARE
Healthcare plan, consisting of both medical and dental benefits.
Currently, premiums are not deducted from your compensation in order
for you to participate in the plan. Your eligibility will begin 2
months following the 1st day of the month following your hire date.
11. You will receive life insurance coverage equal to one years' salary,
premiums being paid by MEDIWARE.
12. You will be eligible to participate in MEDIWARE's 401-K plan following your
1st full year of employment.
13. MEDIWARE will reimburse you for relocation expenses, not to exceed
$10,000. Real estate expenses will remain your responsibility. MEDIWARE
prefers your relocation be completed within 30 days from your
acceptance of this offer.
14. In the event that you are released from the company, or you leave on
your own volition, you will have up to ninety days to purchase any
unexercised stock options that have vested during your employment.
15. MEDIWARE will provide you with three (3) months advance notice should
you be released from the company for any reason other than violation of
company policy or a felony conviction.
16. Should you accept this offer MEDIWARE will reimburse you $750 lost due
to cancellation of your family's vacation plans.
17. You will be eligible to participate in a bonus plan based on three 930
distinct qualifiers, listed below.
c) A bonus paid once each year, within 2 months following
MEDIWARE'S financial audit, on "mutually agreed upon"
objectives for this position. This bonus equates to 15% of
your annual salary or a maximum of $12,000. These MBO's will
be mutually agreed to for the Fiscal 1997 year between you and
the President and CEO of MEDIWARE.
d) A bonus paid twice yearly, the first of which is paid no later
than February 28th for the first six months of the Fiscal 1997
year, and the second of which is paid no later than 2 months
following MEDIWARE'S financial audit for the second six months
of the Fiscal 1997 year. The audit is normally concluded by
September 1st of the next Fiscal year.
This bonus will be calculated at 1% of MEDIWARE Information
Systems' "EBIT," or Earning Before Interest and Taxes. Based
on the Fiscal 1997 MEDIWARE business plan, this bonus equals
$34,684 at 100% of plan. Since there is no "top stop" for this
bonus, the payout could be higher. There will be NO bonuses
paid should MEDIWARE achieve 50% or less of its projected EBIT
plan.
e) A bonus paid twice yearly, the first of which is paid no later
than February 28th for the first six months of the Fiscal 1997
year, and the second of which is paid no later than 2 months
following MEDIWARE's financial audit for the second six months
of the Fiscal 1997 year.
This bonus will be calculated at 1.5% of the Pharmacy
Division's "EBIT," or Earning before Interest and Taxes. Based
on the Fiscal 1997 Pharmacy Division business plan, this bonus
equals 436,150 at 100% of plan. Since there is no "top stop"
for this bonus, the payout could be higher. There will be NO
bonuses paid should MEDIWARE achieve 50% or less of its
projected EBIT plan.
f) Excluded from bonus calculations for both MEDIWARE and the
Pharmacy Division will be revenue and profit dollars
associated with a special arrangement between Continental
Healthcare Systems and MEDIWARE for the collection of
outstanding receivables owed to Continental. These are
non-operational profit dollars and have not been included in
any of the bonus calculations in points [b] or [c] above.
18. You will have full Profit and Loss responsibility for both the
Digimedics Pharmacy Division and the Pharmakon Pharmacy Division, the
combination of which comprises the Pharmacy Division of MEDIWARE.
19. You will have responsibility for the Pharmacy Division's product
direction and its associated delivery strategies.
20. You will as General Manager of the Pharmacy Division have override
authority on sales and service contracts pertaining to Digimedics and
Pharmakon.
21. You will NOT have responsibility for the United Kingdom division of
JAC. A restructuring of Pharmacy operations at some point in the future
to include JAC in your scope of responsibility would be considered at
that time.
22. You will have budgetary responsibilities for the Pharmacy Division
which includes capital expenditures and staffing levels.
Rodger, as you and I have discussed, I believe this is a tremendous opportunity
for both MEDIWARE and yourself. MEDIWARE is poised on the opportunity of its
corporate life and you can be one of the individuals that can help make it
happen.
I look forward to your rapid and positive decision.
Sincerely,
Les N. Dace
President and Chief Executive Officer
Encl.: Spreadsheets describing MEDIWARE's Fiscal 1997 business plan.
NEITHER WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. NEITHER SUCH WARRANTS NOR
SUCH SHARES MAY BE SOLD OR OFFERED FOR SALE, TRANSFERRED,
HYPOTHECATED OR OTHERWISE ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION FOR SUCH SALE,
OFFER, TRANSFER, HYPOTHECATION OR OTHER ASSIGNMENT IS
AVAILABLE UNDER SUCH ACT.
THE TRANSFER OF THIS CERTIFICATE IS
RESTRICTED AS DESCRIBED HEREIN.
MEDIWARE INFORMATION SYSTEMS, INC.
Warrant for the Purchase of Shares of Common Stock
par value $.10 per share
No. 10 40,000 Shares
THIS CERTIFIES that, for value received, Oscar Gruss & Son
Incorporated, 74 Broad Street, New York, NY 10004-2247 (the "Holder"), is
entitled to subscribe for and purchase from MEDIWARE INFORMATION SYSTEMS, INC.,
a New York corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time after August 27, 1997, and before 5:00
P.M. on August 26, 2000, New York time (the "Exercise Period"), 40,000 shares of
the Company's Common Stock, par value $.10 per share ("Common Stock"), at a
price of $6 per share (the "Exercise Price"). This Warrant may not be sold,
transferred, assigned or hypothecated except that it may be transferred, in
whole or in part, (i) by will or by intestate succession, or (ii) by operation
of law; and the term the "Holder" as used herein shall include any transferee to
whom this Warrant has been transferred in accordance with the above. As used
herein the term "this Warrant" shall mean and include this Warrant and any
Warrants hereafter issued as a consequence of the exercise or transfer of this
Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of
this Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from
time to time as hereinafter set forth.
1. This Warrant may be exercised at any time during the
Exercise Period as to the whole or any lesser number of whole shares, by the
surrender of this Warrant (with the election to exercise at the end hereof duly
executed) to the Company at its office at 1121 Old Walt Whitman Road, Melville,
New York, NY 11747, or such other place as is designated in writing by the
Company, together with a certified or bank cashier's check payable to the order
of the Company in an amount equal to the Exercise Price multiplied by the number
of Warrant Shares for which this Warrant is being exercised.
2. Upon each exercise of the Holder's rights to purchase the
Warrant Shares granted pursuant to this Warrant, as reissued from time to time,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part
of this Warrant (together with this Warrant, the "Warrants") shall be numbered
and shall be registered in a Warrant Register as they are issued. The Company
shall be entitled to treat the registered holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. The Warrants shall be transferable
only on the books of the Company upon delivery thereof duly endorsed by the
Holder or by his duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all cases
of transfer by an attorney, executor, administrator, guardian or other legal
representative, duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto. The Warrants may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares (or portions
thereof) upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations thereunder.
4. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to this Warrant, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the Company
of the purchase price therefor, shall be validly issued, fully paid
nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date of
this Warrant (i) declare a dividend on the outstanding Common Stock in shares of
its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price, and the number and kind of shares of Common Stock receivable upon
exercise of this Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Holder after
such time shall be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its principal office, which
notice shall be accompanied by an officer's certificate setting forth the number
of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment and the computation thereof, which officer's
certificate shall be conclusive evidence of the correctness of any such
adjustment absent manifest error.
(c) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of the Warrants. If any fraction of a share would be issuable on the exercise of
any Warrant (or specified portions thereof) the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price of such share of Common Stock on the date of exercise of the Warrant.
6. In case of any consolidation with or merger of the Company
with or into another Corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall give the Holder 10
days written notice in advance of the effective time of such consolidation,
merger, sale, lease or conveyance and if the Warrant remains unexercised, such
successor, leasing or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such consolidation, merger, sale, lease or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger sale, lease or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, in order to effect such
agreement. Such agreement shall provide for terms, conditions and features,
including but not limited to adjustments, which shall be as nearly equivalent as
practicable to those set forth in this instrument.
7. The Warrant Shares issued upon exercise of the Warrants
shall be subject to a stop transfer order and certificate or certificates
evidencing such Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD, OFFERED OR
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER SUCH ACT OR AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION FOR SUCH SALE, TRANSFER,
HYPOTHECATION OR OTHER ASSIGNMENT IS AVAILABLE UNDER
SUCH ACT."
The Company will provide piggyback registration rights on such
terms and conditions as to be set forth in a Registration Rights Agreement
mutually satisfactory to the Company and the Holder.
8 Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor and denomination.
9. The Holder of any Warrant shall not have, solely on account
of such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
10. This Warrant shall be construed in accordance with the laws of the State of
New York applicable to contracts made and performed within such State, without
regard to principles of conflicts of law.
Dated: August 27, 1997
MEDIWARE INFORMATION SYSTEMS, INC.
By:_____________________________________
Secretary
[SEAL]
<PAGE>
To: MEDIWARE INFORMATION SYSTEMS, INC.
1121 Old Walt Whitman Road
Melville, New York 11747
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_________Warrant Shares covered by the within Warrant and tenders payment
herewith in the amount of $________ in accordance with the terms thereof, and
requests that certificates for such securities be issued in the name of, and
delivered to:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print Name, Address and Social Security
of Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a New Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:_________________________ Name____________________________________
(Print)
Address:______________________________________________________________________
-----------------------------------------
(Signature)
Mediware Information Systems, Inc. and Subsidiaries
EXHIBIT 11
Schedule of Computation of Net Income Per Share
<TABLE>
<CAPTION>
Year Ended
Primary (1) June 30, 1997
----------- -------------
<S> <C>
Net income ..................................................................... $2,081,000
==========
Modified treasury stock method Adjustment to common stock:
Weighted average shares outstanding ............................................ 4,965,352
Shares issuable upon exercise of stock options and warrants net of
shares assumed to be repurchased (at the average market
price for the period) from exercise proceeds .......................... 952,089
----------
Adjusted shares ................................................................ 5,917,441
=========
Primary earnings per common share .............................................. $ 0.35
==========
(1) Fully diluted earnings per share not presented because dilution from
primary earnings per common share amount is less than 3%.
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Mediware Information Systems, Inc. and subsidiaries of
our report dated August 28, 1997 on the financial statements as of and for the
year ended June 30, 1997 which is included in the annual report on Form 10-KSB
for the year ended June 30, 1997.
Richard A. Eisner & Company, LLP
New York, New York
October 8, 1997
POWER OF ATTORNEY
------------------
KNOW ALL MEN BY THESE PRESENT, that the undersigned director of
MEDIWARE Information Systems, Inc. (the "Company") constitutes and appoints
Lawrence Auriana and Les Dace, and each of them, singly or jointly, with full
power of substitution, to act for him in any and all capacities, including
director, principal executive officer, as principal financial officer and/or
controller or principal accounting officer of the Company to sign on his behalf
any and all Reports on Form 10-K, including Form 10-KSB, and any amendments or
supplements thereto of the Company, and to file the same with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or their substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: October 10, 1997
/s/ Les N. Dace
------------------------------------
(Les N. Dace)
/s/ George J. Barry
------------------------------------
(George J. Barry)
/s/ Lawrence Auriana
------------------------------------
(Lawrence Auriana)
/s/ Jonathan Churchill
------------------------------------
(Jonathan Churchill)
/s/ Roger Clark
------------------------------------
(Roger Clark)
------------------------------------
(Joseph Delario)
/s/ John C. Frieberg
------------------------------------
(John C. Frieberg)
------------------------------------
(Walter Kowsh, Jr.)
------------------------------------
(Hans Utsch)
/s/ Clinton G. Weinman
------------------------------------
(Clinton G. Weinman)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,935
<SECURITIES> 0
<RECEIVABLES> 6,639
<ALLOWANCES> 282
<INVENTORY> 56
<CURRENT-ASSETS> 8,652
<PP&E> 2,324
<DEPRECIATION> 1,572
<TOTAL-ASSETS> 17,349
<CURRENT-LIABILITIES> 6,165
<BONDS> 0
0
0
<COMMON> 506
<OTHER-SE> 6,018
<TOTAL-LIABILITY-AND-EQUITY> 17,349
<SALES> 18,519
<TOTAL-REVENUES> 18,519
<CGS> 5,326
<TOTAL-COSTS> 15,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740
<INCOME-PRETAX> 2,166
<INCOME-TAX> 85
<INCOME-CONTINUING> 2,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,081
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
