AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998 FILE
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NO. 333-57693
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of Registrant as specified in Its Charter)
NEW YORK 7372 11-2209324
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
1121 Old Walt Whitman Road, Melville, New York 11747-3005
(516) 423-7800
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
LES N. DACE
President and Chief Executive Officer
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, New York 11747-3005
Tel. No. (516) 423-7800
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
Copies to:
JONATHAN H. CHURCHILL, ESQ. RONALD L. GREENMAN, ESQ.
Winthrop, Stimson, Putnam & Roberts Tonkon Torp LLP
One Battery Park Plaza 1600 Pioneer Tower
New York, New York 10004-1490 888 SW Fifth Avenue
Tel. No. 212-858-1000 Portland, Oregon 97204-2099
Tel. No. 503-221-1440
_______________________________________
Approximate date of commencement of proposed sale of the securities
to the public: From time to time after the effective date of this
Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ___________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price per aggregate offering registration
registered unit price fee
===================== ================= =================== =================== ============
Common Stock 484,358 Shares N/A $ 2,103,688* $ 621**
===================== ================= =================== =================== ============
</TABLE>
* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. Based on the market value of securities being received
computed as of the latest practicable date, which, for the 469,595 shares
previously registered, was June 16, 1998, the latest sale date before such
registration, and, for the additional 14,763 shares being registered with this
Amendment No. 1, was August 13, 1998, the latest sale date.
** $600 of such fee has already been paid.
___________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
August 21, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Informedics, Inc. ("Informedics"), which will be held on
Wednesday, September 23, 1998, at 2:00 p.m., local time, at the principal
executive offices of Informedics, 4000 Kruse Way Place, Building 3, Suite 300,
Lake Oswego, Oregon 97035.
At the Meeting, you will be asked to approve the Agreement and Plan of
Merger dated as of December 18, 1997, as amended (the "Merger Agreement"), a
copy of which is attached hereto as Annex A, among Informedics, Mediware
Acquisition Corporation ("Mediware Acquisition"), a wholly owned subsidiary of
Mediware Information Systems, Inc., a New York corporation ("Mediware"), and
Mediware. Pursuant to the Merger Agreement, Informedics will merge into
Mediware Acquisition (the "Merger") and the holders of Informedics common
stock, $.01 par value per share, will receive one share of common stock, par
value $.10 per share, of Mediware in exchange for 6.3 shares of Informedics
common stock.
THE INFORMEDICS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THE MERGER
IS ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, INFORMEDICS AND ITS
SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. INFORMEDICS'
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AT THE MEETING.
You should read carefully the attached Proxy Statement/Prospectus for
details of the Merger and additional related information.
Whether or not you plan to attend the Meeting, please complete, sign and
date the enclosed proxy card and return it promptly in the enclosed postage
prepaid envelope. If you attend the Meeting, you may vote in person if you
wish, even if you previously have returned your proxy card. Your prompt
response will be greatly appreciated.
Sincerely,
John Tortorici
President
<PAGE>
INFORMEDICS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 23 , 1998
TO THE SHAREHOLDERS OF INFORMEDICS, INC.:
A Special Meeting of Shareholders (the "Meeting") of Informedics, Inc.,
an Oregon corporation ("Informedics"), will be held on Wednesday, September 23,
1998, at 2:00 p.m., local time, at the principal executive offices of
Informedics, 4000 Kruse Way Place, Building 3, Suite 300, Lake Oswego, Oregon
97035, to consider and vote upon a proposal to approve the terms of an
Agreement and Plan of Merger, dated as of December 18, 1997, as amended (the
"Merger Agreement"), by and among Mediware Information Systems, Inc.
("Mediware"), Mediware Acquisition Corporation ("Mediware Acquisition"), and
Informedics, pursuant to which Informedics will merge with and into
Mediware Acquisition (the "Merger") and Informedics will become a wholly
owned subsidiary of Mediware.
The Merger is described in the attached Proxy Statement/Prospectus, and a
copy of the Merger Agreement is attached as Annex A thereto.
Only holders of record of Informedics Common Stock at the close of
business on July 22, 1998, the record date for the Meeting, are entitled to
notice of and to vote at the Meeting and any adjournment or postponement
thereof. Holders of Informedics Common Stock will be entitled to dissenters'
rights as further described in the accompanying Proxy Statement/Prospectus.
The affirmative vote at the Meeting of holders of a majority of the
shares of Informedics Common Stock issued and outstanding and entitled to vote
is necessary to approve the Merger Agreement.
Whether or not you plan to attend the Informedics Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage prepaid envelope. Your proxy may be revoked at any time
before it is voted by signing and returning a later dated proxy with respect
to the same shares, by filing with the Secretary of Informedics a written
revocation bearing a later date or by attending and voting in person at the
Informedics Special Meeting.
By Order of the Board of Directors
John Tortorici
President
4000 Kruse Way Place
Building 3, Suite 300
Lake Oswego, Oregon 97035
August 21, 1998
IF YOU CANNOT ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD APPOINTING JOHN TORTORICI AND RICHARD F. EMERY, JR. AS
YOUR PROXIES.
<PAGE>
INFORMEDICS, INC.
PROXY STATEMENT
MEDIWARE INFORMATION SYSTEMS, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the security holders
of Informedics, Inc. ("Informedics"), an Oregon corporation, in connection
with the solicitation of proxies by the Board of Directors of Informedics for
use at the Special Meeting of Informedics shareholders to be held at 2:00 p.m.,
Pacific time, on September 23, 1998, and at any and all adjournments thereof
(the "Meeting").
This Proxy Statement/Prospectus relates, among other things, to the
proposed merger (the "Merger") between Informedics and Mediware Acquisition
Corporation ("Mediware Acquisition"), a wholly owned subsidiary of Mediware
Information Systems, Inc., a New York corporation ("Mediware" or the
"Company"). Pursuant to the Merger, Informedics will merge into Mediware
Acquisition and the holders of Informedics common stock, $.01 par value per
share (the "Informedics Common Stock"), will receive one share of Common Stock,
par value $.10 per share, of Mediware ("Mediware Common Stock") in exchange
for 6.3 shares of Informedics Common Stock, pursuant to the Agreement and
Plan of Merger dated as of December 18, 1997, as amended (the "Merger
Agreement"), a copy of which is attached hereto as Annex A.
The outstanding shares of Mediware Common Stock are, and the shares of
Mediware Common Stock to be offered pursuant to this Prospectus will upon
notice of issuance be, listed on The Nasdaq SmallCap Market ("Nasdaq") under
the symbol "MEDW". The last reported sale price of Mediware Common Stock on
Nasdaq on August 14, 1998 was $7 1/2 per share and on December 18, 1997, the
last trading day preceding the public announcement of the Merger, the last
reported sale price of Mediware Common Stock was $10 1/4 per share.
Mediware has filed a Registration Statement on Form S-4 (such Registration
Statement and all exhibits relating thereto and any amendments thereof, the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act"), with the Securities and Exchange Commission, covering shares of
Mediware Common Stock to be issued in connection with the Merger. This Proxy
Statement/Prospectus also constitutes the prospectus of Mediware filed as part
of the Registration Statement relating to up to 484,358 shares of Mediware
Common Stock to be issued pursuant to the Merger.
All information contained in this Proxy Statement/Prospectus with respect
to Mediware and Mediware Acquisition has been provided by Mediware. All
information contained in this Proxy Statement/Prospectus with respect to
Informedics has been provided by Informedics.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of Informedics on or about August 21,
1998.
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS WHICH SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is August 21, 1998
<PAGE>
AVAILABLE INFORMATION
Mediware is subject to the informational requirements of the Securities
Exchange Act of 1934 ("1934 Act") and in accordance therewith files reports,
proxy statements and other information (collectively, "1934 Act Reports") with
the Securities and Exchange Commission (the "SEC"). Informedics is also
subject to the informational requirements of the 1934 Act and in accordance
therewith files 1934 Act Reports with the SEC. Such reports, proxy statements
and other information can be inspected and copied at the public reference
facilities maintained by the SEC in Washington, D.C., and at certain of its
regional offices at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois, 60661 and Suite 1300, 7 World Trade Center, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates (1-800-SEC-0330). The SEC also maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information and documents regarding Mediware and
Informedics. Certain securities of Mediware are listed on The Nasdaq SmallCap
Market, 1735 K Street, N.W., Washington, D.C. 20006-1506, and reports, proxy
statements and other information concerning Mediware may be inspected at the
offices of Nasdaq. Certain securities of Informedics are traded on the
National Association of Securities Dealers, Inc. ("NASD") Bulletin Board, 1735
K Street, N.W., Washington D.C. 20006-1506, and reports, proxy statements and
other information concerning Informedics may be inspected at the offices of
the NASD.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement of which this Proxy Statement/Prospectus is
a part, and which Mediware has filed with the SEC under the Securities Act.
Reference is made to such Registration Statement for further information with
respect to Mediware and Informedics and the securities of Mediware offered
hereby. Statements contained herein concerning the provisions of documents
are necessarily summaries of such documents, and each statement is qualified
in its entirety by reference to the copy of the applicable document filed with
the SEC or attached as an annex hereto.
<PAGE>
TABLE OF CONTENTS
Page
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SUMMARY 6
General 6
The Companies 6
Information About Mediware Information Systems, Inc. 6
Information About Mediware Acquisition 6
Information About Informedics, Inc. 7
Meeting of Informedics Shareholders, Vote Required and
Certain Holdings 7
The Merger 8
Basic Terms of Merger Agreement 8
Conversion of Informedics Common Stock 8
Reasons for the Merger 8
Recommendation of Informedics Board of Directors 8
Conditions to the Merger 8
Effective Date of the Merger 8
Right to Terminate 9
Mediware Common Stock 9
Accounting Treatment 9
Certain Federal Income Tax Consequences 9
Regulatory Requirements 9
Dissenting Shareholders' Appraisal Rights 9
Resale of Mediware Common Stock 10
Exchange of Certificates 10
Interests of Certain Persons in the Merger 10
Comparative Share Data 11
Current Market Value and Market Value as of Announcement Date 12
RISK FACTORS 13
Past Operating Losses 13
Significant Indebtedness and Restrictive Covenants 13
Need for Additional Financing 13
Variability of Operating Results 13
Market Acceptance of new WORx Product 14
High Volatility of Stock Price 14
Risks Relating to Corporate Transactions and the Merger 14
Competition 14
Technological Obsolescence; Continual Need for Successful
Marketing and Acceptance of New Products 15
Product Protection 15
Government Regulation 15
Year 2000 Compliance 16
Dependence Upon Key Employees 18
Management of Growth 18
Hospital Purchase Procedures 18
Nasdaq Listing Requirement 18
Risks Associated with International Operations 19
No Dividends 19
Shares Eligible For Future Sale 19
Authorized Preferred Stock 19
INTRODUCTION 20
BACKGROUND AND REASONS FOR THE MERGER AND RELATED MATTERS 20
Background of Informedics' and Mediware's Activities
Leading to the Merger 20
Informedics' Reasons for the Merger 23
Mediware's Reasons for the Merger 23
Recommendation of Informedics Board 25
DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT 25
Effective Date and Consequences 25
<PAGE>
Basic Terms of Merger Agreement 26
Conversion of Informedics Common Stock 26
Cancellation of Informedics Options 26
Description of Common Stock of Mediware 27
Exchange Procedure 27
Other Aspects of the Merger Agreement 28
Certain Covenants of Informedics 28
Certain Covenants of Mediware and Mediware Acquisition 28
Limitations on Other Offers 29
General 29
Termination of the Merger Agreement 30
Certain Fees and Expenses 31
Resale of Mediware Common Stock 31
MEETING OF INFORMEDICS SHAREHOLDERS 31
Date, Time, Place 31
Purpose of the Meeting 31
Vote Required; Shares Entitled to Vote 32
Solicitation of Proxies 32
Voting and Revocation of Proxies 32
Dissenters' Rights of Appraisal 33
Principal Shareholders 33
Interests of Certain Persons in the Merger 34
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 35
FORWARD-LOOKING STATEMENTS 40
INFORMATION ABOUT MEDIWARE INFORMATION SYSTEMS, INC. 40
General Description of Mediware 40
Blood Bank 41
Pharmacy 41
Surgical Suites 42
Description of Mediware's Business 42
Product Lines 42
Sales and Marketing 45
Software Support and Hardware Maintenance Services 45
Competition 45
Copyright, Patents and Trade Secrets 46
Government Regulation 46
Miscellaneous 47
Employees 48
Legal Proceedings 48
Properties 48
MEDIWARE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 48
Liquidity and Capital Resources 48
Material Changes in Results of Operations: Three and Nine
Months Ended March 31, 1998 Compared to Three and Nine Months
Ended March 31, 1997 50
Material Changes in Results of Operations: Fiscal 1997 vs.
Fiscal 1996 51
Year 2000 Compliance 53
New Accounting Standards 54
DESCRIPTION OF MEDIWARE COMMON STOCK 55
General 55
Transfer Agent 56
Resale of Mediware Common Stock by Affiliates 56
Market for Mediware Common Stock 56
INFORMATION ABOUT MEDIWARE ACQUISITION 57
INFORMATION ABOUT INFORMEDICS, INC. 57
Description of Informedics' Business 57
General 57
Description of Informedics' Products 58
Distribution of Products 59
<PAGE>
Competition 59
Backlog 60
Protection of Proprietary Software 60
Regulatory Compliance 60
Software Development Costs 61
Export Sales 61
Employees 61
Properties 61
Informedics' Market Price and Dividend Information 61
MANAGEMENT OF INFORMEDICS 62
Executive Compensation 62
Stock Option Grants and Repricings 63
Employment Agreement 64
INFORMEDICS MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 65
Highlights 65
Results of Operations - Material Changes: Six months ended
April 30, 1998 vs. six months ended April 30, 1997 66
Results of Operations - Material Changes: Fiscal 1997 vs.
Fiscal 1996 66
Liquidity - Capital Resources 67
Year 2000 Compliance 67
Prospective Accounting Change 69
COMPARATIVE RIGHTS OF SHAREHOLDERS OF MEDIWARE AND INFORMEDICS 69
General 69
Business Combinations 70
Dissenting Shareholders' Appraisal Rights 70
State Takeover Legislation 71
Stockholder Rights Plans 72
Amendments to Articles or Certificate of Incorporation 72
Amendments to By-laws 73
Preemptive Rights 73
Dividend Sources 73
Duration of Proxies 74
Shareholder Action 74
Special Shareholders Meetings 74
Removal of Directors 75
Number of Directors; Vacancies on the Board 76
Indemnification of Directors 77
Limitation of Personal Liability of Directors 78
ACCOUNTING TREATMENT 78
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 79
Continuity of Interest Requirement 80
"Substantially All" Requirement 80
Assumptions Made by Tax Counsel; Failure of the Merger to
Qualify as a Tax-Free Reorganization 80
DISSENTING SHAREHOLDERS' APPRAISAL RIGHTS 81
EXPERTS 83
LEGAL OPINIONS 83
INDEX TO FINANCIAL STATEMENTS OF MEDIWARE INFORMATION SYSTEMS,
INC. AND SUBSIDIARIES F-1
INDEX TO FINANCIAL STATEMENTS OF INFORMEDICS, INC. F-25
ANNEXES A-1
<PAGE>
SUMMARY
The following is a summary of certain of the information contained
elsewhere in this Proxy Statement/Prospectus. This summary does not purport
to be complete and reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this Proxy
Statement/Prospectus, the Annexes hereto and the documents referred to herein.
Informedics shareholders are urged to carefully read this Proxy
Statement/Prospectus, including the Annexes hereto.
GENERAL
This Proxy Statement/Prospectus relates, among other things, to the
proposed merger (the "Merger") between Informedics, Inc. ("Informedics"), an
Oregon corporation, and Mediware Acquisition Corporation ("Mediware
Acquisition"), a wholly owned subsidiary of Mediware Information Systems,
Inc., a New York corporation (together with its subsidiaries, "Mediware" or
the "Company"). Pursuant to the Agreement and Plan of Merger dated as of
December 18, 1997, as amended on April 30, 1998 and August 10, 1998 (the
"Merger Agreement"), Informedics will merge into Mediware Acquisition and the
holders of Informedics common stock, $.01 par value per share (the
"Informedics Common Stock"), will receive one share of common stock, par value
$.10 per share, of Mediware ("Mediware Common Stock") in exchange for 6.3
shares of Informedics Common Stock. The Merger Agreement is attached hereto
as Annex A and is incorporated by reference in this Proxy
Statement/Prospectus.
THE COMPANIES
INFORMATION ABOUT MEDIWARE INFORMATION SYSTEMS, INC.
Mediware develops, markets and supports stand-alone computer-based
management information systems for use in various clinical departments of
hospitals. The computer-based systems typically consist of computers,
peripheral hardware (such as disk drives and printers), local area network
("LAN") hardware and software, and Mediware's proprietary software
applications. The systems are designed to automate the data these departments
provide to hospital management and thereby 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, Mediware
offers systems for three different departments: the blood bank, the pharmacy
and the surgical suite. The installed base of clinical information systems is
approximately 1,000 customers. See "Information About Mediware Information
Systems, Inc."
Mediware was incorporated in 1980. Mediware's headquarters are located at
1121 Walt Whitman Road, Melville, New York 11747, telephone (516) 423-7800.
INFORMATION ABOUT MEDIWARE ACQUISITION
Mediware Acquisition is a newly formed Oregon corporation and a wholly
owned subsidiary of Mediware organized for the sole purpose of effecting the
Merger. The mailing address for Mediware Acquisition is 1121 Walt Whitman
Road, Melville, New York 11747, telephone (516) 423-7800.
<PAGE>
INFORMATION ABOUT INFORMEDICS, INC.
Informedics develops, markets and supports a line of stand-alone
computer-based management information systems for use in the blood bank and
clinical departments of hospitals. The computer-based systems typically
consist of computers, peripheral hardware (such as disk drives and printers),
LAN hardware and software, and Informedics' proprietary software applications.
Informedics' products consist of a blood bank data management system, a
pathology data management system, a healthcare information management network
system, and a laboratory order entry and results reporting system.
In addition to its laboratory products, Informedics designs and develops a
Web-enabled software system which allows the multiple entities in a medical
community, such as physician offices, hospital clinical and financial
information systems and insurance companies, to connect their existing
computer systems to a regional or wide-area network. Networking such
disparate systems allows each of them to share administrative,
medical/clinical and financial information for the purposes of managed care,
repository, utilization and other such clinical applications as required.
The mailing address of Informedics is 4000 Kruse Way Place, Bldg. 3, Suite
300, Lake Oswego, Oregon 97035 and the telephone number is (503) 697-3000.
See "Information About Informedics, Inc."
MEETING OF INFORMEDICS SHAREHOLDERS, VOTE REQUIRED AND CERTAIN HOLDINGS
Time, Date and Place. The Meeting of Informedics shareholders will be
held on September 23, 1998 at 2:00 p.m., Pacific time, at 4000 Kruse Way Place,
Bldg. 3,Suite 300, Lake Oswego, Oregon.
Purpose of Meeting. At the Meeting the Informedics shareholders will be
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement, which provides for the Merger of Informedics into Mediware
Acquisition.
Record Date; Required Vote for the Merger. The record date for determining
the Informedics shareholders entitled to notice of and to vote at the Meeting
is July 22, 1998. Approval of the Merger requires the affirmative vote of the
holders of a majority of the shares of Informedics Common Stock issued and
outstanding and entitled to vote as of the close of business on the record
date, with each holder being entitled to one vote per share. Abstentions and
broker non-votes will have the same effect as no votes with respect to the
approval of the Merger. As of July 22, 1998, 2,769,010 shares of Informedics
Common Stock were issued and outstanding. See "Meeting of Informedics
Shareholders-Vote Required; Shares Entitled to Vote."
Beneficial Ownership by Directors and Executive Officers. As of July
22, 1998, Informedics directors and executive officers and their
affiliates beneficially owned an aggregate of 594,343 shares (or approximately
19.7%) (which includes 244,795 options) of Informedics Common Stock. See
"Meeting of Informedics Shareholders-Principal Shareholders."
<PAGE>
THE MERGER
BASIC TERMS OF MERGER AGREEMENT
Upon the date and time of filing of the Articles of Merger with the
Secretary of State of the State of Oregon, Informedics will be merged with and
into Mediware Acquisition, with Mediware Acquisition being the surviving
corporation, and Informedics ceasing to exist as a separate entity. The
holders of Informedics Common Stock will receive shares of Mediware Common
Stock in exchange for their Informedics shares according to the exchange ratio
set forth in the Merger Agreement and described below.
CONVERSION OF INFORMEDICS COMMON STOCK
On the Effective Date of the Merger, and on the terms described in the
Merger Agreement, each issued and outstanding share of Informedics Common
Stock, other than shares held by Dissenting Shareholders, (see "Dissenting
Shareholders' Appraisal Rights"), will be converted into the right to receive
0.1587301 of a share of Mediware Common Stock (the ratio of Informedics Common
Stock exchangeable for Mediware Common Stock being 6.3:1). See "Description
of the Merger and the Merger Agreement" for further discussion. No fractional
shares of Mediware Common Stock will be issued in the Merger. Instead,
fractional shares of Mediware Common Stock will be rounded to the nearest
whole number.
REASONS FOR THE MERGER
The reasons for the Merger are outlined under "Background and Reasons for
the Merger and Related Matters."
RECOMMENDATION OF INFORMEDICS BOARD OF DIRECTORS
As set forth under "Background and Reasons for the Merger and Related
Matters-Recommendation," the Board of Directors of Informedics believes the
Merger is in the best interests of and is fair to all of its shareholders and
recommends that the Informedics shareholders vote for the adoption and
approval of the Merger. For a description of the interest of the Chairman of
the Board of Directors of Informedics in the Merger, see "Meeting of
Informedics Shareholders-Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the approval of the Merger
Agreement by the requisite vote of Informedics shareholders and the
satisfaction or waiver of the conditions set forth in the Merger Agreement.
See "Description of the Merger and the Merger Agreement-General."
EFFECTIVE DATE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the closing
of the transactions contemplated by the Merger Agreement (the "Closing") will
occur (i) as soon as practicable after the later to occur of (x) the date of
the later of the Meeting or (y) the day on which the last condition set forth
in the Merger Agreement shall have been fulfilled or waived or (ii) at such
other time as the parties may agree. The date on which the Closing occurs is
referred to as the "Closing Date." The Merger shall become effective at the
time and date the Articles of Merger are filed with the Secretary of State of
the State of Oregon (the "Effective Date"). See "Description of the Merger
and the Merger Agreement-Effective Date and Consequences."
<PAGE>
RIGHT TO TERMINATE
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Closing Date by mutual written consent of the parties.
Either Informedics or Mediware may terminate the Merger Agreement if the
Informedics shareholders fail to approve the Merger Agreement, if a court or
other governmental body shall restrain, enjoin or prohibit the Merger, or if
the Effective Date shall not have occurred by September 24, 1998. In addition,
either Informedics or Mediware alone may terminate the Merger Agreement and
abandon the Merger if conditions to such party's obligations to consummate the
Merger under the Merger Agreement have not been satisfied prior to the time
such condition can no longer be satisfied. See "Description of the Merger and
the Merger Agreement-Termination of the Merger Agreement."
MEDIWARE COMMON STOCK
Upon consummation of the Merger, shareholders of Informedics will receive
shares of Mediware Common Stock. See "Description of the Merger and the
Merger Agreement-Description of Common Stock of Mediware."
ACCOUNTING TREATMENT
Mediware will account for the Merger under the purchase method of
accounting. Application of this accounting treatment is dependent upon
evaluation of the facts and circumstances existing at the time the Merger is
consummated. See "Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, it is expected that no gain or loss will
be recognized by Informedics shareholders upon the conversion of Informedics
Common Stock into Mediware Common Stock. The federal income tax consequences
set forth in this Proxy Statement/Prospectus are for general information only.
See "Certain Federal Income Tax Consequences." SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
MERGER UNDER FEDERAL, STATE, LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
REGULATORY REQUIREMENTS
No federal or state regulatory requirement must be complied with or
approval must be obtained in connection with the Merger.
DISSENTING SHAREHOLDERS' APPRAISAL RIGHTS
Holders of Informedics Common Stock who oppose the Merger and comply with
the provisions of Sections 60.551 through 60.594 of the Oregon Business
Corporation Act ("Oregon Act") are entitled to demand and receive in cash the
fair value of their shares as determined pursuant to the Oregon Act.
Informedics shareholders who wish to exercise this right must file a written
objection to the Merger prior to the shareholder vote, must not vote in favor
thereof, and must meet certain other conditions. Such shareholders will
forfeit their right to a cash value payment if they do not comply with all
statutory procedures and requirements. A more complete description of the
<PAGE>
procedure for perfecting dissenters' rights is set forth under "Dissenting
Shareholders' Appraisal Rights" and in Sections 60.551 through 60.594 of the
Oregon Act, which are attached hereto as Annex B.
RESALE OF MEDIWARE COMMON STOCK
Shareholders of Informedics who may be deemed to control, be controlled
by, or be under common control with Informedics as set forth in Rule 145 of
the Securities Act ("Affiliates") at the time of the Meeting of Informedics
shareholders will be subject to certain restrictions with respect to the
resale of the shares of Mediware Common Stock received by them in the Merger.
Shareholders of Informedics who are not Affiliates may resell the Mediware
Common Stock acquired by them in connection with the Merger without
restriction. The Chairman of the Board of Informedics has agreed to retain
23,320 shares of Mediware Common Stock, half the number of shares which
he will receive in the Merger, for at least six months after the Merger. See
"Description of the Merger and the Merger Agreement - Resale of Mediware
Common Stock."
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Date, the Exchange Agent will
send to each record holder of shares of Informedics Common Stock at the
Effective Date a letter of transmittal for use in surrendering certificates.
The Exchange Agent shall distribute to each former holder of Informedics
Common Stock, upon surrender to the Exchange Agent of certificates for
cancellation, together with a duly executed and properly completed letter of
transmittal, a new certificate for shares of Mediware Common Stock,
representing the number of whole shares of Mediware Common Stock into which
the shares of Informedics Common Stock formerly represented by such
certificate shall have been converted in the Merger (fractional shares of
Mediware Common Stock being rounded to the nearest whole number). On the
Effective Date each instrument representing Informedics Options shall be
cancelled and either replacement options to purchase Mediware Common Stock or
shares of Mediware Common Stock (rounded to the nearest whole number to avoid
the issuance of fractional shares) shall be issued to the holders of
Informedics Options. See "Description of the Merger and the Merger Agreement
- -Exchange Procedure." Beneficial owners of shares of Informedics Common Stock
held of record by others should contact the record owners to provide
appropriate instructions for surrender of certificates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The interest of the Chairman of the Board of Informedics in the Merger is
summarized under "Meeting of Informedics Shareholders-Interests of Certain
Persons in the Merger."
<PAGE>
COMPARATIVE SHARE DATA
The following table sets forth, for the periods indicated, the earnings,
cash dividends declared and book value per common share data of both Mediware
and Informedics. The information set forth below should be read in
conjunction with the audited and unaudited financial statements of Mediware
and Informedics which appear elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
---------------------------------- -------------------------
NINE MONTHS ENDED YEAR ENDED JUNE 30, 1997
MARCH 31, 1998
-------------------- -------------------------
(Unaudited)
PER MEDIWARE COMMON SHARE:
Basic Earnings per share $ 0.38 $ 0.42
Cash dividends declared 0 0
Book value (end of period)(1) $ 1.96 $ 1.29
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
------------------- -------------------------
NINE MONTHS ENDED YEAR ENDED JUNE 30, 1997
MARCH 31, 1998
-------------------
(Unaudited)
MEDIWARE-INFORMEDICS PRO FORMA
PER COMMON SHARE DATA:
Basic Earnings per share(2) $ 0.39 $ 0.30
Cash dividends declared 0 0
Book value $ 1.73 -
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
----------------- ----------------------------
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, 1997
APRIL 30, 1998
----------------- ----------------------------
(Unaudited)
PER INFORMEDICS COMMON SHARE:
Basic earnings (loss) per share $ 0.13 $ (0.49)
Cash dividends declared 0 0
Book value (end of period)(1) $ 0.05 $ (0.10)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
NINE MONTHS ENDED TWELVE MONTH PERIOD
APRIL 30, 1998 JULY 31, 1997
------------------ --------------------
(Unaudited)
INFORMEDICS EQUIVALENT PRO FORMA
PER COMMON SHARE DATA:(3)
Basic earnings per share(2) $ 0.06 $ 0.05
Cash dividends declared 0 0
Book value $ 0.28 -
</TABLE>
_________________________________________
(1) The historical book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding
at the end of the period. The pro forma book value per share is computed
by dividing pro forma stockholders' equity by the pro forma number of
shares of common stock as of each of the periods presented.
<PAGE>
(2) Excludes a charge for in-process technology estimated to be
approximately $5.3 million which will be charged to combined operations
during the period in which the Merger is consummated.
(3) The pro forma combined per equivalent Informedics common share amounts
are calculated by multiplying the combined pro forma per share amounts by
the exchange ratio.
For further information regarding Mediware Common Stock, see "Description
of Mediware Common Stock." For further information regarding Informedics
Common Stock see "Information About Informedics, Inc. Informedics' Market
Price and Dividend Information."
CURRENT MARKET VALUE AND MARKET VALUE AS OF ANNOUNCEMENT DATE
The following table represents the closing prices of Mediware and
Informedics Common Stock on December 18, 1997, the last trading date prior to
December 19, 1997, the public announcement of the Merger, and on August 13,
1998 (the latest day on which there were reported sales for both companies).
Also shown below is the Informedics Equivalent Per Share Price, which is the
last sale price of a share of Mediware Common Stock on December 18, 1997 and
on August 13, 1998, divided by the exchange ratio of 6.3:1.</R.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C> <C>
-------------------- ----------------------- -----------------------
MEDIWARE HISTORICAL INFORMEDICS HISTORICAL INFORMEDICS EQUIVALENT
PER SHARE PER SHARE PER
DATE CLOSING PRICE CLOSING PRICE SHARE PRICE
- ------------------ -------------------- ----------------------- -----------------------
December 18, 1997 $ 10.25 $ 1.3125 $ 1.6270
August 13, 1998 $ 7.75 $ 0.8125 $ 1.2302
</TABLE>
<PAGE>
RISK FACTORS
The shares offered hereby represent a speculative investment and involve
a high degree of risk. Each prospective purchaser should carefully consider
the following risks among other factors before making an investment in the
shares offered hereby.
PAST OPERATING LOSSES
For the fiscal years ended June 30, 1997 and 1996, the Company had
operating revenues of $18,903,000 and $10,432,000, respectively, and net
income of $2,081,000 and a net loss of $3,491,000, respectively. The Company
had net earnings in only three of the last five fiscal years. Previous losses
have been funded in part with proceeds from bridge financings, in connection
with which the Company issued promissory notes and warrants to purchase
Mediware Common Stock.
SIGNIFICANT INDEBTEDNESS AND RESTRICTIVE COVENANTS
In connection with the Pharmakon acquisition by Digimedics, one of
Mediware's subsidiaries (described more fully herein, see "Information About
Mediware Information Systems, Inc. - General Description of Mediware" and
"-Description of Mediware's Business"), Digimedics issued a promissory note to
the seller of the acquired divisions, which, as amended, has been paid in
quarterly installments of $150,000 since October 31, 1997 with the balance due
November 30, 1998. The Company will require additional sources of liquidity
to fund the balance of approximately $3.4 million due November 30, 1998 on the
promissory note, as well as the $854,000 balance due on other promissory notes
issued in bridge financings which are subordinated to this promissory note.
The promissory note held by the seller of the acquired divisions is
collateralized by all of the issued and outstanding capital stock of
Digimedics and JAC (as defined below), the subsidiaries of the Company engaged
in its pharmaceutical information business, and all of the assets of
Digimedics. The promissory note is also guaranteed by the Company and
restricts numerous corporate activities of the Company. See "Description of
Mediware Common Stock."
NEED FOR ADDITIONAL FINANCING
The Company will require additional financing to fund its operations and
plans for future growth. The Company's ability to arrange such financing and
the cost of such financing are dependent upon numerous factors, including
general economic and capital market conditions, regulatory developments,
credit availability from banks or other lenders, investor confidence in the
industry and the Company, the success of the Company's products, and
provisions of tax and securities laws that are conducive to raising capital.
There can be no assurance that financing will be available to the Company on
acceptable terms or at all.
VARIABILITY OF OPERATING RESULTS
The Company expects its revenues and profitability to continue to
fluctuate widely from quarter to quarter and, to a lesser extent, from year to
year, because of the small number of information systems sold relative to the
purchase price of the systems. Revenues, earnings and costs may also vary
significantly from period to period and over a longer time frame depending
upon the timing of deliveries, installation schedules, the product mix (i.e.,
proprietary software or non-proprietary software and hardware), variability of
<PAGE>
hospital decision cycles, length of time that the product has been available
in the market, and the availability to hospitals of funding for capital
expenditures.
MARKET ACCEPTANCE OF NEW WORX PRODUCT
The Company's Pharmacy Division has developed and introduced a new client
server pharmacy system, WORx. While market acceptance of this product appears
favorable at this time, there can be no assurance that actual sales will
fulfill the Company's expectations.
HIGH VOLATILITY OF STOCK PRICE
The market price of Mediware Common Stock may continue to be subject to
high volatility and major positive or negative fluctuations in response to
variations in financial results, the occurrence of material developments,
prospective corporate transactions involving the Company and/or other
companies in the healthcare computer-based information management system
industry, or the expectation or change in expectation in the securities market
of any of the foregoing. Regulatory changes or changes in the general
condition of the economy or the financial markets could also adversely affect
the market price of Mediware Common Stock. See "Description of Mediware
Common Stock - Market for Mediware Common Stock."
RISKS RELATING TO CORPORATE TRANSACTIONS AND THE MERGER
In order to broaden product offerings, capture market share, improve
profitability and capitalize on the consolidation trend in the hospital
clinical computer-based management information system industry, the Company's
business strategy includes growth through acquisitions and other transactions.
The Company has an ongoing program of reviewing and considering corporate
transaction possibilities. There can be no assurance that the Company will be
able to identify or reach mutually agreeable terms with transaction
candidates. Once completed, corporate transctions may involve a number of
special risks, including initial reductions in operating results, diversion of
management's attention, unanticipated problems or liabilities, difficulties in
integrating additional business and reductions in reported earnings due to
amortization of acquired intangible assets in the event that such transactions
are made at levels that exceed the fair market value of net tangible assets.
Some or all of these items could have a material adverse effect on the Company
or its stock.
The Company's strategy in completing the Merger discussed in this
Prospectus/Proxy Statement includes the enhancement of the development and
marketing of the IntraMed.net technology to be acquired from Informedics.
There can be no assurance that the IntraMed.net technology can be brought to
market successfully and in a timely fashion commensurate with the currently
identified market opportunity.
COMPETITION
Competition in the hospital computer software industry is intense. In
sales of the Hemocare system, the Company currently competes principally with
three substantially larger vendors of laboratory information systems that
contain a blood bank subsystem. As stated elsewhere herein, Informedics is
also a vendor of stand-alone blood bank systems. The Pharmacy Division
competes with numerous companies, including some of the leading vendors of
healthcare information systems. The competitors of the Surgiware Division
have significantly larger installed bases. These competitors have
substantially greater technical, marketing, financial and other resources than
the Company and have established reputations for success in developing and
<PAGE>
selling hospital information systems. There can be no assurance that the
Company will be able to compete successfully in its markets. See "Information
About Mediware Information Systems, Inc. - Description of Mediware's Business
- - Competition."
TECHNOLOGICAL OBSOLESCENCE; CONTINUAL NEED FOR SUCCESSFUL MARKETING AND
ACCEPTANCE OF NEW PRODUCTS
The computer software industry is characterized by rapid and significant
technological advances. These advances often result in partial or total
obsolescence of programs within a short time. Consequently, it is necessary
to enhance a system continuously and to modify it for use on new computer
systems and in new technical environments. There can be no assurance that the
Company will be able to develop or acquire new products or product updates at
a rate sufficient to keep them competitive or that such new products or
product updates will achieve market acceptance.
PRODUCT PROTECTION
The Hemocare and Digimedics systems are not patented but have been
copyrighted. Certain features of the licensed Surgiware software are covered
by a patent held by the licensor. To protect its propri-etary software, the
Company relies upon the law of trade secrets, nondisclosure agreements with
employees, and restrictions on disclosure and transferability incorporated
into agreements with customers. Notwithstanding these safeguards, it is
possible for competitors of the Company to obtain its trade secrets and to
imitate its products. Furthermore, there can be no assurance that others will
not independently develop software products similar to those developed or
planned by the Company.
GOVERNMENT REGULATION
The adequacy of blood bank information management and record keeping is
subject to inspection and review by the Food and Drug Administration ("FDA").
Hemocare, LifeLine, the Company and Informedics are subject to the
jurisdiction of the FDA as medical devices, or suppliers of medical devices.
The Company is currently complying with the FDA's notification requirements
for a recent "recall" and is also currently preparing a pre-market
notification 510(k) submission. See "Information About Mediware Information
Systems, Inc. - Description of Mediware's Business-Government Regulation".
On July 1, 1998, Informedics received 510(k) clearance from the FDA to market
its LifeLine Blood Bank Data Management System, Release 4.2. See "Information
About Informedics, Inc. - Regulatory Compliance." The FDA has recently
developed new design control guidelines which apply to blood bank information
systems and to the inspection of vendors of such systems. The Company and
Informedics have dedicated substantial time and resources in updating their
internal quality systems to comply with these and other applicable guidelines
and regulations, but cannot predict whether they will be fully in compliance
with these guidelines or any future guidelines, regulations or inspection
procedures. Non-compliance could have a material adverse effect on the
Company's or Informedics' blood bank information system operations and their
other clinical information systems. Also, although the FDA Modernization
Act of 1997 does not appear on its face to contemplate regulation which would
have a material adverse effect on the Company's or Informedics' blood bank
information system operations, this legislation will expand the jurisdiction
of the FDA and the Company and Informedics are unable to predict the effect of
any resulting applicable future regulation. See "Information About Mediware
Information Systems, Inc.-Description of Mediware's Business - Government
Regulation" and "Information about Informedics, Inc. - Regulatory Compliance."
Any of the Company's or Informedics' other activities could also become
subject to Congressional or governmental agency efforts to establish or expand
governmental agency jurisdiction.
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs that rely on
two-digit date codes, instead of four-digit date codes, to indicate the year.
Such computer programs, which are unable to interpret the date code "00" as
the year 2000, may not be able to perform computations and decision-making
functions and could cause computer systems to malfunction. Following is a
discussion of material aspects the Year 2000 problem as it applies to both
Mediware and Informedics. For a more detailed discussion, see "Mediware
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000 Compliance" and "Informedics Management's Discussion
and Analysis of its Financial Condition and Results of Operations - Year 2000
Compliance".
MEDIWARE
The problems of date-protocol compliance in the Year 2000 are somewhat
different for each of Mediware's software information systems. In the case of
the pharmacy division's WORx system, the application software which is
supplied by Mediware meets the conditions for date protocol compliance in the
Year 2000. The Company believes that all hardware and data bases used by
hospitals in conjunction with WORx similarly meet the conditions for
date-protocol compliance. Current releases of systems for the pharmacy, other
than WORx, being offered by Mediware also meet the conditions for
date-protocol compliance. However, a number of client hospitals have not yet
elected to upgrade their software to the level of the most recent release of
Mediware; it will be necessary for these hospitals to take advantage of the
new release and upgrade their hardware and data bases to be Year 2000
compliant. The upgrade of Mediware's application software to a new release
will be part of the normal support procedures of Mediware and will be provided
by Mediware without cost to the hospital. However, the hospital may incur
costs associated with any new hardware, data bases or operating systems
necessary to complete the upgrade. The incremental cost to Mediware for
assisting in the installation of the new release is not expected to be
material.
Mediware is reprogramming its Surgiware division's software system so as to
meet the conditions of date-protocol compliance. The reprogramming is
expected to be complete by the fourth quarter of 1998, when it will be offered
to client hospitals as part of the normal support procedures of Mediware.
Mediware believes that no hardware and data base upgrades by hospitals will be
required to accommodate the reprogrammed system.
In the case of the Hemocare division, Mediware's management believes that
the blood bank information system meets the conditions for date-protocol
compliance but is currently testing the system to confirm this view. The
testing and any remedial action should be completed by the fourth quarter of
1998. All blood bank client hospitals are at the same release level and
management believes there will be no requirement for hospitals to update
hardware or data bases even if Mediware's software system requires programming
changes.
Hospital managers are aware of the very serious consequences that could
flow from an inability to rely on the information supplied by computer based
systems and are currently working with suppliers, sub-suppliers and vendors of
information systems, such as the Company, to avoid unpreparedness. This
process is ongoing and the assessment of the Year 2000 problems by the Company
and its client hospitals is not complete. Mediware understands that its
customers will require that all software systems offered and supported by it
will meet the conditions for date-protocol compliance and will permit third
parties to carry out any needed updating. The inability of Mediware to comply
with these requirements could be extremely adverse to Mediware.
<PAGE>
Mediware is examining its relationships with third parties, including
suppliers of hardware, network operating systems and utility programs, whose
Year 2000 compliance could have material effect on Mediware. Mediware
considers these third party suppliers to pose the greatest Year 2000 risk to
Mediware because their failure to become Year 2000 complaint could result in
Mediware's inability to obtain components in a timely manner, delays or
cancellations of customer orders or delay in payments by customers for
products shipped. In addition, conversions by third parties to become Year
2000 complaint might not be compatible with Mediware's systems. Any or all of
these events could have a material adverse effect on Mediware's business,
financial condition and results of operations.
INFORMEDICS
Informedics has developed a multi-phase program for Year 2000 information
systems compliance that consists of (i) assessment, remediation and testing
of Informedics' software products to make them Year 2000 compliant, (ii)
assessment of the corporate systems and operations of Informedics that could
be affected by the Year 2000 problem, (iii) remediation of non-compliant
systems and components, and (iv) testing of systems and components following
remediation. Informedics has focused its Year 2000 review on three areas:
(A) Informedics' products, (B) information technology (IT) system
applications, (C) non-IT systems, including telephone and voice mail systems,
and (D) relationships with third parties.
Informedics has determined that certain portions of its LifeLine blood bank
software do not currently meet the conditions for date protocol compliance in
the Year 2000. Informedics is currently testing a new version of the LifeLine
product which Informedics expects will meet FDA and industry standards for
Year 2000 compliance. Informedics expects to release the new version of the
software in the fall of 1998. All other current Informedics' software
products are Year 2000 compliant. However, prior versions of Informedics'
products were not Year 2000 compliant. Informedics' customers who have
support agreements with Informedics will receive free updated Year 2000
compliant software. Informedics has contacted all current and prior customers
of versions of the LifeLine product who do not have support agreements with
Informedics to inform them of the Year 2000 problem. During the fourth
quarter of 1998 and the first quarter of 1999, Informedics plans to contact
all customers of unsupported versions of its products to inform them of the
Year 2000 issue.
Finally, Informedics is examining its relationships with third parties,
including suppliers of hardware, network operating systems and utility
programs, whose Year 2000 compliance could have material effect on
Informedics. Informedics considers these third party suppliers to pose the
greatest Year 2000 risk to Informedics because their failure to become Year
2000 compliant could result in Informedics' inability to obtain components in
a timely manner, delays or cancellations of customer orders or delay in
payments by customers for products shipped. In addition, conversions by third
parties to become Year 2000 compliant might not be compatible with
Informedics' systems. Any or all of these events could have a material
adverse effect on Informedics' business, financial condition and results of
operations.
<PAGE>
Because of the assurances obtained and testing that is underway,
Informedics has not yet developed a contingency plan to address the effects of
the failure of Informedics or any of its principal suppliers to become Year
2000 compliant, or does Informedics have a timetable for preparing such a plan.
In what Informedics believes to be the most likely worst case scenario,
Informedics would change hardware and operating system suppliers to Year 2000
compliant manufacturers.
Informedics' management estimates that Informedics may incur costs of as
much as $300,000 associated with the release of the new version of the LifeLine
software. However, there can be no assurance that actual costs will not
exceed management's expectations, that the new version of software for the
LifeLine product will timely resolve Informedics' Year 2000 compliance
issues, or that the financial condition or results of operations of
Informedics or of Mediware, as the surviving company following the Merger,
will not be substantially adversely affected. Informedics' current
estimates of the impact of the Year 2000 problem on its operations and
financial results do not include costs and time that may be incurred as a
result of any vendors' or customers' failures to become Year 2000 compliant
on a timely basis.
DEPENDENCE UPON KEY EMPLOYEES
The success of the Company will depend, in part, on its continuing
ability to attract and retain key employees. If the Company loses the
services of its key employees, or if the Company is unable to attract and
retain additional qualified personnel, its business could be materially
adversely affected. On March 3, 1998, Tom Mulstay, Vice President and General
Manager of the Hemocare blood bank division, tendered his resignation.
Although the Company has entered into an agreement with Mr. Tortorici for the
position, Mr. Mulstay's departure will disrupt the integration of Informedics
post-Merger, as well as the ongoing management of the Company's blood bank
division.
MANAGEMENT OF GROWTH
The Company has experienced significant growth of its operations, which
has placed, and is expected to continue to place, significant demands on the
Company's managerial, technical, financial and other resources. Continued
growth would require the Company to continue to invest in its financial and
management information systems and to retain, motivate and effectively manage
its employees. If the Company's management is unable to manage growth
effectively, then the quality of the Company's products and services, as well
as its business, financial condition and results of operations, could be
materially and adversely affected.
HOSPITAL PURCHASE PROCEDURES
Under hospital financial procurement procedures, the Company's products
are treated as capital items. As such, the sale of new systems can be a
lengthy and expensive process, requiring from six to eighteen months and
approval at several levels of hospital management and is dependent on the
availability of funds.
<PAGE>
NASDAQ LISTING REQUIREMENT
The Board of Directors of The Nasdaq Stock Market has changed its
maintenance standards for listing on The Nasdaq SmallCap Market. The listing
maintenance standards of Nasdaq include a requirement that a company satisfy
either a net tangible assets, market capitalization or net income test.
Mediware currently meets all three of these tests. However, after the Merger
Mediware may meet only two of these tests. Although that will be sufficient
at that time to maintain listing on Nasdaq, there can be no assurance that the
Company, thereafter, will continue to meet the criteria for continued listing
of Mediware Common Stock on The Nasdaq SmallCap Market. If this listing is
terminated because of failure to meet the applicable criteria, the liquidity
for Mediware Common Stock will be severely impaired in the absence of the
development of a meaningful alternative.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In June of 1996 the Company added a United Kingdom client base with the
acquisition of JAC Computer Service, LTD. The Company also has installations
in Canada. There are certain risks inherent in doing business on an
international level, including regulatory limitations restricting or
prohibiting the provision of the Company's services, unexpected changes in
regulatory requirements, tariffs, customs, duties and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment
cycles, problems in collecting accounts receivable, political risks,
fluctuations in currency exchange rates, technology export and import
restrictions or prohibitions, delays from customs brokers or government
agencies, and potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws.
NO DIVIDENDS
The Company has historically not paid dividends and has no present
intention of paying cash dividends on the Mediware Common Stock. Future
earnings, if any, will be used to finance the develop-ment and continued
expansion of its business. See "Description of Mediware Common
Stock-General."
SHARES ELIGIBLE FOR FUTURE SALE
The holders of substantially all of the outstanding shares of Mediware
Common Stock are free to sell their shares and/or in some instances have the
right to have their shares included in one or more registration statements
under the Securities Act. The possibility that substantial amounts of
Mediware Common Stock may be sold in the public market may adversely affect
prevailing market prices for Mediware Common Stock and could impair the
Company's ability to raise capital through the sale of its equity securities.
AUTHORIZED PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock,
the terms of which may be fixed by the Board of Directors. The effects of any
issuance of preferred stock upon the rights of holders of Mediware Common
Stock could be negative, depending upon the terms of the preferred stock.
Such effects might include: (a) reduction of the amount of funds otherwise
available for, and restrictions on, the payment of cash dividends on Mediware
Common Stock; (b) dilution of the voting power of Mediware Common Stock; (c)
dilution of book value per share of Mediware Common Stock; and (d) inability
to share in the assets of the Company upon liquidation until satisfaction of
liquidation preferences of preferred stock.
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation by the Board of Directors of Informedics, Inc. ("Informedics") of
proxies of the Informedics shareholders to be voted at the Special Meeting of
shareholders of Informedics to be held on September 23, 1998 at 2:00 p.m.,
Pacific time, and at any and all adjournments thereof ("Meeting"). The
Meeting will be held at 4000 Kruse Way Place, Bldg. 3, Suite 300, Lake Oswego,
Oregon. This Proxy Statement/Prospectus and the enclosed form of proxy are
being sent to shareholders of Informedics on or about August 21, 1998.
BACKGROUND AND REASONS FOR THE MERGER AND RELATED MATTERS
The terms of the proposed Merger are the result of arms-length
negotiations by representatives of Mediware and representatives of
Informedics.
BACKGROUND OF INFORMEDICS' AND MEDIWARE'S ACTIVITIES LEADING TO THE MERGER
In an effort to improve shareholder equity, the Informedics Board of
Directors and management developed a strategy in 1989 to expand operations via
acquisition and new product development. In connection with this strategy,
Informedics purchased the StarPath pathology data management system in 1989
and the rights to market the StarQuality system in 1990. In late 1993,
Informedics (then known as Western Star, Inc.) purchased all the assets of
Informedics, Inc., a physician's office practice management software
developer. The plan was to expand the company by offering software solutions
to the growing healthcare market for managed care. Western Star changed its
name to Informedics, Inc. in January 1994 and proceeded to develop software
for managed care while also developing physician office practice management
products.
In 1993, the Informedics Board had discussions about enhancing
shareholder value through company growth or by merging with a larger, more
diversified company in the industry. The Board discussed the strategic
advantage of a merger with Mediware and agreed that merger was a viable
option. In January 1994, Informedics and Mediware discussed the possibility
of combining the two companies but Mediware chose at that time to defer
indefinitely any substantive conversation regarding the business combination.
During a Board meeting in March 1994, the Informedics directors discussed
the January 1994 meeting with Mediware and also decided not to take firm action
at that time, concluding that Mediware was interested in purchasing only
Informedics' blood bank system and not the pathology or practice management
systems. Sale of the blood bank system alone did not match Informedics'
merger strategy and would leave Informedics without its flagship LifeLine
product. However, it was discussed and agreed that merging Informedics into a
larger, stronger company was a viable strategy but that the timing of such a
merger would affect shareholder value.
By 1995 Informedics had added a new managed care network software system to
its blood bank, pathology and practice management systems. At that time
Informedics began to experience increasing research and development investment
and related expenses to develop the managed care software, losses associated
with the practice management business, and additional costs of operating the
blood bank software business in the FDA regulated environment. The FDA had
impacted the market by regulating producers of blood bank software as medical
<PAGE>
device manufacturers, increasing the cost to operate in this industry. As a
result of this regulation and other factors, Informedics reported losses on
its continuing operations in the fiscal years ended 1995 through 1997.
The Informedics Board and management began taking steps to reduce the
losses and improve shareholder equity. In an effort to address the costs of
FDA regulation and to expand Informedics' operations, the Board decided at
its January 1996 meeting to reorganize Informedics into two divisions.
The laboratory products division would focus on the management of LifeLine
and StarPath operations while the physician products group would pursue clinic
and managed care network opportunities.
By the middle of 1996, a number of mergers and acquisitions had occurred in
the practice management software industry creating larger and stronger
competitors. These competitors were able to make larger investments in
research and development to keep their systems current in both technology and
functionality. Based on Informedics' declining sales in this market and to
make Informedics more attractive to a strategic partner, the Board concluded
that the best course of action was to sell off the practice management system
which had generated a loss in 1996. As a result, in October 1996 the
ClinicManager System was sold and Informedics began reducing its overhead.
Overall downsizing of Informedics to better match expenses to revenue and a
focus on core products and competencies reduced Informedics operating loses
for fiscal years 1996 and 1997.
At the January 1997 Informedics Board meeting, the directors agreed to
pursue more actively merging Informedics as a means of improving shareholder
value. The directors agreed that based on the somewhat diversified healthcare
markets in which Informedics operates, a potential merger partner could come
from either the laboratory or managed care portion of the healthcare industry.
As events developed, two healthcare software development companies expressed an
interest in acquiring Informedics, and each engaged in preliminary discussions
with Informedics regarding a business combination. Both of these companies
had more interest in Informedics' IntraMed.net technology for managed care
than in its flagship LifeLine blood bank system.
In March of 1997, Joseph Delario, a Mediware director, contacted
John Tortorici, President of Informedics, to discuss the possible combination
of Mediware and Informedics and requested certain financial information to use
as a basis for negotiating a valuation of Informedics. Mr. Tortorici provided
such information the following day. As a result of continuing discussions
between the companies, in April 1997 Informedics provided Mr. Delario with
preliminary, pro-forma results for fiscal 1997 as a basis for negotiating a
valuation of Informedics. Informedics' Board believed that there were more
strategic benefits in pursuing a merger with Mediware than with other
potential suitors. In addition, the Informedics Board believed that such a
combination would yield a higher valuation for Informedics' shareholders.
On April 30, 1997, Informedics directors John Tortorici and Richard Glaser
met with Mediware representatives Joseph Delario and Peter Lerner in New York.
The discussion centered on the merger of the two companies with a view to the
potential valuations and the strategic benefits to both companies. The
companies decided to have Informedics' financial information reviewed by
accountants selected by Mediware.
On May 7, 1997, Joel Barth from Richard A. Eisner & Company, LLP,
Mediware's outside accounting firm, contacted Mr. Tortorici to discuss the
potential structure of a merger. Mr. Tortorici presented the view that a tax-
free merger would be the preferred transaction for the Informedics'
<PAGE>
shareholders, rather than a purchase of assets. Mr. Barth requested more
detailed financial information which required the execution of a
confidentiality agreement.
On May 28, 1997, Tom Mulstay, at that time the Vice President and General
Manager of the Hemocare Division, Mediware's blood bank software group,
contacted Mr. Tortorici to discuss the confidentiality agreement and the
strategic benefits and marketplace acceptance of a merger. Both companies
agreed that this would be a beneficial combination in light of the FDA
regulatory environment and the market saturation. It was believed that the
combined customer bases of the companies and each company's reputation for
quality products would offer the combined company the critical mass it would
need to continue to compete effectively in the industry. Also on May 28,
1997, Mr. Barth requested more detailed accounting information.
On June 2, 1997, Mr. Mulstay signed a confidentiality agreement and Dale
Conner, Informedics' Chief Financial Officer at that time, provided Mr. Barth
with the information he requested. Mr. Conner and Mr. Barth engaged in
numerous conversations and, on June 11 and June 19, 1997, Mr. Conner provided
additional information to Mr. Barth.
In late June and early July 1997, Ronald Witcosky, a director of
Informedics, began more detailed negotiations with Mr. Delario. The companies
discussed whether the merger should be structured in a manner to be accounted
for as a pooling of interests or as a purchase. Les Dace, Chief Executive
Officer of Mediware, visited Informedics to meet Mr. Tortorici, discuss the
merger and conduct initial due diligence. The discussions revolved around the
short and long-term strategic benefits of combining the blood bank businesses
of the two companies. Mr. Dace reviewed some of the financial information
provided to Mr. Barth in June 1997. The parties discussed an exchange ratio
of 4:1, meaning that Informedics shareholders would therefore receive
approximately 600,000 shares of Mediware Common Stock. During the week of July
21, 1997, the parties had several discussions regarding the Merger. The
discussions culminated in the execution of a letter of intent on July 28,
1997.
Following the execution of the letter of intent, during a period of
approximately three months, several potential issues arose involving the FDA,
Informedics' Year 2000 capability and Informedics' profitability. During this
time the parties held extensive discussions regarding their concerns about
these issues. On August 20, 1997, Mr. Witcosky met with Mr. Tortorici to
review the terms of a draft Merger Agreement. On September 9, 1997, Mr.
Witcosky spoke with Mr. Delario to discuss the status of the transaction. On
September 19, 1997, the Informedics Board of Directors had a meeting to review
and discuss the proposed transaction with Mediware. Included in the
discussions were possible changes in the terms of the deal, including a change
of the proposed exchange ratio of 4:1 to some other ratio. Between October 2,
1997 and October 23, 1997, Mr. Witcosky had multiple calls with Mr. Delario
during which time they discussed changing the exchange ratio to approximately
6.3:1. Also during this time the parties resolved their concerns about FDA
issues and Informedics' profitability, along with the integration of
Informedics' IntraMed.net technology into Mediware's development plans.
On December 17, 1997, Mr. Tortorici met with representatives of Mediware
to discuss remaining issues regarding the Merger. The Merger Agreement was
executed on December 18, 1997.
<PAGE>
INFORMEDICS' REASONS FOR THE MERGER
The Informedics Board believes that the combined company would have the
potential for improved financial results and a competitive advantage resulting
in improved shareholder value. The Board also believes that the following
potential benefits of the Merger will contribute to the success of the
combined company as well as benefiting the Informedics shareholders:
- - IMPROVED COMPETITIVE POSITION. The greater revenue and reduced cost of
sales of the combined company will allow it to meet competitive challenges
from larger blood bank software suppliers.
- - COMMERCIALIZATION OF INTRAMED.NET TECHNOLOGY. The combined company
intends to develop a Web-enabled product, allowing for access to a clinical
data repository regardless of computer platform, software application program
or system. This product will integrate existing Mediware development programs
with the IntraMed.net technology.
- - MORE EFFICIENT SOFTWARE DEVELOPMENT CAPABILITY. Informedics believes
that the combined company can improve the efficiency of the development of the
FDA regulated products by combining development and regulatory resources of
the two companies. The result will be a more competitive, full-featured blood
bank software which could meet FDA regulations more cost effectively.
- - EXPANDED DISTRIBUTION OPPORTUNITIES. The combined marketing resources
of the two companies will allow the combined company broader access to the
marketplace through both direct and business partner sales relationships.
- - CUSTOMER BENEFIT. The customers are made up of hospital blood banks and
transfusion centers that will enjoy better products developed with improved
technology meeting FDA regulatory requirements.
- - EMPLOYEE RECRUITMENT AND RETENTION. The combined company, with higher
visibility and expanded operations, will provide greater career opportunities,
allowing it to attract and retain skilled and qualified employees.
- - GREATER FINANCIAL RESOURCES. The combined company will have the
financial resources to meet the demands of FDA regulation and to pursue market
opportunities.
MEDIWARE'S REASONS FOR THE MERGER
The shift to managed care is triggering the creation of broader, regional
health care systems that can offer a full continuum of treatment. These
powerful provider groups are seeking alliances with vendors who can meet their
growing need for information sharing. The radical restructuring and
re-engineering of healthcare delivery and insurance is creating the need for a
fundamentally new healthcare information infrastructure.
<PAGE>
Informedics designs and develops a Web-enabled software system,
IntraMed.net, which allows the multiple entities in a medical community, such
as physician offices, hospital clinical and financial information systems and
insurance companies, to connect their existing computer systems to a regional
or wide-area network. Networking such disparate systems allows each of them
to share administrative, medical/clinical and financial information for the
purposes of managed care, repository, utilization and other such clinical
applications as required. This Web-enabled software provides the ability to
extract data from installed legacy computer systems and then store, download
or manipulate the data.
A customer for such a healthdata network is an Integrated Delivery System
(IDS), which must deal with the administrative problems associated with
managed care. IDSs are being established throughout the nation. The IDSs are
struggling to update, and make more flexible and more broadly available,
departmental clinical and financial information via their older installed
legacy information systems. The IDSs' emerging information system
requirements are varied, but include the need to (1) facilitate managed care
plans through their ability to integrate effectively data associated with
the patient, medical provider and insurance company in a seamless way, (2)
become more efficient and cost effective in their delivery of clinical services
through the consolidation of clinical departments, and (3) tie long-term care
facilities and home health services to the IDS local physician networks via
information-system-based networks.
Mediware currently addresses three markets, blood bank, pharmacy and the
surgical suite, with the Hemocare, WORx and Surgiware products, respectively.
The Company believes that Informedics' Web-enabling technology, when
implemented and sold to current and future customers, will expand the reach of
these clinical departments. The Company believes that the national growth of
managed care, along with the related consolidations and integration of
healthcare delivery, offers a significant opportunity for this Web technology.
Web technology builds on Informedics' proven expertise in health care systems
through the use of the IntraMed.net software. Mediware plans to apply this
technology to its products in order to bring to market, sooner than would have
otherwise been possible, and, to the extent possible, more rapidly than its
competitors, enhancements to its products that will meet these new information
system requirements.
This Web technology, when applied with and sold into the combined blood
bank, pharmacy and surgical suite customer base of Informedics and Mediware,
would accomplish several key objectives for the Company. The Company believes
that it would distinguish its organization as a leader in this new evolving
technology for healthcare networks and allow the Company to redefine the way
clinical information systems are developed, sold and used. Instead of
competing solely as a system solution, the Company believes that it would be
able to compete on a broader, newly emerging playing field of specialized
clinical knowledge. Rapid market delivery would benefit current customers and
further distinguish current product offerings as compared to the Company's
competitors. Finally it would provide the integration of the Company's
products and other disparate healthcare information systems products so that
jointly the Company and Informedics can define an information delivery
strategy that works for an IDS.
In addition, the blood bank products of the Company and Informedics have
similar operating profiles, which, when combined, are expected to allow for
synergistic opportunities. These opportunities include one distribution
source, market share strength, shared technology expertise and maintenance and
support revenues.
<PAGE>
RECOMMENDATION OF INFORMEDICS BOARD
THE BOARD OF DIRECTORS OF INFORMEDICS HAS UNANIMOUSLY ADOPTED AND
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE INFORMEDICS SHAREHOLDERS
VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
In the course of its deliberations, the Informedics Board considered and
discussed a number of other factors, including the following: (i) the terms
of the Merger Agreement, including the circumstances under which the Merger
Agreement could be terminated; (ii) information concerning Informedics' and
Mediware's respective businesses, prospects, financial performances, financial
conditions and operations; (iii) the market price of each company's Common
Stock in the recent past; (iv) reports from management and legal advisors on
the results of Informedics due diligence investigation of Mediware; (v) the
requirements of a tax-free merger; and (vi) information concerning
the long-term strategy of Informedics as a separate entity.
The Informedics Board also considered the following actual or potential
material disadvantages of the Merger to Informedics and the Informedics
Shareholders: (i) the losses incurred by Mediware in three of the last five
fiscal years; (ii) the price volatility of the Mediware Common Stock; (iii)
the potential disruption of Informedics' business that might result following
announcement of the Merger; (iv) the risk that benefits sought by the Merger
might not be obtained; and (v) other risks described under "Risk Factors."
In view of the wide variety of both positive and negative factors that it
considered, the Informedics Board did not find it practical to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered. After careful consideration of the foregoing factors,
Informedics' Board of Directors concluded and determined that the terms of the
Merger, which were negotiated at arm's length as described in "-Background of
Informedics' and Mediware's Activities Leading to the Merger" were fair to,
and in the best interests of, Informedics and its shareholders.
For a description of the interests of the Chairman of the Informedics
Board of Directors in the Merger, see "Meeting of Informedics Shareholders-
Interests of Certain Persons in the Merger."
DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT
EFFECTIVE DATE AND CONSEQUENCES
Provided that all conditions to the consummation of the Merger contained
in the Merger Agreement have been satisfied or waived, the Merger will become
effective at the time and date that the Articles of Merger are filed with the
Secretary of State of the State of Oregon (the "Effective Date"). It is
anticipated that the filing of the Articles of Merger will take place as soon
as practicable following the date of closing of the Merger Agreement
("Closing"). Subject to the terms and conditions of the Merger Agreement, the
Closing will occur (i) as soon as practicable after the later to occur of (x)
the date of the later of the Meeting or (y) the day on which the last
condition set forth in the Merger Agreement shall have been fulfilled or
waived or (ii) at such other time as the parties may mutually agree ("Closing
Date"). Informedics and Mediware each have the right, but not the obligation,
to terminate the Merger Agreement if the Effective Date does not occur on or
before September 24, 1998.
<PAGE>
As of the Effective Date, Informedics will merge with and into Mediware
Acquisition, with Mediware Acquisition continuing in existence as the
surviving corporation. Mediware Acquisition shall possess all the rights,
privileges, immunities, powers and purposes of Informedics and shall assume
and become liable for all liabilities, obligations and penalties of
Informedics. The directors and the officers of Mediware Acquisition at the
Effective Date will be the directors and officers of the surviving corporation
from the Effective Date until their successors are duly elected or appointed
and qualified. The Articles of Incorporation of Mediware Acquisition in
effect immediately prior to the Effective Date shall be the Articles of
Incorporation of the surviving corporation. The By-laws of Mediware
Acquisition in effect immediately prior to the Effective Date shall be the
By-laws of the surviving corporation.
BASIC TERMS OF MERGER AGREEMENT
CONVERSION OF INFORMEDICS COMMON STOCK
On the Effective Date of the Merger, and on the terms described in the
Merger Agreement, each issued and outstanding share of Informedics Common
Stock (other than shares held by Informedics as treasury stock, which shall be
cancelled ("Cancelled Shares"), and shares held by Dissenting Shareholders
(see "Dissenting Shareholders' Appraisal Rights")), will be converted into the
right to receive 0.1587301 of a share of Mediware Common Stock (at an exchange
ratio of 6.3:1). No fractional shares of Mediware Common Stock will be issued
in the Merger. Instead, fractional shares of Mediware Common Stock will be
rounded to the nearest whole number.
CANCELLATION OF INFORMEDICS OPTIONS
All options to acquire shares of Informedics Common Stock
(collectively, "Informedics Options") that are outstanding and unexercised at
the Effective Date and that are held by persons who are employees of
Informedics prior to the Merger and who will continue as employees of
Mediware Acquisition following the Merger ("Continuing Employees") shall
automatically be cancelled in consideration for the issuance of replacement
options to Continuing Employees with comparable vesting provisions to purchase
Mediware Common Stock at the Exchange Ratio (rounded to the nearest whole
number) at the exercise prices applicable to Informedics Options prior to the
Merger.
All Informedics Options which have vested that are outstanding and
unexercised at the Effective Date and that are held by persons who will not be
employees of Mediware Acquisition following the Merger ("Non-Continuing
Employees") shall automatically be cancelled in a cashless exchange in
consideration for the issuance of Mediware Common Stock to Non-Continuing
Employees, with each Informedics Option to acquire one share of Informedics
Common Stock being converted into an option to acquire 0.1587301 of a share
of Mediware Common Stock, valuing the Mediware Common Stock at its closing
price on the business day prior to the Effective Date and subtracting the
exercise price to determine the net value, and dividing the net value by the
closing price of Mediware Common Stock on the business day prior to the
Effective Date to determine the number of Mediware Common Stock share
equivalents to be received in the Merger (rounded to the nearest whole number
per option holder to avoid the issuance of fractional shares).
As of July 22, 1998, the following number of shares of Informedics
Common Stock and Informedics Options were issued and outstanding: (i)
2,769,010 shares of Informedics Common Stock, (ii) Informedics Options to
purchase 198,045 shares of Informedics Common Stock held by Continuing
Employees and (iii) Informedics Options to purchase 282,446 shares of
Informedics Common Stock held by Non-Continuing Employees.
DESCRIPTION OF COMMON STOCK OF MEDIWARE
The holders of Mediware Common Stock are entitled to one vote for each
share on all matters voted on by stockholders. The holders of Mediware Common
Stock have no preemptive rights. Mediware has never paid dividends on its
Common Stock and has no present intention to pay cash dividends on its Common
Stock. Mediware is prohibited from paying dividends so long as the promissory
note issued to Continental (as defined below) in the Acquisition (as defined
below) remains outstanding (see "Mediware Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources").
EXCHANGE PROCEDURE
As soon as practicable after the Effective Date, the Exchange Agent will
send to each record holder of shares of Informedics Common Stock at the
Effective Date a letter of transmittal for use in surrendering certificates.
The Exchange Agent shall distribute to each former holder of Informedics
Common Stock, upon surrender to the Exchange Agent of certificates for
cancellation, together with a duly executed and properly completed letter of
transmittal, a new certificate for shares of Mediware Common Stock,
representing the number of whole shares of Mediware Common Stock into which
the shares of Informedics Common Stock formerly represented by such
certificate shall have been converted in the Merger (fractional shares of
Mediware Common Stock being rounded to the nearest whole number). On the
Effective Date, each instrument representing Informedics Options shall be
cancelled and either (i) a certificate representing replacement options to
purchase Mediware Common Stock shall be issued to Continuing Employees or
(ii) the number of shares of Mediware Common Stock issuable to Non-Continuing
Employees shall be issued to each such holder (in each case rounded to the
nearest whole number to avoid the issuance of fractional shares).
Until such shares of, or instruments representing the right to receive,
Informedics Common Stock are surrendered, each such certificate and instrument
(other than Cancelled Shares and shares held by Dissenting Shareholders) that
immediately prior to the Effective Date represented shares of Informedics
Common Stock or Informedics Options, as applicable, shall be deemed at and
after the Effective Date to represent only the right to receive the number of
shares of, or options representing the right to receive, Mediware Common
Stock, as the case may be. The holder of each such share or instrument shall
cease to have any rights with respect to the shares of Informedics Common
Stock or Informedics Options. The holder thereof will not be entitled to
receive certificates representing shares of, or options representing the right
to receive, Mediware Common Stock, until such holder's certificate(s) for, or
instruments representing the right to receive, Informedics Common Stock has
been surrendered (or, if missing, otherwise documented).
Beneficial owners of shares of Informedics Common Stock held of record by
others should contact the record owners to provide appropriate instructions
for surrender of such certificates.
<PAGE>
OTHER ASPECTS OF THE MERGER AGREEMENT
CERTAIN COVENANTS OF INFORMEDICS
Informedics has agreed that, during the period prior to the Effective
Date (except as expressly permitted by the Merger Agreement or to the extent
that Mediware shall otherwise agree), Informedics will (i) subject to the
fiduciary duties of the Board of Directors as advised in writing by counsel,
carry on its business only in the ordinary course consistent with past
practice; (ii) not declare or pay any dividend or other distribution in
respect of its capital stock; (iii) not redeem or repurchase, or agree to
redeem or repurchase, any shares of its capital stock; (iv) not amend its
Articles of Incorporation or Bylaws; (v) not issue, or agree to issue, any
shares of its capital stock, or any securities convertible into or
exchangeable for, or options, warrants or other rights to acquire, any such
shares; (vi) not combine, split or otherwise reclassify any shares of its
capital stock; (vii) subject to the fiduciary duties of the Board of Directors
as advised in writing by counsel, use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
officers and key employees and preserve its relationships with customers and
others having business dealings with it to the end that its goodwill and
ongoing business shall not be materially impaired at the Effective Date;
(viii) not adopt or amend any benefit plan, increase the salary or other
compensation payable to its employees or enter into any agreement to do so,
with certain exceptions; (ix) promptly advise Mediware of the commencement of,
or threat of, any material claim, action, suit, proceeding or investigation
against, relating to or involving Informedics or its directors, officers,
employees, agents or consultants; (x) maintain insurance policies; (xi) not
enter into any agreement to dissolve, merge, consolidate or, except in the
ordinary course, sell any Informedics Common Stock or any material assets of
Informedics without giving Mediware the right of first refusal; (xii) make all
required SEC filings; (xiii) not breach any material provision of or default
under any material contract; and (xiv) promptly notify Mediware of any
material problem with any employee, customer, supplier, if any key employee
leaves Informedics or if any material customer terminates its relationship
with Informedics. In addition, Informedics has agreed that, during the period
prior to the Effective Date (except as expressly permitted by the Merger
Agreement or to the extent that Mediware shall otherwise agree), Informedics
will not (a) make any capital expenditures individually in excess of $50,000
or in excess of $100,000 in the aggregate; (b) enter into or terminate any
lease of, or purchase or sell, any real property; (c) lease any personal
property individually in excess of $25,000 annually or in the aggregate in
excess of $50,000 annually; (d) incur or guarantee any additional indebtedness
except drawdowns on its line of credit and in the ordinary course of business;
(e) create or permit to become effective any security interest, mortgage,
lien, charge or other encumbrance on its properties or assets; or (f) enter
into any agreement to do any of the foregoing. The Merger Agreement contains
numerous representations and warranties on the part of Informedics which are
customary in acquisitions.
CERTAIN COVENANTS OF MEDIWARE AND MEDIWARE ACQUISITION
Mediware has agreed that, during the period prior to the Effective Date
(except as expressly permitted by the Merger Agreement or to the extent that
Informedics shall otherwise agree), Mediware will (i) subject to the fiduciary
duties of the Board of Directors, as advised in writing by counsel, carry on
its business only in the ordinary course consistent with past practice; (ii)
not declare or pay any dividend or other distribution in respect of its
capital stock; (iii) not redeem or repurchase, or agree to redeem or
repurchase, any shares of its capital stock; (iv) not amend its Certificate of
Incorporation or Bylaws; (v) not issue, or agree to issue, any shares of its
<PAGE>
capital stock, or any securities convertible into or exchangeable for, or
options, warrants or other rights to acquire, any such shares, with certain
exceptions; (vi) not combine, split or otherwise reclassify any shares of its
capital stock; (vii) not sell or pledge, or agree to sell or pledge, any
shares of the capital stock of its subsidiaries; (viii) promptly advise
Informedics of the commencement of, or threat of, any material claim, action,
suit, proceeding or investigation against, relating to or involving Mediware
or its subsidiaries or their directors, officers, employees, agents or
consultants; (ix) subject to fiduciary duties, not enter into any agreement to
dissolve, merge, consolidate or, except in the ordinary course, sell any
material assets of Mediware or its subsidiaries without notice to Informedics;
(x) not adopt or amend any benefit plan, increase the salary or other
compensation payable to the employees of Mediware or its subsidiaries or enter
into any agreement to do so, with certain exceptions; (xi) subject to the
fiduciary duties of Mediware's Board of Directors, as advised in writing by
counsel, use all reasonable efforts to preserve intact its present business
organization, keep available the services of its officers and key employees
and preserve its relationships with customers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
be materially impaired at the Effective Date; (xii) make all required SEC
filings; (xiii) not breach any material provision of or default under any
material contract; (xiv) promptly notify Informedics of any material problem
with any employee, customer, supplier, if any key employee leaves Mediware or
if any material customer terminates its relationship with Mediware or a
subsidiary; and (xv) maintain insurance policies. The Merger Agreement
contains numerous representations and warranties on the part of Mediware which
are customary in acquisitions.
LIMITATIONS ON OTHER OFFERS
Informedics has agreed not to, and not to permit any officer, agent or
representative of Informedics to, solicit or accept any offers or solicit or
initiate any discussion or negotiations with, participate in any negotiations
with or provide any information to or otherwise cooperate in any way with, or
facilitate or encourage any effort or attempt by any corporation, partnership,
persons or group (other then Mediware and its directors, officers, employees,
representatives and agents) concerning any merger, sale of assets, sale of
shares of capital stock or any similar transaction involving Informedics or
its business. If this provision is violated or if any person becomes a
beneficial owner of 10% or more of Informedics Common Stock and discloses its
opposition to the Merger or accomplishes a merger, sale of assets, sale of
shares of capital stock or similar transaction involving Informedics or its
business, Informedics would be required to pay to Mediware the fees and
expenses paid by it to its attorneys, accountants and consultants, plus a
$500,000 fee. See "-Certain Fees and Expenses" below.
GENERAL
The respective obligations each of Mediware, Mediware Acquisition, and
Informedics to consummate the Merger are subject to the satisfaction at or
prior to the Closing Date of certain conditions, which may be waived in whole
or in part by the party entitled to the benefit thereof, including the
following: (a) the Merger Agreement shall have been duly adopted and approved
by the holders of the requisite affirmative vote of the shareholders of
Informedics and Mediware Acquisition, and (b) the registration statement filed
with the SEC with respect to the shares of Mediware Common Stock to be issued
in the Merger shall have become effective and shall not be subject to a stop
order or a threatened stop order and all necessary state securities and blue
sky permits, approvals and exemption orders required to carry out the
transactions contemplated by the Merger Agreement shall have been obtained.
<PAGE>
The obligations of Mediware and Mediware Acquisition to consummate the
Merger are also subject to the satisfaction of certain additional conditions,
including the following, unless waived by Mediware and Mediware Acquisition:
(a) the representations and warranties of Informedics contained in the Merger
Agreement shall be true and correct at and as of the Closing Date with the
same force and effect as though the same had been made at and as of the
Closing Date, and the obligations of Informedics under the Merger Agreement
required to be performed by Informedics at or prior to the Closing Date shall
have been duly performed in all material respects; (b) no statute, rule or
regulation shall have been enacted or promulgated, and no order, decree, writ
or injunction shall have been issued by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the Merger and no action, suit or proceeding shall have been
instituted or threatened and no investigation by any governmental or
regulatory body, agency or authority shall have been commenced with respect to
the Merger or Informedics which, in the reasonable judgment of Mediware's
Board of Directors, would have a material adverse effect on the Merger or on
the business of Informedics; (c) the share certificates representing all of
the issued and outstanding Informedics Common Stock (other than shares held by
Dissenting Shareholders) and instruments representing outstanding and
unexercised Informedics Options shall have been surrendered for cancellation;
(d) the holders of five percent (5%) or more of the issued and outstanding
shares of Informedics Common Stock shall have not demanded appraisal rights in
respect of the Merger; (e) Informedics shall have delivered a consulting
agreement between Mediware and John Tortorici (which condition has been
waived) and a consent from the lessor of its facilities permitting
assignment of such facilities and waiving any default under the lease resulting
from the Merger (which condition has been waived); and (f) Mediware and
Mediware Acquisition shall have completed their financial due diligence review
of Informedics to their reasonable satisfaction. Such due diligence review has
been completed.</R.
The obligation of Informedics to consummate the Merger is also subject to
the satisfaction of certain additional conditions, including the following,
unless waived by Informedics: (a) the representations and warranties of
Mediware and Mediware Acquisition contained in the Merger Agreement shall be
true and correct at and as of the Closing Date with the same force and effect
as though the same had been made at and as of the Closing Date, and the
obligations of Mediware and Mediware Acquisition under the Merger Agreement
required to be performed by them at or prior to the Closing Date shall have
been duly performed in all material respects; (b) no statute, rule or
regulation shall have been enacted or promulgated, and no order, decree, writ
or injunction shall have been issued by any court or governmental or regulatory
body, agency or authority which restrains, enjoins or otherwise prohibits
the Merger and no action, suit or proceeding shall have been instituted
or threatened and no investigation by any governmental or regulatory body,
agency or authority shall have been commenced with respect to the Merger or
Mediware or its subsidiaries which, in the reasonable judgment of
Informedics' Board of Directors, would have a material adverse effect on the
Merger or on the business of Mediware and its subsidiaries, taken as a whole;
(c) Mediware and Mediware Acquisition shall have delivered a consulting
agreement with John Tortorici (which condition has been waived); and (d)
Informedics shall have completed its financial due diligence review of
Mediware to its reasonable satisfaction. Such due diligence review has been
completed.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date: (a) by mutual written consent of the parties; (b) by either Mediware or
Informedics, if (i) any court or governmental or regulatory agency, authority
or body shall have enacted, promulgated or issued any statute, rule,
<PAGE>
regulation, ruling, writ or injunction, or taken any other action,
restraining, enjoining or otherwise prohibiting the Merger, (ii) the Effective
Date shall have not occurred on or before September 24, 1998, provided that
such right is not available to any party whose breach of a representation or
warranty or failure to perform or comply with any obligation under the Merger
Agreement was the cause of, or resulted in, the failure of the Effective Date
to occur on or before such date; or (iii) the Informedics shareholders or
Mediware Acquisition shareholders fail to approve the Merger Agreement; (c) by
Informedics if any of the conditions provided in Article VIII of the Merger
Agreement have not been met or waived prior to the time that such condition can
no longer be satisfied; and (d) by Mediware if any of the conditions provided
in Article VII of the Merger Agreement have not been met or waived, prior to
the time that such condition can no longer be satisfied.
CERTAIN FEES AND EXPENSES
If Section 6.6(a) of the Merger Agreement is violated, Informedics shall
pay Mediware the fees and expenses paid by it to its attorneys, accountants
and consultants, plus a non-accountable expense reimbursement of $500,000 for
various out-of-pocket and general costs incurred by Mediware. See -
"Limitations on Other Offers" above. Each party will pay its own expenses in
connection with the Merger Agreement.
RESALE OF MEDIWARE COMMON STOCK
Shareholders of Informedics who are not Affiliates (as defined below) of
Informedics may resell the shares of Mediware Common Stock acquired by them in
connection with the Merger without restriction under Federal securities laws.
Rule 145 of the Securities Act limits the rights of those shareholders of
Informedics who may be deemed to control, or be controlled by, or under common
control with Informedics at the time of the Meeting of Informedics
shareholders ("Affiliates") to sell any shares of Mediware Common Stock
acquired by such person in the Merger. Mr. Tortorici, Chairman of the Board
of Informedics, has agreed to retain 23,320 shares of Mediware Common Stock,
half the number of shares which he will receive in the Merger, for at least
six months following the Merger.
MEETING OF INFORMEDICS SHAREHOLDERS
DATE, TIME, PLACE
The Meeting of Informedics shareholders will be held on September
23, 1998 at 2:00 p.m., Pacific time, at 4000 Kruse Way Place, Bldg. 3, Suite
300, Lake Oswego, Oregon.
PURPOSE OF THE MEETING
At the Meeting, shareholders of Informedics will be asked to approve and
adopt the Merger Agreement, dated December 18, 1997, which provides for the
merger (the "Merger") of Informedics with and into Mediware Acquisition, a
newly-formed, wholly owned subsidiary of Mediware, with Mediware Acquisition
as the surviving corporation. See "Description of the Merger and the Merger
Agreement."
Pursuant to the Merger Agreement, each share of Informedics Common Stock
held by Informedics shareholders outstanding on the effective date of the
Merger, other than those shares held by shareholders who perfect their
appraisal rights under the Oregon Act, will be converted into the right to
receive 0.1587301 of a share of Mediware Common Stock. See "Description of
the Merger and Merger Agreement-Basic Terms of Merger Agreement-Conversion of
Informedics Common Stock."
<PAGE>
The Board of Directors of Informedics approved the Merger Agreement and
the transactions contemplated thereby by unanimous written consent on December
5, 1997 and has determined that such transactions are in the best interests of
Informedics and its shareholders. The Board of Directors of Informedics
recommends that the shareholders of Informedics vote for the approval and
adoption of the Merger Agreement. See "Background and Reasons for the Merger
and Related Matters-Recommendation."
As of the date of this Proxy Statement/Prospectus, the Board of Directors
of Informedics knows of no other business that will come before the Meeting
which is not referred to in the accompanying Notice of Meeting. If any matter
not referred to in the Notice should be presented to the Meeting for action,
the persons named in the proxy intend to take such action in regard to such
matters as in their judgment seems advisable.
VOTE REQUIRED; SHARES ENTITLED TO VOTE
The presence, either in person or by properly executed proxy, of the
holders of 1,384,506 of the outstanding shares of Informedics Common Stock
entitled to vote will constitute a quorum for the transaction of business at
the Meeting. APPROVAL OF THE MERGER WILL REQUIRE THE AFFIRMATIVE VOTE OF AT
LEAST 1,384,506 OF THE OUTSTANDING SHARES OF INFORMEDICS COMMON STOCK
ENTITLED TO VOTE. The Board of Directors of Informedics has fixed the
close of business on July 22, 1998 as the record date ("Record Date") for the
determination of holders of outstanding shares of Informedics Common Stock
entitled to receive notice of, and to vote at, the Meeting. As of the Record
Date, there were 2,769,010 shares of Informedics Common Stock outstanding,
held by approximately 922 beneficial shareholders. Each holder of shares
of Informedics Common Stock on the Record Date will be entitled to one vote
for each share held of record by said holder. Abstentions and broker
non-votes will have the same effect as no votes with respect to the approval
of the Merger.
SOLICITATION OF PROXIES
This solicitation of proxies is made at the direction of the Informedics
Board of Directors. In addition to this solicitation of proxies by mail,
directors, officers, employees and agents of Informedics may solicit proxies
by telephone, telegraph and personal interview. Such directors, officers,
employees and agents will not receive additional compensation for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Mediware will pay the filing and registration fees
and will bear the expense of proxy solicitation, including reimbursement of
reasonable out-of-pocket expenses incurred by brokerage houses and other
custodians, nominees and fiduciaries in forwarding proxy solicitation
material to the beneficial owners of Informedics Common Stock held of record
by such persons. Printing costs for this Proxy Statement/Prospectus, however,
will be paid by Informedics .
<PAGE>
VOTING AND REVOCATION OF PROXIES
INFORMEDICS' SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING FORM OF PROXY AND RETURN IT PROMPTLY TO INFORMEDICS IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. Shares represented by proxies properly signed
and returned will be voted at the Meeting in accordance with the instructions
contained thereon, unless previously revoked prior to the vote. If a proxy is
properly signed and returned without voting instructions, the shares
represented thereby will be voted FOR the Merger Agreement, and at the
discretion of the proxy holders as to any other matters which may properly
come before the Meeting. No other matters are scheduled to be presented to
the Meeting, but, if any other matters are properly brought before the Meeting
and submitted to a vote, all proxies will be voted in accordance with the
judgment of the persons authorized to vote the proxies. A proxy may be
revoked at any time before the vote by giving written notice of such
revocation to John Tortorici, President of Informedics, 4000 Kruse Way Place,
Bldg. 3, Suite 300, Lake Oswego, Oregon 97035, prior to the Meeting, or by
giving written notice of such revocation at the Meeting to the Secretary of
the Meeting. A subsequently dated proxy will, if properly presented, revoke a
prior proxy. A shareholder may attend the Meeting and vote in person whether
or not such shareholder has previously given a proxy. The presence at the
Meeting of a shareholder who has given a proxy shall not revoke such proxy
unless the shareholder files a written notice of such revocation prior to the
voting of such proxy.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Informedics Common Stock who follow the procedures in Sections
60.551 through 60.594 of the Oregon Act will be entitled to have their shares
of Informedics Common Stock appraised by an Oregon court and to receive
payment in cash of the "fair value" of such shares as determined by the court
in lieu of receiving shares of Mediware Common Stock upon consummation of the
Merger. See "Dissenting Shareholders' Appraisal Rights" below for a
discussion of the procedures to be followed.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the current
beneficial ownership of Informedics Common Stock as of July 22, 1998 by (a)
each person known by Informedics to beneficially own more than 5% of the
issued and outstanding shares of Informedics Common Stock, (b) each of
Informedics' directors, and (c) all directors and executive officers as a
group. All persons have an address c/o Informedics' principal executive
offices.
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Name Amount and Nature Percentage of
of Beneficial owner of Beneficial Ownership(1)(2) Common Stock
- -------------------------------------- ----------------------------- --------------
John Tortorici 353,512 12.5%
Charles V. Dexter 110,333 3.9%
Richard D. Glaser, Ph.D. 67,999 2.4%
Ronald G. Witcosky 62,499 2.2%
All officers and directors as a group 594,343 19.7%
(five persons)
</TABLE>
________________________________________________
1 A person is considered to "beneficially own" any shares: (a) over which
such person exercises sole or shared voting or investment power; or (b) of
which such person has the right to acquire ownership at any time within 60
[Footnotes continued on next page]
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Mediware and John Tortorici, President and a substantial shareholder of
Informedics (see "-Principal Shareholders" above), have entered into an
employment agreement whereby Mr. Tortorici would be employed by Mediware
following the Merger as Vice President and General Manager of the Hemocare
Division. Pursuant to the employment agreement, Mr. Tortorici will receive a
base salary of $120,000, plus semi-annual performance bonuses calculated at
the rate of 5% of the Hemocare Division's earnings before interest and taxes.
Mr. Tortorici will also receive options for 40,000 shares of Mediware Common
Stock, which will vest over a 24-month period (25% every six months) and have
a 10-year expiration term. The exercise price of the options will be the
market price of Mediware Common Stock on the Closing Date of the Merger. In
the event of a change of control of Mediware or a termination without cause by
Mediware, all options would immediately vest. The Mediware employment
agreement will supersede the employment agreement, as amended (discussed
below), between Mr. Tortorici and Informedics (see "Information About
Informedics, Inc. - Management of Informedics"), with one exception (as
discussed below).
In contemplation of the Merger, Informedics and Mr. Tortorici entered
into an amendment (the "Amendment") to his 1988 employment agreement, dated
December 5, 1997 (see "Information About Informedics, Inc. - Management of
Informedics"). Under the terms of the Amendment, Mr. Tortorici would continue
as an employee of Informedics, but not as an officer or director, at his
existing base salary, for the three-month period following the closing of the
Merger, following which, for a two-year period, he would serve as a consultant
to Informedics. The Amendment contains a non-compete covenant. As
consideration for the non-compete covenant, Informedics agreed in the
Amendment to pay him $8,333 per month during the consulting period. This
Amendment (as well as the 1988 employment agreement) has been superseded
by the Tortorici/Mediware employment agreement discussed above; however,
Mediware has agreed in its employment agreement with Mr. Tortorici to assume
this $8,333 monthly payment, commencing in the month following the
Merger.
On July 16, 1998, in consideration for past services provided to
Informedics, Mr. Tortorici was granted 63,000 shares of Informedics Common
Stock, which, at the exchange ratio, will equal 10,000 shares of Mediware
Common Stock upon the consummation of the Merger. Also in connection with the
Merger, Mr. Tortorici was granted on July 10, 1998 31,500 shares of
Informedics Common Stock, which, at the exchange ratio, will equal 5,000
shares of Mediware Common Stock upon the consummation of the Merger. Mr.
Tortorici has agreed to transfer back to Informedics these 31,500 shares in
the event the Merger is not consummated. Together with the other shares of
Informedics Common Stock which Mr. Tortorici owned as of July 22, 1998 (see
"Meeting of Informedics Shareholders-Principal Shareholders") to be converted
to Mediware Common Stock in the Merger, Mr. Tortorici will receive a total of
46,640 shares of Mediware Common Stock in the Merger. Mr. Tortorici has
agreed to retain 23,320 of this number of shares of Mediware Common Stock for
six months following the Merger.
________________________________________________
[Footnotes continued]
days (e.g., through conversion of securities or exercise of stock options).
Voting and investment power relating to the above shares is exercised solely
by the beneficial owner.
2 These figures include 59,679 shares for Mr. Tortorici, 73,333 shares for
Mr. Dexter, 39,999 shares for Dr. Glaser, 59,999 shares for Mr. Witcosky
and 244,795 shares for the group, which such persons and the group have
the right to acquire by exercise of stock options within 60 days after
July 22, 1998.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger of Mediware and Informedics pursuant to the
Merger Agreement. The unaudited pro forma condensed combined financial
statements are based on the respective historical consolidated financial
statements and notes thereto of Mediware and Informedics, which are included
elsewhere herein. The unaudited pro forma condensed combined balance sheet
assumes that the Merger took place on March 31, 1998 and combines Mediware's
March 31, 1998 unaudited consolidated balance sheet with Informedics' April
30, 1998 unaudited balance sheet. The unaudited pro forma condensed combined
statements of operations assume that the Merger took place as of the beginning
of the periods presented and combine Mediware's consolidated statements of
operations for the nine months ended March 31, 1998 (unaudited) and the fiscal
year ended June 30, 1997 with Informedics' statements of operations for the
nine months ended April 30, 1998 (unaudited) and the twelve-month period ended
July 31, 1997 (unaudited), respectively.
The unaudited pro forma condensed combined financial statements are based
on the historical financial statements of Mediware and Informedics and give
effect to the Merger under the purchase method of accounting and apply the
assumptions and adjustments as discussed in the accompanying notes to such
statements, including assumptions relating to the allocation of the
consideration paid for the assets and liabilities of Informedics based on
preliminary estimates of their fair value. The actual allocation of such
consideration may differ from that reflected in the consolidated financial
statements after final valuation procedures are completed following the
closing of the Merger. The final allocation of the aggregate purchase price
for the Merger is not expected to differ materially from the preliminary
allocations. In the opinion of Mediware, all adjustments necessary to present
fairly the unaudited pro forma condensed combined financial statements have
been made based on the proposed terms and structure of the Merger.
The pro forma adjustments made in connection with the development of the
pro forma information are preliminary and have been made solely for purposes of
developing such pro forma information for illustrative purposes necessary to
comply with the disclosure requirements and are not necessarily indicative of
the operating results or financial position that would have occurred if the
Merger had been consummated on July 1, 1996, July 1, 1997 or March 31, 1998,
respectively, nor is it necessarily indicative of future operating results or
financial position.
These unaudited pro forma condensed combined financial statements should
be read in conjunction with the historical financial statements and the related
notes thereto of Mediware and Informedics which are included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE AND INFORMEDICS
Unaudited Pro forma Condensed Combined Balance Sheet
( $in thousands )
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Mediware Informedics Pro forma Pro forma
March 31,1998 April 30, 1998 Adjustments Combined
---------------- ---------------- ------------- -----------
Cash and cash equivalents $ 4,061 $ 869 $ 22 (A) $ 4,952
Accounts receivable, net 7,783 241 (17) (B) 8,007
Inventories 192 15 (3) (B) 204
Deferred tax assets - current 59 59
Prepaid expenses and 538 91 629
other assets
------------ ------------- ------------- -----------
Total current assets 12,574 1,275 2 13,851
Fixed assets, net 951 76 (10) (B) 1,017
Accounts receivable - 25 25
non current
Capitalized software 2,038 175 (175) (C) 2,038
Goodwill 6,138 6,138
Other assets 620 39 691 (E) 1,350
------------ ------------- ------------- -----------
TOTAL ASSETS $ 22,321 $ 1,590 $ 508 $ 24,419
============ ============= ============= ===========
Accounts payable $ 684 $ 64 $ 748
Accrued expenses and other
current liabilities 2,503 92 $ 550 (D)
630 (D) 3,775
Advances from customers 3,501 1,269 4,770
Capital leases payable-current 7 7
Notes payable - current 4,750 4,750
------------ -------------- ------------- -----------
Total current liabilities 11,445 1,425 1,180 14,050
Deferred rent 13 13
Deferred tax liability 26 26
Capital leases payable - 18 18
non current
------------ ------------- ------------- -----------
Total liabilities 11,463 1,464 1,180 14,107
Common stock 553 27 (27) (H)
44 (G) 597
Additional paid-in capital 15,822 1,941 154 (F)
(2,095) (H)
4,737 (G) 20,559
Note receivable from stockholder (22) 22 (A)
Unearned compensation (61) (61)
Cumulative foreign currency
translation adjustment 27 27
(Deficit) (5,483) (1,820) (154) (F)
(5,327) (G)
1,974 (H) (10,810)
------------ ------------- ------------- -----------
Total stockholders' equity 10,858 126 (672) 10,312
------------ ------------- ------------- -----------
TOTAL LIABILITIES AND $ 22,321 $ 1,590 $ 508 $ 24,419
STOCKHOLDERS' EQUITY
</TABLE>
____________________________
(A) Reflects repayment of note receivable from stockholder.
(B) Reflects write-down of assets to the respective fair values.
(C) Reflects write-off of Capitalized Software due to the anticipated
post-merger discontinuance of product line.
(D) Reflects estimated accruals for Merger-related costs of $150,000,
bonus payable of $50,000 and severance and lease buyout costs of $350,000
related to Informedics. Also reflects estimated Merger-related costs of
$630,000 incurred by Mediware.
(E) Reflects developed technology acquired.
(F) Reflects the issuance of an additional 94,500 shares of Informedics
Common Stock to John Tortorici for services rendered in connection with
the Merger.
(G) Reflects the issuance of Common Stock pursuant to the Merger and the
write-off of approximately $5,327,000 of purchased in-process research
and development.
(H) Reflects the elimination of Informedics' stockholders' equity accounts.
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
MEDIWARE AND INFORMEDICS
Unaudited Pro forma Condensed Combined Statement of Operations
( $in thousands except share and per share data )
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Mediware Informedics
Nine Months Ended Nine Months Ended Pro forma Pro forma
March 31, 1998 April 30, 1998 Adjustments Combined
------------------- ------------------- ------------- ----------
Revenue:
System sales $ 5,046 $ 356 5,402
Services 9,503 1,909 11,412
---------------- ------------------- ------------- ----------
14,549 2,265 16,814
Cost of system sales 1,701 91 1,792
Cost of services 2,306 826 3,132
Software development 1,898 307 2,205
costs
Selling, general and 6,193 652 $ 104 (A) 6,949
administrative
------------- ------------------- ------------- ----------
12,098 1,876 104 14,078
------------- ------------------- ------------- ----------
Earnings before interest 2,451 389 (104) 2,736
and taxes
Interest income and 161 30 191
other income
Interest (expense) (426) (2) (428)
Income tax (121) (75) (196)
(provision)/benefit
------------ ------------------- ------------- ----------
Net income $ 2,065 $ 342 $ (104) $ 2,303
============ =================== ============= ==========
Earnings per share -
basic $ 0.38 $ 0.13 $ 0.39
============ =================== ============= ==========
Earnings per share -
diluted $ 0.32 $ 0.13 $ 0.33
============ =================== ============= ==========
Weighted average
shares outstanding 5,417,036 2,674,502 5,856,560
============ =================== ============= ==========
Weighted average
shares outstanding
assuming dilution 6,565,318 2,694,402 7,031,769
============ =================== ============= ==========
</TABLE>
(A) Reflects the amortization of acquired developed technology over a five
year period.
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE AND INFORMEDICS
Unaudited Pro forma Condensed Combined Statement of Operations
( $in thousands except share and per share data )
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Mediware Informedics
Twelve Month
Year Ended Period Ended Pro forma Pro forma
June 30, 1997 July 31, 1997 Adjustments Combined
--------------- --------------- ------------- -----------
Revenue:
System sales $ 6,229 $ 951 $ 7,180
Services 12,674 2,854 15,528
--------------- --------------- ------------
18,903 3,805 22,708
Cost of system sales 2,413 183 2,596
Cost of services 2,913 2,126 5,039
Software development costs 2,155 1,441 3,596
Selling, general and
administrative 8,597 836 $ 138 (A) 9,571
--------------- --------------- ------------- ----------
16,078 4,586 138 20,802
--------------- --------------- ------------- ----------
Earnings before interest
and taxes 2,825 (781) (138) 1,906
Interest income and
other income 81 223 304
Interest (expense) (740) (6) (746)
Income tax (provision)/benefit (85) (696) 933 (B) 152
--------------- --------------- ------------- ------------
Net income (loss) $ 2,081 $ (1,260) $ 795 $ 1,616
=============== =============== ============= =============
Earnings (loss) per share -
basic $ 0.42 $ (0.48) $ 0.30
=============== =============== =============
Earnings (loss) per share -
diluted $ 0.35 $ 0.25
=============== =============
Weighted average shares
outstanding 4,965,352 2,650,307 5,404,876
=============== =============== =============
Weighted average shares
outstanding
assuming dilution 5,917,441 6,383,892
=============== =============
</TABLE>
(A) Reflects the amortization of acquired developed technology over a five
year period.
(B) Reflects elimination of a portion of Informedics' tax provision
representing the increase in valuation allowance against the deferred
tax asset.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE A
- -------
The unaudited pro forma condensed combined balance sheet of Mediware and
Informedics has been prepared as if the Merger was completed as of March 31,
1998. The Merger will be accounted for under the purchase method of accounting
as a purchase of Informedics by Mediware. The total cost of the Merger is
estimated to be approximately $5,411,000, including transaction costs
incurred by Mediware of approximately $630,000 which includes financial
advisory, legal and accounting fees.
The purchase cost has been determined based on the estimated fair market
value of Mediware Common Stock at the time of the announcement of the Merger.
The estimated purchase price consists of the following:
<TABLE>
<CAPTION>
<S> <C>
<C>
Estimated value of the Common Stock to be issued pursuant to $4,505,000
the Merger (439,525 shares at $10.25 per share)
Estimated value of Common Stock issuable on the exercise of 276,000
options to purchase Informedics Common Stock (net of
exercise proceeds)
Estimated transaction costs incurred 630,000
----------
$5,411,000
==========
</TABLE>
Based on a preliminary analysis of the tangible and intangible assets, the
allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
Fair value of assets acquired $ 1,407,000
Fair value of developed technology acquired, net
of $41,000 of allocated negative goodwill 691,000
In-process research and development acquired, net
of $312,000 of allocated negative goodwill 5,327,000
Liabilities assumed (2,014,000)
------------
$ 5,411,000
============
</TABLE>
Preliminary fair value was determined based upon a valuation study
conducted by Burton Grad Associates, Inc., in which Burton Grad reviewed
acquired Informedics' product and in-process technology. The Informedics
products incorporating the acquired technology have not demonstrated technical
and market feasibility as of the planned date of the Merger. Therefore, the
value of this technology has been written off as "in-process research and
development acquired."
NOTE B
- -------
The unaudited pro forma condensed combined statements of operations of
Mediware and Informedics have been prepared as if the Merger was completed as
of July 1, 1996 and July 1, 1997, respectively. The condensed combined
statements of operations, for both periods presented, reflect adjustments to
record the amortization of acquired developed technology and, for the year
ended June 30, 1997, the elimination of a portion of Informedics' tax
provision representing the increase in valuation allowance on its deferred tax
asset.
<PAGE>
NOTE C
- -------
Combined pro forma net income per share - basic, for the twelve-month
period ended July 31, 1997 and the nine-month period ended April 30, 1998 is
computed using the historical weighted average number of shares of Mediware
Common Stock outstanding plus the number of shares issuable to Informedics'
stockholders pursuant to the Merger. Combined pro forma net income per share
- - diluted, for the above periods, includes potential common shares issuable on
the exercise of options to purchase Mediware Common Stock, using the treasury
stock method.
The in-process research and development will be charged against earnings.
Such charge has not been reflected in the pro forma condensed statement of
operations as such charge is a non-recurring charge directly attributable to
the Merger.
FORWARD-LOOKING STATEMENTS
Mediware. Certain statements made in or incorporating this Proxy
Statement/Prospectus by Mediware are forward-looking statements, such as
descriptions of Mediware's intentions to market new products, extend existing
products, acquire or develop new products, and utilize new channels of
distribution. Such forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements. These risks and uncertainties are expressed in
the "Mediware Management's Discussion and Analysis of Financial Condition and
Results of Operations" section and in the "Risk Factors" section, especially
those under the headings "Significant Indebtedness and Restrictive Covenants,"
"Variability of Operating Results," Hospital Purchase Procedures," "Year 2000
Compliance," "Risks Relating to Corporate Transactions and the Merger,"
"Competition," "Technological Obsolescence; Continual Need for Successful
Marketing and Acceptance of New Products," "Product Protection," "Dependence
Upon Key Employees," "Management of Growth," "Risks Associated with
International Operations" and "Government Regulation." Mediware does not
intend to update publicly any forward-looking statements.
Informedics. The discussion in "Informedics, Inc. Management's Discussion
and Analysis of its Financial Condition and Results of Operations" includes
certain forward-looking statements. Those statements involve a number of
risks and uncertainties, which could cause actual results to differ materially
from the expectation stated, including the following: slower than expected
sales of Informedics' products, deterioration of business conditions generally
or specifically in the health-care industry, regulatory changes involving
health care or medical devices, competitive factors, price pressures and
higher than expected turnover in key personel. Given these uncertainties,
readers are cautioned not to place undue reliance on the forward-looking
statements. Informedics does not intend to update publicly any
forward-looking statements.
INFORMATION ABOUT MEDIWARE INFORMATION SYSTEMS, INC.
GENERAL DESCRIPTION OF MEDIWARE
Mediware develops, markets and supports stand-alone computer-based
management information systems for use in various clinical departments of
hospitals. The computer-based systems typically consist of computers,
peripheral hardware (such as disk drives and printers), local area network
(LAN) hardware and software, and Mediware's proprietary software applications.
<PAGE>
The systems are designed to automate the data these departments provide to
hospital management and thereby 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, Mediware offers
systems for three different departments: the blood bank, the pharmacy and the
surgical suite. The installed base of clinical information systems is
approximately 1,000 clients.
BLOOD BANK
Mediware's cornerstone product is one of North America's leading 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 with over 200
features 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. 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, Mediware 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--1980s, Digimedics introduced
the first open systems version of a comprehensive pharmacy information
management system. Digimedics Corporation is a wholly owned subsidiary of
Mediware. Over 150 Digimedics systems have been installed at 125 hospitals
(some hospitals have separate systems for inpatient and outpatient
pharmacies).
During 1997, the Pharmacy Division introduced a new client server pharmacy
system known as Digimedics WORx. 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. Mediware 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.
In June of 1996, Digimedics Corporation acquired certain assets (the
"Acquisition") of the U.S. based Pharmakon division ("Pharmakon") and a
pharmacy management system 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 Mediware. The
combination of client bases has increased Mediware's installed base of
clinical information systems to approximately 1,000 (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 Mediware
with a significant international presence.
<PAGE>
SURGICAL SUITES
In September of 1990 Mediware 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. Mediware has recently introduced
PCCWIN, a Windows 95-based module that automates the preoperative case
charting process.
Mediware's marketing is concentrated on the 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.
Mediware has installed 25 Surgiware sites.
DESCRIPTION OF MEDIWARE'S BUSINESS
Mediware was incorporated in 1980. Mediware 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, Mediware offers systems for three different departments: the blood
bank, the pharmacy and the surgical suite. The installed base of clinical
information systems is approximately 1,000 clients.
Mediware'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 -- Mediware's cornerstone product is one of North America's
leading 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
<PAGE>
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. Mediware
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, Mediware 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-1980s, Digimedics introduced the
first open systems version of a comprehensive pharmacy information management
system. Digimedics Corporation is a wholly owned subsidiary of Mediware. 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 from Continental certain
assets of the U.S. based Pharmakon division and JAC, a pharmacy management
system company operating in the United Kingdom. The Pharmakon operation has
been subsequently merged with the Digimedics operation to form the Pharmacy
Division of Mediware. The combination of client bases has increased
Mediware's installed base of clinical information systems to approximately
1,000 (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 Mediware 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. 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. Mediware 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 clinical 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.
<PAGE>
- - 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 , WORx is positioned as a state of the art client/server
solution.
SURGIWARE -- In September 1990, Mediware 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. Mediware 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>
Mediware'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.
Mediware has installed 25 Surgiware sites.
SALES AND MARKETING
Mediware's three products are sold directly by nine full-time
salespeople, as well as four Mediware 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 Mediware acts as a value added reseller. Mediware'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. Mediware 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
Mediware provides comprehensive service to its installed base of
customers through its own service organization. Virtually all of Mediware's
customers enter into software support agreements with either Mediware or its
resellers which are renewed annually or at longer intervals and may be
canceled by either party on 60 days' notice, or at longer intervals. 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 Mediware's customers have also entered into
agreements for hardware maintenance, which Mediware generally subcontracts to
the hardware manufacturers.
HEMOCARE and DIGIMEDICS are trademarks of Mediware 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 Mediware's products.
HEMOCARE - Mediware currently competes principally 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 Mediware and have
established reputations for success in developing and selling hospital
information systems. Mediware also currently competes with Informedics.
DIGIMEDICS -- Mediware currently competes with numerous companies,
including some of the leading vendors of healthcare information systems.
With the acquisition of Pharmakon, Mediware believes that it has the largest
number of stand-alone hospital pharmacy systems in its market. Many competitors
<PAGE>
have established reputations for success in developing and selling medical
information systems and have far greater resources than Mediware. 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 Mediware 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
Mediware 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 Mediware'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, Mediware and its competitors who provide blood bank information
management systems are also subject to the jurisdiction of the FDA as
suppliers of medical devices. Mediware 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 FDA 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. Also,
Mediware's previously identified notice of system limitation in an updated
user manual was considered by the FDA as a labeling change and therefore
classified as a "recall." A labeling recall does not require the customer to
discontinue its use of the system, but the vendor is required to update its
medical device documentation with a more accurate description of its intended
use. However, as the Hemocare Product Center had already made such update as
part of its standard operating procedures at the time of its initial
notification to customers in July 1997, the issue was resolved without further
action by Mediware.
The FDA initiated a recall action on the Hemocare Blood Bank Data
Management Computer System, Revisions 5.1 and 3.1 on May 13, 1998. This action
was based on Mediware's Hemocare Product Center's distribution to its customers
of notifications in September 30, 1997 and December 15, 1997 which described
certain system limitations which FDA considered to meet the formal definition
of a Class II recall. The FDA required that all affected customers be
notified. To meet FDA's recall guidelines requirements, on May 22, 1998 the
Product Center re-issued under the FDA's urgent notification procedure the
previously issued notifications. The Company believes that full compliance
with this requirement has been achieved.
<PAGE>
Based upon recent discussions that the Company has had with the FDA, the
Company intends to submit a pre-market notification 510(k) report in the fall
of 1998 for its Hemocare Revisions 5.2 product. The Company also intends to
withdraw the 510(k) report submission it had previously made to the FDA for
the Revisions 5.1 product. Although the Company believes that the new
submission will result in a positive determination by the FDA, if it does not,
Mediware's ability to market this product may be adversely affected. The
Company also is currently in discussion with the FDA regarding whether and to
what extent the Company will need to notify customers under the FDA's recall
procedure of certain issues relating to Revisions 5.1.
The FDA has developed new design control regulations, effective in June
1998, as part of its quality system regulations adopted in October of 1996 that
apply to blood bank information systems and to the inspection of vendors of
such systems. Although Mediware is updating its internal quality system to
comply with new guidelines adopted under these regulations, it cannot predict
whether it will be fully in compliance with these 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 clinical information system vendors of blood bank
information systems, including Mediware.
The Food and Drug Administration Modernization Act of 1997 (the "FDA
Modernization Act") was enacted on November 21, 1997 and became effective on
February 20, 1998. Under this legislation FDA is directed to consider the
extent to which reliance on post-market controls could expedite the pre-market
notification review process and the classification of devices. The
legislation also requires FDA to ensure that Good Manufacturing Practices
conform, to the extent practicable, with internationally recognized standards
for medical devices. Neither of these provisions appear on its face to
contemplate regulation which would have a material adverse effect on the
Company's blood bank information system operations; however, the legislation
will expand the jurisdiction of the FDA and the Company is unable to predict
the effect of any resulting applicable future regulation.
Any of Mediware's other clinical information system activities could also
become subject to Congressional or governmental agency efforts to establish or
expand governmental agency jurisdiction.
MISCELLANEOUS
Mediware's software development expenditures 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.
Mediware anticipates that it will continue to commit substantial resources to
software development in the future. Furthermore, Mediware purchased
$3,891,000 of research and development in the acquisition of Pharmakon and
JAC, which was charged to operations expense in fiscal 1996. For the nine
months ended March 31, 1998, Mediware incurred approximately $2,500,000 in
software development expenditures and capitalized $957,000 of software costs.
Mediware's business is not dependent on a single customer or a few
customers. Mediware considers that its market area and customer base is the
United States, Canada and, through JAC, the United Kingdom.
<PAGE>
EMPLOYEES
As of June 1, 1998, Mediware had 135 full-time employees and 6 part-time
employees, including 23 in sales and marketing, 95 in customer support and
product development, and 23 in administration. None is represented by a labor
union and Mediware considers its employee relations to be good.
LEGAL PROCEEDINGS
Mediware is subject to legal proceedings and claims that arise in the
ordinary course of business. Mediware, Digimedics, and Continental have
recently settled an action, Cedars-Sinai Medical Center vs. Mediware
--------------------------------------------
Information Systems, Inc., et al, commenced on March 26, 1997 in Los Angeles
- ----------------------------------
County Superior Court and arose out of a contract between Continental and a
customer. Pursuant to the settlement agreement, the plaintiff will receive
$500,000. Mediware agreed to contribute one-third of this total amount and
Continental agreed to contribute two-thirds of this amount. However, each of
Mediware and Continental has reserved its respective rights to seek
indemnification from each other for these payments.
Mediware is not aware of any proceedings contemplated by government
authorities that would have a material adverse effect on the Company or its
business.
PROPERTIES
Mediware's corporate headquarters are in Melville, New York, where
Mediware occupies approximately 5,738 square feet under a lease that expired
on July 31, 1998. Mediware is currently negotiating a new lease and expects
to execute it before September 1, 1998. Digimedics Corporation is
headquartered in Scotts Valley, California, where Mediware occupies
approximately 11,646 square feet under a lease expiring May 1, 2001. Pharmakon
is headquartered in Lenexa, Kansas, where Mediware occupies approximately
17,000 square feet under a lease expiring in 2003. The United Kingdom group
is headquartered in Basildon, Essex, where Mediware occupies approximately
2,567 square feet under a lease expiring September 26, 2004. Mediware
believes that its facilities are adequate for its current needs.
MEDIWARE 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, excluding 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 immediate payment of $1,000,000 and 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 (as described below) and extended payment terms. The second
amendment required 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 principal balance on the
Continental promissory note at March 31, 1998 was $3,896,000. 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.
<PAGE>
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 aggregated $568,000. In order to
provide for general cash needs, the Company completed in August of 1997
another 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 registered the 440,000 shares and warrants with the SEC in December of
1997. Total proceeds of the August 1997 private placement before expenses were
$2,400,000. Expenses of the August 1997 private placement and SEC registration
were approximately $310,000.
The Company's cash and cash equivalent position at March 31, 1998 was an
increase of $2,126,000 from $1,935,000 at June 30, 1997. At March 31, 1998
the current ratio was 1.1:1. In addition to $2,682,000 in cash provided by
operations in the first nine months of fiscal 1998, the current working
capital position was improved by the August 1997 private placement providing
approximately $2,100,000, net of expenses.
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, 1,040,025 warrants to
purchase shares of Mediware 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. In September of 1997, $325,000 of this $1,179,000 balance was
repaid to individuals whose promissory notes were not subordinate to the
Continental promissory note, leaving an unpaid balance at March 31, 1998 of
$854,000 owing to two directors and another person. Effective September 15,
1997 these noteholders agreed to reduce the interest on this unpaid amount
from 12% to 9%.
<PAGE>
The Company has a line of credit from a bank in the total sum of $75,000.
As of March 31, 1998, there were no balances outstanding under this facility.
MATERIAL CHANGES IN RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED MARCH
31, 1998 COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 1997
Total Company revenues increased by 5.0% or $693,000 for the first nine
months of fiscal 1998 as compared to the same period in fiscal 1997. This
increase is primarily due to revenue gains in the Company's Pharmacy and
Surgiware Divisions. Total Company revenues increased by 13.2% or $605,000
for the three-month period ended March 31, 1998. As with the year-to-date
comparison with the prior fiscal year, these gains in revenue were principally
due to the Company's Pharmacy and Surgiware Divisions.
System sales increased by 11.1% or $503,000 for the three quarters ended
March 31, 1998 as compared to the same period in the prior year. System sales
for the quarter ended March 31, 1998 increased by 73.8% or $843,000 from the
same quarter a year earlier. For both the nine-month and the three-month
periods, the increase is primarily due to increased system sales in the
Company's Pharmacy and Surgiware Divisions. System sales growth for both the
nine- and three-month periods is primarily due to recently introduced products
including PCCWIN, the Company's operating room preoperative system, along with
the Company's Pharmacy client server drug management system, WORx. Fiscal
1998 third quarter system sales increase was $302,000 or 674.0% for the
Surgiware Division and $578,000 or 100.0% for the Pharmacy Division as
compared to the same period of fiscal 1997.
Service revenues increased 2.0% or $190,000 in the first nine months of
fiscal 1998 as compared to the same period last year. The increase is
primarily due to increased service revenues at the Company's Hemocare Division.
Service revenues decreased by 6.9% or $238,000 in the third quarter of fiscal
1998 vs. the third quarter of fiscal 1997. This decrease is principally due to
the Company's Pharmacy Division, which has substantially completed its service
contract agreement, which covered various Pharmakon post- acquisition service
obligations held by the seller.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers by Mediware as
part of its application sub-system. These costs can vary as the mix of
revenue varies between high-margin proprietary software and lower-margin
computer hardware and sublicensed software components. Cost of systems
increased by $227,000 or 33.7% of related system sales for the first nine
months of fiscal 1998 as compared to 32.4% of sales for the same period in
fiscal 1997. Cost of systems increased $284,000 but remained at 33.8% of
related sales for both the quarter ended March 31, 1998 and the same quarter a
year earlier.
Cost of services includes the salaries of client service personnel and
communications expenses along with the direct expenses. The cost of services
will vary with technical employee activity changes between client services and
software development. Cost of services increased $134,000 or 24.3% of related
revenue for the nine months ended March 31, 1998 vs. 26.2% of related revenue
for the same period a year earlier. This percentage decrease primarily
reflected an increase in technical employee activities from client services to
software development. Cost of services decreased slightly by $4,000 from
$832,000 in the quarter ended March 31, 1997 to $828,000 in the quarter ended
March 31, 1998.
<PAGE>
Total expenditures (amounts including both capitalized and non-capitalized
expenditures and excluding capitalized software amortization) for software
development for the first nine months of fiscal 1998 were approximately
$2,500,000. This amount approximates the total software development
expenditure for fiscal 1997. Spending on development has increased among all
Company divisions but is principally focused on the Company's Pharmacy
Division's enhancements to its WORx product line. The Company expects to
continue this level of development spending with increased focus on continued
product enhancements and integration of intra/Internet Web communications
technology. Software development cost includes salaries, consulting,
documentation, office and other expenses incurred in product development along
with amortization of software development costs. Software development costs
increased by $237,000 or 14.3% in comparing the first three quarters of fiscal
1998 to the same period a year ago. In the third quarter of fiscal 1998,
software development costs increased by $191,000 or 36.4% as compared to the
same quarter in fiscal 1997. The increased costs for both periods is
principally due to the Pharmacy Division contracting of programming
consultants to aid in the enhancements of the WORx product line.
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
expense for corporate, divisional, financial and administrative staff;
utilities, rent, communication and other office expenses; and other related
direct administrative expenses. Selling, general and administrative expenses
increased by $107,000 or 1.8% in comparing the first nine months of fiscal
1998 to fiscal 1997. This increase includes higher communications, travel,
administrative, marketing, legal and professional costs which were partially
offset by reduced bad debt expense. Selling, general and administrative
expense increased by $83,000 or 3.9% for the quarter ended March 31, 1998 vs.
the quarter ended March 31, 1997. This increase reflects the cost of
managing and growing the Company.
Net interest expense decreased $223,000 or 45.7% in the first three
quarters of fiscal 1998 vs. the same period a year ago. The March 31, 1998
quarter's net interest expense decreased $84,000 or 46.7% from the March 31,
1997 quarter. For both the nine-month and three-month periods, the reduced
interest expense is due to the $1,230,000 decrease of notes payable from March
31, 1997 to March 31, 1998.
Net earnings increased $419,000 to $2,065,000 from $1,646,000 for the first
nine months of fiscal 1998 vs. the same period in fiscal 1997. Net earnings
increased by $121,000 or 22.9% for the quarter ended March 31, 1998 as
compared to the same quarter in the prior year.
MATERIAL CHANGES IN RESULTS OF OPERATIONS: FISCAL 1997 VS. FISCAL 1996
During the year ended June 30, 1997, because of billing errors that were
undetected by supervisors, the Company did not timely invoice certain service
revenues that it was legally entitled to bill. The errors were detected by an
internal management analysis of sales, and confirmed by a thorough review of
contract administration files. As a result, $181,935 of revenues that had not
been recorded in the fiscal quarters in which they had been earned were
originally recorded in the fourth quarter of fiscal 1997. The Company has
restated the amounts originally reported to reflect the revenue in each of the
quarters of the year ended June 30, 1997 (see Note O to the financial
statements). These adjustments had no impact on net earnings for the year
ended June 30, 1997. The Company has also taken appropriate action to assure
that it has not failed to record other billings and that it will not similarly
experience this problem in the future.
<PAGE>
In addition, the Company, having acquired the Pharmakon division and JAC
in June 1996, discovered that the prior owners had not billed certain
contractual software maintenance revenues to some of its customers. While the
Company continued to provide the contracted maintenance support to these
customers, it chose not to bill such revenues on a going forward basis until
it had established that such billing would be collectible. However, the
Company actively began a program to support its ability to bill and collect
the revenue for those maintenance contracts, and during the quarter ended
December 31, 1997, it achieved satisfactory indications (i.e., it had
established a sufficiently credible reputation for service with the customers,
had developed new and additional products upon which these customers now
relied, and had specifically discussed and agreed upon collection schedules
for the billings with the customers) that revenue was now, in fact,
collectible. Accordingly, it recognized in that quarter the cumulative effects
of those events. It has now revised its prior quarterly information to record
the contract revenues (net of an appropriate reserve for uncollectibility)
into the fiscal quarters in which they should have been earned, and by
reversing the reserve in the quarter ended December 31, 1997, has recognized
the income effect of that event in that quarter (See Note N to the financial
statements). These adjustments had no impact on net earnings previously
reported.
Total revenue increased by $8,471,000 or 81% from $10,432,000 in fiscal
1996 to $18,903,000 in fiscal 1997. The increase is primarily attributable to
the Pharmakon and JAC Acquisition. Pharmakon and JAC contributed $163,000, or
less than one month in revenue, in fiscal 1996 and $7,931,000 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 173% or $8,023,000 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 $6,407,000. Included in this increase is $384,000 in service
maintenance revenue related to a change in billing policy (see note N to the
financial statements). 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 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 includes 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 7% from 30% in fiscal 1996 to 23% 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.
<PAGE>
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 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 73% or $3,637,000 from $4,960,000 in fiscal 1996 to $8,597,000 in
fiscal 1997. The Acquisition accounted for the majority, or $3,308,000, 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,
respectively, 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 carryforwards 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 reported net (loss) of ($3,491,000) or
($1.24) per share, which included $3,891,000 of acquired research and
development write-downs.
YEAR 2000 COMPLIANCE
The problems of date-protocol compliance in the Year 2000 are somewhat
different for each of Mediware's software information systems. In the case of
the pharmacy division's WORx system, the application software which is
supplied by Mediware meets the conditions for date protocol compliance in the
Year 2000. The Company believes that all hardware and data bases used by
hospitals in conjunction with WORx, similarly meet the conditions for
date-protocol compliance. Current releases of systems for the pharmacy, other
than WORx being offered by Mediware also meet the conditions for date-protocol
compliance. However, a number of client hospitals have not yet elected to
<PAGE>
upgrade their software to the level of the most recent release of Mediware; it
will be necessary for these hospitals to take advantage of the new release and
upgrade their hardware and data bases to be Year 2000 compliant. The upgrade
of Mediware's application software to a new release will be part of the normal
support procedures of Mediware and will be provided by Mediware without cost
to the hospital. However, the hospital may incur associated with any new
hardware, data bases or operating systems necessary to complete the upgrade.
The incremental cost to Mediware for assisting in the installation of the new
release is not expected to be material. The Company's United Kingdom
subsidiary has not reported that it anticipates any Year 2000 difficulties.
Mediware is reprogramming its Surgiware division's software system so as to
meet the conditions of date-protocol compliance. The reprogramming is
expected to be complete by the fourth quarter of 1998, when it will be offered
to client hospitals as part of the normal support procedures of Mediware.
Mediware believes that no hardware and data base upgrades by hospitals will be
required to accommodate the reprogrammed system.
In the case of the Hemocare division, Mediware's management believes that
the blood bank information system meets the conditions for date-protocol
compliance but is currently testing the system to confirm this view. The
testing and any remedial action should be completed by the fourth quarter of
1998. All blood bank client hospitals are at the same release level and
management believes there will be no requirement for hospitals to update
hardware or data bases even if Mediware's software system requires programming
changes.
Mediware also is in the process of conducting an initial assessment of the
Year 2000 problem on its non-IT systems, including telephone and voice mail
systems. Mediware expects to complete its initial assessment of such areas
during the fourth quarter of 1998. Following such initial assessment,
Mediware will undertake Year 2000 remediation and testing of these
applications. Mediware cannot determine, at this time, the number or type of
non-IT systems that will require remediation; however, based on the current
state of its investigation, Mediware knows of no material Year 2000 problems.
Mediware is examining its relationships with third parties, including
suppliers of hardware, network operating systems and utility programs, whose
Year 2000 compliance could have material effect on Mediware. Mediware
considers these third party suppliers to pose the greatest Year 2000 risk to
Mediware because their failure to become Year 2000 compliant could result in
Mediware's inability to obtain components in a timely manner, delays or
cancellations of customer orders or delay in payments by customers for
products shipped. In addition, conversions by third parties to become Year
2000 compliant might not be compatible with Mediware's systems. Any or all of
these events could have a material adverse effect on Mediware's business,
financial condition and results of operations. Mediware has requested
information from all of its significant vendors with respect to Year 2000
compliance status. Mediware has received assurance that all such suppliers
are offering Year 2000 compliant products.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," and Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosure about Segments of an Enterprise and Related Information." The
adoption of both statements is required for fiscal years beginning after
December 15, 1997.
<PAGE>
SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that a
company classify items of their comprehensive income, as defined by accounting
standards, by their nature (i.e. unrealized gains or losses on securities) in
a financial statement, but does not require a specific format for that
statement.
SFAS 131 changes current practice under SFAS 14, "Financial Reporting of
Segments of a Business Enterprise," by establishing a new framework on which
to base segment reporting (referred to as the management approach) and also
requires interim reporting of segment information.
During October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"). SOP 97-2 provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions and will be
effective for the Company's 1999 fiscal year.
The Company is studying the implications of these new statements and has
yet to determine the impact of their implementation, if any, on its
consolidated financial statements.
DESCRIPTION OF MEDIWARE COMMON STOCK
GENERAL
Mediware is authorized to issue 12,000,000 shares of Mediware Common
Stock, par value $.10 per share, of which 5,527,722 shares of Mediware Common
Stock were issued and outstanding as of March 31, 1998, held of record by
approximately 300 persons. The Mediware Common Stock presently outstanding is
fully paid and non-assessable.
Each outstanding share of Mediware Common Stock entitles the holder to
one vote on all matters requiring a vote of shareholders. There is no right
to cumulative voting; thus, the holders of 50% percent or more of the shares
outstanding can, if they choose to do so, elect all directors of Mediware.
Subject to the rights of holders of any series of preferred stock that may
be issued in the future, the holders of Mediware Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. The Company has never paid dividends on
Mediware Common Stock and has no present intention to pay cash dividends on
Mediware Common Stock. Earnings, if any, will be used to finance the
develop-ment and continued expansion of the Company's business. The Company
is prohibited from paying dividends so long as the promissory note issued to
Continental in the Acquisition remains outstanding. In the event of a
voluntary or involuntary liquidation of Mediware, all -shareholders are
entitled to a pro rata distribution of the assets of Mediware remaining after
payment of claims of creditors and liquidation preferences of any preferred
stock. Shareholders have no preemptive rights to subscribe for additional
shares.
Mediware is also authorized to issue 10,000,000 shares of preferred stock,
the terms of which may be fixed by the Board of Directors. It is not possible
to state the actual effect of any authorization of one or more series of
preferred stock upon the rights of holders of Mediware Common Stock until the
Board of Directors of Mediware determines the respective rights of the holders
of one or more series of the preferred stock. Such effects might, however,
include: (a) reduction of the amount of funds otherwise available for payment
<PAGE>
of cash dividends on Mediware Common Stock; (b) restrictions on the payment of
cash dividends on Mediware Common Stock; (c) dilution of the voting power of
Mediware Common Stock, to the extent that any series of issued preferred stock
has voting rights or is convertible into Mediware Common Stock; and (d) the
holders of Mediware Common Stock not being entitled to share in the assets of
Mediware upon liquidation until satisfaction of liquidation preferences, if
any, in respect of any outstanding series of preferred stock.
The Board of Directors' ability to approve the issuance of authorized
shares of capital stock might discourage a takeover attempt. To the extent that
issuance of additional shares might impede attempts to acquire a controlling
interest in Mediware, the existing authorization of shares of preferred stock
may serve to entrench management. Mediware has no present intention of using
shares of preferred stock for anti-takeover purposes.
As discussed elsewhere herein, Mediware has issued a promissory note to the
seller of Pharmakon and JAC. The promissory note contains several restrictive
covenants limiting certain of Mediware's corporate activities, such as
limitations and/or restrictions on: the creation of liens; the incurrence of
indebtedness; the payment of dividends and distributions; consolidations,
mergers and sales of assets; the making of investments; guarantees; and the
creation of subsidiaries.
TRANSFER AGENT
The Transfer Agent for the Mediware Common Stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, N.Y. 10005.
RESALE OF MEDIWARE COMMON STOCK BY AFFILIATES
The shares of Mediware Common Stock to be issued in the Merger have been
registered under the Securities Act, and will be freely transferable, except
for shares received by persons who may be deemed to control, be controlled by,
or be under common control with Informedics Affiliates as set forth in Rule
145 of the Securities Act. Rule 145 places certain restrictions on the
transfer of shares of Mediware Common Stock received by Affiliates pursuant to
the Merger.
MARKET FOR MEDIWARE COMMON STOCK
Mediware Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq SmallCap Market ("Nasdaq") under the symbol MEDW. It is
also traded on the Pacific Stock Exchange ("PSE") under the symbol MIS. Prior
to August 1991, there was no established trading market for Mediware Common
Stock.
The table below indicates the high and low of quoted bid market prices as
reported by Nasdaq for Mediware Common Stock for each quarter during the
fiscal years ended June 30, 1997 and 1998, and the first quarter of fiscal
1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
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
----------- ----------- ----------- -------------
Fiscal 1999* 8 1/2 - 7 1/8
Fiscal 1998 9 1/2 - 5 1/8 12 - 7 6/16 11 1/2 - 8 9 1/2 - 7 1/2
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
</TABLE>
* Through August 14, 1998
Such over-the-counter quotations reflect inter-dealers prices, without
retail mark-ups, mark downs or commissions, and may not represent actual
transactions.
The listing maintenance standards of Nasdaq include a requirement that a
company satisfy either a net tangible assets, market capitalization or net
income test. Mediware currently meets all three of these tests. However,
after the Merger Mediware may meet only two of these tests. Although that
will be sufficient to maintain listing on Nasdaq at that time, there can be no
assurance that the Company will continue thereafter to meet the criteria for
continued listing of Mediware Common Stock on The Nasdaq SmallCap Market. If
this listing is terminated because of failure to meet the applicable criteria,
the liquidity for Mediware Common Stock will be severely impaired in the
absence of the development of a meaningful alternative.
INFORMATION ABOUT MEDIWARE ACQUISITION
Mediware Acquisition is a newly formed Oregon corporation and a wholly
owned subsidiary of Mediware organized for the sole purpose of effecting the
Merger. It is anticipated that Mediware Acquisition will not have any
significant assets or liabilities (other than its rights and obligations under
the Merger Agreement) or engage in any activities other than those incidental
to its formation and the Merger. The mailing address for Mediware Acquisition
is 1121 Old Walt Whitman Road, Melville, New York 11747, telephone (516)
423-7800.
INFORMATION ABOUT INFORMEDICS, INC.
DESCRIPTION OF INFORMEDICS' BUSINESS
GENERAL
Informedics develops and markets a line of computer software applications
designed for use in the health care field. The computer systems typically
consist of computers, peripheral hardware (such as disk drives and printers),
local area network (LAN) hardware and software, and Informedics' proprietary
software applications.
From 1986 until 1989, Informedics focused all of its development and
marketing efforts on a line of proprietary blood bank data management systems,
called LifeLine. In 1989, Informedics purchased a line of pathology data
management systems, called StarPath. The blood bank and pathology data
management systems are compatible in a number of ways. Both systems are
marketed through the same distribution channels to health care providers, both
are written in the same computer programming language, and both operate on the
same type of computer systems.
<PAGE>
In October 1993, Informedics purchased a physician practice management
system and a laboratory order entry and results reporting system. The
physician practice management system was sold to Adaptive Health Systems of
Washington, Inc. ("Adaptive") in October 1996. The laboratory order entry
and results reporting system is licensed exclusively to Quest Diagnostics, Inc.
(formerly, Corning Clinical Laboratories, Inc.), a major independent reference
laboratory company.
In the fourth quarter of 1995, Informedics completed the development and
pilot phase of the application software for the Oregon Medical Electronic
Network ("OMEN") project, which was being offered by the Oregon Medical
Association ("OMA"). Informedics' software is no longer being marketed by the
OMA.
In the fourth quarter of 1996, Informedics completed the initial development
of the extension version of the OMEN software named IntraMed.net, which is
designed for Integrated Healthcare Delivery Systems. IntraMed.net provides a
flexible and cost-effective communication link via the Internet between
organizations and professional healthcare providers.
In addition to the sales of Informedics' product lines, Informedics performs
ongoing support and maintenance and programming services for its customers.
After the initial installation of a system and related customer training,
Informedics provides software support, furnishes customers with upgrades of
software and hardware and maintains hardware for customers who purchase such
services.
The computer hardware marketed by Informedics are micro-computer products,
running on either Windows or MS-DOS operating systems. Informedics has been a
dealer for numerous hardware manufacturers and presently focuses its hardware
marketing efforts on products manufactured by Compaq, Novell, Hewlett Packard
and Epson Pacific.
Informedics is currently developing a new software release for the
LifeLine product, which addresses the Year 2000 issue, expanded bar code
labeling to meet anticipated FDA requirements, and customer-recommended
functional improvements. Informedics has evaluated its anticipated costs
associated with the release (expected in the last quarter of fiscal 1998),
including staffing levels, distribution costs, installation requirements and
training. Informedics' management believes that it may incur as much as
$300,000 in costs associated with this release, Year 2000 compliance issues,
and other customer warranty issues. Informedics will account for these costs
in accordance with its normal software accounting policies as discussed in its
most recent 10-KSB filing.
Informedics was organized under the laws of the state of Oregon in 1979.
DESCRIPTION OF INFORMEDICS' PRODUCTS
The blood bank data management systems, called LifeLine, are modular, yet
fully integrated, software systems which have been designed for the modern
blood bank and hospital transfusion service to monitor donor records, unit
inventory, and patient test and transfusion history. There are three primary
applications of the LifeLine system. The first application supports the needs
of the community blood bank whose activities include drawing and managing
blood donors as well as testing, processing and distributing blood products.
The second application meets the needs of a hospital transfusion service which
does not, as a rule, draw blood from donors. The third provides the features
required by a hospital which draws blood from donors, manages blood product
inventory and maintains related patient test and transfusion information.
<PAGE>
IntraMed.net is an example of the new class of application software which
uses World Wide Web technology as its model with a three-component
architecture; a Web client, a Web server, and an industry standard database.
IntraMed.net provides participants rapid, cost effective access to information
about patient eligibility, plan care coverage and benefits, plus an electronic
messaging system for pre-authorizations and referrals. Because of its
Internet and World Wide Web-based technology, IntraMed.net can be used as a
physician interface to laboratory, pharmacy, radiology, hospital, and surgical
scheduling systems. This allows physicians to access their existing computer
systems from their clinic offices or remote locations via a standard personal
computer with Web browser and Internet access. Informedics believes that the
national growth of managed care, along with the related consolidation and
integration of healthcare delivery, offers a significant opportunity for this
technology.
The pathology data management systems, called StarPath, are modular, yet
fully integrated, software systems that are designed to fully automate a
pathology department. Each application allows the pathology group to have
direct control over the content and arrangement of work lists, labels and
reports. There are two primary applications of the StarPath system. The first
application automates the record keeping functions of a pathology department
in the areas of surgical pathology, cytology and autopsies. The second
application is similar to the first application except that it also includes
the area of histology.
DISTRIBUTION OF PRODUCTS
Informedics' revenues in fiscal 1997 included sales from the product
lines of LifeLine, StarPath and IntraMed.net. Sales in fiscal 1997 included
both direct sales to hospitals, medical laboratories and blood donor centers,
and sales of software to companies which agree to act as resellers of
Informedics' systems. Informedics considers its operations to be in a single
industry segment.
In fiscal 1997, Informedics recognized revenues from one major customer,
HBO and Company, representing 16% of Informedics' revenue. While the loss of
this customer, which is a reseller of Informedics' LifeLine product, might
initially have a material adverse impact on Informedics' operating results,
management believes that the effect of such loss would be short term, as
Informedics would concentrate its marketing resources on other resellers and
on direct sales.
COMPETITION
The competition for IntraMed.net are companies that have developed
similar healthcare information management network software. While the market
and technology are fairly new, two companies, Integrated Medical Systems, Inc.
and Healtheon, Inc., have systems similar to IntraMed.net.
The competition for LifeLine systems includes companies that market a
blood bank system as part of a complete laboratory information system and
companies that offer a blood bank system as a stand-alone module. Currently,
the primary stand-alone competitor for LifeLine systems is Mediware, which has
a stand-alone system similar to LifeLine. Informedics also competes with Cerner
Corporation, Sunquest Information Systems, Inc. and Soft Computer Consultants,
which are much larger companies with greater technical, marketing, financial
and other resources than Informedics.
<PAGE>
The competition for the StarPath system includes companies that market a
pathology system as part of a complete laboratory information system and
companies that offer a pathology system as a stand-alone module. Although
there are numerous competing companies, no one company dominates the market.
One of the ways Informedics has attempted to minimize the impact of
competing products in the marketplace is by licensing Informedics' software
systems to providers of hospital laboratory information systems to enable them
to market Informedics' systems, instead of developing their own blood bank
and/or pathology systems. Informedics has agreements with qualified resellers
who use Informedics' systems to supplement their existing lines of medical
laboratory software. Total revenue recognized from these agreements was
$550,836 in fiscal 1997 and $660,793 in fiscal 1996.
Informedics believes its products have a competitive edge in the market-
place based on product sophistication, design, flexibility, reliability, as
well as being price competitive. In addition, with respect to the LifeLine
system, the governmental regulation of blood bank computerized systems places
a significant barrier to entry for such products.
BACKLOG
At October 31, 1997 and 1996, the backlog of system orders was $141,366
and $235,740, respectively. These amounts represent the unrecognized revenue
for customer work in progress, and undelivered hardware and software as of
such dates.
Non-expired maintenance service contracts at October 31, 1997 and 1996 were
$1,066,475 and $1,093,598, respectively.
PROTECTION OF PROPRIETARY SOFTWARE
Under existing law, most computer software cannot be patented, and
copyright laws provide only limited protection. To protect its proprietary
products, Informedics relies upon copyright and trade secret laws, internal
nondisclosure safeguards, and restrictions on disclosure and transferability
incorporated in its software license agreements. However, as with all
software, it is possible for users and competitors to wrongfully copy
Informedics' products. Informedics believes that, because of the rapid pace
of technological change in the computer industry, patent, copyright and
contractual protection is of less practical significance than other factors,
such as the knowledge and experience of Informedics' management and personnel
and their ability to acquire, develop, enhance and market new products.
REGULATORY COMPLIANCE
In 1994, the FDA notified all developers of blood bank software that such
software is considered a medical device. The FDA required each developer to
register as a medical device manufacturer and submit, by March 31, 1995, a
pre-market notification 510(k) report for its blood bank software. At the time
of the 1994 notice, Informedics was already registered as a medical device
manufacturer. The FDA subsequently extended the deadline for filing the
pre-market notification report to March 31, 1996. In fourth quarter 1995,
Informedics prepared and filed the required pre-market notification report
with the FDA.
<PAGE>
In 1995, the FDA notified Informedics that prior distributions of certain
LifeLine software updates "meet the formal definition of a recall."
Informedics brought closure to the recall in early 1996 when it issued a new
release of the LifeLine product which addressed all outstanding issues.
In December 1997, Informedics received a request from the FDA for
additional information and clarifications regarding its Section 510(k)
submission. The FDA requested Informedics identify additional safety
critical functions, clarify the hardware platform on which its LifeLine
product is used, and expand its beta test information. Informedics responded
to the FDA requests on March 26, 1998. On July 1, 1998, Informedics received
510(k) clearance from the FDA to market its LifeLine Blood Bank Data Management
System, Release 4.2.
Informedics has dedicated substantial time and resources to comply with
the FDA's new design control guidelines and regulations and the FDA
Modernization Act (see "Information About Mediware Information Systems, Inc. -
Description of Mediware's Business - Government Regulation"). Informedics,
however, cannot predict whether it will be in compliance with future changes
to FDA guidelines, regulations or inspection procedures. Non-compliance with
any such guidelines, regulations or procedures could have a material adverse
effect on vendors of blood bank information systems, including Informedics.
SOFTWARE DEVELOPMENT COSTS
Informedics capitalized certain software development costs incurred
during fiscal 1997 and 1996 in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Informedics is presently
enhancing most of its software product lines and, in accordance with SFAS No.
86, is capitalizing certain costs associated with new releases. Informedics
incurred software development costs of $936,771 in fiscal 1997 and $1,510,657
in fiscal 1996, of which $109,032 and $194,365 were capitalized for fiscal
1997 and fiscal 1996, respectively.
EXPORT SALES
Informedics made no export sales for fiscal 1997 and sold $9,900 of
products outside the United States during fiscal 1996.
EMPLOYEES
At August 11, 1998, Informedics had 24 full-time employees.
PROPERTIES
Informedics does not own any real property. Informedics presently leases
office and production space in Lake Oswego, Oregon. For additional
information about Informedics' leases, see Note 5 to the financial statements
included elsewhere herein.
INFORMEDICS' MARKET PRICE AND DIVIDEND INFORMATION
As of July 22, 1998, Informedics Common Stock was beneficially held by
approximately 922 persons. On February 12, 1997, the NASD moved the trading
of Informedics Common Stock from The Nasdaq SmallCap Market to the NASD
Bulletin Board. The move initiated by Nasdaq resulted from Informedics'
inability to meet the Nasdaq listing standard of a minimum bid price of $1.00
per share. Informedics' current market makers trade securities through the
NASD Bulletin Board and management anticipates that these market makers will
continue to trade Informedics' stock. The following table sets forth, for the
quarterly periods indicated, the high and low bid prices per share of
Informedics Common Stock as reported by the NASD. </R.
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Year ended October 31, 1996 High Low
- --------------------------- ------ -----
First Quarter $1.688 $1.250
Second Quarter $1.625 $1.000
Third Quarter $2.063 $1.000
Fourth Quarter $1.250 $0.750
Year ended October 31, 1997
- ---------------------------
First Quarter $0.938 $0.438
Second Quarter $0.813 $0.438
Third Quarter $1.063 $0.469
Fourth Quarter $1.500 $0.656
Year ended October 31, 1998
- ---------------------------
First Quarter $1.750 $1.063
Second Quarter $1.344 $0.750
Third Quarter $1.031 $0.656
Fourth Quarter* $0.844 $0.594
</TABLE>
* As of August 14, 1998
The prices quoted above may reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Informedics has not historically declared any dividends and has no
intention of doing so in the near future.
MANAGEMENT OF INFORMEDICS
Set forth below is certain information with respect to John Tortorici,
the sole executive officer or director of Informedics who, upon consummation
of the Merger, will become an executive officer of Mediware. Pursuant to an
employment agreement that Mr. Tortorici has executed with Mediware, upon
consummation of the Merger Mr. Tortorici will serve as Vice President and
General Manager of Mediware's Blood Bank Division. See "Meeting of
Informedics Shaeholders - Interests of Certain Persons in the Merger.
John Tortorici, age 55, is currently the Chairman, President, Chief
Executive Officer, Chief Financial Officer and a Director of Informedics. He
founded Informedics in 1979, and he has been a director since then. He served
as Informedics' President from 1979 to 1996 and as Chief Financial Officer from
1985 to 1992. He resumed duties as President and Chief Financial Officer in
1997.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
during the last three fiscal years to John Tortorici:
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Awards
Other Securities
Annual Underlying All Other
Compen- Options/ Compen-
Name & Principal Fiscal Salary 1 Bonus sation 2 SARs sation 3
Position Year ($) ($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
John Tortorici 1997 150,000 1,250 2,163
Chairman, President 1996 150,000 1,250 2,204
and Chief Executive
Officer 1995 143,750 1,250 25,000 3,270
</TABLE>
__________________
1 No director fees are paid to Mr. Tortorici for his service on the Board
of Directors of the Company.
2 Perquisites and other personal benefits received by Mr. Tortorici, if
any, did not exceed 10% of total annual salary and bonus for Mr. Tortorici
for any of the periods indicated.
3 Includes the Company's contributions to its 401(k) Savings Plan for Mr.
Tortorici's benefit.
STOCK OPTION GRANTS AND REPRICINGS
No options to purchase Informedics Common Stock were granted to Mr.
Tortorici during the fiscal year ended October 31, 1997.
On July 16, 1998, Informedics replaced two stock options held by Mr.
Tortorici, one for 25,000 shares at $1.38 per share issued in September 1994,
and one for 25,000 shares at $1.69 per share issued in March 1995. The
replacement option is for 50,000 shares at $0.97 per share, the market price
on July 16, 1998. The Informedics Board of Directors repriced the options to
provide Mr. Tortorici additional compensation for his contributions to the
performance of Informedics during the first three quarters of fiscal 1998.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
Mr. Tortorici exercised no options to purchase Informedics Common Stock
during fiscal year ended October 31, 1997. The following table sets forth the
value of the unexercised options that were held by him at October 31, 1997.
There were not outstanding stock appreciation rights at October 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Number Securities Value of
Underlying Unexercised Options/ Unexercised In-the-Money
Shares Value SARs at FY-End (#) Options/SARs at FY-End ($)1
Acquired on Realized
Exercise (#) $
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------
John Tortorici 0 0 109,679 --- 10,891 ---
</TABLE>
____________________
1 On October 31, 1997, the market price of the Company's Common Stock was
$1.0625. For purposes of the foregoing table, stock options with an
exercise price less than that amount are considered to be "in-the-money"
and are considered to have a value equal to the difference between that
amount and the exercise price of the option multiplied by the number of
the shares covered by the stock option.
EMPLOYMENT AGREEMENT
Informedics entered into an employment agreement in 1988 with Mr.
Tortorici which contained a provision detailing the consequences of Mr.
Tortorici's termination of employment, including in the case of a change in
control of Informedics. This provision, as well as other substantive
provisions of this agreement, have been superseded by the Amendment, discussed
below.
In December 1997, Informedics entered into an amendment (the "Amendment")
to Mr. Tortorici's employment agreement effective and conditioned upon the
closing of the Merger. Under the terms of the Amendment, if the Merger
occurs, Mr. Tortorici would continue as an employee of Informedics, but not as
an officer or director, at his existing base annual salary of $150,000 for the
three-month period following the closing of the Merger. Also, if the Merger
occurs, any unvested options held by Mr. Tortorici would retroactively become
vested effective December 5, 1997. The amendment also provides that, for the
two-year period following termination of Mr. Tortorici's employment (the
"Consulting Period"), he would serve as a consultant to Informedics on such
matters as the Informedics requests, and Informedics would continue to provide
him coverage under its medical insurance plans. Also, Mr. Tortorici would be
subject to an agreement not to compete with the business of Informedics or any
affiliate during the period from the effective date of the Merger to the end
of the Consulting Period. The Amendment provides that, as consideration for
Mr. Tortorici's non-compete covenant, Informedics will pay him $8,333.33 per
month during the Consulting Period. Mr. Tortorici has entered into an
employment agreement with Mediware (see "Meeting of Informedics Shaeholders -
Interests of Certain Persons in the Merger"), which will supersede the
Amendment, with one exception. Mediware has agreed to assume the $8,333 per
month payment, commencing in the month following the Merger, for a period of
two years.
<PAGE>
INFORMEDICS MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
financial statements and related notes thereto and other detailed information
regarding Informedics included elsewhere in this Proxy Statement/Prospectus.
HIGHLIGHTS
On July 29, 1997, Informedics signed a letter of intent to merge into a
subsidiary of Mediware. Informedics announced on December 19, 1997 the
signing of the Merger Agreement. See "Description of the Merger and the
Merger Agreement."
Informedics continued improved operating results for the second quarter
and the first six months of fiscal 1998 when compared to the same periods in
1997. Informedics recorded a pre-tax profit of $203,050 for the second quarter
of 1998 compared to a second quarter loss of $187,717 in 1997 and a pre-tax
profit of $408,675 for the first six months of 1998 compared to a loss of
$449,564 for the same period in 1997. The improvement was primarily the
result of cost-cutting measures fully realized in fiscal 1998 offset in part
by reduced new system sales.
In December 1997, Informedics received a request from the FDA for
additional information and clarifications regarding its Section 510(k)
submission for its LifeLine product. The FDA requested Informedics identify
additional safety critical functions, clarify the hardware platform on which
its LifeLine product is used, and expand its beta test information.
Informedics responded to the FDA's request on March 26, 1998. On July 1, 1998,
Informedics received 510(k) clearance from the FDA to market its LifeLine Blood
Bank Data Management System, Release 4.2.
Informedics is currently developing a new software release for the LifeLine
product, which addresses the Year 2000 issue, expanded bar code labeling to
meet anticipated FDA requirements, and customer-recommended functional
improvements. Informedics has evaluated its anticipated costs associated with
this release (expected in the fourth quarter of fiscal 1998), including
staffing levels, distribution costs, installation requirements and training.
Informedics' management believes that it may incur as much as $300,000 in
costs associated with this release and other Year 2000 issues.
In 1997, Informedics established a valuation reserve against its deferred
income taxes which offset the income tax benefit for the first two quarters of
1997. In the third quarter of 1997, this reserve was increased as
Informedics' management determined that the benefit of the net operating loss
carryforwards was not likely to be realized. Informedics was able to utilize
some of these net operating loss carryforwards in the second quarter of 1998
to reduce the current tax provision.
On October 31, 1996, Informedics sold certain assets of its ClinicManager
product line to Adaptive Health Systems of Washington, Inc. ("Adaptive") for
$500,000, most of which was payable on a monthly basis pursuant to a note due
October 31, 2001. In April 1997, certain conditions of the sale were
satisfied, resulting in an acceleration of the note receivable from Adaptive.
In May 1997, Informedics received $406,500 from Adaptive to pay off the note.
Informedics recognized a gain of $174,793 on this transaction during the year
ended October 31, 1997.
<PAGE>
The elimination of the ClinicManager product line from Informedics'
revenue base resulted in decreased product sales and customer service and
support revenue. Total revenue decreased from $5,155,953 in fiscal 1996 to
$3,249,785 in fiscal 1997. Due to the sale of the ClinicManager product line
and associated cost-cutting measures, Informedics reported lower pre-tax loss
for 1997 as compared to 1996. For fiscal 1997, Informedics reported a pre-tax
loss of $569,160 compared to a pre-tax loss of $758,333 for fiscal 1996.
RESULTS OF OPERATIONS - MATERIAL CHANGES: SIX MONTHS ENDED APRIL 30, 1998 VS.
SIX MONTHS ENDED APRIL 30, 1997
New system product sales were $228,074 lower in second quarter and
$215,174 lower for the first six months of 1998 when compared to the same
periods in 1997. The decrease for the six months was due to fewer sales in
all product lines, including IntraMed.net - $57,000; StarPath - $29,765; and
LifeLine - $11,580. Discontinued products Entre and ClinicManager accounted
for the remaining product sales shortfall of $116,829.
Customer service and support revenue was $6,939 higher in second quarter
and $47,887 lower for the first six months of 1998, when compared to the same
periods in 1997. The 1997 results included one-time programming service
revenue associated with LifeLine and ClinicManager product lines. Hardware
support revenue decreased 33% in the first six months of 1998 when compared to
the first six months of 1997, but the decline was more than offset by a new
technical support service which was intended to replace the hardware support
service revenue. Informedics began marketing the new technical support
service in the second quarter of 1997.
Hardware sales decreased $15,238 and $9,202 for the second quarter and the
first six months of 1998, respectively, as compared to the same periods in
1997. The cost of products sold in the second quarter was $10,270 lower and
$1,356 lower in the first six months of 1998 when compared to the same periods
in 1997.
The cost of customer service and support decreased $178,747 and $445,558
for the second quarter and the first six months of 1998, respectively, as
compared to the same periods in 1997. Likewise, selling and administrative
expenses decreased in 1998 when compared to the same periods in 1997. These
costs were lower by $323,335 for the second quarter and $532,981 in the first
six months of 1998. The cost improvements resulted from a reduction in staff
and other overhead costs. Management anticipates that these costs will remain
relatively stable over the remainder of fiscal 1998.
RESULTS OF OPERATIONS - MATERIAL CHANGES: FISCAL 1997 VS. FISCAL 1996
The decrease in product sales of $930,166 or 58% for 1997, as compared to
fiscal 1996, resulted primarily from the loss of revenue from the sale of the
ClinicManager product line, and reduced sales of Informedics' primary product,
LifeLine. The decrease in customer service and support revenue of $976,002 or
27% resulted from the sale of the ClinicManager product line, a decrease in
the number of customers who purchased Informedics' hardware support services,
and a reduction in revenue from not charging laboratory systems' customers a
regulatory fee in fiscal 1997 as it did in fiscal 1996. In the second quarter
of fiscal 1997, Informedics began marketing a new technical support service to
help replace the revenue lost from the hardware support services resulting in
sales of $13,171 in fiscal 1997.
<PAGE>
The decrease in the cost of products sold of $486,454 or 78% resulted
from a decrease of $564,090 in hardware sales, combined with a decrease in the
cost of the hardware. As a percentage of hardware sales, cost of products
sold decreased from 84% in 1996 to 76% in fiscal 1997. Hardware sales and
related cost of products sold were less in 1997, primarily as a result of the
sale of the ClinicManager product line.
Cost of customer service and support decreased by $1,175,242 or 41% for
fiscal 1997 when compared to fiscal 1996. This decrease resulted from a
reduction in staff and other associated costs due to the sale of the
ClinicManager product line.
Selling and administrative expenses were $216,858 or 11% less in fiscal
1997 as compared to fiscal 1996, as a result of Informedics sub-leasing office
space, a reduction in staff and other related costs.
LIQUIDITY - CAPITAL RESOURCES
Informedics' cash position grew from $207,692 on October 31, 1997 to
$868,758 on April 30, 1998, as Informedics added $679,274 of cash as a result
of operating activities, used $41,541 for investing activities, and added
$23,333 from financing activities. Based upon the anticipation of continued
steady product sales and reduced operating expenses, management believes that
Informedics' current cash position will be sufficient to fund its operating
and investment activities for the remainder of fiscal 1998.
As a result of the operating profit in the first six months of 1998,
Informedics experienced an improvement of $446,840 in working capital.
Informedics had a negative working capital of $150,305 on April 30, 1998 as
compared to a negative $597,145 on October 31, 1997. Excluding the deferred
revenue liability, which is a liability for future services, Informedics'
working capital on April 30, 1998 was $1,103,420, compared to $595,223 on
October 31, 1997.
Capital expenditures for property additions were $6,830 in the first six
months of 1998 compared to $23,238 in the first six months of 1997.
Management anticipates that capital expenditures for property additions for
the balance of 1998 will remain low.
Capitalized software development costs were $42,844 and $57,823 for the
first six months of 1998 and 1997, respectively. Management anticipates that
capitalized software development costs for the remainder of 1998 will remain
low.
Informedics has no credit line with a bank at this time.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs that rely on
two-digit date codes, instead of four-digit date codes, to indicate the year.
Such computer programs, which are unable to interpret the date code "00" as
the year 2000, may not be able to perform computations and decision-making
functions and could cause computer systems to malfunction. Informedics has
developed a multi-phase program for Year 2000 information systems compliance
that consists of (i) assessment, remediation and testing of Informedics'
software products to make them Year 2000 compliant, (ii) assessment of the
corporate systems and operations of Informedics that could be affected by the
Year 2000 problem, (ii) remediation of non-compliant systems and components,
and (iv) testing of systems and components following remediation. Informedics
<PAGE>
has focused its Year 2000 review on three areas: (A) Informedics' products,
(B) information technology (IT) system applications, (C) non-IT systems,
including telephone and voice mail systems, and (D) relationships with third
parties.
Informedics has determined that certain portions of its LifeLine blood
bank software do not currently meet the conditions for date protocol
compliance in the Year 2000. Informedics is currently testing a new version
of the LifeLine product which Informedics expects will meet FDA and industry
standards for Year 2000 compliance. Informedics expects to release the new
version of the software in the fall of 1998. All other current Informedics'
software products are Year 2000 compliant. However, prior versions of
Informedics' products were not Year 2000 compliant. Informedics' customers
who have support agreements with Informedics will receive free updated Year
2000 compliant software. Informedics has contacted all current and prior
customers of versions of the LifeLine product who do not have support
agreements with Informedics to inform them of the Year 2000 problem. During
the fourth quarter of 1998 and the first quarter of 1999, Informedics plans
to contact all customers of unsupported versions of its products to inform
them of the Year 2000 issue.
Informedics has conducted an initial assessment of the Year 2000 problem
on its IT systems. Informedics believes that its enterprise-wide software
system is Year 2000 compliant. Such belief is based significantly on
discussions with and representations by the vendor of such software.
Informedics has been, and will continue to be, in contact with such vendor in
order to obtain any additional revisions or upgrades issued by the vendor to
ensure that such enterprise-wide software remains Year 2000 compliant.
Informedics also is taking an independent inventory of and assessing all
informational systems that could be affected by the Year 2000 problem.
Remediation of non-compliant systems is being conducted as the assessment
phase nears completion. Informedics expects to complete these phases during
the fourth quarter of 1998.
Informedics also is in the process of conducting an initial assessment of
the Year 2000 problem on its non-IT systems, including telephone and voice
mail systems. Informedics expects to complete its initial assessment of such
areas during the fourth quarter of 1998. Following such initial assessment,
Informedics will undertake Year 2000 remediation and testing of these
applications. Informedics cannot determine, at this time, the number or type
of non-IT systems that will require remediation; however, based on the current
state of its investigation, Informedics knows of no material Year 2000
problems.
Finally, Informedics is examining its relationships with third parties,
including suppliers of hardware, network operating systems and utility
programs, whose Year 2000 compliance could have material effect on
Informedics. Informedics considers these third party suppliers to pose the
greatest Year 2000 risk to Informedics because their failure to become Year
2000 compliant could result in Informedics' inability to obtain components in
a timely manner, delays or cancellations of customer orders or delay in
payments by customers for products shipped. In addition, conversions by third
parties to become Year 2000 compliant might not be compatible with
Informedics' systems. Any or all of these events could have a material
adverse effect on Informedics' business, financial condition and results of
operations.
Informedics has requested information from all of its significant vendors
with respect to Year 2000 compliance status. Informedics has received assurance
that all such suppliers are offering Year 2000 compliant products.
Informedics
is in the process of testing all such products with its new release of the
LifeLine product.
<PAGE>
Because of the assurances obtained and testing that is underway,
Informedics has not yet developed a contingency plan to address the effects of
the failure of Informedics or any of its principal suppliers to become
Year 2000 compliant, nor does Informedics have a timetable for preparing such
a plan. In what Informedics believes to be the most likely worst case
scenario, Informedics would change hardware and operating system suppliers to
Year 2000 compliant manufacturers.
Informedics' management estimates that Informedics may incur costs of as
much as $300,000 associated with the release of the new version of the LifeLine
software. However, there can be no assurance that actual costs will not
exceed management's expectations, that the new version of software for the
LifeLine product will timely resolve Informedics' Year 2000 compliance issues,
or that the financial condition or results of operations of Informedics or of
Mediware, as the surviving company following the Merger, will not be
substantially adversely affected. Informedics' current estimates of the
impact of the Year 2000 problem on its operations and financial results do not
include costs and time that may be incurred as a result of any vendors' or
customers' failures to become Year 2000 compliant on a timely basis.
The foregoing beliefs and expectations are forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, and are based in large part on certain statements and
representations made by persons outside Informedics, any of which statements
or representations ultimately could prove to be inaccurate.
PROSPECTIVE ACCOUNTING CHANGE
SFAS No. 130, "Reporting Comprehensive Income," establishes requirements
for disclosure of comprehensive income. SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," establishes standards for
disclosure about operating segments in annual financial statements and
requires disclosure of selected information about operating segments in
interim financial reports. These new standards both become effective in
fiscal 1999. Management does not expect any substantial changes to
Informedics' disclosure at the time SFAS No. 130 and SFAS No. 131 are adopted.
COMPARATIVE RIGHTS OF SHAREHOLDERS OF MEDIWARE AND INFORMEDICS
GENERAL
Informedics is incorporated in the State of Oregon. Mediware is
incorporated in the State of New York. The rights of shareholders of Mediware
are currently governed by the New York Business Corporation Law ("NYBCL") and
by Mediware's Restated Certificate of Incorporation and By-laws. Shareholders
of Informedics who receive Mediware Common Stock pursuant to the Merger will
become shareholders of Mediware and their rights as such will be governed by
the NYBCL and Mediware's Certificate of Incorporation and By-laws, as the same
may be amended from time to time.
Certain differences between the rights of Informedics shareholders and
Mediware shareholders are summarized below. This summary does not purport to
be complete and is qualified in its entirety by reference to the full text of
the law discussed and the Restated Articles of Incorporation (the "Restated
Articles") and Restated By-laws of Informedics and the Restated Certificate of
<PAGE>
Incorporation and Restated By-laws of Mediware. For information as to how
Mediware's documents may be obtained, see "Available Information."
BUSINESS COMBINATIONS
Informedics. Under the Oregon Act, the affirmative vote of the holders of
a majority of all outstanding shares of stock of an Oregon corporation
entitled to vote thereon is required to approve mergers and share exchanges,
and for sales, leases, exchanges or other dispositions of all or substantially
all of the property of the corporation, with or without the goodwill, other
than in the usual and regular course of the corporation's business.
In addition, under the Restated Articles: (i) a sale of all or
substantially all of Informedics' assets, a merger or other form of business
combination involving Informedics and requiring the vote of Informedics'
shareholders or (ii) any vote that would render inapplicable the Oregon
Control Share Act (Sections 60.801 through 60.816 of the Oregon Act) will not
take effect without the approval of 66-2/3 percent of all outstanding shares
of Informedics unless such action is first approved by all directors then in
office. This provision may not be amended without the approval of 75 percent
of all outstanding shares of Informedics.
Mediware. Under the NYBCL, approval of mergers and consolidations, and
sales, leases, exchanges or other dispositions of all or substantially all the
assets of a corporation, if not made in the usual or regular course of the
business actually conducted by such corporation, requires: (i) for corporations
in existence on February 22, 1998, the certificate of incorporation of which
expressly provides such, or corporations incorporated after such date, the
approval of a majority of the votes of the shares entitled to vote thereon or
(ii) for other corporations in existence on February 22, 1998, two-thirds of
the votes of all outstanding shares entitled to vote thereon. Mediware's
Certificate of Incorporation does not provide for majority approval of such
business combinations.
DISSENTING SHAREHOLDERS' APPRAISAL RIGHTS
Informedics. Under Sections 60.551 through 60.594 of the Oregon Act,
shareholders of an Oregon corporation have the right to dissent and receive
payment in cash of the fair value of their shares, except as otherwise
provided by the Oregon Act, in the event of certain mergers, certain share
exchanges, certain sales or exchanges of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, certain amendments to the articles of incorporation that materially
and adversely affect rights in respect of a dissenter's shares, and any
corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares. A shareholder intending to enforce such
rights must comply with the procedures set forth in Sections 60.551 through
60.594 of the Oregon Act. See "Dissenting Shareholders' Appraisal Rights."
Mediware. Under Sections 806(b)(6) and 910 of the NYBCL, shareholders of
a New York corporation have the right to dissent and receive payment of the
fair value of their shares, except as otherwise provided by the NYBCL, in the
event of certain amendments or changes to the certificate of incorporation
adversely affecting their shares, certain mergers or consolidations, certain
sales, exchanges or other dispositions of all or substantially all of the
corporation's assets and certain share exchanges. A shareholder intending to
enforce such right must comply with the procedures set forth in Section 623 of
the NYBCL.
<PAGE>
STATE TAKEOVER LEGISLATION
Informedics. Informedics is subject to the Oregon Control Share Act.
The Control Share Act generally provides that a person (the "Acquiror") who
acquires voting stock of an Oregon corporation in a transaction which results
in the Acquiror holding more than each of 20%, 33-1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote
the shares it acquires in the Control Share Acquisition ("Control Shares")
unless voting rights are accorded to the Control Shares by: (a) a majority of
each voting group entitled to vote; and (b) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiror
and shares held by the corporation's officers and inside directors. The term
"Acquiror" is broadly defined to include persons acting as a group.
The Acquiror may, but is not required to, submit to the corporation an
"Acquiring Person Statement" setting forth certain information about the
Acquiror and its plans with respect to the corporation. The Acquiror may also
request that the corporation call a special meeting of shareholders to
determine whether the voting rights will be restored to the Control Shares.
If the Acquiror does not request a special meeting of shareholders, the issue
of voting rights of Control Shares will be considered at the next annual or
special meeting of shareholders. If the Acquiror's Control Shares are
accorded voting rights and represent a majority or more of all voting power,
shareholders who do not vote in favor of the restoration of such voting rights
will have the right to receive the appraised "fair value" of their shares,
which may not be less than the highest price paid per share by the Acquiror
for the Control Shares.
The Oregon Act also contains certain provisions that govern business
combinations between corporations and interested shareholders (the "Business
Combination Act"). The Business Combination Act generally provides that, if a
person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity of the Interested Shareholder, may not
engage in certain business combination transactions for three years following
the date the person became an Interested Shareholder. Business combination
transactions for this purpose include: (a) a merger or plan of share
exchange; (b) any sale, lease, mortgage or other disposition of 10% or more of
the assets of the corporation; and (c) certain transactions that result in the
issuance of capital stock to the Interested Shareholder. These restrictions
do not apply if: (i) the Interested Shareholder, as a result of the
transaction in which such person became an Interested Shareholder, owns at
least 85% of the outstanding voting stock of the corporation (disregarding
shares owned by directors who are also officers and shares owned by certain
employee benefit plans); (ii) the board of directors approves the share
acquisition or business combination before the Interested Shareholder acquires
15% or more of the corporation's outstanding voting stock; or (iii) the board
of directors and the holders of at least two-thirds of the outstanding voting
stock of the corporation (disregarding shares owned by the Interested
Shareholder) approve the transaction after the Interested Shareholder acquires
15% or more of the corporation's voting stock.
The restrictions placed on Interested Shareholders by the Business
Combination Act do not apply under certain circumstances, including, where the
corporation expressly elects not to be governed by the Business Combination
Act or where the corporation does not have a class of voting stock that is
listed on a national securities exchange, authorized for quotation on an
interdealer quotation system of a registered national securities association
or held of record by more than 2,000 shareholders. The last of these
circumstances exists with respect to Informedics; accordingly, the
requirements of the Business Combination Act do not apply to Informedics.
<PAGE>
Mediware. The NYBCL contains provisions which prohibit any business
combination (defined to include a variety of transactions, including mergers,
consolidations, sales or dispositions of assets, issuances of stock,
liquidations, reclassifications and the receipt of certain benefits from the
corporation, including loans or guarantees) between a domestic corporation and
an "interested shareholder" for five years after the date that the interested
shareholder became an interested shareholder unless prior to that date the
board of directors of the domestic corporation approved the business
combination or the transaction that resulted in the interested shareholder
becoming an interested shareholder. Even after five years, such a business
combination is permitted only if: (i) it is approved by a majority of the
shares not owned by, or by an affiliate of, the interested shareholder, or
(ii) certain statutory fair price requirements are met. An "interested
shareholder" is any person who (i) beneficially owns, directly or indirectly,
20% or more of the outstanding voting stock of the corporation, or (ii) is an
affiliate or associate of the corporation and at any time within the five year
period in question was the beneficial owner, directly or indirectly, of 20% or
more of the then outstanding voting stock of the corporation.
STOCKHOLDER RIGHTS PLANS
Neither Informedics nor Mediware has a stockholder rights plan.
AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION
Informedics. The Oregon Act permits the board of directors of a
corporation to amend the corporation's articles of incorporation without
shareholder approval for the limited purposes of extending the duration of the
corporation (if not perpetual), deleting the names and addresses of the
initial directors of the corporation, changing or deleting the name of the
initial registered agent or registered office if a statement of change is on
file, deleting the mailing address if an annual report has been filed, making
minor changes to the corporate name, or other routine changes. Other
amendments to a corporation's articles of incorporation must be recommended to
the corporation's shareholders by its board of directors. The vote required
for approval of an amendment depends on the voting groups entitled to vote
separately on the amendment. The holders of a class or series of voting stock
are entitled to vote separately as a class on proposed amendments that would
increase or decrease the number of authorized shares of that class or series,
effect an exchange or reclassification of all or a part of the shares into
another class or series, change the designation, rights, preferences or
limitations of the series, or create a new class or series having superior
rights or preferences with respect to distributions or dissolution. In
general, an affirmative majority of the votes entitled to be cast at a meeting
at which a quorum is present is necessary to approve an amendment. If classes
of stock are required to vote separately, however, an affirmative majority
vote of the outstanding stock of each class is required.
In addition, the Restated Articles provide that no amendment of the
Restated Articles will be effective without the approval of 66-2/3% of all
outstanding shares of Informedics unless such action is first approved by all
directors then in office. Also, the Restated Articles provide that certain
provisions regarding (a) division of the Board of Directors into classes, (b)
prohibitions on removal of directors except for "cause" as defined in the
Restated Articles, (c) requirement for approval of 66-2/3% of all outstanding
shares of Informedics for (i) certain business combinations involving
Informedics, (ii) removal of applicability of the Oregon Control Share Act,
and (iii) amendments to the Restated Articles or the Bylaws of Informedics,
and (d) amendment or repeal of these provisions, require the approval of 75%
of all outstanding shares of Informedics.
<PAGE>
Mediware. Under Section 803 of the NYBCL, amendments to the certificate of
incorporation may be authorized by vote of the board, followed by a vote of
the holders of a majority of all outstanding shares entitled to vote thereon
at a meeting of shareholders. Section 804 of the NYBCL provides that certain
categories of amendments which adversely affect the rights of any holders of
shares of a class or series of stock require the affirmative vote of the
holders of a majority of all outstanding shares of such class or series,
voting separately.
AMENDMENTS TO BY-LAWS
Informedics. The Restated Articles provide that no amendment of the
Bylaws will be effective without the approval of 66-2/3% of all outstanding
shares of Informedics unless such action is first approved by all directors
then in office. Subject to this provision in the Restated Articles, the
Informedics Bylaws provide that the Bylaws may be amended by either the
Informedics Board or its shareholders, except that the shareholders, in
amending or repealing a Bylaw, may provide that the Informedics Board cannot
amend or repeal that particular Bylaw.
Mediware. Under Section 601 of the NYBCL, except as otherwise provided in
the certificate of incorpora-tion, by-laws may be amended, repealed or adopted
by the holders of shares entitled to vote in the election of any director.
When so provided in the certificate of incorporation or a by-law adopted by
the shareholders, by-laws may also be amended, repealed or adopted by the
board by such vote as may be therein specified, which may be greater than the
vote otherwise prescribed by law, but any by-law adopted by the board may only
be amended or repealed by the shareholders entitled to vote thereon. Pursuant
to Mediware's By-laws, the By-laws may be amended, repealed or adopted by the
majority vote of the shareholders entitled to vote for directors or by the
Board of Directors, but any by-law adopted by the Board may be altered,
amended or repealed by the shareholders.
PREEMPTIVE RIGHTS
No holder of shares of either Mediware or Informedics Common Stock has
any preemptive rights to purchase any shares or other securities of Mediware
or Informedics, respectively.
DIVIDEND SOURCES
Informedics. Distributions of dividends to shareholders are not limited
to or prohibited by the Oregon Act unless restricted by the corporation's
articles of incorporation or unless, in the judgment of the board of
directors, the distribution would cause (i) the corporation to be unable to
pay its debts as they become due in the usual course of the corporation's
business or (ii) the corporation's total assets to be less than the sum of its
total liabilities plus the amount that would be needed to satisfy the
preferential rights of any class of shareholders whose preferential rights are
superior to those receiving the distribution. The board's determination in
such instance may be based on financial statements or on any other valuation
that is reasonable under the circumstances. The Restated Articles and the
Informedics Restated Bylaws do not contain any further restrictions on the
declaration or payment of dividends.
Mediware. Under Section 510 of the NYBCL, except as otherwise provided in
the NYBCL, dividends may be declared or paid and other distributions may be
made out of surplus only, so that the net assets of the corporation remaining
after such declaration, payment or distribution must at least equal the amount
of its stated capital. When any dividend is paid or any other distribution is
<PAGE>
made from sources other than earned surplus, a written notice must accompany
such payment or distribution as provided by the NYBCL. A corporation may
declare and pay dividends or make other distributions except when currently
the corporation is insolvent or would thereby be made insolvent, or when the
declaration, payment or distribution would be contrary to any restrictions
contained in the corporation's certificate of incorporation.
DURATION OF PROXIES
Informedics. Under the Informedics Restated Bylaws and Section 60.231 of
the Oregon Act, a shareholder's appointment of a proxy is valid for 11 months
unless a longer period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and appointment is coupled
with an interest. Appointments coupled with an interest include the
appointment of (a) a pledgee, (b) a person who purchased or agreed to purchase
the shares, (c) a creditor of the corporation who extended credit under terms
requiring the appointment, (d) an employee of the corporation whose employment
contract requires the appointment or (e) a party to certain voting agreements.
Mediware. Under Section 609 of the NYBCL, no proxy is valid after the
expiration of eleven months from the date thereof unless otherwise provided in
the proxy. Irrevocable proxies may be created for (i) a pledgee, (ii) a
person who has purchased or agreed to purchase the shares, (iii) a creditor of
the corporation who extends or continues credit in consideration of the proxy,
(iv) a person who has contracted to perform services as an officer of the
corporation if the proxy is required by the employment contract and (v) a
person designated under a voting agreement.
SHAREHOLDER ACTION
Informedics. Under the Informedics Restated Bylaws and Section 60.211 of
the Oregon Act, any action that could be taken at a meeting of the Informedics
shareholders may be taken without a meeting by unanimous written consent of
the Informedics shareholders entitled to vote with respect to the subject
matter thereof.
Mediware. Under Section 615 of the NYBCL, any action required or
permitted to be taken by shareholder vote may be taken without a meeting by
written consent, setting forth the action so taken, signed by the holders of
all outstanding shares entitled to vote thereon, provided that the certificate
of incorporation may contain a provision requiring the written consent of the
holders of less than all outstanding shares. The Mediware Certificate of
Incorporation does not contain such a provision.
SPECIAL SHAREHOLDERS MEETINGS
Informedics. Under the Informedics Restated Bylaws and Section 60.204 of
the Oregon Act, the Informedics President or the Board of Directors may call
special meetings of the Informedics shareholders for any purpose. In
addition, the holders of at least 10% of the outstanding Informedics stock
entitled to vote on an issue may call a special meeting upon written demand to
the Secretary of Informedics setting forth the purpose for such meeting.
Under Section 60.207 of the Oregon Act and the Restated Bylaws, if notice of
the special meeting is not given within 30 days after the date the demand is
delivered to the Secretary or if the special meeting is not held in accordance
with the notice, a shareholder who signed a valid demand for a special meeting
may petition the Clackamas County Circuit Court to summarily order a special
meeting. Also, the Clackamas County Circuit Court may summarily order a
<PAGE>
meeting to be held on application of any Informedics shareholder entitled to
participate in an annual meeting if an annual meeting is not held within the
earlier of six months after the end of Informedics' fiscal year or 15 months
after its last annual meeting.
Mediware. Under Section 602 of the NYBCL, a special meeting of
shareholders may be called by the board of directors or by such person or
persons as may be authorized by the certificate of incorporation or by-laws.
The Mediware By-laws provide that special meetings of the shareholders may be
called at any time by the President or by the Board of Directors. In
addition, Section 603 of the NYBCL provides that if, for a period of one month
after the date fixed by or under the by-laws for the annual meeting of
shareholders, or if no date has been so fixed for a period of 13 months after
the last annual meeting, there is a failure to elect a sufficient number of
directors to conduct the business of the corporation, the board shall call a
special meeting for the election of directors. If such special meeting is not
called by the board within two weeks after the expiration of such period or if
it is called but there is a failure to elect such directors for a period of
two months after the expiration of such period, holders of 10% of the shares
entitled to vote in an election of directors may, in writing, demand the call
of a special meeting for the election of directors.
REMOVAL OF DIRECTORS
Informedics. The Restated Articles provide that directors may be removed
only for cause. The Restated Articles provide that "cause" means that the
director has (i) committed an act of fraud or embezzlement against the
corporation; (ii) been convicted of, or plead nolo contendere to, a crime
involving moral turpitude; or (iii) failed to perform the director's duties as
a director, and such failure constitutes a breach of the director's duty of
loyalty to the corporation or provides an improper personal benefit to the
director. The Informedics Restated Bylaws provide that the Informedics
shareholders may remove one or more of Informedics' directors for cause at a
special meeting called for such purpose. A majority of the votes entitled to
be cast on the matter constitutes a quorum for action on the removal of a
director. A director may be removed only if a quorum is present and the
number of votes cast to remove the director exceeds the number of votes cast
not to remove the director, and, if such director is elected by a particular
class of Informedics shareholders, only shareholders of that class may
participate in the vote to remove such director.
Mediware. Section 706 of the NYBCL provides that any or all of the
directors may be removed for cause by vote of the shareholders and, if the
certificate of incorporation or the specific provisions of a by-law adopted by
the shareholders provide, directors may be removed by action of the board of
directors. If the certificate of incorporation or the by-laws so provide, any
or all of the directors may be removed without cause by vote of the
shareholders. The removal of directors, with or without cause, is subject to
the following: (i) in the case of a corporation having cumulative voting, no
director may be removed when the votes cast against such director's removal
would be sufficient to elect the director if voted cumulatively and (ii) if a
director is elected by the holders of shares of any class or series, such
director may be removed only by the applicable vote of the holders of the
shares of that class or series voting as a class. An action to procure a
judgment removing a director for cause may be brought by the attorney general
or by the holders of 10% of the outstanding shares, whether or not entitled to
vote. The Mediware By-laws provide that any or all of the directors may be
removed without cause only by vote of a majority of the shareholders or by a
majority vote of the entire Board.
<PAGE>
NUMBER OF DIRECTORS; VACANCIES ON THE BOARD
Informedics. The Restated Articles provide that the Informedics Board
will be comprised of between three and seven members. The Informedics Board
is currently comprised of four members. Directors of Informedics are elected
annually for one-year terms. The Board of Directors is authorized to increase
or decrease the size of the Board of Directors within the range specified
above at any time by the affirmative vote of two-thirds of the directors then
in office. Without the unanimous consent of the directors then in office, no
more than two additional directors may be added to the Board of Directors
within any 12-month period. Without the unanimous approval of the directors
then in office, no person who is affiliated as an owner, director, officer or
employee of a company or business deemed by the Board of Directors to be
competitive with that of Informedics is eligible to serve on the Board of
Directors of Informedics.
At any time the Board of Directors consists of six or more members, in
lieu of electing the entire number of directors annually, the Board of
Directors of Informedics will be divided into three classes. The method of
classifica-tion will be to assign the longest terms to those directors with
the most seniority as directors. The classes will be Class 1, Class 2 and
Class 3. The term of office of directors of Class 1 will expire at the first
annual meeting of shareholders after their election, that of Class 2 will
expire at the second annual meeting after their election, and that of Class 3
will expire at the third annual meeting after their election. When
classification of directors is in effect, at each annual meeting of
shareholders the number of directors equal to the number of the class whose
term expires at the time of such meeting will be elected to hold office until
the third succeeding annual meeting.
If the Board of Directors is divided into classes and in the event of any
increase or decrease in the authorized number of directors, then (i) each
director then serving will neverthe-less continue as a director of the class
of which the director is a member until the expiration of the director's
current term, or upon the director's earlier resignation, removal from office
or death; (ii) the newly created or eliminated directorships resulting from
such increase or decrease will be allocated by the Board of Directors among
the three classes of directors so as to maintain equal classes to the extent
possible; and (iii) in the event such decrease in the authorized number of
directors makes the total number of directors less than six, then the Board of
Directors will become declassi-fied and the directors remaining in office will
continue their terms until the next annual meeting of shareholders, at which
time directors will be elected to serve for one-year terms or until their
successors are duly elected and qualified.
Subject to the provisions in the Restated Articles described above, a
vacancy occurring on the Informedics Board may be filled by the Informedics
shareholders or the Informedics Board. If the remaining directors constitute
less than a quorum, a vacancy may be filled by the affirmative vote of a
majority of the remaining directors. Sections 60.314 and 60.331 of the Oregon
Act provide that a director elected to fill a vacancy is elected for the
unexpired term of his or her predecessor in office, except that the term of a
director elected by the Informedics Board to fill a vacancy expires at the
next shareholder meeting at which directors are elected.
Mediware. Under Section 702 of the NYBCL, the number of directors may not
be less than three, and any higher number may be fixed by the by-laws or by
action of the shareholders or of the board of directors under specific
provisions of a by-law adopted by the shareholders. The number of directors
may be increased or decreased by amendment of the by-laws or by action of the
shareholders or of the board of directors under the specific limitation of a
by-law adopted by the shareholders, subject to certain limitations. The
<PAGE>
Mediware By-laws and Certificate of Incorporation fix the number of directors
at not less than nine, to be divided into three classes, which shall be as
nearly equal in number as possible. Under Section 705 of the NYBCL, newly
created directorships resulting from an increase in the number of directors
and vacancies occurring in the board for any reason except the removal of
directors without cause may be filled by vote of the board. However, the
certificate of incorporation or by-laws may provide that such newly created
directorships or vacancies are to be filled by vote of the shareholders.
Unless the certificate of incorporation or the specific provision of a by-law
adopted by the shareholders provide that the board may fill vacancies
occurring in the board by reason of the removal of directors without cause,
such vacancies may be filled only by vote of the shareholders. A director
elected to fill a vacancy, unless elected by the shareholders, will hold
office until the next meeting of shareholders at which the election of
directors is in the regular order of business and until his or her successor
has been elected and qualified. The Mediware By-laws and Certificate of
Incorporation provide that any vacancy in the Mediware Board may be filled by
a majority vote of the remaining directors.
INDEMNIFICATION OF DIRECTORS
Informedics. Unless limited by a corporation's articles of incorporation,
the Oregon Act requires a corporation to indemnify its officers and directors
for reasonable expenses incurred in the defense of a proceeding brought
against an officer or director in his or her official capacity in which the
officer or director is wholly successful on the merits. The Oregon Act grants
a corporation the authority to indemnify its directors, officers, employees or
agents for expenses incurred by such persons in any proceeding arising out of
actions or omissions by such persons, provided that the director, officer,
employee or agent acted in good faith, in a manner that he or she reasonably
believed was in the best interests of, or at least not opposed to, the best
interests of the corporation and, in the case of a criminal proceeding, the
director, officer, employee or agent had no reason to believe his or her
behavior was unlawful. A corporation may not indemnify a director, officer,
employee or agent under the prior sentence unless authorized in the specific
case, after a determination has been made that indemnification is permissible
in the circumstances by majority vote of a quorum consisting of directors not
at the time party to the proceeding, or if a quorum cannot be obtained, by a
majority vote of a committee duly designated by the board, by special legal
counsel or by the shareholders. A corporation may not indemnify a director in
connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation or in connection with any
other proceeding in which the director was adjudged liable on the basis of
improper personal benefit. The Restated Articles and Restated Bylaws each
provide that the corporation will indemnify its directors to the fullest
extent permitted by the Oregon Act.</R.
Mediware. Under Section 722 of the NYBCL, a corporation may indemnify any
person made, or threatened to be made, a party to any action or proceeding,
except for shareholder derivative suits, by reason of the fact that he or she
was a director or officer of the corporation, provided such director or
officer acted in good faith for a purpose which he or she reasonably believed
to be in the best interests of the corporation and, in criminal proceedings,
in addition, had no reasonable cause to believe his or her conduct was
unlawful. In the case of shareholder derivative suits, the corporation may
indemnify any person by reason of the fact that he or she was a director or
officer of the corporation if he or she acted in good faith for a purpose
which he or she reasonably believed to be in the best interests of the
corporation, except that no indemnification may be made in respect of (i) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (ii) any claim, issue or matter as to which such person has been
adjudged to be liable to the corporation, unless and only to the extent that
<PAGE>
the court in which the action was brought, or, if no action was brought, any
court of competent jurisdiction, determines upon application that, in view of
all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such portion of the settlement amount and expenses
as the court deems proper.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws, or, when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of shareholders, (iii) a resolution of directors, or (iv) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his or
her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Section 723 of the NYBCL provides that any person who has been successful on
the merits or otherwise in the defense of a civil or criminal action or
proceeding will be entitled to indemnification. Except as provided in the
preceding sentence, unless ordered by a court pursuant to the NYBCL, any
indemnification under the NYBCL pursuant to the above paragraphs may be made
only if authorized in the specific case and after a finding that the director
or officer met the requisite standard of conduct (i) by the disinterested
directors if a quorum is available, or (ii) in the event a quorum of
disinterested directors is not available or so directs, by either (A) the
board upon the written opinion of independent legal counsel, or (B) by the
shareholders. The Mediware Certificate of Incorporation provides that the
Company shall indemnify to the fullest extent permitted by the NYBCL.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
Informedics. The Oregon Act permits a corporation to eliminate or limit
the personal liability of a director, officer, employee or agent to the
corporation or its shareholders for monetary damages resulting from his or her
conduct as a director, officer, employee or agent. The Restated Articles and
Restated Bylaws each provide that the corporation will limit the liability of
its directors to the fullest extent permitted by the Oregon Act.
Mediware. Section 402(b) of the NYBCL provides that a corporation's
certificate of incorporation may contain a provision eliminating or limiting
the personal liability of directors to the corporation or its shareholders for
damages for any breach of duty in such capacity. Mediware's Certificate of
Incorporation has a provision eliminating the personal liability of directors
to the fullest extent permitted by the NYBCL.
ACCOUNTING TREATMENT
Mediware will account for the Merger under the purchase method of
accounting. Under purchase accounting, the aggregate purchase cost is
allocated to identified purchased assets and liabilities according to their
respective values to the acquirer. The aggregate purchase cost includes the
value of the Mediware Common Stock exchanged along with transaction costs,
such as legal, accounting and other professional fees. The excess of
aggregate purchase cost over fair value is recorded as intangible assets.
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences of the Merger to the holders of Informedics Common Stock. The
discussion does not address all aspects of federal income taxation that may be
relevant to particular shareholders and may not be applicable to shareholders
who are not citizens or permanent residents of the United States, or who will
acquire their Mediware Common Stock pursuant to the exercise or termination of
employee stock options or otherwise as compensation, nor does the discussion
address the effect of any applicable foreign, state, local, or other tax laws.
This discussion assumes that Informedics shareholders hold their Informedics
Common Stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code").</R.
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. Mediware and Informedics have received an opinion from Tonkon Torp
LLP, tax counsel to Informedics ("Tax Counsel"), to the effect that (i) the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, (ii) each of Mediware,
Mediware Acquisition and Informedics will be a party to the reorganization
within the meaning of Section 368(b) of the Code, (iii) no gain or loss will
be recognized by Mediware, Mediware Acquisition or Informedics as a result of
the Merger, (iv) no gain or loss will be recognized by an Informedics
shareholder as a result of the Merger with respect to shares of Informedics
Common Stock converted solely into Mediware Common Stock, (v) the tax basis of
the Mediware Common Stock received by Informedics shareholders in the Merger
will be the same, in each instance, as the tax basis of the Informedics Common
Stock surrendered in exchange therefor, (vi) provided that such shares of
Informedics Common Stock were held as capital assets at the Effective Time,
the holding period will include the period during which the shares of
Informedics Common Stock surrendered in exchange therefor were held and (vii)
an Informedics shareholder who exercises dissenters' rights with respect to
all of such holder's shares of Informedics capital stock will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the holder's basis in such shares and the amount of cash
received, provided that the payment is neither essentially equivalent to a
dividend within the meaning the Section 302 of the Code nor has the effect of
a distribution of a dividend within the meaning of Section 356(a)(2) of the
Code (collectively, a "Dividend Equivalent Transaction"). Such gain or loss
will be capital gain or loss if Informedics capital stock is held as a capital
asset at the time of the Merger. A sale of Informedics capital stock pursuant
to an exercise of dissenters' rights will generally not be a Dividend
Equivalent Transaction if, as a result of such exercise, the shareholder
exercising dissenters' rights owns no shares of Mediware Common Stock or
Informedics capital stock (either actually or constructively within the
meaning of Section 318 of the Code). If, however, a shareholder's sale for
cash of Informedics capital stock pursuant to an exercise of dissenters'
rights is a Dividend Equivalent Transaction, then such shareholder will
generally recognize ordinary income for federal income tax purposes in an
amount up to the amount of cash so received.
Mediware and Informedics have agreed not to take any position in or with
regard to their federal, state and local income tax returns that is
inconsistent with the treatment of the Merger as a tax-free reorganization for
federal income tax purposes under Section 368 of the Code or with respect to
the tax consequences contemplated thereby.
<PAGE>
CONTINUITY OF INTEREST REQUIREMENT
To qualify as a reorganization, the Merger must satisfy certain
requirements for tax-free reorganizations, including the "continuity of
interest" requirement. To satisfy the "continuity of interest" requirement, a
substantial part of the Informedics Common Stock must be exchanged for
Mediware Common Stock. If the "continuity of interest" requirement is not
satisfied, the Merger would not be treated as a reorganization under Section
368(c) of the Code. See "-Assumptions Made by Tax Counsel; Failure of the
Merger to Qualify as a Tax-Free Reorganization."</R.
"SUBSTANTIALLY ALL" REQUIREMENT
In the case of reorganizations that are forward subsidiary mergers, such
as the Merger, the acquiring corporation must acquire "substantially all" the
assets of the acquired corporation. For advance letter ruling purposes, the
Internal Revenue Service ("IRS") will rule that the "substantially all"
requirement will be met if, at the time of the merger, the acquiring
corporation holds at least 90% of the fair market value of the net assets and
70% of the fair market value of the gross assets of the acquired corporation.
These percentages are calculated by taking into account certain pre-merger
redemptions and distributions, amounts used by the acquired corporation to pay
reorganization expenses and dissenting shareholders and the repayment of any
indebtedness occurring as a condition to the Merger. If, for example,
payments to dissenters by Informedics with its own funds, taken together with
other payments by Informedics, constitute more than 10% of the fair market
value of the net assets of Informedics, it is possible that the "substantially
all" requirement will not be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a reorganization. See
"-Assumptions Made by Tax Counsel; Failure of the Merger to Qualify as a
Tax-Free Reorganization."
ASSUMPTIONS MADE BY TAX COUNSEL; FAILURE OF THE MERGER TO QUALIFY AS A
TAX-FREE REORGANIZATION
Tax Counsel's opinion will be based on the statements set forth above and
on the following assumptions: (i) the Merger will be consummated in
accordance with the Merger Agreement, and (ii) the representations given by
Mediware and Mediware Acquisition in the certificates described in Sections
8.1 and 8.2 of the Merger Agreement and by Informedics in the certificates
described in Sections 7.1 and 7.2 of the Merger Agreement are accurate.
Should any of these assumptions or representations upon which the tax opinion
regarding the Merger is based prove inaccurate, the Merger may not qualify as
a tax-free reorganization under Section 368(a) of the Code. Furthermore, the
tax opinion is not binding upon the IRS, which may challenge the qualification
of the Merger as a reorganization under Section 368(a) of the Code.
If the Merger will not qualify as a reorganization under Section 368(a)
of the Code, the Informedics shareholders will recognize gain or loss upon the
Merger in an amount equal to the difference between the fair market value at
the Effective Time of the Mediware Common Stock received and the adjusted tax
basis of the Informedics shareholders in the shares of Informedics Common
Stock exchanged therefor. In such event, a former Informedics shareholder's
aggregate basis in the Mediware Common Stock so received will equal the fair
market value of such shares, and the Informedics shareholder's holding period
for such Mediware Common Stock will begin the day after the Effective Time.
In addition, if the Merger fails to qualify as a reorganization, then
Informedics will recognize gain or loss in the Merger in an amount equal to
the excess of the fair market value of its assets over its tax basis in such
assets at the Effective Time.
<PAGE>
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE FOR APPROVAL OF THE MERGER AGREEMENT. THE DISCUSSION
DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR
INFORMEDICS SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL
INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND SHAREHOLDERS WHO
ACQUIRED THEIR SHARES OF INFORMEDICS STOCK PURSUANT TO THE EXERCISE OF
INFORMEDICS OPTIONS OR OTHERWISE AS COMPENSATION, NOR DOES IT ADDRESS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF INFORMEDICS
OPTIONS OR TO PERSONS HOLDING SHARES OF INFORMEDICS STOCK THAT ARE SUBJECT TO
RESTRICTIONS ARE NOT DISCUSSED. THE DISCUSSION IS BASED ON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF
THE DATE HEREOF. ALL THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. INFORMEDICS
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
DISSENTING SHAREHOLDERS' APPRAISAL RIGHTS
Informedics shareholders have the right to dissent from the Merger and,
in certain circumstances, to receive payment for their shares in accordance
with the terms of Sections 60.551 through 60.594 of the Oregon Act. The
following discussion is not a complete statement of the law pertaining to
dissenters' rights under the Oregon Act and is qualified in its entirety by
the full text of Sections 60.551 through 60.594 of the Oregon Act, which are
reprinted in its entirety and attached hereto as Annex B.
ANNEX B SHOULD BE REVIEWED CAREFULLY BY ANY INFORMEDICS SHAREHOLDER WHO
WISHES TO EXERCISE DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO
DO SO, SINCE FAILURE TO COMPLY WITH THE PROCEDURES OF THE STATUTE WILL RESULT
IN THE LOSS OF DISSENTERS' RIGHTS.
An Informedics shareholder who wishes to dissent from the Merger (a
"Dissenting Shareholder") must satisfy the following conditions, among others:
(i) WRITTEN OBJECTION. The Informedics shareholder must file a written
objection to the Merger with Informedics at its offices at 4000 Kruse Way
Place, Bldg. 3, Suite 300, Lake Oswego, Oregon 97035, Attention: John
Tortorici, President, prior to the vote to be taken at the Informedics Special
Meeting.
(ii) NO VOTE IN FAVOR. The Informedics shareholder must not vote in favor
of approval of the Merger Agreement.
<PAGE>
If the Merger is approved by the Informedics shareholders, Informedics
will send written notice, along with a copy of Sections 60.551 through 60.594
of the Oregon Act, no later than 10 days after the corporate action is taken
to each Dissenting Shareholder (i) stating where such Dissenting Shareholder
must send his or her written payment demand, (ii) stating where and when
certificates representing Informedics Common Stock must be deposited, (iii)
containing a form for demanding payment, which requires the Dissenting
Shareholder to certify that he or she acquired beneficial ownership before the
first public announcement of the Merger, and (iv) setting a date by which such
written payment demand must be received (not fewer than 30 nor more than 60
days after the date the notice was delivered to the Dissenting Shareholder).
An Informedics shareholder who does not (a) demand payment, (b) certify that
he or she acquired the shares before the first public announcement, or (c)
deposit his or her shares within the time provided by such notice will not be
entitled to dissenters' rights.
Informedics will pay to each Dissenting Shareholder who complies with the
procedures described above, as soon as the proposed corporate action is taken,
or upon receipt of a payment demand, the amount that Informedics estimates to
be the fair value of such Dissenting Shareholder's shares. The term "fair
value" means the value of the shares immediately before the Merger, excluding
any appreciation or depreciation in anticipation of the Merger, unless such
exclusion would be inequitable. Informedics will provide, along with such
payment, Informedics' balance sheet, income statement and statement of changes
in shareholders' equity for its last fiscal year and any recent interim
financial statements, an explanation of how Informedics estimated the fair
value of the shares and how the accrued interest was calculated and certain
other information.
Informedics may elect to withhold payment from a Dissenting Shareholder if
the Dissenting Shareholder was not the beneficial owner of the shares of
Informedics Common Stock before the date that the Merger was publicly
announced. In that event, Informedics may force the Dissenting Shareholder to
pursue judicial determination of the value of the shares unless the Dissenting
Shareholder agrees to accept the amount specified by Informedics as the fair
value in full satisfaction of the Dissenting Shareholder's rights.
Any Dissenting Shareholder who is dissatisfied with such payment or such
offer may, within 30 days following the payment or offer for payment, notify
Informedics in writing of his or her estimate of the fair value of his or her
shares and the amount of interest due, and demand payment therefor.
If any Dissenting Shareholder's demand for payment is not settled within 60
days after receipt by Informedics of such holder's payment demand described in
the preceding sentence, the Oregon Act requires that Informedics commence a
proceeding in Clackamas County Circuit Court to determine the fair value of
the shares, naming all Dissenting Shareholders whose demands remain unsettled
as parties to the proceeding. The court may appoint one or more persons as
appraisers to receive evidence and recommend the fair value of the shares.
Court costs and approval fees would be assessed against Informedics, except
that the court may assess such costs against some or all of the Dissenting
Shareholders to the extent that the court finds the Dissenting Shareholders
acted arbitrarily, vexatiously or not in good faith in demanding payment or to
the extent the court finds equitable.
Any Informedics shareholder who fails to follow the procedures detailed
above will lose the right to dissent from the Merger. A negative vote, alone,
will not constitute the written objection required prior to the Informedics
Special Meeting. Any Informedics shareholder making a written demand for
payment is thereafter entitled only to payment as provided in the Oregon Act;
he or she is no longer entitled to vote or otherwise exercise any shareholder
rights as to his or her shares of Informedics Common Stock. Consent of
Informedics is required for the withdrawal of demand for payment.
<PAGE>
EXPERTS
The audited consolidated balance sheet of Mediware Information Systems,
Inc. and subsidiaries as at June 30, 1997 and the related consolidated
statements of operations, and stockholders' equity and cash flows for each of
the years in the two-year period ended June 30, 1997, included in this Proxy
Statement/Prospectus, have been audited by Richard A. Eisner & Company, LLP,
independent auditors, as set forth in their report appearing herein, and are
included herein in reliance upon the report of said firm given upon their
authority as experts in accounting and auditing.
The financial statements as of October 31, 1997 and 1996 and for each of
the two years in the period ended October 31, 1997 included in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the Mediware Common Stock offered hereby and certain
other legal matters will be passed upon for Mediware by Winthrop, Stimson,
Putnam & Roberts, One Battery Park Plaza, New York, New York 10004. Jonathan
H. Churchill, a counsel of such firm, owns 23,224 shares of Mediware Common
Stock and options to purchase 12,630 shares of Mediware Common Stock.
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF MEDIWARE INFORMATION SYSTEMS, INC. AND
SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
PAGE
----
FINANCIAL STATEMENTS
Independent auditors' report F-2
YEAR ENDED JUNE 30, 1997 AND 1996:
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
NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED):
Condensed balance sheets as of March 31, 1998 (unaudited)
and June 30, 1997 (audited) F-20
Condensed statements of operations for the three months and nine months
ended March 31, 1998 and March 31, 1997 (unaudited) F-21
Condensed statements of cash flows for the nine months ended March 31,
1998 and March 31, 1997 (unaudited) F-22
Notes to condensed financial statements (unaudited) F-23
</TABLE>
<PAGE>
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.
Richard A. Eisner & Company, LLP
New York, New York
August 28, 1997
With Respect to Note H[3]
January 28, 1998
With Respect to Note A[9]
February 17, 1998
With Respect to Note M
April 29, 1998
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<S> <C>
<C>
ASSETS (NOTE E)
Current assets:
Cash and cash equivalents (Note H) $ 1,935,000
Accounts receivable, less estimated doubtful accounts
of $666,000 (Notes A, J, N and O) 6,357,000
Inventories (Note A) 56,000
Prepaid expenses and other current assets 304,000
------------
Total current assets 8,652,000
Fixed assets, at cost, less accumulated depreciation
of $1,572,000 (Notes A and C) 752,000
Capitalized software costs (Notes A and D) 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
Other assets 78,000
------------
$17,349,000
============
LIABILITIES
Current liabilities:
Accounts payable $ 713,000
Accrued expenses and other current 2,032,000
liabilities (Note F)
Advances from customers (Note A) 2,106,000
Current portion of capital leases payable 102,000
Notes payable (Note E) 1,212,000
------------
Total current liabilities 6,165,000
Notes payable, less current portion (Note E) 4,600,000
Capital leases payable, less current portion 60,000
------------
Total liabilities 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
Additional paid-in capital 13,621,000
Unearned compensation (91,000)
Cumulative foreign currency translation adjustment 36,000
(Deficit) (7,548,000)
------------
Total stockholders' equity 6,524,000
------------
$17,349,000
============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
1997 1996
--------------------------
<S> <C> <C>
<C> <C>
Revenues:
System sales $ 6,229,000 $ 5,781,000
Services 12,674,000 4,651,000
------------ ------------
Total revenues 18,903,000 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 8,597,000 4,960,000
------------ ------------
Total costs and expenses 16,078,000 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 - BASIC (NOTE A) $ 0.42 $ (1.24)
============ ============
EARNINGS PER SHARE - DILUTED $ 0.35
============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,965,352 2,817,405
============ ============
EFFECT OF POTENTIAL COMMON SHARES 952,089
============
WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 5,917,441
============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL UNEARNED (DEFICIT) TOTAL
SHARES AMOUNT PAID-IN PORTION OF FOREIGN
CAPITAL COMPENSATORY CURRENCY
STOCK TRANSLATION
OPTIONS ADJUSTMENT
--------- --------- ----------- --------- ---------- ---------- ------------
BALANCE JULY 1, 2,596,410 $ 260,000 $ 8,147,000 $(6,138,000) $ 2,269,000
1995
Shares issued to 86,040 9,000 86,000 95,000
directors
Exercise of 495,025 49,000 198,000 247,000
warrants
Shares issued 1,723,076 172,000 4,891,000 5,063,000
in connection
with private
placement (Note G)
Shares issued as 30,769 3,000 97,000 100,000
fees for acquisitions
(Note B)
Net loss (3,491,000) (3,491,000)
--------- --------- ----------- --------- ---------- ---------- ------------
BALANCE JUNE 30, 4,931,320 493,000 13,419,000 (9,629,000) $4,283,000
1996
Shares issued to 25,000 3,000 91,000 94,000
directors (to be
delivered 135,000
during fiscal 1998)
Exercise of stock 100,166 10,000 125,000 135,000
options
Compensatory stock 117,000 (91,000) 26,000
options issued
Registration costs incurred (131,000) (131,000)
in connection with private
placement (Note G)
Foreign currency 36,000 36,000
translation
Net earnings 2,081,000 2,081,000
--------- --------- ------------ ------- ---------- --------- ---------
BALANCE JUNE 30, 5,056,486 $ 506,000 $13,621,000 (91,000) (7,548,000) $ 36,000 $6,524,000
1997
========= ========= ============ ======= ========== ========= =========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
---------------------
<S> <C> <C>
<C> <C>
1997 1996
---------------- -----------
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 by directors 94,000 95,000
Compensatory stock options issued to consultants 26,000
Provision for doubtful accounts 645,000 162,000
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 (3,113,000) (620,000)
Inventories 152,000 (53,000)
Prepaid and other assets (151,000) (28,000)
Accounts payable, accrued expenses 1,209,000 665,000
--------------------- ------------
and customer advances
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
The Company made acquisitions for $3,893,000 of cash in the year ended, $10,004,000
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
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
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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.
<PAGE>
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).
[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:
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. Potential common shares are not included in the
calculation of net loss per share for the year ended June 30, 1996 as the
effect would be antidilutive. The Company adopted SFAS 128 effective the
second quarter of the Company's 1998 fiscal year and retroactively restated
previously reported per share data.
[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
<PAGE>
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.
[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 approximate
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 PRONOUNCEMENT:
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
affect 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.
<PAGE>
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>
<CAPTION>
<S> <C>
<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 as of
June 30, 1995 and after eliminating the writeoff of purchased research and
development is as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
YEAR ENDED
JUNE 30, 1996
---------------
(UNAUDITED)
Revenue $ 18,965,000
===============
Net earnings $ 26,000
===============
Earnings per share $ .01
===============
</TABLE>
NOTE C - FIXED ASSETS
Fixed assets consist of the following as at June 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
<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>
<PAGE>
<TABLE>
<CAPTION>
NOTE D - CAPITALIZED SOFTWARE COSTS
JUNE 30
------------------------
<S> <C> <C>
<C> <C>
1997 1996
----------- -----------
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>
<TABLE>
<CAPTION>
<S> <C>
(2) <C>
NOTE E - NOTES PAYABLE
At June 30, 1997 the Company has outstanding notes payable as follows:
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>
(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.
<PAGE>
(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>
<CAPTION>
<S> <C>
<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.
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.
<PAGE>
The following table sets forth summarized information concerning the
Company's stock options:
<TABLE>
<CAPTION>
JUNE 30
----------------------
1997 1996
--------- ---------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
SHARES WEIGHTED SHARES WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
Options outstanding at 601,674 $ 1.37 578,565 $ 1.42
beginning of year
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 700,822 $ 1.93 601,674 $ 1.37
========= ======= ======== =======
end of year
Options exercisable at 408,915 $ 1.56 438,060 $ 1.50
end of year ========= ======= ======== =======
</TABLE>
The following table presents information relating to stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
RANGE OF SHARES WEIGHTED WEIGHTED SHARES WEIGHTED
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE EXERCISE REMAINING EXERCISE
PRICE LIFE IN PRICE
YEARS
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).
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:
<PAGE>
<TABLE>
<CAPTION>
JUNE 30
-----------
<S> <C> <C>
<C> <C>
1997 1996
---------- ---------
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), basic income (loss) per share and diluted earnings (loss) per share
would have been approximately (i) $2,010,000, $0.40 and $0.37, respectively,
for the year ended June 30, 1997 and (ii) $(3,521,000) and $(1.25),
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 shares of 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>
<S> <C>
<C>
Year Ending
June 30,
- -----------
1998 $ 489,000
1999 245,000
2000 191,000
2001 170,000
2002 48,000
Thereafter 97,000
----------
$1,240,000
==========
</TABLE>
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.
<PAGE>
[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 had been named as co-defendants in a
litigation which has been commenced by a former customer of Continental. The
litigation arose out of a contract between Continental and the customer, under
which Continental was to install certain computer equipment and software.
The plaintiff alleged 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 alleged 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 were for breach of contract,
intentional interference with contract, and negligent interference with
contract. The plaintiff's claims against Mediware were for promissory
estoppel, intentional interference with contract, and negligent interference
with contract. On January 28, 1998, a settlement was agreed to in
principal by Mediware and Continental. Pursuant to the proposed settlement
agreement, the plaintiff would receive $500,000. Mediware has agreed to
contribute one-third of this total amount and Continental has agreed to
contribute two-thirds of this total amount in settlement with the plaintiff.
However, Mediware and Continental have each reserved their respective rights
to seek indemnification from each other for these payments.
[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
-------------------
<S> <C> <C>
<C> <C>
1997 1996
Federal $ 28,000
State 51,000 $6,000
Foreign 6,000
--------- ------
$ 85,000 $6,000
========= ======
</TABLE>
<PAGE>
The principal components of deferred tax assets, liabilities and valuation
allowance are as follows:
<TABLE>
<CAPTION>
<S> <C>
<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
----------------------------------
<S> <C> <C>
<C> <C>
1997 1996*
-------------------- -------------
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
Nondeductible items 66,000
Other 6,000
-------------------- ------------
$ 85,000 $ 6,000
==================== ============
</TABLE>
* Reclassified to be comparative to the current year.
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.
<PAGE>
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, the 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 the 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>
<S> <C> <C> <C>
<C> <C> <C>
United United Consolidated
States Kingdom Total
Revenues from unaffiliated customers $16,952,000 $1,951,000 $ 18,903,000
Net earnings (loss) 2,099,000 (18,000) 2,081,000
Identifiable assets 15,936,000 1,413,000 17,349,000
</TABLE>
<PAGE>
NOTE M - RESTATEMENT OF REVENUE AND EXPENSES
Subsequent to a June 1996 acquisition, the Company recorded maintenance
revenue on contracts with the acquired company's customers in a manner that
was consistent with the policies followed prior to the acquisition. Subsequent
to the acquisition, the Company's management discovered that the acquired
company had not consistently billed certain contractual software maintenance
revenues. For the quarter ended December 31, 1997 the Company obtained
satisfactory indications (i.e., it had established a sufficiently credible
reputation for service with the customers who had not previously been billed,
had developed new and additional products upon which these customers now
relied, and had specifically discussed collection schedules for the billings
with the customers) that such revenue was, in fact collectible, and
accordingly, it recognized in that quarter the cumulative effects of the
economic event. After discussions with the accounting staff of the Securities
and Exchange Commission on April 29, 1998, the Company elected to restate the
financial statements of periods following the acquisition to record the
revenues and corresponding expenses which include provisions for doubtful
accounts in the quarters in which the services were provided. This
restatement, which has no effect on net income, increased both revenue and
selling, general and administrative expenses by $384,000 from the amounts
previously reported for the year ended June 30, 1997.
NOTE N - SUBSEQUENT EVENTS
[1] PRIVATE PLACEMENT:
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.
NOTE O - YEAR-END ADJUSTMENTS AND RESTATEMENT OF QUARTERLY RESULTS OF
OPERATIONS (UNAUDITED)
During the quarter ended June 30, 1997, the Company detected and
corrected an error with respect to its previous under billing for services
under certain software maintenance contracts, and as a result, it recorded and
billed those revenues for that quarter. The Company is restating its
previously issued fiscal 1997 quarterly financial statements to reflect the
revenues and the related expenses, including the provision for doubtful
accounts, in the quarters in which the revenues ought originally to have been
billed. In addition, the Company is restating its fiscal 1997 quarterly
financial statements to reflect the adjustments resulting from the matter
discussed in Note M above. These corrections, which have no effect on net
income for the year ended June 30, 1997, result in changing previously
reported revenues, net income and per share amounts for the fiscal 1997
quarters as shown below:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended*
----------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
9/96 12/96 3/97 6/97
(in thousands, except per share
amounts)
REVENUES:
As originally reported $ 4,359 $4,672 $4,427 $5,061
Increase (decrease) 120 128 150 (14)
--------------- ------ ------ -------
As restated $ 4,479 $4,800 $4,577 $5,047
=============== ====== ====== =======
NET INCOME:
As originally reported $ 446 $ 625 $ 482 $ 528
Increase (decrease) 20 27 46 (93)
--------------- ----- ------ -------
As restated $ 466 $ 652 $ 528 $ 435
=============== ====== ====== =======
EARNINGS (LOSS PER SHARE:
As originally reported $ .08 $ .11 $ .08 $ .09
Increase (decrease) .01 (.02)
--------------- ----- ------ -------
As restated $ .08 $ .11 $ .09 $ .07
=============== ====== ====== =======
</TABLE>
*The selected quarterly financial data has not been audited or
reviewed by the Company's independent auditors.
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1998
(UNAUDITED)
<S> <C> <C>
<C> <C>
ASSETS Mar-31 Jun-30
1998 1997
------------ ------------
Current assets:
Cash and cash equivalents $ 4,061,000 $ 1,935,000
Accounts receivable, less estimated doubtful accounts 7,783,000 6,357,000
of $410,000 at March 31, 1998 and $666,000 at June 30, 1997
Inventories 192,000 56,000
Prepaid expenses and other current assets 538,000 304,000
------------ ------------
Total current assets 12,574,000 8,652,000
Fixed assets, at cost, less accumulated depreciation of $1,814,000 951,000 752,000
at March 31, 1998 and $1,572,000 at June 30, 1997
Capitalized software costs 2,038,000 1,448,000
Excess of cost over fair value of net assets acquired, net of 6,138,000 6,419,000
accumulated amortization of $1,013,000 at March 31, 1998 and
$732,000 at June 30, 1997
Other assets 620,000 78,000
------------ ------------
$22,321,000 $17,349,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 684,000 $ 713,000
Notes payable 4,750,000 1,212,000
Accrued expenses and other current liabilities 2,503,000 2,032,000
Advances from customers 3,501,000 2,106,000
Current portion of capital leases payable 7,000 102,000
------------ ------------
Total current liabilities 11,445,000 6,165,000
Notes payable, less current portion 0 4,600,000
Capital leases payable, less current portion 18,000 60,000
------------ ------------
Total liabilities 11,463,000 10,825,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; authorized 10,000,000 shares; none
issued and outstanding
Common stock - $.10 par value; authorized 12,000,000 shares; issued
and outstanding; 5,527,722 shares at March 31, 1998 and 5,056,486
shares at June 30, 1997 553,000 506,000
Unearned compensation (61,000) (91,000)
Cumulative foreign currency translation adjustment 27,000 36,000
Additional paid-in capital 15,822,000 13,621,000
(Deficit) (5,483,000) (7,548,000)
------------ ------------
Total stockholders' equity 10,858,000 6,524,000
------------ ------------
$22,321,000 $17,349,000
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, Nine Months Ended March 31,
--------------------------- --------------------------
(unaudited)
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
1998 1997 1998 1997
----------------------------- --------------------------
REVENUES:
System sales $ 1,985,000 $1,142,000 $ 5,046,000 $ 4,543,000
Services 3,197,000 3,435,000 9,503,000 9,313,000
----------- ---------- ----------- -----------
Total revenues 5,182,000 4,577,000 14,549,000 13,856,000
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of systems 670,000 386,000 1,701,000 1,474,000
Cost of services 828,000 832,000 2,306,000 2,440,000
Software development costs 716,000 525,000 1,898,000 1,661,000
Selling, general and administrative 2,188,000 2,105,000 6,193,000 6,086,000
----------- ---------- ----------- -----------
Total Costs & Expenses 4,402,000 3,848,000 12,098,000 11,661,000
Earnings before interest and taxes 780,000 729,000 2,451,000 2,195,000
Interest income 56,000 17,000 161,000 63,000
Interest (expense) (152,000) (197,000) (426,000) (551,000)
----------- ---------- ----------- -----------
Earnings before taxes 684,000 549,000 2,186,000 1,707,000
Provision for income taxes 35,000 21,000 121,000 61,000
----------- ---------- ----------- -----------
NET EARNINGS $ 649,000 $ 528,000 $ 2,065,000 $ 1,646,000
=========== ========== =========== ===========
$ 0.12 $ 0.11 $ 0.38 $ 0.33
Basic earnings per share
Diluted earnings per share $ 0.10 $ 0.09 $ 0.32 $ 0.28
Weighted average shares outstanding 5,523,250 4,951,000 5,417,036 4,942,000
Average shares outstanding assuming
dilution 6,708,069 5,897,000 6,565,318 5,870,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
-------------------
<S> <C> <C>
<C> <C>
Mar-31 Mar-31
1998 1997
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,065,000 $ 1,646,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Compensatory stock options issued to consultants 30,000
Provision for doubtful accounts 128,000 373,000
Depreciation and amortization 1,088,000 774,000
Changes in operating assets and liabilities
Accounts receivable (1,529,000) (2,155,000)
Inventory (136,000) 89,000
Prepaid and other assets (801,000) (120,000)
Accounts payable, accrued expenses and customer
advances 1,837,000 834,000
------------------- ------------
Net cash provided by operating activities 2,682,000 1,441,000
------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (639,000) (256,000)
Capitalized software costs (957,000) (478,000)
------------------- ------------
Net cash (used in) investing activities (1,596,000) (734,000)
------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 47,000 41,000
Cumulative foreign currency translation adjustment (9,000) 15,000
Proceeds of private placement 2,201,000
Repayment of debt (1,199,000) (1,224,000)
Net cash (used in) provided by financing
activities 1,040,000 (1,168,000)
------------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,126,000 (461,000)
Cash and cash equivalents, beginning of period 1,935,000 2,504,000
------------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,061,000 $ 2,043,000
=================== ============
</TABLE>
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC., & SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS:
-----------------------
In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments necessary to present
fairly the financial position of the Company and its results of operations and
cash flows for the interim periods presented. Such financial statements have
been condensed in accordance with the applicable regulations of the Securities
and Exchange Commission ("SEC") and therefore, do not include all disclosures
required by generally accepted accounting principles. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended June 30, 1997 included elsewhere herein.
The results of operations for the three months and nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. EARNINGS PER SHARE:
---------------------
The Company adopted the provisions of the Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in the preparation
of the financial statements included in this Quarterly Report on Form 10 QSB.
In accordance with the provisions of SFAS No. 128, the Company is required to
report both "basic" and "diluted" earnings per share and to restate previously
reported earnings per share amounts to conform to the provisions of SFAS 128.
Basic earnings per share have been computed using the weighted average number
of shares of common stock of the Company ("Common Stock") outstanding for each
period presented. The dilutive effect of stock options and other common stock
equivalents is included in the calculation of diluted earnings per share using
the treasury stock method. For the 1997 periods presented, the diluted
earnings per share amounts are the same as the earnings per share amounts
previously reported by the Company.
3. SERVICE MAINTENANCE REVENUE:
----------------------------------
Subsequent to a June 1996 acquisition, the Company recorded maintenance
revenue on contracts with the acquired company's customers in a manner that
was consistent with the policies followed prior to the acquisition.
Subsequent to the acquisition, the Company's management discovered that the
prior owners had not consistently billed certain contractual software
maintenance revenues. Pending an evaluation of the collectibility of such
contracts, the company conservatively elected to continue to follow that
policy. For the quarter ended December 31, 1997 the Company obtained
satisfactory indications (i.e., it had established a sufficiently credible
reputation for service with the customers who had not previously been billed,
had developed new and additional products upon which these customers now
relied, and had specifically discussed collection schedules for the billings
with the customers) that such revenue was, in fact collectible, and
accordingly, it recognized in that quarter the cumulative effects of the
economic event. After discussions with the accounting staff of the SEC on
April 29, 1998, the Company has now elected to restate (1) the financial
statements of prior quarters to record the revenues and corresponding
provisions for doubtful accounts in the quarters in which the services were
provided and (2) the financial statements for the quarter ended December 31,
1997. Accordingly, the Company has decreased both revenues and selling,
<PAGE>
general and administrative expenses, (the latter representing a reversal of
the allowance for doubtful accounts) from amounts previously reported by
$480,000 for the three months ended December 31, 1997 and by $384,000 for the
six months ended December 31, 1997. These adjustments had no effect on net
income previously reported for such periods. In addition, revenue and net
income were respectively increased by $150,000 and $46,000 for the three
months ended March 31, 1997 and by $398,000 and $93,000 for the nine months
ended March 31, 1997 from amounts previously reported to reflect the above and
other adjustments described in Note O to the Company's financial statements
for the year ended June 30, 1997 included elsewhere herein.
4. INCOME TAXES:
---------------
The tax expense is minimal due to the carry forward benefit from the net
operating loss.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
--------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," and Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosure about Segments of an Enterprise and Related Information." The
adoption of both statements is required for fiscal years beginning after
December 15, 1997.
SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that a
company classify items of their comprehensive income, as defined by accounting
standards, by their nature (i.e. unrealized gains or losses on securities) in
a financial statement, but does not require a specific format for that
statement.
SFAS 131 changes current practice under SFAS 14, "Financial Reporting of
Segments of a Business Enterprise," by establishing a new framework on which
to base segment reporting (referred to as the management approach) and also
requires interim reporting of segment information.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). SOP
97-2 is effective for transactions entered into in fiscal years beginning
after December 15, 1997. "Retroactive application of the provisions of SOP
97-2 is prohibited."
The Company is studying the implications of these new statements and has
yet to determine the impact of their implementation, if any, on its
consolidated financial statements.
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF INFORMEDICS, INC.
<TABLE>
<CAPTION>
<S> <C>
<C>
PAGE
----
FINANCIAL STATEMENTS
Independent auditors' report F-26
YEARS ENDED OCTOBER 31, 1997 AND 1996:
Statements of operations for the years ended October 31, 1997 and 1996 F-27
Balance sheets as of October 31, 1997 and 1996 F-28
Statements of cash flows for the years ended October 31, 1997 and 1996 F-30
Statements of cash flows - supplemental information for the years ended
October 31, 1997 and 1996 F-31
Statements of stockholders' equity for the years ended October 31, 1997 and 1996 F-32
Notes to financial statements F-33
SIX MONTHS ENDED APRIL 30, 1998 AND 1997 (UNAUDITED):
Statements of operations for the six months ended April 30, 1998 and 1997 (unaudited) F-40
Balance sheets as of April 30, 1998 and October 31, 1997 (unaudited) F-41
Statements of cash flows for the six months ended April 30, 1998 and 1997 (unaudited) F-43
Statements of cash flows - supplemental information for the six months ended
April 30, 1998 and 1997 (unaudited) F-44
Notes to financial statements (unaudited) F-45
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
and Stockholders of Informedics, Inc.
Lake Oswego, Oregon
We have audited the accompanying balance sheets of Informedics, Inc. as of
October 31, 1997 and 1996 and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the two years in
the period ended October 31, 1997. These financial statements are the
responsibility of Informedics' 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, such financial statements present fairly, in all material
respects, the financial position of Informedics on October 31, 1997 and 1996
and the results of its operations and its cash flows for each of the two years
in the period ended October 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
January 9, 1998
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
<C> <C>
-------------------------
1997 1996
------------ -----------
REVENUE:
Product Sales $ 671,038 $1,601,204
Customer Service and Support 2,578,747 3,554,749
------------ -----------
Total Revenue 3,249,785 5,155,953
------------ -----------
COSTS AND EXPENSES:
Cost of Products Sold 137,331 623,785
Cost of Customer Service and Support 1,719,778 2,895,020
Selling and Administrative Expenses 1,747,543 1,964,371
Depreciation and Amortization 398,500 457,080
Total Costs and Expenses 4,003,152 5,940,256
------------ -----------
Operating Loss (753,367) (784,303)
------------ -----------
OTHER INCOME (EXPENSE):
Interest Expense (5,958) (1,523)
Interest Income 29,494 15,903
Other Income (Expense) 160,671 11,590
Total Other Income - Net 184,207 25,970
------------ -----------
Loss Before Income Taxes (569,160) (758,333)
Income Tax Provision (Benefit) (Note 8) 721,743 (285,427)
------------ -----------
Net Loss $(1,290,903) $ (472,906)
============ ===========
Weighted Average Number of Common Shares and
Common Stock Equivalents Outstanding 2,650,416 2,646,194
============ ===========
Loss Per Share - basic and diluted $ (0.49) $ (0.18)
============ ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS, OCTOBER 31, 1997 AND 1996
<S> <C> <C>
<C> <C>
ASSETS 1997 1996
- ------ ----------- ----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 207,692 $ 323,217
Accounts Receivable, less allowance for doubtful
accounts of $16,200 in 1997 and $28,439 in
1996 445,879 681,303
Inventories (Note 2) 3,304 23,833
Prepaid Expenses and Other Current Assets 55,267 36,150
Deferred Income Taxes (Note 8) 90,500 182,483
Current Portion of Long-Term Accounts Receivable 11,928 11,928
Current Portion of Notes Receivable (Note 3) 0 54,095
----------- ----------
Total Current Assets 814,570 1,313,009
----------- ----------
FIXED ASSETS:
Furniture and Fixtures 135,505 134,282
Machinery and Equipment 557,188 583,961
Automobiles 0 29,138
Leasehold Improvements 27,258 20,442
Other Fixed Assets 142,982 136,805
----------- ----------
862,933 904,628
Less accumulated depreciation and amortization 737,093 672,300
Total Fixed Assets 125,840 232,328
----------- ----------
OTHER ASSETS:
Long-Term Accounts Receivable 30,814 42,742
Notes Receivable (Note 3) 0 305,102
Software Development Costs,
less accumulated amortization of
$787,791 in 1997 and $542,884 in 1996 169,540 305,415
Covenants Not to Compete,
less accumulated amortization of
$493,862 in 1997 and $479,698 in 1996 183 14,348
Deferred Income Taxes (Note 8) 932,901 613,060
Tax Valuation Allowance (Note 8) (932,901) 0
Other 39,799 41,816
Total Other Assets 240,336 1,322,483
----------- ----------
TOTAL ASSETS $1,180,746 $2,867,820
=========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996
------------ -----------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses:
Trade Accounts $ 87,917 $ 115,543
Customer Deposits 22,590 4,120
Accrued Payroll Taxes and Employee Benefits 86,362 175,285
Other Accrued Liabilities 9,445 767
Revolving Line of Credit (Note 6) 0 125,000
Deferred Revenue 1,192,368 1,274,687
Current Portion of Deferred Rent (Note 5) 13,033 13,033
Current Portion of Deferred Gain on Sale of Assets (Note 3) 0 19,615
------------ -----------
Total Current Liabilities 1,411,715 1,728,050
LONG-TERM OBLIGATIONS:
Deferred Rent (Note 5) 17,378 30,411
Deferred Tax Liability (Note 8) 16,700 0
Deferred Gain on Sale of Assets (Note 3) 0 87,375
------------ -----------
Total Current Liabilities and Long-Term Obligations 1,445,793 1,845,836
------------ -----------
COMMITMENTS AND CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $0.01 par value:
authorized 5,000,000 shares;
no shares outstanding 0 0
Common Stock, $.01 per value:
authorized 15,000,000 shares;
shares outstanding: 2,654,708 in 1997 and 2,650,307
in 1996 26,546 26,503
Capital in Excess of Par Value 1,918,042 1,914,213
Note Receivable from Stockholder (Note 4) (22,000) (22,000)
Accumulated Deficit (2,187,635) (896,732)
------------ -----------
Total Stockholders' Equity (Deficit) (265,047) 1,021,984
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,180,746 $2,867,820
============ ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
<C> <C>
1997 1996
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,290,903) $(472,906)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH AND CASH EQUIVALENTS
(USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 398,500 457,080
Provision for Write-offs of
Accounts Receivable (12,239) (36,184)
Deferred Income Taxes 721,743 (200,009)
Tax Benefits from Stock Options Exercised 0 1,395
Gain on Sale of Assets (Note 3) (154,293) (11,888)
Changes in Assets and Liabilities:
Accounts Receivable 259,591 108,195
Inventories 20,529 50,439
Prepaid Expenses and Other Current Assets (19,117) 62,879
Accounts Payable and Accrued Expenses (89,401) (135,777)
Deferred Revenue (82,319) 92,034
Deferred Rent (13,033) (13,033)
Net Cash and Cash Equivalents Used In
Operating Activities (260,942) (97,775)
------------ ----------
INVESTING ACTIVITIES:
Property Additions (43,512) (104,762)
Capitalized Software Development Costs (109,032) (194,365)
Proceeds from Sale of Product Line
and Related Assets (Note 3) 406,500 50,000
Other 12,589 3,436
Net Cash Provided By (Used In) Investing Activities 266,545 (245,691)
------------ ----------
FINANCING ACTIVITIES:
Increase (Decrease) in Revolving Line of Credit (125,000) 125,000
Proceeds from Issuance of Common Stock 3,872 7,423
------------ ----------
Net Cash Provided By (Used In) Financing Activities (121,128) 132,423
------------ ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (115,525) (211,043)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 323,217 534,260
------------ ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 207,692 $ 323,217
============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C>
<C> <C>
1997 1996
------ ---------
Supplemental Disclosures of Cash Flow
Information:
Cash Paid for:
Interest $5,959 $ 1,523
Income Taxes Received 0 (86,823)
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Sale of Product Line and Related Assets
for Note Receivable 0 359,197
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
CAPITAL IN NOTE RECEIVABLE
EXCESS OF FROM RETAINED
PAR PAR STOCK- EARNINGS
SHARES VALUE VALUE HOLDER (ACCUMULATED
DEFICIT) TOTAL
Balance at 2,642,207 $26,422 $1,905,476 $ (22,000) $ (423,826) $ 1,486,072
November 1, 1995
Issuance of Stock 8,100 81 7,342 0 0 7,342
Tax Benefits From
Stock Options Exercised 0 0 1,395 0 0 1,395
Net Loss 0 0 0 0 (472,906) (472,906)
Balance at October 31, 2,650,307 26,503 1,914,213 (22,000) (896,732) 1,021,984
1996
Issuance of Stock 4,401 43 3,872 0 0 3,872
Net Loss 0 0 0 0 (1,290,903) (1,290,903)
Balance at October 31, 2,654,708 $26,546 $1,918,042 $(22,000) (2,187,635) $ (265,047)
1997
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
INDUSTRY SEGMENT - Informedics derives its revenue solely from the sales and
servicing of microcomputer software and related hardware.
INVENTORIES are stated at the lower of cost or market. Specific
identification is used to determine the costs of hardware and software
inventory.
FIXED ASSETS are stated at cost, less accumulated depreciation and
amortization. The costs of fixed assets are depreciated over the estimated
useful lives (two to five years) of the assets using the straight-line method.
Leasehold improvements are depreciated over the term of the lease (five
years).
CUSTOMER SERVICE AND SUPPORT REVENUE represents revenue earned from hardware
and software maintenance contracts, training, installation of new systems, and
general software support and programming services provided to customers.
Under renewable maintenance contracts, Informedics provides, for a term of
generally not more than one year, all maintenance and repairs resulting from
the normal and intended use of its products. Deferred revenue on maintenance
contracts is amortized by the straight-line method over the life of the
contracts.
REVENUE RECOGNITION - Revenue from sales of software and hardware is generally
recorded when the product is shipped. Revenue from custom software products,
which are marketed to customers primarily under perpetual license
arrangements, is recorded at the time the product is installed and accepted by
the customer. Revenue from services other than maintenance contracts is
recognized as performed.
LOSS PER SHARE is computed on the basis of the weighted average number of
shares outstanding. Common stock equivalents are excluded from the calculation
of net loss per share as they are antidilutive.
SOFTWARE DEVELOPMENT COSTS - Certain software development costs are being
capitalized and amortized over the estimated economic life of the software on
a straight-line method, commencing when each product or enhancement is
available for general release. Amortization was $244,907 in 1997 and $201,734
in 1996.
PURCHASED SOFTWARE is stated at cost and is being amortized on the
straight-line method over its estimated useful life. Purchased software was
fully amortized in 1995. In October 1996, Informedics retired all of its
purchased software, which were among the assets sold to Adaptive. (See Note
3)
COVENANTS NOT TO COMPETE are stated at the estimated value of the
consideration given for the covenants (including the present value of any
future payments to be made under each agreement), less accumulated
amortization. The costs of the covenants are being amortized over four or
seven years, using the straight-line method. Amortization was $14,165 in 1997
and $69,448 in 1996.
INCOME TAXES are accounted for using the methodology established by Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires an asset and a liability approach to financial
accounting and reporting for income taxes (see Note 8). Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future. A valuation allowance is
established when necessary to reduce deferred tax assets to amounts expected
to be realized based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Income tax
expense is the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
CASH AND CASH EQUIVALENTS includes cash on hand, deposits in bank, and highly
liquid debt instruments purchased with original maturity dates of generally
three months or less.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject
Informedics to concentrations of credit risks consist principally of cash and
trade accounts receivable. Informedics places substantially all of its cash
in demand deposit accounts with high credit quality financial institutions.
Trade accounts receivable are with a large number of customers within the
industry, dispersed across a wide geographic base. Management believes that
any risk of loss is significantly reduced by its ongoing credit evaluations of
its customers' financial condition.
FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the estimated fair value of
financial instruments when it is practicable to estimate that value. The
carrying amount of assets and liabilities as reported on the balance sheet
approximates their fair market values.
ACCOUNTING CHANGES - In October 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement establishes an alternative method of accounting that requires
recognizing as expense the fair value of employee stock options and other
stock-based awards at the grant date. SFAS No. 123, also allows the
continuation of the current accounting treatment under which Informedics does
not recognize compensation expense for the stock options it awards to
employees. Since Informedics is electing to retain its current method, it is
required to present pro forma disclosures in its 1997 financial statements as
if the fair value based method had been applied.
ESTIMATES - The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that reflect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expense during the
reporting period. Actual results could differ from these estimates.
EARNINGS PER SHARE - In February 1997, the FASB issued SFAS No. 128, "Earnings
Per Share," which established new standards for computing and presenting
earnings per share ("EPS") to entities having publicly held common stock and
potential common stock. SFAS No. 128 replaces the presentation of primary EPS
with the dual presentation of a basic EPS and diluted EPS on Informedics'
statements of operations and, accordingly, EPS have been restated for all
years presented. Informedics computes basic EPS by dividing net income by the
weighted-average number of common shares outstanding and diluted EPS by
dividing net income by the sum of the weighted-average number of common shares
outstanding and the dilutive effect of stock options and warrants outstanding
as if such options and warrants were exercised or converted into common
shares. Informedics' computation of diluted EPS is essentially the same as
the computation of primary EPS, which was presented prior to the adoption of
SFAS No. 128.
There were no adjustments to net income in computing diluted earnings per
share for the years ended October 31, 1997 and 1996. Informedics uses the
treasury stock method to compute the number of shares used in the diluted EPS
calculation and as such no shares are included for outstanding stock options
as they would be antidilutive.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current year presentation. These reclassifications had no
effect on previously reported net income.
PROSPECTIVE ACCOUNTING CHANGES - SFAS No. 130, "Reporting Comprehensive
Income," establishes requirements for disclosure of comprehensive income. The
new standard becomes effective in fiscal year 1999. SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information," establishes
standards for disclosure about operating segments in annual financial
statements and requires disclosure of selected information about operating
segments in interim financial reports. The new standard becomes effective in
fiscal year 1999. There will not be any substantial changes to Informedics'
disclosure at the time SFAS No. 131 is adopted.
2. INVENTORIES
Inventories at October 31 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
1997 1996
------ -------
Computers $ 0 $ 4,418
Peripheral equipment 759 11,517
Parts 1,670 2,124
Software 292 4,457
Supplies and Forms 583 1,317
------ ------
Total $3,304 $23,833
====== =======
</TABLE>
3. NOTES RECEIVABLE
On October 31, 1996, Informedics sold certain assets of its ClinicManager
product line to Adaptive for $500,000, subject to increase or decrease based
on revenues received by Adaptive from Informedics' former customers during the
six-month period after closing. Under the terms of an Asset Purchase
Agreement, Adaptive paid Informedics $50,000 on October 31, 1996, and was
required to pay the remaining balance in 60 equal monthly payments of $7,500.
In April 1997, certain conditions of the sale were satisfied, resulting in an
acceleration of the note receivable payments due from Adaptive. In May 1997,
Informedics received $406,500 from Adaptive to pay off the note. Informedics
recognized a gain of $174,793 during 1997 as a result of the funds received
from Adaptive.
4. NOTE RECEIVABLE FROM STOCKHOLDER
Informedics accepted a $22,000 promissory note from a director, when he
exercised an option to purchase 25,000 shares of common stock. The promissory
note bears an interest rate of 7% per year, payable quarterly. The principal
of the promissory note was to be paid in full on September 30, 1996.
Informedics extended the due date of the promissory note to October 31, 1997.
On September 19, 1997, the Board of Directors authorized an extension of the
note through June 30, 1998 or the date of the proposed merger transaction with
Mediware (See Note 11). The shares of common stock issued upon the exercise
of the option are held by Informedics as collateral for the promissory note.
5. LEASE COMMITMENTS
Informedics entered into an agreement ("Agreement") to lease 16,851 square
feet of office space. The Agreement provided for three months of free rent
which is being amortized over the life of the Agreement. The Agreement
expires on February 28, 2000. Informedics has the option to extend the
Agreement for five years. Minimum lease payments under the Agreement include
interior/exterior maintenance, utilities, insurance and janitorial services,
except that Informedics, starting in 1996, is required to pay its pro-rata
share of the increase in such costs over the base established in calendar year
1995.
Future minimum lease payments under the Agreement are as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
1998 $278,041
1999 278,041
2000 92,681
TOTAL $648,763
========
</TABLE>
On December 19, 1996, Informedics entered into a sub-lease agreement with
Southern Pacific Funding, Inc. ("Southern") to sub-lease 5,222 square feet of
Informedics' office space to Southern. The term of the sub-lease agreement is
January 15, 1997 to January 31, 1998. Informedics expects Southern to vacate
the premises on or before January 31, 1998. Future minimum payments to be
received under the sub-lease agreement will be $21,540 in fiscal 1998.
On October 17, 1997, Informedics entered into a sub-lease agreement with
Pacific Crest Technologies, Inc. ("Pacific") to sub-lease 4,931 square feet of
Informedics' office space to Pacific. The term of the sub-lease agreement is
November 1, 1997 to February 28, 1998. Pursuant to an Amendment to sublease
dated February 19, 1998, the term of the sub-lease was extended and the space
expanded. The sub-lease may be canceled by either party upon 120 days'
written notice. Future minimum payments to be received under the sub-lease
agreement will be $135,188 in fiscal 1998.
Rental expense for all operating leases for the years ended October 31, 1997
and 1996 was $204,579 and $269,445, respectively.
6. CREDIT AGREEMENTS
In April 1997, Informedics renewed its uncommitted revolving line of credit
with Informedics' bank. There was no amount owing under this agreement as of
October 31, 1997. Informedics was not able to maintain the required covenant
ratios and as a result Informedics' bank reduced the credit line to $200,000
on August 20, 1997. Informedics' bank agreed to waive this covenant through
October 31, 1997. All of the assets of Informedics were pledged as security
for the line of credit. The credit line agreement expired December 31, 1997.
Informedics has no plans to seek a new credit line.
7. EMPLOYEE BENEFIT PLAN
Informedics has a 401(k) Savings Plan ("Plan"). All regular full-time
employees (over 21 years old) are eligible to participate in the Plan.
Informedics' contribution to the Plan is 50% of the employee's contribution up
to a maximum of 2-1/2% of the employee's wages. During 1997 and 1996,
Informedics contributed $31,454 and $43,039, respectively, to the Plan.
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The effect of
significant items comprising Informedics' net deferred tax asset or liability
as of October 31was as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
1997 1996
----------- ----------
Deferred Tax Assets:
Accrued Expenses $ 32,100 $ 58,799
Deferred Maintenance Contract 58,400 123,684
Differences Between Book and Tax Basis of
Property and Equipment 45,500 66,589
State Net Operating Loss Carryforward 180,300 137,520
Federal Net Operating Loss Carryforward 752,601 526,108
Deferred Tax Liabilities:
Capitalized Software Costs (62,200) (117,157)
-------- ----------
Sub-Total 1,006,701 795,543
Valuation Allowance (932,901) 0
----------- ----------
Net Deferred Tax Asset $ 73,800 $ 795,543
=========== ==========
</TABLE>
The deferred tax assets and liabilities are included in the following balance
sheet accounts at October 31:
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
1997 1996
--------- --------
Current Deferred Tax Assets $ 90,500 $182,483
Deferred Tax Assets (Liability) (16,700) 613,060
--------- -------
Net Deferred Tax Asset $ 73,800 $795,543
========= ========
</TABLE>
Informedics' management determined that the benefit of Informedics' net
operating loss carryforwards was not likely to be realized. Accordingly,
Informedics increased the valuation reserve $932,901 to reserve fully the
deferred tax asset relating to the net operating loss carryforwards.
There are approximately $2,295,000 and $2,732,000 of unused net operating loss
carryforwards which, if not used, will expire in 2008 and 2009 for federal and
state tax reporting purposes, respectively.
Informedics may realize tax benefits as a result of the exercise of certain
employee stock options. For financial reporting purposes, any reduction of
income tax obligations as a result of these tax benefits is credited to
capital in excess of par value. During 1996, $1,395 was credited to capital
in excess of par value.
A reconciliation between income taxes calculated at the statutory federal tax
rate and the tax provision reflected in the financial statements is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
1997 1996
---------- ----------
Computed income taxes based on statutory
federal income tax rate of 34% $(193,514) $(257,833)
Increase (reduction) in taxes resulting from:
Valuation allowance 932,901 0
State income tax, net of federal benefit (24,793) (33,033)
Other 7,149 5,439
---------- ----------
$ 721,743 $(285,427)
========== ==========
</TABLE>
The provision for income taxes, net of operating loss carryforwards, consists
of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
1997 1996
-------- ----------
Income taxes currently payable (receivable):
Federal $ 0 $ 1,395
State 10 10
-------- ----------
10 1,405
-------- ----------
Deferred taxes - net:
Federal 575,027 (237,482)
State 146,706 (49,350)
------- ----------
721,733 (286,832)
-------- ----------
$721,743 $(285,427)
======== ==========
</TABLE>
9. SIGNIFICANT CUSTOMER
Informedics recorded revenue from one customer representing 16 and 13 percent
of total revenue during 1997 and 1996, respectively.
10. STOCK OPTION PLANS
Informedics has adopted two employee stock option plans that provide for the
issuance of incentive stock options and non-statutory stock options to
employees and officers and non-statutory stock options to directors who are
not employees. The stock option plans authorize the issuance of up to
1,250,000 shares of Informedics' common stock. On October 31, 1997, 388,104
shares were available under the plans for future grant.
The plans are administered by the Compensation Committee of the Board of
Directors. The exercise price for the options granted under the option plans
is determined by the Committee and cannot be less than the fair market value
of the common stock as of the date of the grant. The term of each option is
determined by the Committee, but may not be more than ten years. Vesting
schedules are established by the Compensation Committee. All outstanding
options have a term of five years and vest over a three-year period.
One of the stock option plans provides for an automatic grant of nonstatutory
stock options to members of the Compensation Committee. The automatic grants
occur each year on the date of the annual shareholder meeting, and the
exercise price of the options issued is the fair market value of the common
stock on that date.
As discussed in Note 1, the disclosure-only provisions of SFAS No. 123 have
been adopted. Accordingly, no compensation cost has been recognized for stock
options granted with an exercise price equal to the fair value of the
underlying stock on the date of grant. Had compensation costs been determined
based on the estimated fair value of the options at the date of grant, the
loss, and the loss per share for the years ended October 31, 1997 and October
31, 1996 would not have differed materially from the amounts reported.
The following table summarizes the stock option activity under Informedics'
option plans:
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Shares under Option Price
Option Weighted Average
------------- -----------------
Options Outstanding at November 1, 1995 679,144 $ 1.64
Exercised (8,100) $ 0.92
Canceled or Expired (191,858) $ 2.13
Granted 131,750 $ 1.13
------------- -----------------
Options Outstanding at October 31, 1996 610,936 $ 1.38
Exercised (4,401) $ 0.88
Canceled or Expired (159,059) $ 1.87
Granted 80,000 $ 0.55
------------- -----------------
Options Outstanding at October 31, 1997 527,476 $ 1.11
============= =================
Options Exercisable at October 31, 1997 424,139 $ 1.15
============= =================
</TABLE>
11. SUBSEQUENT EVENTS
On July 29, 1997, Informedics signed a letter of intent to merge into Mediware
Information Systems, Inc. ("Mediware") of Melville, NY. Informedics announced
on December 19, 1997 the signing of an Agreement and Plan of Merger to merge
into Mediware in a stock exchange whereby one share of Mediware stock would be
exchanged for every 6.3 shares of Informedics' stock. The merger is subject
to the approval of Informedics' shareholders.
<TABLE>
<CAPTION>
INFORMEDICS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended, Six Months Ended
April 30 April 30,
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
1998 1997 1998 1997
-------- -------- ------ --------
REVENUE:
Product Sales $ 46,175 $ 274,249 $ 208,836 $ 424,010
Customer Service and Support 647,924 640,985 1,289,033 1,336,920
---------- --------- --------- ---------
Total Revenue 694,099 915,234 1,497,869 1,760,930
---------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of Products Sold 15,180 25,450 52,305 53,661
Cost of Customer Service and Support 293,169 471,916 527,444 973,002
Selling & Administrative Expenses 198,386 521,721 473,887 1,006,868
Depreciation & Amortization 20,379 100,627 81,396 202,237
---------- --------- --------- ---------
Total Costs and Expenses 527,114 1,119,714 1,135,032 2,235,768
---------- --------- --------- ---------
Operating Profit (Loss) 166,985 (204,480) 362,837 (474,838)
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Expense 0 (686) (832) (4,521)
Interest Income 18,594 11,019 21,919 19,699
Other Income 17,471 6,430 24,751 10,099
---------- --------- --------- ---------
Total Other Income 36,065 16,763 45,838 25,277
---------- --------- --------- ---------
PROFIT (LOSS) BEFORE 203,050 (187,717) 408,675 (449,561)
INCOME TAXES
Income Tax Provision 24,100 0 41,200 0
---------- --------- --------- ---------
NET PROFIT (LOSS) AFTER $ 178,950 $ (187,717) $ 367,475 $ (449,561)
INCOME TAXES
========= ======== ======== =========
BASIC AND DILUTED $ 0.07 $ (0.07) $ 0.14 $ (0.17)
EARNINGS (LOSS) PER SHARE
========= ======== ======== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
INFORMEDICS, INC.
BALANCE SHEETS (UNAUDITED)
April 30, October 31,
1998 1997
----------- -----------
<S> <C> <C>
<C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 868,758 $ 207,692
Accounts Receivable, Less Allowance for Doubtful 228,960 445,879
Accounts of $16,200 in 1998 and 1997
Inventories 14,848 3,304
Prepaid Expenses and Other Current Assets 91,376 55,267
Deferred Income Taxes 59,000 90,500
Current Portion of Long-Term Receivable 11,928 11,928
----------- ---------
Total Current Assets 1,274,870 814,570
----------- --------
FIXED ASSETS:
Furniture and Fixtures 114,171 135,505
Machinery and Equipment 439,205 557,188
Leasehold Improvements 29,583 27,258
Other Fixed Assets 144,004 142,982
----------- ---------
726,963 862,933
Less accumulated depreciation and amortization 650,560 737,093
----------- --------
Total Fixed Assets 76,403 125,840
----------- --------
OTHER ASSETS:
Long-Term Account Receivable 24,850 30,814
Software Development Costs, 174,864 169,540
Less Accumulated Amortization of $825,312
in 1998 and $787,791 in 1997
Covenants Not to Compete, 83 183
Less Accumulated Amortization of $493,962
in 1998 and $493,862 in 1997
Deferred Income Taxes 818,301 932,901
Tax Valuation Allowance (818,301) (932,901)
Other 39,299 39,799
----------- ---------
Total Other Assets 239,096 240,336
----------- --------
TOTAL ASSETS $1,590,369 $ 1,180,746
=========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
INFORMEDICS, INC.
BALANCE SHEETS (UNAUDITED)
<S> <C> <C>
<C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) April 30, October 31,
1998 1997
------------ ------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses:
Trade Accounts $ 63,729 $ 87,917
Customer Deposits 15,810 22,590
Accrued Wages, Payroll Taxes and Employee Benefits 65,960 86,362
Other Accrued Liabilities 15,090 9,445
Deferred Revenue 1,253,725 1,192,368
Current Portion of Deferred Rent 10,861 13,033
------------ ----------
Total Current Liabilities 1,425,175 1,411,715
LONG-TERM OBLIGATIONS:
Deferred Rent 13,033 17,378
Deferred Tax Liability 26,400 16,700
------------ --------
Total Current Liabilities and Long-Term Obligations 1,464,608 1,445,793
------------ ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 Par Value: 0 0
Authorized 5,000,000 Shares;
No Shares Outstanding
Common Stock, $.01 Par Value: 26,745 26,546
Authorized 15,000,000 Shares;
Shares Outstanding: 2,674,502 in 1998 and
2,654,708 in 1997
Capital in Excess of Par Value 1,941,176 1,918,042
Note Receivable from Stockholder (22,000) (22,000)
Accumulated Deficit (1,820,160) (2,187,635)
------------ -----------
Total Stockholders' Equity (Deficit) 125,761 (265,047)
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,590,369 $ 1,180,746
============ =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
INFORMEDICS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended April 30,
---------------------------
1998 1997
-------------- ----------
<S> <C> <C>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 367,475 $(449,561)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH AND CASH EQUIVALENTS
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 86,254 202,237
Provision for Write-offs of Accounts Receivable 0 32,561
Deferred Income Taxes 41,200 0
Gain on Sale of Assets 0 (8,917)
Changes in Assets and Liabilities:
Accounts Receivable 216,919 162,308
Inventories (11,544) 8,957
Prepaid Expenses and Other Current Assets (36,109) 4,814
Accounts Payable and Accrued Expenses (45,725) (37,701)
Notes Receivable 5,964 24,023
Deferred Revenue 61,357 14,850
Deferred Rent (6,517) (6,517)
---------------- ---------
Net Cash and Cash Equivalents Provided by 679,274 (52,946)
(Used in) Operating Activities
INVESTING ACTIVITIES:
Property Additions (6,830) (23,238)
Capitalized Software Development Costs (42,844) (57,823)
Other 8,133 1,942
---------------- ---------
Net Cash Used in Investing Activities (41,541) (79,119)
---------------- ---------
FINANCING ACTIVITIES:
Decrease in Revolving Line of Credit 0 (25,000)
Proceeds from Issuance of Common Stock 23,333 0
---------------- ---------
Net Cash Provided by (Used In) Financing Activities 23,333 (25,000)
---------------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 661,066 (157,065)
CASH AND CASH EQUIVALENTS AT BEGINNING 207,692 323,217
OF PERIOD
---------------- ---------
CASH AND CASH EQUIVALENTS AT END $ 868,758 $ 166,152
OF PERIOD
=============== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFORMEDICS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended April 30,
1998 1997
-----------------------------
<S> <C> <C>
<C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid for:
Interest $ 832 $4,521
See Notes to Financial Statements.
</TABLE>
INFORMEDICS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The information included herein is unaudited. However, such information
reflects all adjustments (consisting solely of normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim periods. The interim financial
information and notes thereto should be read in conjunction with Informedics'
latest annual report on Form 10-KSB. The results of operations for the six
months ended April 30, 1998 are not necessarily indicative of results to be
expected for the entire year.
1. SIGNIFICANT ACCOUNTING POLICIES
Industry Segment
- -----------------
Informedics derives its revenue solely from the sales and servicing of
microcomputer software and related hardware.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Specific
identification is used to determine the costs of hardware and software
inventory.
Fixed Assets
- -------------
Fixed assets are stated at cost, less accumulated depreciation and
amortization. The costs of fixed assets are depreciated over the estimated
useful lives (two to five years) of the assets using the straight-line method.
Leasehold improvements are amortized over the term of the lease (five years).
Customer Service and Support Revenue
- ----------------------------------------
Customer service and support revenue represents revenue earned from hardware
and software maintenance contracts, training, installation of new systems, and
general software support and programming services provided to customers.
Under renewable maintenance contracts, Informedics provides, for a term of
generally not more than one year, essentially all maintenance and repairs
resulting from the normal and intended use of its products. Deferred revenue
on maintenance contracts is amortized by the straight-line method over the
life of the contracts.
Revenue Recognition
- --------------------
Revenue from sales of software and hardware is generally recorded when the
product is shipped. Revenue from custom software products, which are marketed
to customers primarily under perpetual license arrangements, is recorded at
the time the product is installed and accepted by the customer. Revenue from
services other than maintenance contracts is recognized as performed.
Income Taxes
- -------------
Income taxes are accounted for using the methodology established by Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires an asset and a liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future. A valuation allowance is established when necessary to
reduce deferred tax assets to amounts expected to be realized, based on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Income tax expense or benefit is the
tax payable or refundable for the period, plus or minus the change during the
period in deferred tax assets and liabilities.
Software Development Costs
- ----------------------------
Certain software development costs are being capitalized and amortized over
the estimated economic life of the software, on a straight-line method,
commencing when each product or enhancement is available for general release.
Amortization using the straight-line method for the six-month periods ended
April 30, 1998 and 1997 was $37,521 and $121,040, respectively.
Covenants Not to Compete
- ---------------------------
Covenants not to compete are stated at the estimated value of the
consideration given for the covenants (including the present value of any
future payments to be made under each agreement), less accumulated
amortization. The costs of the covenants are being amortized over four or
seven years, using the straight-line method. Amortization for the six-month
periods ended April 30, 1998 and 1997 was $ 100 and $ 7,718, respectively.
Earnings Per Share
- ----------------------
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, "Earnings Per Share," which established new standards for
computing and presenting earnings per share ("EPS") to entities having
publicly held common stock and potential common stock. SFAS No. 128 replaces
the presentation of primary EPS with the dual presentation of a basic EPS and
diluted EPS on Informedics' statements of operations. Informedics computes
basic EPS by dividing net income by the weighted-average number of common
shares outstanding and diluted EPS by dividing net income by the sum of the
weighted-average number of common shares outstanding and the dilutive effect
of stock options and warrants outstanding as if such options were exercised or
converted into common shares. Informedics' computation of diluted EPS is
essentially the same as the computation of primary EPS, which was presented
prior to the adoption of SFAS No. 128.
There were no adjustments to net income in computing diluted earnings per
share for the periods ended April 30, 1998 and 1997. Informedics uses the
treasury stock method to compute the number of shares used in the diluted
calculation and, as such, in 1997, no shares are included for outstanding
stock options as they would be antidilutive. A reconciliation of the common
shares used in the denominator for computing basic and diluted EPS for the
periods ended April 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Weighted-average shares 2,674,502 2,650,307 2,674,502 2,650,307
outstanding, used in computing
basic EPS
Effect of dilutive stock options 19,900 19,900
----------- ---------- ----------- ----------
Weighted-average shares
outstanding and the effect of
dilutive stock options used in
computing diluted EPS 2,694,402 2,650,307 2,694,402 2,650,307
========== ========== ========== =========
</TABLE>
Cash and Cash Equivalents
- ----------------------------
Informedics considers cash on hand, deposits in bank and highly liquid debt
instruments purchased with original maturity dates of six months or less, as
cash.
Accounting Changes
- -------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes an alternative method of accounting
that requires recognizing as expense the fair value of employee stock options
and other stock-based awards at the grant date. SFAS No. 123 also allows the
continuation of the current accounting treatment under which Informedics does
not recognize compensation expense for the stock options it awards to
employees. Since Informedics is electing to retain its current method, it is
required to present pro forma disclosures in its annual financial statements
as if the fair value based method had been applied.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes requirements for disclosure of comprehensive income
and becomes effective for Informedics' fiscal year ending October 31, 1999.
Reclassification of earlier financial statements for comparative purposes is
required. The impact on Informedics' financial statements is not material.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." The new standard becomes
effective for Informedics' fiscal year ending October 31, 1999, and requires
that comparative information from earlier years be restated to conform to the
requirements of this standard.
2. CREDIT AGREEMENTS
Informedics has no credit line with a bank at this time.
<PAGE>
ANNEXES
Annex A - Agreement and Plan of Merger, as amended
Annex B - Oregon Business Corporation Act, ORS
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 18, 1997 by and among
MEDIWARE INFORMATION SYSTEMS, INC., a corporation organized under the laws of
the State of New York ("Parent"), MEDIWARE ACQUISITION CORPORATION, a
corporation organized under the laws of the State of Oregon and a wholly-owned
subsidiary of Parent ("Acquisition") and INFORMEDICS, INC., a corporation
organized under the laws of the State of Oregon (the "Company").
WHEREAS, the respective Boards of Directors of the Parent, Acquisition
and the Company have approved the merger of the Company with and into
Acquisition (the "Merger"), with Acquisition being the surviving corporation
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to
be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 Surviving Corporation. In accordance with the provisions of this
Agreement and the Oregon Business Corporation Act (the "Oregon Act"), at the
Effective Date (as defined in Section 1.6, below) the Company shall be merged
with and into Acquisition, with Acquisition being the surviving corporation in
the Merger, with the initial corporate name of Mediware Acquisition Corp.
(hereinafter sometimes called the "Surviving Corporation"). At the Effective
Date, the separate existence of the Company shall cease and the Surviving
Corporation shall continue its corporate existence under the laws of the State
of Oregon as a wholly-owned subsidiary of Parent. Without limiting the
generality of the foregoing, from and after the Effective Date the Surviving
Corporation shall possess all of the rights, privileges, immunities, powers
and purposes, and shall assume and be liable for all of the liabilities,
obligations and penalties, of each of Acquisition and the Company, and the
Merger shall have all of the effects provided for in Section 60.497 of the
Oregon Act.
1.2 Articles of Incorporation. The Articles of Incorporation of
Acquisition as in effect at the Effective Date shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law.
1.3 By-Laws. The By-Laws of Acquisition as in effect at the
Effective Date shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
1.4 Directors. The directors of Acquisition at the Effective Date
shall, from and after the Effective Date, be the directors of the Surviving
Corporation, all such directors to hold office until their respective
successors are duly elected and qualified in the manner provided in the
Articles of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
1.5 Officers. The officers of Acquisition at the Effective Date
shall, from and after the Effective Date, be the officers of the Surviving
Corporation, all such officers to hold office until their respective
successors are duly elected and qualified in the manner provided in the
Articles of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
1.6 Effective Date. As soon as practicable following the Closing (as
defined in Section 2.4, below), Articles of Merger shall be filed with the
Secretary of State of the State of Oregon. The Merger shall become effective
at such time as the Articles of Merger are filed with the Secretary of State
pursuant to Section 60.494 of the Oregon Act. The time when the Merger shall
become effective is herein referred to as the "Effective Date."
1.7 Additional Actions. If, at any time after the Effective Date,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, its right, title or interest in or to any of the
rights, properties or assets of Acquisition or the Company acquired or to be
acquired by reason of, or as a result of, the Merger, or otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors shall be authorized to execute and deliver, in the name
and on behalf of Acquisition or the Company, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of Acquisition
or the Company, all such other acts and things necessary or desirable to vest,
perfect or confirm any and all right, title or interest in, to or under such
rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES
2.1 Merger Consideration. The consideration payable in the
Merger to holders of shares of the Company's Common Stock, par value $.01 per
share ("Company Common Stock"), shall consist solely of a total of Four
Hundred Twenty One Thousand Three Hundred Eighty Three (421,383) shares of the
Common Stock, par value $.10 per share, of Parent ("Parent Common Stock"),
such shares of Parent Common Stock to be issuable at the Closing in accordance
with the terms of this Agreement, subject to increase to reflect exercises of
outstanding employee stock options prior to the Closing.
2.2 Conversion of Shares; Cancellation of Options.
(a) Each share of Company Common Stock issued and
outstanding as of the Effective Date (other than Dissenting Shares, as defined
in Section 2.2(e), below) shall, by virtue of the Merger and without any
action on the part of the holder thereof, automatically be converted into
0.1587301 of a share of Parent Common Stock, with the ratio of Company Common
Stock exchangeable into Parent Common Stock being 6.3:1, which ratio is
referred to herein as the "Exchange Ratio."
(b) All options and warrants to acquire shares of Company
Common Stock (collectively, "Company Options") that are outstanding and
unexercised at the Effective Date and that are held by persons who are
employees of the Company prior to the Merger who will continue as employees of
the Surviving Corporation following the Merger, shall by virtue of the Merger
and without any action on the part of such Company Option holders,
automatically be canceled and terminated in consideration for the issuance to
such Company Option holders of replacement options with comparable vesting
provisions to purchase Parent Common Stock at the Exchange Ratio (i.e., for
each option to purchase one share of Company Common Stock, the holder thereof
would receive an option to purchase 0.1587301 of a share of Parent Common
Stock) at the exercise prices applicable to Company Options prior to the
Merger.
(c) All Company Options which have vested that are
outstanding and unexercised at the Effective Date and that are held by persons
who will not be employees of the Surviving Corporation following the Merger
shall, by virtue of the Merger and without any action on the part of such
Option holders, automatically be canceled and terminated in a cashless
exchange in consideration for the issuance of registered shares of Parent
Common Stock, with each option to acquire one share of Company Common Stock
being converted into an option to acquire 0.1587301 of a share of Parent
Common Stock, valuing the Parent Common Stock for purposes of the cashless
exercise at its closing price on the business day prior to the Effective Date
and subtracting the exercise price to determine the net value, and dividing
the net value by the closing price of Parent Common Stock on the business day
prior to the Effective Date to determine the number of Parent Common Stock
share equivalents to be received in the Merger (rounded, however, to the
nearest whole number per option holder to avoid the issuance of fractional
shares).
(d) Each share of Company Common Stock held in the Company's
treasury as of the Effective Date shall, by virtue of the Merger, be canceled
without payment of any consideration therefor.
(e) Notwithstanding the foregoing, any shares of Company Common
Stock issued and outstanding immediately prior to the Effective Date which are
held by shareholders who have not voted such shares in favor of the Merger and
who have complied with all other relevant provisions of Section 60.571 of the
Oregon Act (the "Dissenting Shares") shall not be converted into shares of
Parent Common Stock in the manner contemplated by Section 2.2(a) above, and
the rights of holders of Dissenting Shares shall be governed by the provisions
of the Oregon Act.
2.3 Cancellation of Certificates. At the Closing, certificates
representing all of the issued and outstanding shares of Company Common Stock
(other than Dissenting Shares), together with all instruments representing
Company Options, shall be surrendered. At the Effective Date, each such
certificate shall be canceled and, simultaneously with such cancellation, a
new certificate for shares of Parent Common Stock, representing the number of
shares of Parent Common Stock into which the shares of Company Common Stock
formerly represented by such certificate shall have been converted in the
Merger, shall be issued to the holder thereof. At the Effective Date, each
instrument representing Company Options shall be canceled and terminated and,
simultaneously with such cancellation and termination, either (i) a
certificate representing replacement options to purchase Parent Common Stock
shall be issued in accordance with Section 2.2(b) or (ii) the number of shares
of Parent Common Stock issuable to each holder of Company Options who is
subject to Section 2.2(c) hereof shall be issued to each such Company Option
holder. From and after the Effective Date, each certificate or instrument
which prior to the Effective Date represented shares of Company Common Stock
or Company Options as applicable, shall be deemed to represent only the right
to receive the certificates of Parent Common Stock or options to acquire
Parent Common Stock, as the case may be, contemplated by the preceding two
sentences, and the holder of each such certificate or instrument shall cease
to have any rights with respect to the shares of Company Common Stock or
Company Options (and the underlying Common Stock) formerly represented
thereby, except as otherwise provided herein or by law.
2.4 Closing. Subject to Section 9.1 hereof, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place
at the offices of Nordlicht & Hand, 645 Fifth Avenue, New York, New York, at
10:00 A.M. local time, (i) as soon as practicable after the later to occur of
(x) the date of the later of the shareholders' meeting referred to in Section
7.3 hereof or (y) the day on which the last condition set forth in Articles
VIII and IX hereof shall have been fulfilled or waived, or (ii) at such other
time as Parent and the Company may mutually agree (the "Closing Date").
2.5 Adjustment Event. If, between the date hereof and the
Effective Date, the issued and outstanding shares of Parent Common Stock or
Company Common Stock shall have been combined, split, reclassified or
otherwise changed into a different number of share or a different class of
shares, an appropriate adjustment to the Exchange Ratio shall be agreed upon
by Parent and the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition that:
3.1 Corporate Organization. The Company is a corporation duly
organized and validly existing under the laws of the State of Oregon. The
Company has no subsidiaries. The Company has all requisite corporate power and
authority to own, operate and lease the properties and assets it now owns,
operates and leases and to carry on its business as presently conducted.
Except as set forth on Schedule 3.1 (1) the Company is duly qualified to
transact business as a foreign corporation and is in existence in the State of
Oregon and in good standing in the other jurisdictions set forth in Schedule
3.1, which are the only jurisdictions where such qualification is required by
reason of the nature of the properties and assets currently owned, operated or
leased by the Company or the business currently conducted by it, except for
such jurisdictions where the failure to be so qualified would not have a
material adverse effect on the Company. The Company has previously delivered
to Parent complete and correct copies of its Articles of Incorporation
(certified by the secretary of state of the jurisdiction in which it was
formed as of a recent date) and its By-Laws (certified by the Secretary of the
Company as of a recent date). Neither the Articles of Incorporation nor the
By-Laws of the Company has been amended since the respective dates of
certification thereof, nor has any action been taken for the purpose of
effecting any amendment of such instruments.
(1) All schedules are made part of and incorporated in this Agreement and
Plan Merger.
3.2 Authorization. The Company has full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved
by the Board of Directors of the Company, and no other corporate action on the
part of the Company is necessary to approve and authorize the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby (subject to the approval of this Agreement and the
transactions contemplated hereby by the Company's shareholders). The Board of
Directors of the Company has determined that the Merger is in the best
interests of the shareholders of the Company and will recommend to the
shareholders of the Company that they vote any and all shares of Company
Common Stock owned by them on the date of the Meeting of the Company's
shareholders described in Section 7.3 hereof to approve the Merger, this
Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and
binding agreement of the Company, enforceable in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of
equity, regardless of whether such enforceability is considered in a
proceeding in law or in equity.
3.3 Consents and Approvals; No Violations. Subject to (a) the filing
of a Registration Statement on Form S-4 (the "Registration Statement") and the
prospectus and proxy statement contained therein with the Securities and
Exchange Commission (the "SEC") and appropriate regulatory authorities, and
any required actions under various state securities and blue sky laws in
connection with the issuance of shares of Parent Common Stock in the Merger
and (b) the filing of Articles of Merger with the Secretary of State of the
State of Oregon, the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby will not: (i) violate or
conflict with any provision of the Articles of Incorporation or By-Laws of the
Company, (ii) breach, violate or constitute an event of default (or an event
which with the lapse of time or the giving of notice or both would constitute
an event of default) under, give rise to any right of termination,
cancellation, modification or acceleration under, or except as otherwise
disclosed herein, require any consent or the giving of any notice under, any
note, bond, indenture, mortgage, security agreement, lease, license,
franchise, permit, agreement or other instrument or obligation to which the
Company or any of the Subsidiaries is a party, or by which the Company or any
of the Subsidiaries or any of their respective properties or assets may be
bound, or result in the creation of any lien, claim or encumbrance or other
right of any third party of any kind whatsoever upon the properties or assets
of the Company or the Subsidiaries pursuant to the terms of any such
instrument or obligation, (iii) violate or conflict with any law, statute,
ordinance, code, rule, regulation, judgment, order, writ, injunction, decree
or other instrument of any Federal, state, local or foreign court or
governmental or regulatory body, agency or authority applicable to the Company
or the Subsidiaries or by which any of their respective properties or assets
may be bound or (iv) require, on the part of the Company or any Subsidiary,
any filing or registration with, or permit, license, exemption, consent,
authorization or approval of, or the giving of any notice to, any governmental
or regulatory body, agency or authority. Without limiting the generality of
clause (ii) above, neither the Company nor any of the Company Identified
Persons (as defined below) is a party to any agreement, arrangement or
understanding which contemplates the sale of the business of the Company and
its Subsidiaries, in whole or in part, whether by means of a sale of shares,
sale of assets, merger, consolidation or otherwise.
3.4 Capitalization.
(a) The authorized capital stock of the Company consists of
15,000,000 shares of Company Common Stock, of which 2,654,716 shares are
issued and outstanding and 5,000,000 shares of Series Preferred Stock, $.01
par value none of which is issued and outstanding. Schedule 3.4(a) sets forth
a complete and correct list of the record and beneficial ownership of the
issued and outstanding shares of Company Common Stock. All of the issued and
outstanding shares of Company Common Stock were duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation
of any preemptive rights, rights of first refusal, or Federal or state
securities laws. Except as disclosed in Schedule 3.4(a) hereto, the Company
has never repurchased or redeemed any shares of its capital stock, and there
are no amounts owed or which may be owed to any person by the Company as a
result of any repurchase or redemption of shares of its capital stock. Except
as disclosed in Schedule 3.4(a) hereto, there are no agreements, arrangements
or understandings to which the Company is a party or by which it is bound to
redeem or repurchase any shares of its capital stock. Except as set forth in
Schedule 3.4(a), there are no outstanding options, warrants (including,
without limitation, the Company Options) or other rights to purchase, or any
securities convertible into or exchangeable for, shares of the capital stock
of the Company, and there are no agreements, arrangements or understandings to
which the Company is a party or by which it is bound pursuant to which the
Company is or may be required to issue additional shares of its capital stock.
(b) The Company does not own, directly or indirectly, any equity
interest in any other corporation, partnership, limited liability company, or
any other entity.
3.5 SEC Reports and Financial Statements. The Company has
heretofore delivered or made available to Parent complete and correct copies
of all reports and other filings filed by the Company with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") during its past two fiscal years (such reports
and other filings collectively referred to herein as the "Company Exchange Act
Filings"). As of their respective dates, the Company Exchange Act Filings did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements of Company
included in the Company Exchange Act Filings (i) were prepared from the books
and records of the Company and its consolidated subsidiaries, (ii) were
prepared in accordance with generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in the notes or
schedules thereto) and (iii) present fairly the financial position of the
Company as at the dates thereof and the results of their operations and cash
flows for the fiscal year ended October 31, 1996 and earlier years. The
unaudited financial statements included in the Company Exchange Act Filings
comply in all material respects with the published rules and regulations of
the SEC with respect thereto; and such unaudited financial statements (i) were
prepared from the books and records of the Company, (ii) were prepared in
accordance with generally accepted accounting principles, except as otherwise
permitted under the Exchange Act and the rules and regulations thereunder, on
a consistent basis (except as may be indicated therein or in the notes or
schedules thereto) and (iii) present fairly the financial position of the
Company as at the dates thereof and the results of their operations and cash
flows (or changes in financial condition) for the periods then ended, subject
to normal year-end adjustments and any other adjustments described therein or
in the notes or schedules thereto.
3.6 Absence of Undisclosed Liabilities. Except (i) as set forth
on Schedule 3.6, (ii) as set forth or reserved against in the consolidated
balance sheet of the Company and its Subsidiaries dated as of July 31, 1997
included in the Financial Statements and (iii) for contractual obligations
arising under contracts entered into in the ordinary course and disclosed in
the Schedules to this Agreement to the extent such contracts are required to
be disclosed hereunder, and (iv) for liabilities or obligations incurred since
July 31, 1997 in the ordinary course of business for which the Company's
undischarged obligation is less than $25,000, the Company and its Subsidiaries
do not have any liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, which would be required to be reflected in
a balance sheet of the Company or the notes thereto prepared in accordance
with generally accepted accounting principles as of the date hereof.
3.7 Absence of Certain Changes or Events. Except for the
transactions contemplated by this Agreement and as set forth in Schedule 3.7,
since July 31, 1997, the Company has carried on its business in the ordinary
course and consistent with past practice. The Company has not since July 31,
1997: (i) incurred any material obligation or liability (whether absolute,
accrued, contingent or otherwise) except in the ordinary course of business
and consistent with past practice; (ii) experienced any material adverse
change in its financial condition, results of operations, assets, liabilities,
business or operations; (iii) made any change in any accounting principle or
practice or in its methods of applying any such principle or practice or
written up (or failed to write down in accordance with generally accepted
accounting principles consistent with past practice) the value of any
inventories or revalued any assets of the Company; (iv) suffered any material
damage, destruction or loss, whether or not covered by insurance, affecting
its properties, assets or business; (v) mortgaged, pledged or subjected to any
lien, charge or other encumbrance, or granted to third parties any rights in,
any of its assets, tangible or intangible; (vi) sold or transferred any of its
assets, except in the ordinary course of business and consistent with past
practice, or canceled or compromised any debts or waived any claims or rights
of a material nature; (vii) issued any additional shares of capital stock or
any rights, options or warrants to purchase, or securities convertible into or
exchangeable for, shares of its capital stock (other than the issuance of
shares upon the exercise of employee stock options); (viii) declared or paid
any dividends on or made any distributions (however characterized) in respect
of shares of its capital stock; (ix) repurchased or redeemed any shares of its
capital stock; (x) granted any general or specific increase in the
compensation payable or to become payable to any of its employees or any bonus
or service award or other like benefit, which increase is in excess of 15% of
the total of compensation and bonus previously payable to any such Employee,
or instituted, increased, augmented or improved any Benefit Plan (as defined
in Section 3.13(c), below); or (xi) entered into any agreement to do any of
the foregoing.
3.8 Legal Proceedings, etc. Except as set forth in Schedule 3.8,
there are no suits, actions, claims, proceedings (including, without
limitation, arbitral or administrative proceedings) or investigations pending
or, to the best knowledge of the Company, threatened against the Company or
its properties, assets or business (or, to the best knowledge of the Company,
pending or threatened against, relating to or involving any of the officers,
directors, employees, agents or consultants of the Company in connection with
the business of the Company). There are no such suits, actions, claims,
proceedings or investigations pending, or, to the best knowledge of the
Company, threatened, challenging the validity or propriety of the transactions
contemplated by this Agreement. There is no judgment, order, injunction,
decree or award (whether issued by a court, an arbitrator or an administrative
agency) to which the Company is a party, or involving the Company's
properties, assets or business, which is unsatisfied or which requires
continuing compliance therewith by the Company.
3.9 Taxes.
(a) The Company has duly and timely filed, or will duly and in
a timely manner file, all tax returns and other filings in respect of Taxes
(as defined in Section 3.9(c), below) required to be filed by them or which
are required to be filed by them on or prior to the Effective Date, and have
in a timely manner paid (or will in a timely manner pay) all Taxes which are
(or will be) shown to be due on such returns. All tax returns and other
filings in respect of Taxes are true, correct and complete in all material
respects. The provisions for Taxes payable reflected in the Financial
Statements are adequate under generally accepted accounting principles.
(b) There are no actions or proceedings currently pending
or, to the best knowledge of the Company, threatened, against the Company or
any Subsidiary by any governmental authority for the assessment or collection
of Taxes, no claim for the assessment or collection of Taxes has been asserted
against the Company, and there are no matters under discussion with any
governmental authority regarding claims for the assessment or collection of
Taxes. Any Taxes that have been claimed or imposed as a result of any
examinations of any tax return of the Company by any governmental authority
are being contested in good faith and have been disclosed in writing to the
Parent. There are no agreements or applications by the Company for an
extension of time for the assessment or payment of any Taxes.
(c) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean and include any and all United States, state, local,
foreign or other income, sales, use, withholding, employment, payroll, social
security, property taxes and all other taxes of any kind, deficiencies, fees
or other governmental charges, including, without limitation, any installment
payment for taxes and contributions or other amounts determined with respect
to compensation paid to directors, officers, employees or independent
contractors, from time to time imposed by or required to be paid to any
governmental authority (including penalties and additions to tax thereon,
penalties for failure to file a return or report, and interest on any of the
foregoing).
(d) The Company has not, with regard to any assets or property
held, acquired or to be acquired by the Company, filed a consent to the
application of Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code").
(e) The Company has not participated in or cooperated with
an international boycott within the meaning of Section 999(b) of the Code.
(f) The disclosure set forth in the Company's Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1996 regarding deferred
taxes and tax loss carry forwards is true and complete as of the date hereof
and no events have occurred since October 31, 1996 which would make such
information misleading or incomplete.
3.10 Title to Properties and Related Matters.
(a) Except as set forth on Schedule 3.10(a), the Company has
good and marketable title to all personal property, tangible or intangible,
which the Company purports to own, including the properties reflected on its
July 31, 1997 Balance Sheet or acquired after the date thereof (other than
properties and assets sold or otherwise disposed of in the ordinary course of
business and consistent with past practice since July 31, 1997), free and
clear of any claims, liens, pledges, security interests or encumbrances of any
kind whatsoever (other than purchase money security interests and common law
vendor's liens, in each case for goods purchased on open account in the
ordinary course of business and having a fair market value of less than
$10,000 in each individual case).
(b) The Company does not own any real property.
(c) Schedule 3.10(c) sets forth a complete and correct list
of all equipment, machinery, instruments, vehicles, furniture, fixtures and
other items of personal property currently owned, leased or used by the
Company with a book value in each case of $5,000 or more. All such personal
property is in satisfactory operating condition (ordinary and reasonable wear
and tear excepted), is physically located in or about one of the Company's
places of business and is owned by the Company or is leased by the Company
under one of the leases set forth in Schedule 3.10(d). None of such personal
property is subject to any agreement or commitment for its use by any person
other than the Company. The maintenance and operation of such personal
property is appropriate for personal property of such nature and is and has
been in material conformance with all applicable laws and regulations. There
are no assets leased by the Company or used in the business of the Company
that are owned, directly or indirectly, by any Company Related Person (as
defined in Section 3.22, below).
(d) Schedule 3.10(d) sets forth a complete and correct list
and summary description of all real property and personal property leases to
which the Company is a party, as lessee or lessor. The Company has previously
delivered to Parent complete and correct copies of each lease (and any
amendments or supplements thereto) listed in Schedule 3.10(d). Each such
lease is valid and binding and in full force and effect. Neither the Company
nor (to the best knowledge of the Company) any other party is in default under
any such lease, and no event has occurred which constitutes, or with the lapse
of time or the giving of notice or both would constitute, a default by the
Company or (to the best knowledge of the Company) a default by any other party
under such lease. To the best knowledge of the Company, there are no disputes
or disagreements between the Company and any other party with respect to any
such lease. The lessor under each such lease has consented or been given
notice (or prior to the Closing shall have consented or been given notice),
where such consent or the giving of such notice is necessary, sufficient that
such lease shall remain in full force and effect following the consummation of
the transactions contemplated by this Agreement without requiring modification
in the rights or obligations of the lessee under any such lease.
(e) Schedule 3.10(e) sets forth a complete and correct list
of all inventory, merchandise, work in process, finished goods, and raw
materials, and, all material amounts of packaging, supplies and other personal
property related to the business of the Company maintained, held or stored by
or for the Company and any prepaid deposits for purchases of any of the same
(the "Inventory"). Except as disclosed on Schedule 3.10(e), the Company and
its Subsidiaries have good and valid title to the Inventory free and clear of
all liens, claims, security interests and encumbrances of any kind whatsoever.
The Inventory does not include items that are obsolete, damaged or
slow-moving; is in good and merchantable condition in all material respects;
and is suitable and usable for the purposes for which it is intended. The
Inventory does not consist of any items held on consignment.
3.11 Intellectual Property.
(a) Schedule 3.11 hereto sets forth a complete and correct list
of all patents, patent applications, material unpatented inventions set forth
or described in writing, registered trademarks and service marks, trademark
and service mark applications, trade names, copyrights, software documentation
and manuals including all versions thereof (collectively the "Intellectual
Property") which, to the Company's best knowledge, are owned by, registered in
the name of or used in the business of the Company (including, without
limitation, the copyright and all other rights in reports issued by the
Company to its clients in the conduct of its business), all of which are valid
and subsisting. In each registration or patent or application for
registration or patent listed in Schedule 3.11 held by assignment, the
assignment has been recorded with the state or national Patent and Trademark
Office from which the original registration issued or before which the
application for registration is pending. To the Company's best knowledge, the
rights of the Company in or to such Intellectual Property owned by the Company
does not conflict with or infringe on the rights of any third party. The
Company has not received any written claim or notice to such effect. The
Company is not subject to any judgment, injunction, decree, order or agreement
restricting its use of the Intellectual Property, except for such restrictions
contained in Intellectual Property licensed from third parties, which licensed
Intellectual Property (other than "off the shelf" software such as word
processing and spreadsheet programs) and material restrictions on the use
thereof are listed in Schedule 3.11.
(b) Except set forth in Schedule 3.11, the Intellectual Property
owned by the Company is free and clear of all liens, claims, security
interests or encumbrances of any kind whatsoever. No actions have been made
or asserted or are pending or, to the best knowledge of the Company,
threatened against the Company either (i) based upon or challenging or seeking
to deny or restrict the use by the Company of any Intellectual Property or
(ii) alleging that any services provided, or products manufactured or sold by
the Company are being provided, manufactured or sold in violation of any
patents or trademarks, or other rights of any third party. To the best
knowledge of the Company, no third party is using any patents, copyrights,
trademarks, service marks, trade names, trade names, trade secrets or similar
property that infringe upon the Intellectual Property owned by the Company or
upon the rights of the Company used in its or their business. The Company has
not granted any license or other right to any third party with respect to the
Intellectual Property except for licenses of software to customers. The
consummation of the transactions contemplated by this Agreement will not
result in the termination or impairment of any of the Intellectual Property
owned by the Company.
(c) The Company has made available to Parent correct and
complete copies of all licenses and sublicenses for Intellectual Property
licensed from or to third parties set forth in Schedule 3.11 and any and all
ancillary documents pertaining thereto (including, but limited to, all
amendments, consents and evidence of commencement dates and expiration dates).
With respect to each of such licenses and sublicenses:
(i) such license or sublicense, together with all
ancillary documents made available pursuant to the first sentence of this
Section 3.11(c), is valid, binding, enforceable and in full force and effect
and represents the entire agreement between the respective licensor and
licensee with respect to the subject matter of such licensee or sublicense;
(ii) subject to obtaining any necessary consent to
assignment from the licensor or licensee, such license or sublicense will not
cease to be valid, binding, enforceable and in full force and effect on the
terms currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such
license or sublicense or otherwise give the licensor or sublicensor a right to
terminate such license or sublicense;
(iii) with respect to each such license or sublicense; (A)
the Company has not received any notice of cancellation or termination under
such license or sublicense and no licensor, sublicensor, licensee or
sublicensee has any right to terminate or cancel such license or sublicense,
(B) the Company has not received any notice or a breach or default under such
license or sublicenses, which breach or default has not been cured, and (C)
the Company has not granted to any third party any rights, adverse or
otherwise, under such licenses or sublicense (except for licenses of software
to customers);
(iv) neither the Company, nor to the best knowledge of the
Company, any other party to such license or sublicense, is in breach or
default in any material respect, and no event has occurred with respect to the
Company, or to the best knowledge of the Company, such other party, that, with
notice or lapse of time would constitute such a breach or default or permit
termination, modification or acceleration under such license or sublicense;
(v) no actions have been made or asserted or are pending
or, to the best knowledge of the Company, have been threatened against the
Company, either (A) based upon or challenging or seeking to deny or restrict
the use by the Company of any licensed Intellectual Property or (B) alleging
that any Intellectual Property is being licensed, sublicensed or used in
violation of any patents or trademarks, or any other rights of any third
party; and
(vi) to the best knowledge of the Company, no third party
is using any patents, copyrights, trademarks, service marks, trade names,
trade secrets or similar property that infringe upon the use of the licensed
Intellectual Property by the Company or upon the rights of the Company
therein.
(d) The Company is not aware of any reason that would prevent any
pending applications to register trademarks, service marks or copyrights or
any pending patent applications from being granted.
(e) All rights of the Company in each item of Intellectual Property
owned by the Company are transferable to Acquisition as herein contemplated
and such transfer will not, with or without the giving of notice, or lapse of
time, or both, result in a default of any agreement to which the Company is a
party or the impairment of any rights of the Company in such intellectual
property which impairment would cause a material adverse effect on the
Company, its business operations or its financial statements . As a result of
the transactions contemplated hereby, upon the Closing, subject to obtaining
necessary consents to transfer licensed Intellectual Property, Parent shall
own or possess, or own or possess adequate and enforceable licenses,
sublicenses or sublicenses or other rights to use, all the Intellectual
Property.
(f) Other than "off the shelf" software, the Intellectual Property
set forth in Schedule 3.11 constitutes all the Intellectual Property used in
or held by the Company and its Subsidiaries to be used in, and necessary in
the conduct of, the business of the Company and its Subsidiaries as currently
conducted and there are not other items of Intellectual Property that are
material to the Company and its Subsidiaries or its or their business.
(g) Schedule 3.11(g) sets forth all of the Company's software
products including all versions of each such product and the uses therefor.
3.12 Contracts.
(a) Except as set forth in Schedule 3.12(a) the Company is not a
party to, or subject to:
(i) any contract, arrangement or understanding, or
series of related contracts, arrangements or understandings, which involves
annual expenditures or receipts by the Company of more than $10,000 not
cancelable by the Company on thirty days (or less) notice;
(ii) any note, indenture, credit facility, mortgage,
security agreement or other contract, arrangement or understanding relating to
or evidencing indebtedness for money borrowed or a security interest or
mortgage in the assets of the Company;
(iii) any guaranty issued by the Company;
(iv) any contract, arrangement or understanding granting
to any person the right to use any property or property right of the Company
having a value in excess of $10,000;
(v) any material contract, arrangement or
understanding restricting the Company's right to engage in any business
activity or compete with any business;
(vi) any contract, arrangement or understanding with a
Company Related Person; or
(vii) any outstanding offer, commitment or obligation
to enter into any contract or arrangement of the nature described in
subsections (i) through (vi) of this subsection 3.12(a).
(b) The Company has provided to Parent complete and correct
copies (or, in the case of oral contracts, a complete and correct description)
of samples of each contract (and any amendments or supplements thereto) listed
on Schedule 3.12(a). Each contract listed in Schedule 3.12(a) is valid and
binding and in full force and effect. Neither the Company nor (to the best
knowledge of the Company) any other party is in default under any such
contract, and no event has occurred which constitutes, or with the lapse of
time or the giving of notice or both would constitute, a default by the
Company or (to the best knowledge of the Company) a default by any other party
under such contract. To the best knowledge of the Company, there are no
disputes or disagreements between the Company and any other party with respect
to any such contract and the Company has not received any notice of
cancellation or termination of any such contracts. Each other party to each
such contract has consented or been given notice (or prior to the Closing
shall have consented or been given notice), where such consent or the giving
of such notice is necessary, sufficient that such contract shall remain in
full force and effect following the consummation of the transactions
contemplated by this Agreement without modification in the rights or
obligations of the Company thereunder.
(c) All indebtedness of the Company for monies borrowed by
the Company is prepayable at any time at the option of the Company, without
premium or penalty.
(d) Except as set forth and described in Schedule 3.12(d),
the Company has not issued any warranty or any agreement or
commitment to indemnify any person.
(e) The Company has not disclosed any secret or confidential
Intellectual Property (except by way of issuance of a patent or subject to a
confidentiality agreement) or permitted to lapse or go abandoned any
Intellectual Property (or any registration or grant thereof or any
application relating thereto) to which, or under which, the Company has any
rights, title, interest or license.
(f) Set forth on Schedule 3.12(f) hereto is a list of the
Company's current customers.
3.13 Employees; Employee Benefits.
(a) Schedule 3.13(a) sets forth the names of all current
employees of the Company (the "Employees") and, with respect to any Employee
whose annual compensation exceeds $50,000 such Employee's job title, the
location of employment of such Employee, such Employee's current salary, the
date and amount of such Employee's most recent salary increase, the amount of
any bonuses or other compensation paid since October 31, 1996 to such
Employee, the date of birth of such Employee, the date of employment of such
Employee, the accrued vacation time of such Employee and a description of the
annual total compensation arrangements currently applicable to such Employee.
The Company has accrued on its books and records all obligations for salaries,
benefits and other compensation with respect to its Employees and former
employees ("Former Employees"), to the extent required by generally accepted
accounting principles, including, but not limited to, vacation pay, severance,
bonuses, incentive and deferred compensation, and all commissions and other
fees payable to salespeople, sales representatives and other agents. Except
as set forth on Schedule 3.13, there are no outstanding loans from the Company
to any officer, director, employee, agent or consultant of the Company, or to
any other Company Related Person. Complete and correct copies of all written
agreements with Employees and all employment policies, including but not
limited to policies on severance pay and liability for accrued but unused sick
and vacation pay, and all amendments and supplements thereto, have previously
been delivered or made available to the Parent, and a list of all such
agreements and policies is set forth on Schedule 3.13(a). None of the
Employees has, to the best knowledge of the Company, indicated a desire to
terminate his or her employment, or any intention to terminate his or her
employment upon a sale of, or business combination relating to, the Company or
in connection with the transactions contemplated by this Agreement. Except as
set forth on Schedule 3.13(a), since October 31, 1996 the Company and its
Subsidiaries have not (i) except in the ordinary course of business and
consistent with past practice, increased the salary or other compensation
payable or to become payable to or for the benefit of any of the Employees,
(ii) increased the term or tenure of employment for any Employee, except in
the ordinary course of business consistent with past practice, or provided any
Employee with any increased security of employment, (iii) increased the
amounts payable to any of the Employees upon the termination of any such
person's employment or (iv) adopted, increased, augmented or improved benefits
granted to or for the benefit of any of the Employees under any Benefit Plan.
(b) The Company has complied in all material respects with
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act, as amended, the Fair Labor Standards Act, as amended, the
Immigration Reform and Control Act of 1986, and all applicable laws, rules and
regulations governing payment of minimum wages and overtime rates, the
withholding and payment of taxes from compensation, discriminatory practices
with respect to employment and discharge, or otherwise relating to the conduct
of employers with respect to Employees or potential employees, and there have
been no claims made or, to the best knowledge of the Company, threatened
thereunder against the Company arising out of, relating to or alleging any
violation of any of the foregoing. There are no material controversies,
strikes, work stoppages, picketing or disputes pending or threatened between
the Company and any of the Employees or Former Employees. No labor union or
other collective bargaining unit represents or has ever represented any of the
Employees, including any "leased employees" (within the meaning of Section
414(n) of the Code). No organizational effort by any labor union or other
collective bargaining unit currently is under way or, to the best knowledge of
the Company, threatened with respect to any Employees. The Company is not
required to obtain the consent of any labor union or other collective
bargaining unit to consummate the transactions contemplated by this Agreement.
The requirements of the Workers Adjustment and Retraining Notification Act do
not apply to the transactions contemplated by this Agreement.
(c) Schedule 3.13(c) sets forth a list of each defined
benefit and defined contribution plan, stock ownership plan, employment or
consulting agreement, executive compensation plan, bonus plan, incentive
compensation plan or arrangement, deferred compensation agreement or
arrangement, agreement with respect to temporary employees or "leased
employees" (within the meaning of Section 414(n) of the Code), vacation pay,
sickness, disability or death benefit plan (whether provided through
insurance, on a funded or unfunded basis or otherwise), employee stock option,
stock appreciation rights or stock purchase plan, severance pay plan,
arrangement or practice, employee relations policy, practice or arrangement,
and each other employee benefit plan, program or arrangement, including,
without limitation, each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which has been maintained by the Company for the benefit of or
relating to any of the Employees or to any Former Employees or their
dependents, survivors or beneficiaries, whether or not legally binding,
whether written or oral or whether express or implied, all of which are
hereinafter referred to as the "Benefit Plans."
(d) With Respect to the Benefit Plans, each Benefit Plan
which is an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) meets the requirements of Section 401(a) of the Code; the trust, if
any, forming part of such plan is exempt from U.S. federal income tax under
Section 501(a) of the Code; a favorable determination letter has been issued
by the Internal Revenue Service (the "IRS") with respect to each plan and
trust and each amendment thereto; and nothing has occurred since the date of
such determination letter that would adversely affect the qualification of
such plan. No Benefit Plan is a "voluntary employees beneficiary association"
(within the meaning of Section 501(c)(9) of the Code) and there have been no
other "welfare benefit funds" (within the meaning of Section 419 of the Code)
relating to Employees or Former Employees; no event or condition exists with
respect to any Benefit Plan that could subject the Company to any material Tax
under Section 4980B of the Code; each Benefit Plan has complied with the
requirements of Section 162(k) of the Code. With respect to each Benefit
Plan, the Company has heretofore delivered to Parent complete and correct
copies of the following documents, where applicable and to the extent
available: (i) the most recent annual report (Form 5500 series), together with
schedules, as required, filed with the IRS, and any financial statements and
opinion required by Section 103(a)(3) of ERISA, (ii) the most recent
determination letter issued by the IRS, (iii) the most recent summary plan
description and all modifications, as well as all other descriptions
distributed to Employees or set forth in any manuals or other documents, (iv)
the text of the Benefit Plan and of any trust, insurance or annuity contracts
maintained in connection therewith and (v) the most recent actuarial report,
if any, relating to the Benefit Plan.
(e) Neither the Company nor any corporation or other trade or
business under common control with the Company (as determined pursuant to
Section 414(b) or (c) of the Code) (a "Common Control Entity") has maintained
or contributed to or in any way directly or indirectly has any liability
(whether contingent or otherwise) with respect to any "multiemployer plan,"
within the meaning of Section 3(37) of ERISA; no Benefit Plan or similar
benefit plan of any Common Control Entity has been subject to Title IV of
ERISA; neither the Company nor any Common Control Entity is a party to or has
any liability under any agreement imposing secondary liability on it as a
seller of the assets of a business in accordance with Section 4204 of ERISA or
under any other provision of Title IV of ERISA or other agreement; no
contingent or other liability with respect to which the Company has or could
have any liability exists under Title IV of ERISA to the Pension Benefit
Guaranty Corporation ("PBGC") or to any Benefit Plan; and no assets of the
Company are subject to a lien under Sections 4064 or 4068 of ERISA. The
Company does not have any obligation to provide medical or other benefits to
Employees or Former Employees or their survivors, dependents and
beneficiaries, except as may be required by the Consolidated Omnibus Budget
Reconciliation Act of 1986 or applicable state medical benefits continuation
law. The Company will not incur any liability under any severance agreement,
deferred compensation agreement, employment or similar agreement as a result
of the consummation of the transactions contemplated by this Agreement.
(f) None of the Benefit Plans has been subject to a
"reportable event," within the meaning of Section 4043 of ERISA (whether or
not waived); there have been no "prohibited transactions", within the meaning
of Section 4975 of the Code or Part 4 of Subtitle B of Title I of ERISA; none
of the Benefit Plans are subject to Section 412 of the Code; each Benefit Plan
has, in all material respects, been administered to date in accordance with
the applicable provisions of ERISA, the Code and applicable law and with the
terms and provisions of all documents, contracts or agreements pursuant to
which such Benefit Plan is maintained; all reports and information required to
be filed with the Department of Labor, the IRS, the PBGC or plan participants
or beneficiaries with respect to any Benefit Plan have been timely filed;
there is no dispute, arbitration, claim, suit, or grievance, pending or, to
the best knowledge of the Company, threatened, involving a Benefit Plan (other
than routine claims for benefits), and, to the best knowledge of the Company,
there is no basis for such a claim; none of the Benefit Plans nor any
fiduciary thereof has been the direct or indirect subject of a order or
investigation or examination by a governmental or quasi-governmental agency
and there are no matters pending before the IRS, the Department of Labor, the
PBGC or any other domestic or, to the best knowledge of the Company, foreign
governmental agency with respect to a Benefit Plan; there have been no claims,
or notice of claims, filed under any fiduciary liability insurance policy
covering any Benefit Plan; and there has been and will be no "parachute
payment" (as that term is defined in Section 28OG(b)(2) of the Code) to any of
the Employees prior to the Effective Date. No event or set of conditions
exist which would subject the Company to any Tax under Section 4999 of the
Code. No event or set of conditions exist which would subject the Company or
any Subsidiary to any material Tax under Sections 4972, 4974-76, 4979, 4980 or
5000 of the Code. No loan has been made to a Benefit Plan, which was intended
to qualify under Section 4975(d)(3) of the Code.
(g) Except as set forth on Schedule 3.13(g), all directors,
officers, management employees, and technical and professional employees of
the Company have executed employee confidentiality agreements substantially in
the form attached as Exhibit 3.13(g).
3.14 Compliance with Applicable Law.
(a) The Company is not to its best knowledge in violation of any
applicable safety, health, environmental or other law, statute, ordinance,
code, rule, regulation, judgment, order, injunction, writ or decree of any
Federal, state, local or foreign court or governmental or regulatory body,
agency or authority having, asserting or claiming jurisdiction over it or over
any part of its business, operations, properties or assets, except where any
such violation would not have a material adverse effect on the business,
operations or assets of the Company. The Company has not received any notice
alleging any such violation, nor to the best knowledge of the Company, is
there any inquiry, investigation or proceedings relating thereto.
(b) The Company is in material compliance with the rules,
regulations, guidelines and interpretations of the Food and Drug
Administration ("FDA"), including the registration of the Company as a medical
device manufacture for blood bank software. To the best knowledge of the
Company, the FDA has no reason to deny the registration of the Company as a
medical device manufacture for blood banks software. The Company has never
recalled any of its products, except as set forth in Schedule 3.14(c). The
Company has delivered to Parent true and complete copies of all of the
Company's correspondence with the FDA.
3.15 Ability to Conduct the Business. There is no agreement,
arrangement or understanding, nor any judgment, order, writ, injunction or
decree of any court or governmental or regulatory body, agency or authority,
applicable to the Company or to which the Company is a party or by which it or
any of its properties or assets is bound, that will prevent the use by the
Surviving Corporation, after the Effective Date, of the properties and assets
owned by, the business conducted by or the services rendered by the Company on
the date hereof, in each case on substantially the same basis as the same are
used, owned, conducted or rendered on the date hereof. The Company is in
compliance with all material governmental permits, licenses, exemptions,
consents, authorizations and approvals, including without limitation, all
material health, safety, environmental and food and drug permits used in or
required for the conduct of their business as presently conducted, all of
which shall continue in full force and effect, without requirement (except as
set forth in Schedule 3.15) of any filing or the giving of any notice and
without modification thereof, following the consummation of the transactions
contemplated hereby. The Company has not received any notice of, and to the
best knowledge of the Company, there are no inquiries, proceedings or
investigations relating to or which could result in the revocation or
modification of any such permit, license, exemption, consent, authorization or
approval, nor are the Company aware of any basis therefor. The Company is in
all material respects in compliance with all such permits licenses,
exemptions, consents, authorizations and approvals and all applicable laws.
The Company is not party to any agreement which would prohibit it from
manufacturing, selling or distributing any products or services.
3.16 Consultants, Sales Representatives and Other Agents.
Schedule 3.16 hereto sets forth a complete and correct list of the names and
addresses of each consultant, sales representative or other agent (other than
any such person performing solely clerical functions) currently engaged by the
Company who is not an employee of the Company and who has or is expected to
receive compensation in excess of $50,000 in respect of the fiscal year
beginning November 1, 1996 and ending October 31, 1997, a summary description
of the services provided by each such person, the commission rates or other
compensation applicable with respect to each such person and the amount of
commissions or other compensation earned by each such person for the fiscal
period ended October 31, 1996. Complete and correct copies of all current
agreements between the Company and any such person have previously been
delivered or made available by the Company to the Parent.
3.17 Accounts Receivable. Attached hereto as Schedule 3.17 is a
list of all of the Company's accounts receivable. All accounts receivable of
the Company (i) arose from bona fide transactions in the ordinary course of
business and consistent with past practice, (ii) except as set forth on
Schedule 3.17, are owned by the Company or the respective Subsidiary free and
clear of any claim, security interest, lien or other encumbrance and (iii) are
accurately and fairly reflected on the Balance Sheet, or, with respect to
accounts receivable of the Company created on or after July 31, 1997, are
accurately and fairly reflected in the books and records of the Company.
3.18 Insurance. Schedule 3.18 hereto is a true and complete list of
all insurance policies carried by the Company, together with, in respect of
each such policy, the name of the insurer, the number of the policy, the
annual policy premium payable therefor, the limits of coverage, the deductible
amount (if any), the expiration date thereof and each pending claim
thereunder. Complete and correct copies of each certificate of insurance have
previously been delivered by the Company to the Parent. All such policies are
legal, valid, binding and enforceable in accordance with their terms and are
in full force and effect. All premiums due thereon have been paid in a timely
manner. The Company believes that the insurance carried by the Company is, as
to amount and coverage, consistent with the insurance practices of companies
generally who are engaged in businesses similar to that of the Company.
Neither the Company nor any person holding a policy or binder of insurance for
the Company is in breach or default with respect to any provision contained in
any such policy or binder, and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination
or modification under the policy, nor has the Company or any such policyholder
failed to give any notice of any claim under such policy or binder in due or
timely fashion. Neither the Company nor any such policyholder has canceled or
failed to renew any such policy or binder, has knowledge of any material
inaccuracy in any application for such policies or binders, has failed to pay
premiums when due, has knowledge of any similar state or facts that might form
the basis for termination of any such insurance, or given notice of any such
circumstance.
3.19 Information in Registration Statement and Proxy Statement.
None of the information relating to the Company, its business or any of its
shareholders supplied by the Company for inclusion or incorporation by
reference in the Registration Statement to be filed under the Securities Act
of 1933, as amended (the "Securities Act"), and the prospectus contained
therein, for the purpose of registering the shares of Parent Common Stock to
be issued in the Merger (the "Registration Statement") or the proxy statement
to be distributed in connection with the meetings of the shareholders of the
Company and the shareholders of Parent referred to in Section 7.3 (the "Proxy
Statement") will, in the case of the Registration Statement, at the time it
becomes effective under the Securities Act and at the Effective Date, or, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments
thereof or supplements thereto and at the time of the meetings of shareholders
referred to in Section 7.3, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The information in the Registration
Statement and the Proxy Statement provided by the Company will comply as to
form with the provisions of the Securities Act and the Exchange Act.
3.20 Bank Accounts; Powers of Attorney. Schedule 3.20 sets forth a
complete and correct list showing:
(a) all bank accounts of the Company, together with, with
respect to each such account, the account number, the names of all signatories
thereof and the authorized powers of each such signatory; and
(b) the names of all persons holding powers of attorney from the
Company and a summary statement of the terms thereof.
3.21 Minute Books, etc. The minute book, stock certificate book
and stock ledger of the Company are complete and correct in all material
respects and fairly reflect the conduct of the business of the Company. The
minute book of the Company contains accurate and complete records of all
meetings or written consents to action of the Board of Directors and
shareholders of the Company and accurately reflects all corporate actions of
the Company which are required by law to be passed upon by the Board of
Directors or shareholders of the Company.
3.22 Company Related Person Indebtedness and Contracts.
Schedule 3.22 sets forth a complete and correct summary of all contracts,
commitments, arrangements and understandings not described elsewhere in this
Agreement between the Company and any of the following (collectively, "Company
Related Persons"): (i) directors and officers who are identified in accordance
with Item 402 of Regulation S-B of the Exchange Act (the "Company Identified
Persons"); (ii) the spouses, children and other lineal descendants of any of
the Company Identified Persons, (collectively, "near relatives"): (iii) any
trust for the benefit of any of the Company Identified Persons, any of their
respective near relatives; or (iv) any corporation, partnership, joint venture
or other entity or enterprise owned or controlled by any of the Company
Identified Persons or by any of their respective near relatives.
3.23 Environmental Matters.
(a) For purposes of this Section 3.23, (i) the term
"Environmental Claim" shall mean any claim, action, proceeding, investigation
or notice by any person or entity alleging actual or potential liability
(including, without limitation, actual or potential liability for
investigatory costs, clean-up costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising
out of, based on or resulting from (A) the presence, or release into the
environment, of any Material of Environmental Concern (as that term is
hereinafter defined) at any location owned or used by the Company (or any of
its predecessors-in-interest) prior to the Effective Date, or (B)
circumstances forming the basis of any violation of any Environmental Law (as
that term is hereinafter defined); (ii) the term "Environmental Laws" shall
mean all federal, state, local and foreign laws, rules and regulations
relating to (A) pollution, environmental safety or protection of human health
from damage to the environment or (B) the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws, rules and regulations
relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (iii) the
term "Materials of Environmental Concern" shall mean any chemicals,
pollutants, contaminants, wastes, hazardous or toxic substances, petroleum or
petroleum products.
(b) The Company is in material compliance with all
applicable Environmental Laws, and all material permits and other governmental
authorizations, if any, currently held by the Company pursuant to the
Environmental Laws are in full force and effect and shall remain in full force
and effect upon consummation of the Merger.
(c) There is no Environmental Claim pending or, to the
knowledge of the Company, threatened against the Company or against any person
or entity whose liability the Company has or may have retained or assumed
either contractually or by operation of law.
(d) There are no past or present actions or, to the
knowledge of the Company, activities, circumstances, conditions, events or
incidents, including, without limitation, the release or threatened release,
emission, discharge, presence or disposal of any Material of Environmental
Concern, that could form the basis of any Environmental Claim against the
Company or any person or entity whose liability for any Environmental Claim
the Company has or may have retained or assumed either contractually or by
operation of law.
3.24 Disclosure. No representation or warranty by the Company
contained in this Agreement and no statement contained in any Schedule,
certificate or other document or instrument delivered or to be delivered
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make the statements contained therein not misleading. For the avoidance of
doubt, it is hereby stipulated that with respect to any oral agreement or
commitment disclosed in any Schedule, only those terms of such oral agreement
expressly set forth in such Schedule shall be deemed to have been disclosed.
The representations and warranties contained in this Article III and in
Article IV hereof (and in the Schedules referred to therein) constitute the
sole and exclusive representations and warranties made by the Company in
connection with the transactions contemplated hereby. Such representations
and warranties are made by the Company with the knowledge and expectation that
Parent and Acquisition are placing complete reliance thereon in entering into,
and performing their obligations under, this Agreement, and the same shall not
be affected in any respect whatsoever by any investigation heretofore or
hereafter conducted by or on behalf of Parent and Acquisition, whether in
contemplation of this Agreement or otherwise.
3.25 Company Identified Persons. There are no agreements,
arrangements or understandings to which each Company Identified Person is a
party involving the purchase, sale or other acquisition or disposition of the
shares and/or Options owned by such Identified Person.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition jointly and severally represent and warrant to the
Company and the Company's Shareholders that:
4.1 Corporate Organization.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York. Each
of Parent Subsidiaries (as defined in Section 4.1(b), below) is a corporation
duly organized, validly existing and in good standing under the laws of the
state or country of its formation. Each of Parent and Parent Subsidiaries has
all requisite corporate power and authority to own, operate and lease the
properties and assets it now owns, operates and leases and to carry on its
business as now being conducted. Parent and Parent Subsidiaries are each duly
qualified to transact business as a foreign corporation and are each in good
standing in the jurisdictions set forth opposite their respective names in
Schedule 4.1, which are the only jurisdictions where such qualification is
required by reason of the nature of the properties and assets currently owned,
operated or leased by Parent or Parent Subsidiaries or the business currently
conducted by them, except for such jurisdictions where the failure to be so
qualified would not have a material adverse effect on Parent and Parent
Subsidiaries taken as a whole. Parent has previously delivered to the Company
complete and correct copies of (i) its Certificate of Incorporation (certified
by the Secretary of State of New York as of a recent date) and its By-Laws
(certified by the Secretary of Parent as of a recent date) and (ii) the
Articles of Incorporation (or the foreign equivalent thereof) of Acquisition
and all amendments thereto to the date hereof (certified by the secretary of
state of Oregon and the By-Laws of Acquisition (certified in each case by the
secretary of Acquisition as of a recent date). Neither the Certificate of
Incorporation nor the By-Laws of Parent or of Acquisition has been amended
since the respective dates of certification thereof, nor has any action been
taken for the purpose of effecting any amendment of such instruments.
(b) Set forth in Schedule 4.1(b) is a complete list of all
corporations, partnerships, limited liability companies and other entities in
which Parent owns, directly or indirectly, any equity interest (the "Parent
Subsidiaries"), including the authorized and issued and outstanding shares of
all classes of capital stock of such entities, and the record and beneficial
ownership thereof. There are no agreements or commitments to which any of such
entities is a party or by which it is bound for the repurchase, purchase or
sale of, and there are no options, warrants or other rights to subscribe for
or to purchase, any shares of capital stock of such entity, nor are there any
other agreements or commitments under which such entity is or may become
obligated to issue any capital stock. Parent is the beneficial owner,
directly or indirectly, of all equity securities of the Parent Subsidiaries in
each case free and clear of any pledges, liens, equities or other
encumbrances, except as set forth in Schedule 4.1(b).
4.2 Authorization. Each of Parent and Acquisition has full corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Boards of Directors of Parent and Acquisition and by
Parent as the sole shareholder of Acquisition, and no other corporate
proceedings on the part of Parent or Acquisition are necessary to approve and
authorize the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. The Board of Directors of Parent has
determined that the Merger is in the best interests of the shareholders of
Parent. This Agreement has been duly executed and delivered by Parent and
Acquisition and, subject to the approval of this Agreement and the
transactions contemplated hereby by the Company's shareholders, constitutes
the valid and binding agreement of Parent and Acquisition, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or in law).
4.3 Consents and Approvals; No Violations. Subject to (a) the filing
of the Registration Statement and the prospectus and proxy statement contained
therein and any required actions under various state securities and blue sky
laws in connection with the issuance of shares of Parent Common Stock in the
Merger and (b) the filing of the Articles of Merger with the Secretary of
State of the State of Oregon, the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not: (i) violate
or conflict with any provisions of the Certificate of Incorporation or By-Laws
of Parent or the Articles of Incorporation or By-Laws of Acquisition; (ii)
except as set forth in Schedule 4.3, breach, violate or constitute an event of
default (or an event which with the lapse of time or the giving of notice or
both would constitute an event of default) under, give rise to any right of
termination, cancellation, modification or acceleration under, or require any
consent or the giving of any notice under, any note, bond, indenture,
mortgage, security agreement, lease, license, franchise, permit, agreement or
other instrument or obligation to which Parent, Acquisition or any of the
Parent Subsidiaries is a party, or by which any of them or any of their
respective properties or assets may be bound, or result in the creation of any
lien, claim or encumbrance of any kind whatsoever upon the properties or
assets of Parent, Acquisition or any of the Parent Subsidiaries pursuant to
the terms of any such instrument or obligation, which breach, violation or
event of default would result in a material adverse effect on Parent,
Acquisition and the Parent Subsidiaries taken as a whole; (iii) violate or
conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction or decree or other instrument of any Federal, state,
local or foreign court or governmental or regulatory body, agency or authority
applicable to Parent, Acquisition or any of the Parent Subsidiaries or by
which any of their respective properties or assets may be bound; or (iv)
require, on the part of Parent or Acquisition, any filing or registration
with, or permit, license, exemption, consent, authorization or approval of, or
the giving of any notice to, any governmental or regulatory body, agency or
authority. Without limiting the generality of clause (ii) above, as of the
date hereof, neither the Parent nor any of the Parent Identified Persons (as
defined below) is a party to any agreement, arrangement or understanding which
contemplates the sale of the business of the Parent and the Parent
Subsidiaries, in whole or in part, whether by means of a sale of shares, sale
of assets, merger, consolidation or otherwise.
4.4 Capitalization.
(a) The sole class of authorized capital stock of Parent
consists of 12,000,000 shares of Parent Common Stock, of which 5,532,042
shares are issued and outstanding on the date of this Agreement and 10,000,000
shares of Preferred Stock, par value $.01 per share, of which none are issued
and outstanding. All of the issued and outstanding shares of Parent Common
Stock are (and all shares of Parent Common Stock to be issued in connection
with the Merger, when issued in accordance with this Agreement, shall be) duly
authorized, validly issued, fully paid and nonassessable, and none of such
shares has been issued in violation of any applicable preemptive rights. There
are no agreements or commitments to which Parent is a party or by which it is
bound for the redemption or repurchase of any shares of its capital stock.
Except for options issued under the Parent's 1982 and 1991 Incentive Stock
Option Plans, its 1991 Non-Employee Director Stock Option Plan and the 1997
successor thereto and outstanding options and warrants to purchase shares of
Parent Common Stock, as set forth in Schedule 4.4(a) hereto, there are no
outstanding options, warrants or other rights to purchase, or securities
convertible into or exchangeable for, shares of the capital stock of the
Parent, and except as contemplated by this Agreement, there are no agreements
or commitments to which Parent is a party or by which it is bound pursuant to
which Parent is or may become obligated to issue additional shares of its
capital stock.
(b) The authorized capital stock of Acquisition consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares
----
are issued and outstanding, all of which shares are owned beneficially and of
record by the Parent. There are no outstanding options, warrants or other
rights to purchase, or securities convertible into or exchangeable for, shares
of the capital stock of Acquisition, and there are no agreements or
commitments to which Acquisition is a party or by which it is bound pursuant
to which Acquisition is or may become obligated to issue additional shares of
its capital stock.
4.5 SEC Reports and Financial Statements. Parent has
heretofore delivered or made available to Company complete and correct copies
of all reports and other filings filed by Parent with the SEC pursuant to the
Exchange Act during its past two fiscal years (such reports and other filings
collectively referred to herein as the "Parent Exchange Act Filings"). As of
their respective dates, the Parent Exchange Act Filings did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The audited
consolidated financial statements of Parent included in the Parent Exchange
Act Filings (i) were prepared from the books and records of the Company and
its consolidated subsidiaries, (ii) were prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto) and (iii) present
fairly the financial position of Parent as at the dates thereof and the
results of their operations and cash flows the fiscal year ended June 30, 1996
and earlier years. The unaudited financial statements included in Parent
Exchange Act Filings comply in all material respects with the published rules
and regulations of the SEC with respect thereto; and such unaudited financial
statements (i) were prepared from the books and records of Parent, (ii) were
prepared in accordance with generally accepted accounting principles, except
as otherwise permitted under the Exchange Act and the rules and regulations
thereunder, on a consistent basis (except as may be indicated therein or in
the notes or schedules thereto) and (iii) present fairly the financial
position of Parent as at the dates thereof and the results of their operations
and cash flows (or changes in financial condition) for the periods then ended,
subject to normal year-end adjustments and any other adjustments described
therein or in the notes or schedules thereto.
4.6 Absence of Undisclosed Liabilities. Parent has no
liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, which would be required to be reflected in a
consolidated balance sheet of Parent or the notes thereto prepared in
accordance with generally accepted accounting principles as of the date
hereof, except (i) as set forth on Schedule 4.6, (ii) as set forth or reserved
against in the Parent's consolidated balance sheet dated as of September 30,
1997 included in the Parent's Report on Form 10-Q for the fiscal period ended
September 30, 1997 (the "Parent Balance Sheet") or disclosed in the notes to
the financial statements included in such Report, or (iii) liabilities or
obligations incurred since September 30, 1997 in the ordinary course of
business and consistent with past practice which in any single instance or in
the aggregate are not material to Parent and the Parent Subsidiaries taken as
a whole.
4.7 Absence of Certain Changes. Except for the transactions
contemplated by this Agreement and as otherwise reported in the Parent
Exchange Act Filings, since September 30, 1997, the business of Parent and the
Parent Subsidiaries has been conducted in the ordinary course and consistent
with past practice. Except as described in the Parent Exchange Act Filings or
on Schedule 4.7 hereto, since September 30, 1997 there has been no material
adverse change in the financial condition, results of operations, business,
operations, assets or liabilities of Parent and Parent Subsidiaries taken as a
whole, nor has Parent or any Parent Subsidiary: (i) incurred any material
obligation or liability (whether absolute, accrued, contingent or otherwise)
except in the ordinary course of business consistent with past practice; (ii)
experienced any material adverse change in its financial condition, results of
operations, assets, liabilities, business or operations; (iii) made any change
in any accounting principle or practice or in its methods of applying any such
principle or practice or written up (or failed to write down in accordance
with generally accepted accounting principles consistent with past practice)
the value of any inventories or revalued any assets of the Parent; (iv)
suffered any material damage, destruction or loss, whether or not covered by
insurance, affecting their assets, properties or business; (v) mortgaged,
pledged or subjected to any lien, charge or other encumbrance, or granted to
third parties any rights in, any of their assets, tangible or intangible; (vi)
sold or transferred any of their assets, except in the ordinary course of
business and consistent with past practice, or canceled or compromised any
debts or waived any claims or rights of a material nature; (vii) issued any
additional shares of capital stock or any rights, options or warrants to
purchase, or securities convertible into or exchangeable for, shares of its
capital stock, (viii) declared or paid any dividends on or made any
distributions (however characterized) in respect of shares of its capital
stock, (ix) repurchased or redeemed any shares of its capital stock, (x)
granted any general or specific increase in the compensation payable or to
become payable to any of its employees or any bonus or service award or other
like benefit, which increase is in excess of 15% of the total of compensation,
bonus or service award payable to such employee or (xi) entered into any
agreement to do any of the foregoing.
4.8 Legal Proceedings, etc. Except as set forth in Schedule 4.8
hereto, there are no suits, actions, claims, proceedings (including without
limitation, arbitral or administrative proceedings) or investigations pending
or, to the best knowledge of the Parent, threatened against Parent or any of
Parent Subsidiaries or their properties, assets or business (or, to the best
knowledge of the Parent, pending or threatened against, relating to or
involving any of the officers, directors, employees, agents or consultants of
Parent or any Parent Subsidiary in connection with the business of Parent or
Parent Subsidiaries). There are no such suits, actions, claims, proceedings
or investigations pending against Parent or any of the Parent Subsidiaries,
or, to the best knowledge of the Parent, threatened challenging the validity
or propriety of the transactions contemplated by this Agreement. There is no
judgment, order, injunction, decree or award (whether issued by a court, an
arbitrator or an administrative agency) to which Parent or the Parent
Subsidiaries is a party, or involving the Parent's or any of the Parent
Subsidiaries' properties, assets or business, which is unsatisfied or which
requires continuing compliance therewith by Parent or any Parent Subsidiary.
4.9 Taxes.
(a) Parent and each Parent Subsidiary has duly and timely
filed, or will duly and in a timely manner file, all tax returns and other
filings in respect of Taxes required to be filed by it or which are required
to be filed by it on or prior to the Effective Date, and has in a timely
manner paid (or will in a timely manner pay) all Taxes which are (or will be)
shown to be due on such returns. All tax returns and other filings in respect
of taxes are true, correct and complete in all material respects. The
provisions for Taxes payable reflected in the Parent Balance Sheet, are
adequate under generally accepted accounting principles.
(b) There are no actions or proceedings currently pending or, to
the best knowledge of the Parent, threatened against Parent or any Parent
Subsidiary by any governmental authority for the assessment or collection of
Taxes, no claim for the assessment or collection of Taxes has been asserted
against Parent or any Parent Subsidiary, and there are no matters under
discussion with any governmental authority regarding claims for the assessment
or collection of Taxes. Any Taxes that have been claimed or imposed as a
result of any examinations of any tax return of Parent or any Parent
Subsidiary by any governmental authority are being contested in good faith and
have been disclosed in writing to the Company. There are no agreements or
applications by Parent or any Parent Subsidiary for an extension of time for
the assessment or payment of any Taxes.
(c) Parent has not, with regard to any assets or property held,
acquired or to be acquired by the Company, filed a consent to the application
of Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) Parent has not participated in or cooperated with an
international boycott within the meaning of Section 999(b) of the Code.
(e) The disclosure set forth in the Parent's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1997 regarding deferred
taxes and tax loss carry forwards is true and complete as of the date hereof
and no events have occurred since June 30, 1997 which would make such
information misleading or incomplete.
4.10 Title to Properties and Related Matters. Parent and Parent
Subsidiaries do not own any real property. Except as set forth on Schedule
4.10, Parent and the Parent Subsidiaries have good and marketable title to all
personal property, tangible or intangible, on the Parent Balance Sheet or
acquired after the date thereof (other than properties and assets sold or
otherwise disposed of in the ordinary course of business and consistent with
past practice since June 30, 1997; free and clear of any claims, liens,
pledges, security interests or encumbrances of any kind whatsoever (other than
purchase money security interests and common law vendor's liens, in each case
for goods purchased on open account in the ordinary course of business and
having a fair market value of less than $10,000 in each individual case).
4.11 Intellectual Property.
(a) Schedule 4.11 hereto sets forth a complete and correct list
of all patents, patent applications, material unpatented inventions set forth
or described in writing, registered trademarks and service marks, trademark
and service mark applications, trade names, copyrights, software documentation
and manuals, including all versions thereof (collectively the "Intellectual
Property") which, to Parent's best knowledge, are owned by or registered in
the name of or used in the business of Parent or any Parent Subsidiary
(including, without limitation, the copyright and all other rights in reports
issued by Parent and Parent Subsidiaries to their clients in the conduct of
their business), all of which are valid and subsistingIn each registration or
patent or application for registration or patent listed in Schedule 4.11 held
by assignment, the assignment has been recorded with the state or national
Patent and Trademark Office from which the original registration issued or
before which the application for registration is pending. To Parent's best
knowledge, the rights of Parent and Parent Subsidiaries in or to such
Intellectual Property owned by Parent and Parent Subsidiaries does not
conflict with or infringe on the rights of any third party. Parent and Parent
Subsidiaries have not received any written claim or notice to such effect.
Parent and Parent Subsidiaries are not subject to any judgment, injunction,
decree, order or agreement restricting their use of the Intellectual Property,
except for such restrictions contained in Intellectual Property licensed from
third parties, which licensed Intellectual Property (other than "off the
shelf" software such as word processing and spreadsheet programs) and material
restrictions on the use thereof are listed in Schedule 4.11.
(b) Except set forth in Schedule 4.11, the Intellectual
Property owned by Parent and Parent Subsidiaries is free and clear of all
liens, claims, security interests or encumbrances of any kind whatsoever. No
actions have been made or asserted or are pending or, to the best knowledge of
Parent and Parent Subsidiaries, threatened against Parent and Parent
Subsidiaries either (i) based upon or challenging or seeking to deny or
restrict the use by Parent and Parent Subsidiaries of any Intellectual
Property or (ii) alleging that any services provided, or products manufactured
or sold by Parent and Parent Subsidiaries are being provided, manufactured or
sold in violation of any patents or trademarks, or other rights of any third
party. To the best knowledge of Parent and Parent Subsidiaries, no third
party is using any patents, copyrights, trademarks, service marks, trade
names, trade names, trade secrets or similar property that infringe upon the
Intellectual Property owned by Parent and Parent Subsidiaries or upon the
rights of Parent and Parent Subsidiaries used in its or their business. Parent
and Parent Subsidiaries have not granted any license or other right to any
third party with respect to the Intellectual Property except for licenses of
software to customers. The consummation of the transactions contemplated by
this Agreement will not result in the termination or impairment of any of the
Intellectual Property owned by Parent and Parent Subsidiaries.
(c) Parent has made available to the Company correct and
complete copies of all material licenses and sublicenses for Intellectual
Property licensed from or to third parties set forth in Schedule 4.11 and any
and all ancillary documents pertaining thereto (including, but limited to, all
amendments, consents and evidence of commencement dates and expiration dates).
With respect to each of such licenses and sublicenses:
(i) such license or sublicense, together with all
ancillary documents made available pursuant to the first sentence of this
Section 4.11(c), is valid, binding, enforceable and in full force and effect
and represents the entire agreement between the respective licensor and
licensee with respect to the subject matter of such licensee or sublicense;
(ii) subject to obtaining any necessary consent to
assignment from the licensor or licensee, such license or sublicense will not
cease to be valid, binding, enforceable and in full force and effect on the
terms currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such
license or sublicense or otherwise give the licensor or sublicensor a right to
terminate such license or sublicense;
(iii) with respect to each such license or sublicense; (A)
Parent has not received any notice of cancellation or termination under such
license or sublicense and no licensor, sublicensor, licensee or sublicensee
has any right to terminate or cancel such license or sublicense, (B) Parent
has not received any notice or a breach or default under such license or
sublicenses, which breach or default has not been cured, and (C) Parent has
not granted to any third party any rights, adverse or otherwise, under such
licenses or sublicense (except for licenses of software to customers);
(iv) neither Parent, nor to the best knowledge of Parent,
any other party to such license or sublicense, is in breach or default in any
material respect, and no event has occurred with respect to Parent, or to the
best knowledge of Parent, such other party, that, with notice or lapse of time
would constitute such a breach or default or permit termination, modification
or acceleration under such license or sublicense;
(v) no actions have been made or asserted or are pending
or, to the best knowledge of Parent, have been threatened against Parent,
either (A) based upon or challenging or seeking to deny or restrict the use by
Parent of any licensed Intellectual Property or (B) alleging that any
Intellectual Property is being licensed, sublicensed or used in violation of
any patents or trademarks, or any other rights of any third party; and
(vi) to the best knowledge of Parent, no third party is
using any patents, copyrights, trademarks, service marks, trade names, trade
secrets or similar property that infringe upon the use of the licensed
Intellectual Property by Parent or upon the rights of Parent therein.
(d) Parent is not aware of any reason that would prevent any pending
applications to register trademarks, service marks or copyrights or any
pending patent applications from being granted.
(e) Other than "off the shelf" software, the Intellectual Property
set forth in Schedule 4.11 constitutes all the material Intellectual Property
used in or held by Parent and its Subsidiaries to be used in, and necessary in
the conduct of, the business of Parent and its Subsidiaries as currently
conducted and there are not other items of Intellectual Property that are
material to Parent and its Subsidiaries or its or their business.
(f) Schedule 4.11(f) sets forth all of the Company's software
products including all versions of each such product and the uses therefor.
4.12 Contracts.
(a) Except as set forth in Schedule 4.12, neither Parent nor any
Parent Subsidiary is a party to:
(i) any contract, arrangement or understanding, or series of
related contracts, arrangements or understandings, which involves annual
expenditures or receipts by the Company of more than $10,000 not cancelable by
the Company on thirty days (or less) notice;
(ii) any note, indenture, credit facility, mortgage, security
agreement or other contract, arrangement or understanding relating to or
evidencing indebtedness for money borrowed, or granting a security interest or
mortgage in the assets of Parent or any Parent Subsidiary, for an amount in
excess of $10,000;
(iii) any guaranty issued by Parent or any Parent Subsidiary;
(iv) any contract, arrangement or understanding granting to
any person the right to use any property or property right of Parent or any
Parent Subsidiary with a value exceeding $10,000;
(v) any contract, arrangement or understanding restricting
in any material respect the Parent's or any Parent Subsidiary's right to engage
in any business activity or compete with any business;
(vi) any contract, arrangement or understanding with a
Parent Related Person as defined in Section 4.21 hereof; or
(vii) any outstanding offer, commitment or obligation to enter
into any contract or arrangement of the nature described in subsections (i)
through (vi) of this subsection 4.12(a).
(b) Parent has not disclosed any secret or confidential
Intellectual Property (except by way of issuance of a patent or subject to a
confidentiality agreement) or permitted to lapse or go abandoned any
Intellectual Property (or any registration or grant thereof or any application
relating thereto) to which, or under which, Parent has any rights, title,
interest or license.
4.13 Employee Benefit Plans. The employee benefit plans of
Parent and the Parent Subsidiaries have been operated in material compliance
with all applicable laws. Parent and the Parent Subsidiaries have not
incurred any material liability under Title IV of ERISA, and none of the
employee benefit plans of Parent or any of the Parent Subsidiaries has
incurred a material funding deficiency under Section 412 of the Code (whether
or not waived). There have been no material changes to the funding status of
any employee benefit plan of Parent or any of the Parent Subsidiaries since
the date of the most recent Exchange Act Filings. Each employee benefit plan
of Parent and the Parent Subsidiaries which is an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) intended to qualify under Section
401(a) of the Code and the trust, if any, forming part of such plan has
received a favorable determination letter from the Internal Revenue Service
with respect to its qualification under Sections 401(a) and 501(a) of the Code
and nothing has occurred since the date of such determination letter that
would adversely affect the qualification of such plan. A list of all such
material "employee pension benefit plans" ("Parent Plans") is set forth in
Schedule 4.13 hereto.
4.14 Compliance with Applicable Law; Ability to Conduct the Business
(a) Parent and Parent Subsidiaries are not in violation of any
applicable safety, health, environmental or other law, statute, ordinance,
code, rule, regulation, judgment, order, injunction, writ or decree of any
Federal, state, local or foreign court or governmental or regulatory body,
agency or authority having, asserting or claiming jurisdiction over it or over
any part of its business, operations, properties or assets, except where any
such violation would not have a material adverse effect on the consolidated
business, operations or assets of Parent. Parent and Parent Subsidiaries have
not received any notice alleging any such violation, nor to the best knowledge
of Parent and Parent Subsidiaries, is there any inquiry, investigation or
proceedings relating thereto.
(b) Parent and Parent Subsidiaries are in material compliance
with the rules, regulations, guidelines and interpretations of the Food and
Drug Administration ("FDA"), including the registration of Parent as a medical
device manufacture for blood bank software. To the best knowledge of Parent,
the FDA has no reason to deny the registration of the Company as a medical
device manufacture for blood banks software. Parent has never recalled any of
its products, except as set forth in Schedule 4.14(b). Parent will deliver to
Company true and complete copies of all of Parent's correspondence with the
FDA no later than thirty days after the date hereof.
(c) Parent is in compliance with all material governmental
permits, licenses, exemptions, consents, authorizations and approvals,
including without limitation, all material health, safety, environmental and
food and drug permits used in or required for the conduct of its business as
presently conducted, all of which shall continue in full force and effect,
without requirement (except as set forth in Schedule 4.14(c)) of any filing or
the giving of any notice and without modification thereof, following the
consummation of the transactions contemplated hereby. The Parent has not
received any notice of, and to the best knowledge of the Parent, there are no
inquiries, proceedings or investigations relating to or which could result in
the revocation or modification of any such permit, license, exemption,
consent, authorization or approval, nor is the Parent aware of any basis
therefor. The Parent is in all material respects in compliance with all such
permits licenses, exemptions, consents, authorizations and approvals and all
applicable laws. The Parent is not party to any agreement which would
prohibit it from manufacturing, selling or distributing any products or
services.
4.15 Accounts Receivable. All accounts receivable of Parent and the
Parent Subsidiaries (i) arose from bona fide transactions in the ordinary
course of business and consistent with past practice, (ii) except as set forth
on Schedule 4.15, are owned by Parent and the Parent Subsidiaries free and
clear of any claim, security interest, lien or other encumbrance and (iii) are
accurately and fairly reflected on Parent's June 30, 1997 consolidated balance
sheet, or, with respect to accounts receivable of Parent and the Parent
Subsidiaries created on or after June 30, 1997, are accurately and fairly
reflected in the books and records of the Company.
4.16 Insurance. Schedule 4.16 hereto is a true and complete
list of all insurance policies carried by Parent and the Parent Subsidiaries
with respect to their respective businesses, together with, in respect of each
such policy, the name of the insurer, the number of the policy, the annual
policy premium payable therefor, the limits of coverage, the deductible amount
(if any), the expiration date thereof and each pending claim thereunder.
Complete and correct copies of each such policy have previously been made
available by Parent to the Company for inspection and photocopying. All such
policies are in full force and effect. All premiums due thereon have been
paid in a timely manner.
4.17 Information in Registration Statement and Proxy Statement. None
of the information relating to Parent or the Parent Subsidiaries or any of
their shareholders or their respective businesses supplied by Parent for
inclusion or incorporation by reference in the Registration Statement and the
prospectus contained therein or the Proxy Statement will, in the case of the
Registration Statement, at the time it becomes effective under the Securities
Act and at the Effective Date, or, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments thereof or supplements thereto and at the
time of the meeting of shareholders referred to in Section 6.3, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information in the Registration Statement and the Proxy
Statement provided by Parent will comply as to form with the provisions of the
Securities Act and the Exchange Act.
4.18 Environmental Matters.
(a) Parent and each Parent Subsidiary is in material compliance
with all applicable Environmental Laws. All material permits and other
governmental authorizations, if any, currently held by Parent and the Parent
Subsidiaries pursuant to the Environmental Laws are in full force and effect
and shall remain in full force and effect upon consummation of the Merger.
(b) There is no Environmental Claim pending or, to the
knowledge of Parent, threatened against Parent or any Parent Subsidiary or
against any person or entity whose liability Parent or any Parent Subsidiary
has or may have retained or assumed either contractually or by operation of
law.
(c) There are no actions or, to the knowledge of Parent,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release or threatened release, emission, discharge, presence
or disposal of any Material of Environmental Concern, existing on the date
hereof that could form the basis of any Environmental Claim against Parent or
any Parent Subsidiary or any person or entity whose liability for any
Environmental Claim Parent or any Parent Subsidiary has or may have retained
or assumed either contractually or by operation of law.
4.19 Disclosure. No representation or warranty by Parent or
Acquisition contained in this Agreement and no statement contained in any
Schedule, certificate or other document or instrument delivered or to be
delivered pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained therein not misleading. For the
avoidance of doubt, it is hereby stipulated that with respect to any oral
agreement or commitment disclosed in any Schedule, only those terms of such
oral agreement expressly set forth in such Schedule shall be deemed to have
been disclosed. The representations and warranties contained in this Article
IV (and in the Schedules thereto) constitute the sole and exclusive
representations and warranties made by Parent in connection with the
transactions contemplated hereby. Such representations and warranties are
made by Parent and Acquisition with the knowledge and expectation that the
Company are placing complete reliance thereon in entering into, and performing
their obligations under, this Agreement, and the same shall not be affected in
any respect whatsoever by any investigation heretofore or hereafter conducted
by or on behalf of the Company, whether in contemplation of this Agreement or
otherwise.
4.20 Minute Books, etc. The minute book, stock certificate book
and stock ledger of the Parent and Acquisition are complete and correct in
all material respects and fairly reflect the conduct of the business of the
Parent and Acquisition. The minute book of the Parent and Acquisition
contains accurate and complete records of all meetings or written consents to
action of the Board of Directors and shareholders of the Parent and
Acquisition and accurately reflects all corporate actions of the Parent and
Acquisition which are required by law to be passed upon by the Board of
Directors or shareholders of the Parent and Acquisition.
4.21 Parent Related Person Indebtedness and Contracts. Schedule 4.21 sets
forth a complete and correct summary of all contracts, commitments,
arrangements and understandings not described elsewhere in this Agreement
between the Parent and any of the following (collectively, "Parent Related
Persons"): (i) directors and officers who are identified in accordance with
Item 402 of Regulation S-B of the Exchange Act (the "Parent Identified
Persons"); (ii) the spouses, children and other lineal descendants of any of
the Parent Identified Persons, (collectively, "near relatives"): (iii) any
trust for the benefit of any of the Parent Identified Persons, any of their
respective near relatives; or (iv) any corporation, partnership, joint venture
or other entity or enterprise owned or controlled by any of the Parent
Identified Persons or by any of their respective near relatives.
4.22 Parent Identified Persons. There are no agreements,
arrangements or understandings to which each Parent Identified Person is a
party involving the purchase, sale or other acquisition or disposition of the
shares and/or Options owned by such Parent Identified Person;
ARTICLE V
CONDUCT OF BUSINESS OF THE COMPANY AND THE PARENT
PRIOR TO THE EFFECTIVE DATE
5.1 Conduct of Business of the Company. During the period
commencing on the date hereof and continuing until the Effective Date, the
Company agrees that except as otherwise expressly contemplated by this
Agreement or agreed to in writing by the Parent, it:
(a) subject to the fiduciary duties of Company's Board of
Directors as advised in writing by counsel, will carry on its business only in
the ordinary course and consistent with past practice;
(b) will not declare or pay any dividend on or make any
other distribution (however characterized) in respect of shares of its
capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or
agree to redeem or repurchase, any shares of its capital stock;
(d) will not amend its Articles of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its capital
stock, or any options, warrants or other rights to acquire shares of its
capital stock, or any securities convertible into or exchangeable for shares
of its capital stock;
(f) will not combine, split or otherwise reclassify any shares
of its capital stock;
(g) subject to the fiduciary duties of the Company's Board
of Directors, as advised in writing by counsel, will use all reasonable
efforts to preserve intact its present business organization, keep available
the services of its officers and key employees and preserve its relationships
with clients and others having business dealings with it to the end that its
goodwill and ongoing business shall not be materially impaired at the
Effective Date;
(h) will not make any capital expenditures individually in
excess of $50,000 or in the aggregate in excess of $100,000, (ii) enter into
or terminate (except in the ordinary course of business and consistent with
past practice) any lease of, or purchase or sell, any real property, (iii)
enter into any leases of personal property involving individually in excess of
$25,000 annually or in the aggregate in excess of $50,000 annually, (iv) incur
or guarantee any additional indebtedness for borrowed money except draw downs
on its line of credit and in the ordinary course of business, (v) create or
permit to become effective any security interest, mortgage, lien, charge or
other encumbrance on its properties or assets, or (vi) enter into any
agreement to do any of the foregoing;
(i) will not, other than as set forth in Schedule 5.1(i)
and other than in the ordinary course of business, adopt or amend any Benefit
Plan for the benefit of Employees, or (except for such increases in salary or
other compensation payable to any Employee as the Board of Directors of the
Company may reasonably determine are necessary to retain the services of such
Employee) increase the salary or other compensation (including, without
limitation, bonuses) payable or to become payable to its Employees (except
pursuant to existing contractual obligations which have been disclosed to
Parent or consistent with past practice), or enter into any agreement to do
any of the foregoing;
(j) will promptly advise Parent of the commencement of, or
threat of (to the extent that such threat comes to the knowledge of the
Company), any material claim, action, suit, proceeding or investigation
against, relating to or involving the Company or any of its directors,
officers, employees, agents or consultants in connection with its businesses
or the transactions contemplated hereby;
(k) will maintain in full force and effect all insurance
policies maintained by the Company on the date hereof;
(l) will not enter into any agreement to dissolve, merge (other
than as contemplated by this Agreement), consolidate or, except in the
ordinary course, sell any Company Common Stock or any material assets of the
Company to any third party, and if the Company should, in the performance by
the Company's Board of Directors of their fiduciary duties, nevertheless enter
into such an agreement, shall promptly provide Parent with notice thereof
including a copy of such agreement, or a written summary of its terms if the
agreement is not in writing, and Parent shall have a right of first refusal
for a period of sixty (60) days after receipt of the aforesaid notice to cause
the Company to close the transaction with Parent on the same terms as the
agreement with the third party;
(m) will make efforts to in a timely manner make all filings it
is required to make with the Securities and Exchange Commission and other
regulatory organizations and provide copies thereof to Parent;
(n) will not breach any material provision of or default or
commit any act or fail to take any action necessary which with the giving
notice or lapse of time, would constitute a default under any material
contract or instrument to which it is a party or by which it is bound; and
(o) will promptly notify Parent in writing of any material
problem with any Employee, customer or supplier, if any key employee leaves
the Company for any reason, or if any material customer terminates its
relationship with the Company.
5.2 Conduct of Business of the Parent. During the period
commencing on the date hereof and continuing until the Effective Date, Parent
agrees that, except as expressly contemplated by this Agreement or agreed to
in writing by the Company, the Parent:
(a) subject to the fiduciary duties of the Parent's Board
of Directors, as advised in writing by counsel, will carry on its business
only in the ordinary course consistent with past practice;
(b) will not declare or pay any dividend on or make any other
distribution (however characterized) in respect of shares of its capital
stock;
(c) will not, directly or indirectly, redeem or repurchase,
or agree to redeem or repurchase, any shares of its capital stock;
(d) will not amend its Certificate of Incorporation or By-Laws;
(e) except as described in Schedule 5.2(e), will not issue,
or agree to issue, any shares of its capital stock, or any options, warrants
or other rights to acquire shares of its capital stock, or any securities
convertible into or exchangeable for shares of its capital stock, other than
the issuance of common stock upon the exercise of options granted under its
Incentive Stock Option Plan;
(f) will not combine, split or otherwise reclassify any shares
of its capital stock;
(g) will not sell or pledge, or agree to sell or pledge, any
shares of the capital stock of any of Parent Subsidiaries, except as disclosed
in Schedule 5.2(g) hereof;
(h) will promptly advise the Company of the commencement of, or
threat of (to the extent that such threat comes to the knowledge of Parent or
any Parent Subsidiary), any material claim, action, suit, proceeding or
investigation against, relating to or involving Parent or any Parent
Subsidiary or any of their directors, officers, employees, agents or
consultants in connection with their businesses or the transactions
contemplated hereby;
(i) subject to the fiduciary duties of Parent's Board of
Directors, will not enter into any agreement to dissolve, merge, consolidate
or, except in the ordinary course, sell any material assets of the Parent or
any of the Parent Subsidiaries to any third party, and if the Parent or any of
the Parent Subsidiaries should, in performance by the Parent's Board of
Directors of their fiduciary duties, nevertheless enter into such an
agreement, the Parent shall promptly provide the Company with notice thereof;
(j) will not, other than in the ordinary course of
business, adopt or amend any Benefit Plan for the benefit of employees of
Parent or any Parent Subsidiary, or (except for such increases in salary or
other compensation payable to any employee of Parent or any Parent Subsidiary
as the Board of Directors of Parent or Parent Subsidiary may reasonably
determine are necessary to retain the services of such employee) increase the
salary or other compensation (including, without limitation, bonuses) payable
or to become payable to such employees (except pursuant to existing
contractual obligations or consistent with past practice), or enter into any
agreement to do any of the foregoing;
(k) subject to the fiduciary duties of the Parent's Board
of Directors, as advised in writing by counsel, will use all reasonable
efforts to preserve intact its present business organization, keep available
the services of its officers and key employees and preserve its relationships
with clients and others having business dealings with it to the end that its
goodwill and ongoing business shall not be materially impaired at the
Effective Date;
(l) will make efforts to in a timely manner make all filings it
is required to make with the Securities and Exchange Commission and other
regulatory organizations and provide copies thereof to the Company;
(m) will not breach any material provision of or default of
commit any act or fail to take any action necessary which the giving of notice
or lapse of time, would constitute a default under any material contract or
instrument to which it is a party or by which it is bound;
(n) will promptly notify the Company in writing of any
material problem with any employee, customer, or supplier, if any key employee
leaves the Parent or any Parent Subsidiary for any reason, or if any material
customer terminates its relationship with the Parent or any Parent Subsidiary;
and
(o) will maintain in full force and effect all insurance
policies maintained by the Company on the date hereof.
5.3 Conduct of Business of Acquisition. During the period
commencing on the date hereof and continuing until the Effective Date,
Acquisition shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Properties and Records. Between the date of this
Agreement and the Effective Date, the Company will provide Parent and its
accountants, counsel and other authorized advisors, and Parent (with respect
to itself and Parent Subsidiaries) will provide the Company and its
accountants, counsel and other authorized advisors, with full access, during
business hours, to their respective premises and properties and their
respective books and records (including, without limitation, contracts,
leases, insurance policies, litigation files, minute books, accounts, working
papers and tax returns filed and in preparation) and each will cause its
officers to furnish to the other and its authorized advisors such additional
financial, tax and operating data and other information pertaining to its
business as the other shall from time to time reasonably request. All of such
data and information shall be subject to the terms and conditions of the
confidentiality agreement, dated June 4, 1997 between the Company and the
Parent, with respect to information provided by the Company, and the
confidentiality agreement dated as of December 4, 1997 between Parent and the
Company, with respect to information provided by the Parent.
6.2 Registration Statement. As soon as reasonably practicable
after the execution and delivery of this Agreement, and subject to the
availability of year end financial statements, Parent shall prepare and file
with the SEC the Registration Statement, which shall cover all of the shares
of Parent Common Stock to be issued in connection with the Merger, and shall
use all reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable. Parent shall also take such
actions as may be required under state blue sky or securities laws in
connection with such issuance of shares of Parent Common Stock in connection
with the Merger. The Company shall cooperate fully with Parent and shall
furnish Parent with all information concerning the Company and the Informedics
Shareholders and shall take all such other action as Parent may reasonably
request in connection with any such actions.
6.3 Shareholders' Approvals. Promptly after the
effectiveness of the Registration Statement and compliance with all state
securities and blue sky laws, each of Acquisition and the Company shall take
all action necessary to convene meetings of their respective shareholders for
the purpose of voting upon the transactions contemplated hereby and such other
matters as may be appropriate at such meetings, and in connection therewith
the Company shall in a timely manner mail to its shareholders the Proxy
Statement contained in the Registration Statement and, if necessary after the
Proxy Statement shall have been mailed, shall promptly and in a timely manner
circulate amended or supplemental materials and (if necessary) resolicit
proxies. The Company and Parent will, through their respective Board of
Directors, recommend to their respective shareholders approval of the
transactions contemplated by this Agreement.
6.4 Reasonable Efforts; etc. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use his/its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including obtaining any consents,
authorizations, exemptions and approvals from, and making all filings with,
any governmental or regulatory authority, agency or body which are necessary
in connection with the transactions contemplated by this Agreement.
6.5 Material Events. At all times prior to the Effective Date, each
party shall promptly notify the others in writing of the occurrence of any
event which will or may result in the failure to satisfy any of the conditions
specified in Article VII or Article VIII hereof.
6.6 Exclusivity.
(a) Following the execution of this Agreement, neither the
Company, any of the Company's officers, employees, representatives or agents,
nor any of the Company Identified Persons (the "Company Group") will directly
or indirectly solicit or accept any offers or solicit or initiate any
discussion or negotiations with, participate in any negotiations with or
provide any information to or otherwise cooperate in any other way with, or
facilitate or encourage any effort or attempt by any corporation, partnership,
persons or other entity or group, other than Parent and its directors,
officers, employees, representatives and agents (the "Parent Group")
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or its business.
(b) If any member of the Company Group violates the above
Section 6.6(a), or should any "person" (as such term is defined In Section
13d-3 of the Exchange Act) other than persons who are part of the Parent
Group, become after the date hereof the "beneficial owner" (as such term ins
defined in the Exchange Act) of ten percent (10%) or more of the outstanding
Common Stock and discloses (by press release, public filing or otherwise) its
opposition to the transaction contemplated herein or publicly announces a
tender or exchange offer with the intent to accomplish the type of transaction
described in Section 6.6 (a), above, then, if such a transaction results,
simultaneous with the closing of that transaction, the Company shall deliver
to Parent an amount equal to the sum of (i) the fees and expenses paid or
payable by or on behalf of the Company to its attorneys, accountants,
environmental consultants, management consultants, and other consultants and
advisors in connection with the negotiation, execution and delivery of this
Agreement, performing diligence, preparing documentation, structuring and
negotiating this Agreement and the transactions contemplated hereby, and to
all banks, investment banking firms and other financial institutions for
arranging or providing any financing or financial commitments in connection
with the transactions contemplated hereby plus (ii) a non-accountable expense
reimbursement of $500,000 for various out-of-pocket and general costs incurred
by Parent and its affiliates in connection with this transaction.
(c) The provisions of this Section 6.6 shall terminate if a Closing
does not occur by April 30, 1998, or if this Agreement is terminated prior
thereto for any reason other than a violation of this Section 6.6.
6.7 No Issuance of Company Preferred Stock. The Company agrees
not to issue any shares of Company Preferred Stock after the execution and
delivery of this Agreement.
6.8 Tax Consequences. From and after the Effective Date,
none of the parties will take any position in or with regard to their
respective Federal, state and local income tax returns (or any amendments
thereto) that is inconsistent with the treatment of the Merger as a tax-free
reorganization for Federal income tax purposes under Section 368 of the Code
or with respect to the tax consequences contemplated thereby (including those
related to the basis of stock and assets).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
PARENT AND ACQUISITION
The obligation of Parent and Acquisition to consummate the
transactions contemplated hereby shall be subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which
may be waived in writing by Parent and Acquisition in their sole discretion):
7.1 Representations and Warranties True. The representations
and warranties of the Company which are contained in this Agreement, or
contained in any Schedule, certificate or other instrument or document
delivered or to be delivered pursuant to this Agreement, shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date, and at
the Closing the Company shall have delivered to Parent and Acquisition a
certificate (signed on behalf of the Company by the President and the Chief
Financial Officer of the Company) to that effect with respect to all such
representations and warranties made by the Company.
7.2 Performance. The Company shall have performed and complied in
all material respects with all of the obligations under this Agreement which
are required to be performed or complied with by it on or prior to the Closing
Date, and at the Closing the Company shall have delivered to Parent and
Acquisition a certificate (duly executed on behalf of the Company by the
President and the Chief Financial Officer of the Company) to that effect with
respect to all such obligations required to have been performed or complied
with by the Company on or before the Closing Date.
7.3 Authorization of Merger. This Agreement and the consummation of
the transactions contemplated hereby shall have been duly approved and adopted
by the requisite affirmative vote of the Company's shareholders and Parent's
shareholders in accordance with applicable laws and regulations.
7.4 Registration Statement; Blue Sky Laws. The Registration
Statement shall have been declared effective under the Securities Act and
shall not be subject to a stop order or any threatened stop order. All
necessary state securities and blue sky permits, approvals and exemption
orders required in connection with the transactions contemplated by this
Agreement shall have been obtained.
7.5 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall
have been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory
body, agency or authority shall have been instituted by any person (or
instituted or threatened by any governmental or regulatory body, agency or
authority), and no investigation by any governmental or regulatory body,
agency or authority shall have been commenced with respect to the transactions
contemplated hereby or with respect to the Company which, in the reasonable
judgment of the Parent's Board of Directors, would have a material adverse
effect on the transactions contemplated hereby or on the business of the
Company.
7.6 Additional Agreements. The Company shall have delivered (or
cause to be delivered) duly executed counterparts of the following agreements:
(a) a Consulting Agreement, duly executed by the President of
the Company; and
(b) a consent from the lessor of the Company's facilities
waiving any default under said lease resulting from the transactions
contemplated herein and permitting assignment of said lease to Acquisition and
any other entry which acquires all of the outstanding stock or all or
substantially all of the assets of Acquisition.
7.7 Legal Opinion. The Parent shall have received an
opinion of Tonkon, Torp, Galen, Marmaduke & Booth, counsel to the Company, in
a form reasonably satisfactory to the Parent.
7.8 Delivery of Certificates for Cancellation. The share
certificates representing all of the issued and outstanding shares of Company
Common Stock as of the Closing Date (other than Dissenting Shares), and the
instruments representing all Options which are outstanding and unexercised on
the Closing Date, in each case duly endorsed in blank, shall have been
surrendered for cancellation.
7.9 Appraisal Rights. The holders of five percent (5%) or more
of the issued and outstanding shares of Company Common Stock shall not have
demanded appraisal rights in respect of the Merger.
7.10 Comfort Letter. Prior to the Registration Statement
becoming effective, Deloitte & Touche, independent accountants to the Company,
shall have delivered to Parent a "comfort" letter, addressed to Parent and
dated within three days of the date on which the Registration Statement became
effective, in such form and substance as is customary in connection with such
transactions and is satisfactory to the Parent.
7.11 Articles of Merger. The Company shall have executed and
delivered to Parent counterparts of the Articles of Merger to be filed with
the Secretary of State of the State of Oregon in connection with the Merger.
7.12 Schedules and Deliveries. The Parent and Acquisition
acknowledge and agree that certain of the schedules and items to be delivered
by the Company pursuant to this Agreement have not yet been provided by the
Company. All of such schedules and other items which have not been delivered
shall have been delivered by the Company to Parent no later than 30 days from
the date hereof, and such schedules and other items shall have been reasonably
satisfactory to the Parent, such approval not to be unreasonably withheld.
Company shall cooperate with Parent and work diligently to modify any schedule
or other deliverable which Parent does not approve so that it meets with
Parent's reasonable satisfaction.
7.13 Completion of Financial Due Diligence. The Parent and
Acquisition shall have completed their financial due diligence review of the
Company to their reasonable satisfaction, including but not limited to
discussions with the Company's auditors and financial personnel.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY
The obligation of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which
may be waived in writing by the Company in its sole discretion):
8.1 Representations and Warranties True. The
representations and warranties of each of Parent and Acquisition contained in
this Agreement, or contained in any Schedule, certificate or other instrument
or document delivered or to be delivered pursuant to this Agreement, shall be
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made on and as of the Closing
Date, and at the Closing each of Parent and Acquisition shall have delivered
to the Company a certificate (signed on its behalf by its President and its
Chief Financial Officer) to that effect with respect to all such
representations and warranties made by such entity.
8.2 Performance. Each of Parent and Acquisition shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by
them on or prior to the Closing Date, and at the Closing each of Parent and
Acquisition shall have delivered to the Company a certificate, signed on its
behalf by its President and its Chief Financial Officer, to that effect with
respect to all such obligations required to have been performed or complied
with by such entity on or before the Closing Date.
8.3 Authorization of Merger. This Agreement and the
transactions contemplated hereby shall have been duly approved and adopted by
the requisite affirmative vote of the Company's shareholders and Acquisition's
shareholders in accordance with applicable laws and regulations.
8.4 Registration Statement; Blue Sky Laws. The
Registration Statement shall have been declared effective under the Securities
Act and shall not be subject to a stop order or any threatened stop order.
All necessary state securities and blue sky permits, approvals and exemption
orders required in connection with the transactions contemplated by this
Agreement shall have been obtained.
8.5 Absence of Litigation. No statute, rule or regulation shall
have been enacted or promulgated. and no order, decree, writ or injunction
shall have been issued and shall remain in effect, by any court or
governmental or regulatory body, agency or authority which restrains, enjoins
or otherwise prohibits the consummation of the transactions contemplated
hereby, and no action, suit or proceeding before any court or governmental or
regulatory body, agency or authority shall have been instituted by any person
(or instituted or threatened by any governmental or regulatory body, agency or
authority) and no investigation by any governmental or regulatory body, agency
or authority shall have been commenced with respect to the transactions
contemplated hereby or with respect to Parent or Parent Subsidiaries which, in
the reasonable judgment of the Company's Board of Directors, would have a
material adverse effect on the transactions contemplated hereby or on the
business of Parent and Parent Subsidiaries taken as a whole.
8.6 Additional Agreements. Parent shall have executed and
delivered (and shall have agreed to cause the Surviving Corporation to execute
and deliver immediately following the Effective Date, as applicable)
counterparts of the following agreements:
(a) the Consulting Agreement referred to in Section 8.7(a)
hereof.
8.7 Legal Opinion. The Company shall receive an opinion of
Nordlicht & Hand, and/or Winthrop, Stimson, Putnam & Roberts, as appropriate,
counsels to Parent and Acquisition, in a form reasonably satisfactory to the
Company.
8.8 Articles of Merger. Parent and Acquisition shall have
executed and delivered to the Company counterparts of the Articles of Merger
to be filed with the Secretary of the State of the State of Oregon in
connection with the Merger.
8.9 Schedules and Deliveries. The Company acknowledges and
agrees that certain of the schedules and items to be delivered by the Parent
and Acquisition pursuant to this Agreement have not yet been provided by the
Company. All of such schedules and other items which have not been delivered
shall have been delivered by Parent and Acquisition to the Company no later
than 30 days from the date hereof, and such schedules and other items remain
shall have been reasonably satisfactory to the Company. Parent and
Acquisition shall cooperate with the Company and work diligently to modify any
schedule or other deliverable which the Company does not approve so that it
meets with the Company's reasonable satisfaction.
8.10 Completion of Financial Due Diligence. The Company shall
have completed its financial due diligence review of the Parent to its
reasonable satisfaction, including but not limited to discussions with the
Parent's auditors and financial personnel.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Date, whether prior to or after approval of this
Agreement and the transactions contemplated hereby by the Company's
shareholders:
(a) by the mutual written consent of the Boards of Directors of
the Company and the Parent;
(b) by either the Company or the Parent
(i) if any court or governmental or regulatory agency,
authority or body shall have enacted, promulgated or issued any statute, rule,
regulation, ruling, writ or injunction, or taken any other action,
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and all appeals and means of appeal therefrom have been exhausted;
(ii) if the Effective Date shall not have occurred on or
before April 30, 1998; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.1 (b)(ii) shall not be available to any
party whose (or whose affiliate(s)') breach of any representation or warranty
or failure to perform or comply with any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Date to occur
on or before such date;
(iii) if the shareholders of the Company or the shareholders of
Acquisition shall have failed to approve the Merger at the meetings referred
to in Section 6.3;
(c) by the Company, if any of the conditions specified in
Article VIII have not been met or waived prior to such time as such condition
can no longer be satisfied; or
(d) by the Parent, if any of the conditions specified in Article
VII shall not have been met or waived prior to such time as such condition can
no longer be satisfied.
9.2 Effect of Termination. In the event of termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or their respective
officers or directors, except for Sections 11.6 and 11.8 and the last sentence
of Section 6.1, which shall remain in full force and effect, and except that
nothing herein shall relieve the Company from its obligations under Section
6.6 hereof or any party from liability for a breach of this Agreement prior to
the termination hereof.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 Survival of Representations and Warranties. All
representations and warranties set forth herein shall survive only until the
Effective Date and not beyond.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Amendment. This Agreement may be amended by written
agreement among the Company and Parent prior to the Effective Date, whether
prior to or after approval hereof by the Company's shareholders, but after any
such approval no amendment shall be made to the Exchange Ratio pursuant to
which outstanding shares of Company Common Stock are converted into shares of
Parent Common Stock pursuant to the Merger, without the further approval of
such shareholders.
11.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written notice
from the party or parties entitled to the benefits thereof. No failure by any
party hereto to exercise, and no delay in exercising, any right hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right hereunder preclude any other or future exercise of that right by
that party.
11.3 Notices. All notices and other communications hereunder
shall be deemed given if given in writing and delivered personally, by
registered or certified mail, return receipt requested, postage prepaid, or by
overnight courier for which a receipt confirming delivery is provided, to the
party to receive the same at its respective address set forth below (or at
such other address as may from time to time be designated by such party to the
others in accordance with this Section 11.3):
(a) if to the Company, to:
Informedics, Inc.
4000 Kruse Way Plaza
Building 3, Suite 155
Lake Oswego, Oregon 97035
Attention: Mr. John Tortorici
with copies to:
Tonkon, Torp, Galen, Marmaduke & Booth
1600 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: Ronald L. Greenman, Esq.
(c) if to Parent or Acquisition, to:
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, New York 11747
Attention: President
with copies to:
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
Attention: Ira S. Nordlicht, Esq.
and
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Attention: Jonathan H. Churchill, Esq.
All such notices and communications hereunder shall be deemed given
when received, as evidenced by the signed acknowledgment of receipt of the
person to whom such notice or communication shall have been personally
delivered, the acknowledgment of receipt returned to the sender by the
applicable postal authorities or the confirmation of delivery rendered by the
applicable overnight courier service.
11.4 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor any rights, duties or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties hereto.
11.5 No Third Party Beneficiaries. Neither this Agreement
or any provision hereof nor any Schedule, certificate or other instrument
delivered pursuant hereto, nor any agreement to be entered into pursuant
hereto or any provision hereof, is intended to create any right, claim or
remedy in favor of any person or entity, other than the parties hereto and
their respective and permitted assigns.
11.6 Expenses. Each party shall pay its own expenses in
connection with this Agreement. the agreements, to be entered into pursuant
hereto and the transactions contemplated hereby.
11.7 Public Announcements. Promptly upon execution and delivery
of this Agreement, Parent and the Company shall issue a press release in such
form as they shall mutually agree. Thereafter, and prior to the consummation
of the Merger or the termination of this Agreement, none of the parties hereto
shall, except as mutually agreed by Parent and the Company, or except as may
be required by law or applicable regulatory authority, issue any reports,
releases, announcements or other statements to the public relating to the
transactions contemplated hereby.
11.8 Brokers and Finders. The Company, Parent and Acquisition
represent and warrant that, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission based on arrangements
made by or on behalf of any of them. The Company and Parent shall each pay
the fees and other compensation of any broker, finder or investment banker
engaged by it or on its behalf.
11.9 Dispute Resolution
(a) In the event of any controversy, claim or dispute, other than
for which equitable relief is available, 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
President of the other party.
(b) If efforts under Section 11.9(a) are not successful, such
dispute shall 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
Section 11.9(a) 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 the Company, one of whom is selected
by Parent, and one of whom is selected by the two arbitrators so designated.
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 make 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 arbitrations. Judgment on the award may be entered in any court
of record having competent jurisdiction. Each party shall pay its own
expenses of arbitration and the expenses of 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 part of the arbitration expenses of
the other party or parties (including reasonable attorneys' fees) and expenses
of the arbitrators 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
Section 11.9.
11.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.11 Headings. The article and section headings contained
in this Agreement are solely for convenience of reference, are not part of the
agreement of the parties and shall not be used in construing this Agreement or
in any way affect the meaning or interpretation of this Agreement.
11.12 Entire Agreement. This Agreement, and the Schedules,
certificates and other instruments and documents delivered pursuant hereto,
together with the other agreements referred to herein and to be entered into
pursuant hereto, embody the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersede all prior agreements or
understandings, written or oral, among the parties relating to, the subject
matter hereof.
11.13 Governing Law. The parties hereby agree that this Agreement,
and the respective rights, duties and obligations of the parties hereunder,
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of law thereunder,
except for the provisions of Article I hereto setting forth the provisions for
the consummation and effects of the Merger, which shall be governed by and
construed in accordance with the laws of the State of Oregon.
11.14 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. 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.
11.15 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.
11.16 Schedules and Exhibits. The Schedules and Exhibits 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.
<PAGE>
IN WITNESS WHEREOF, the Parent, Acquisition and the Company have caused
this Agreement to be duly executed and delivered as of the date first above
written.
MEDIWARE INFORMATION SYSTEMS, INC.
By: /s/ George J. Barry
----------------------
Name: George J. Barry
Title: CFO
MEDIWARE ACQUISITION CORPORATION
By: /s/ George J. Barry
----------------------
Name: George J. Barry
Title: CFO
INFORMEDICS, INC.
By: /s/ John Tortorici
--------------------
Name: John Tortorici
Title: Chairman, CEO
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of April 30, 1998 (this "Amendment") to AGREEMENT AND
PLAN OF MERGER, dated as of December 18, 1997 (the "Agreement"), by and among
MEDIWARE INFORMATION SYSTEMS, INC., a New York corporation ("Parent"),
MEDIWARE ACQUISITION CORPORATION, an Oregon corporation and wholly-owned
subsidiary of Parent ("Acquisition"), and INFORMEDICS, INC., an Oregon
corporation (the "Company"). Terms used herein and not defined herein shall
have the same meanings as defined in the Agreement.
WHEREAS, Parent, Acquisition and Company have entered into the Agreement,
which provides for the Merger of the Company with and into Acquisition, with
Acquisition being the surviving corporation; and
WHEREAS, Parent, Acquisition and Company have determined to amend certain
provisions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in the
Agreement and this Amendment, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.01 No Fractional Shares.
-----------------------
(a) The following sentence is hereby added to the end of Section
2.2(a), Conversion of Shares; Cancellation of Options, of the Merger
Agreement:
"No fractional shares of Parent Common Stock shall be issued in the Merger
and, in lieu thereof, fractional shares of Parent Common Stock shall be
rounded to the nearest whole number."
(b) The following phrase is hereby added to the end of Section
2.2(b), Conversion of Shares; Cancellation of Options, of the Merger
Agreement:
"(provided, that any fractional shares of Parent Common Stock resulting from
the application of the Exchange Ratio shall be rounded to the nearest whole
number per option holder)"
<PAGE>
SECTION 1.02 Exchange and Cancellation Procedures. Section 2.3,
-------------------------------------
Cancellation of Certificates, of the Merger Agreement is hereby restated in
its entirety as follows:
"2.3 Exchange and Cancellation Procedures.
(a) Exchange Fund. Promptly after the Effective Date, Parent
-------------
shall deposit, or cause to be deposited, with a bank or trust company mutually
agreeable to the parties to this Agreement (the "Exchange Agent"), for the
benefit of the former holders of Company Common Stock, certificates evidencing
a number of shares of Parent Common Stock determined in accordance with
Section 2.1 herein. The certificates deposited with the Exchange Agent in
accordance with this subsection are hereinafter referred to as the "Exchange
Fund". The Exchange Agent shall, pursuant to irrevocable instructions,
deliver Parent Common Stock in exchange for surrendered Company Common Stock
certificates pursuant to the terms of this Agreement out of the Exchange Fund.
(b) Letter of Transmittal. As soon as practicable after the
---------------------
Effective Date, the Exchange Agent will send to each record holder of shares
of Company Common Stock at the Effective Date a letter of transmittal and
other appropriate materials for use in surrendering certificates to the
Exchange Agent.
(c) Exchange Procedures for Common Stock. The Exchange Agent
------------------------------------
shall distribute to each former holder of Company Common Stock, upon surrender
to the Exchange Agent of one or more certificates for cancellation together
with a duly executed and properly completed letter of transmittal, a new
certificate for shares of Parent Common Stock, representing the number of
whole shares of Parent Common Stock into which the shares of Company Common
Stock formerly represented by such certificate shall have been converted in
the Merger. If distribution is to be made to a person other than the person
in whose name the certificate surrendered is registered, it shall be a
condition that the certificate so surrendered shall be properly endorsed, with
signatures guaranteed, or otherwise in proper form for transfer and that the
person requesting such distribution shall pay any transfer or other taxes
required by reason of the distribution to a person other than the registered
holder of the certificate surrendered, or such person shall establish to the
satisfaction of Parent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to any former holder of Company Common Stock for any cash or
Parent Common Stock delivered to a public official pursuant to applicable
escheat or similar law.
(d) Exchange Procedures for Options. At the Effective Date,
-------------------------------
each instrument representing Company Options shall be canceled and terminated
and, simultaneously with such cancellation and termination, either (i) a
certificate representing replacement options to purchase whole shares of
Parent Common Stock shall be issued in accordance with Section 2.2(b) or (ii)
the number of whole shares of Parent Common Stock issuable to each holder of
<PAGE>
Company Options who is subject to Section 2.2(c) hereof shall be issued to
each such Company Option holder in accordance with Section 2.2(c).
(e) Stockholders Rights upon Merger. From and after the
----------------------------------
Effective Date, each certificate or instrument which prior to the Effective
Date represented shares of Company Common Stock or Company Options, as
applicable, shall be deemed to represent only the right to receive the
certificates of whole shares of Parent Common Stock or options to acquire
whole shares of Parent Common Stock, as the case may be, and the holder of
each such certificate or instrument shall cease to have any rights with
respect to the shares of Company Common Stock or Company Options (and the
underlying Common Stock) formerly represented thereby, except as otherwise
provided herein or by law. From and after the Effective Date, former
shareholders of record of Company shall be entitled to vote at any meeting of
holders of Parent Common Stock the number of whole shares of Parent Common
Stock into which their Company Common Stock is converted, regardless of
whether such holders have exchanged their certificates representing the
Company Common Stock for certificates representing Parent Common Stock in
accordance with the provisions of this Agreement.
(f) Lost and Destroyed Certificates. If any holder of Company
-------------------------------
Common Stock shall be unable to surrender such holder's certificates because
such certificates have been lost or destroyed, such holder may deliver in lieu
thereof an affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to Parent."
SECTION 1.03 Termination. Section 9.1(b)(ii), Termination, is hereby
------------
amended to the effect that the April 30, 1998 date contained therein is hereby
changed to August 31, 1998.
SECTION 1.04 Shareholders' Approvals. Section 6.3, Shareholders'
------------------------
Approvals, of the Merger Agreement is hereby restated in its entirety as
follows:
"6.3 Shareholders' Approvals. Promptly after the effectiveness of
the Registration Statement and compliance with all state securities and blue
sky laws, each of Acquisition and Company shall take all action necessary to
convene meetings of their respective shareholders for the purpose of voting
upon the transactions contemplated hereby and such other matters s may be
appropriate as such meetings and in connection therewith the Company shall in
a timely manner mail to its shareholders the Proxy Statement contained the
Registration Statement and, if necessary after the Proxy Statement shall have
been mailed, shall promptly and in a timely manner circulate amended or
supplemental materials and (if necessary) resolicit proxies. The Company
will, through its Board of Directors, recommend to its shareholders approval
of the transactions contemplated by this Agreement."
SECTION 1.05 Authorization of Merger. Section 7.3, Authorization of
------------------------
Merger, of the Merger Agreement is hereby restated in its entirety as follows:
<PAGE>
"7.3 Authorization of Merger. This Agreement and consummation of the
transactions contemplated hereby shall have been duly approved and adopted by
the requisite affirmative vote of Acquisition's shareholder and the Company's
shareholders in accordance with applicable laws and regulations."
ARTICLE II
GENERAL PROVISIONS
SECTION 2.01 Entire Agreement. This Amendment, together with the
----------------
portions of the Agreement not amended hereby, Schedules, certificates and
other instruments and documents delivered pursuant thereto, together with the
other agreements referred to therein and to be entered into pursuant thereto,
constitute the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
SECTION 2.02 Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law.
SECTION 2.03 Counterparts. This Amendment may be executed in
------------
multiple 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.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
MEDIWARE INFORMATION SYSTEMS, INC.
By: /s/ Les Dace
--------------
Name: Les Dace
Title: President and CEO
MEDIWARE ACQUISITION CORPORATION
By: /s/ Les Dace
--------------
Name: Les Dace
Title: President and CEO
INFORMEDICS, INC.
By: /s/ John Tortorici
--------------------
Name: John Tortorici
Title: President and CEO
<PAGE>
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 2 dated as of August 10, 1998 (this "Amendment") to
AGREEMENT AND PLAN OF MERGER, dated as of December 18, 1997, as amended on
April 30, 1998 (the "Agreement"), by and among MEDIWARE INFORMATION SYSTEMS,
INC., a New York corporation ("Parent"), MEDIWARE ACQUISITION CORPORATION, an
Oregon corporation and wholly-owned subsidiary of Parent ("Acquisition"), and
INFORMEDICS, INC., an Oregon corporation (the "Company"). Terms used herein
and not defined herein shall have the same meanings as defined in the
Agreement.
WHEREAS, Parent, Acquisition and Company have entered into the Agreement,
which provides for the Merger of the Company with and into Acquisition, with
Acquisition being the surviving corporation; and
WHEREAS, Parent, Acquisition and Company have determined to further amend
certain provisions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in the
Agreement and this Amendment, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.01 Exclusivity. Section 6.6(c), Exclusivity, is hereby
------------
amended to the effect that the date contained therein is hereby changed to
September 24, 1998.
SECTION 1.02 Termination. Section 9.1(b)(ii), Termination, is hereby
------------
amended to the effect that the date contained therein is hereby changed to
September 24, 1998.
ARTICLE II
GENERAL PROVISIONS
SECTION 2.01 Entire Agreement. This Amendment, together with the
----------------
portions of the Agreement not amended hereby, Schedules, certificates and
other instruments and documents delivered pursuant thereto, together with the
other agreements referred to therein and to be entered into pursuant thereto,
constitute the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
SECTION 2.02 Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law.
<PAGE>
SECTION 2.03 Counterparts. This Amendment may be executed in
------------
multiple 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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
MEDIWARE INFORMATION SYSTEMS, INC.
By: /s/ Les Dace
--------------
Name: Les Dace
Title: President and CEO
MEDIWARE ACQUISITION CORPORATION
By: /s/ Les Dace
--------------
Name: Les Dace
Title: President and CEO
INFORMEDICS, INC.
By: /s/ John Tortorici
--------------------
Name: John Tortorici
Title: President and CEO
<PAGE>
ANNEX B
1997 OREGON REVISED STATUTES
TITLE 7. CORPORATIONS AND PARTNERSHIPS
CHAPTER 60. PRIVATE CORPORATIONS
DISSENTERS' RIGHTS
60.551. DEFINITIONS FOR 60.551 TO 60.594.
As used in ORS 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
<PAGE>
60.554. RIGHT TO DISSENT.
(1) Subject to subsection (2) of this section, a shareholder is entitled
to dissent from, and obtain payment of the fair value of the shareholder's
shares in the event of, any of the following corporate acts:
(a) Consummation of a plan of merger to which the corporation is a party
if shareholder approval is required for the merger by ORS 60.487 or the
articles of incorporation and the shareholder is entitled to vote on the
merger or if the corporation is a subsidiary that is merged with its parent
under ORS 60.491;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities; or
(B) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
ORS 60.141; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under ORS 60.551 to 60.594 may not challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any
class or series if the shares of the class or series were registered on a
national securities exchange or quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System as a National Market
System issue on the record date for the meeting of shareholders at which the
corporate action described in subsection (1) of this section is to be approved
or on the date a copy or summary of the plan of merger is mailed to
shareholders under ORS 60.491, unless the articles of incorporation otherwise
provide.
<PAGE>
60.557. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares
regarding which the shareholder dissents and the shareholder's other shares
were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote.
60.561. NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters'
rights under ORS 60.551 to 60.594 and be accompanied by a copy of ORS 60.551
to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.554 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send the shareholders entitled to assert dissenters' rights the
dissenters' notice described in ORS 60.567.
60.564. NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effectuated and shall
not vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
<PAGE>
60.567. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under ORS
60.554 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the
requirements of ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received.
(c) Supply a form for demanding payment that includes the date of the
first announcement of the terms of the proposed corporate action to news media
or to shareholders and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment demand.
This date may not be fewer than 30 nor more than 60 days after the date the
subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594.
60.571. DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in ORS 60.567 must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice pursuant to ORS 60.567 (2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
shares under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
60.574. SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under ORS 60.581.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
<PAGE>
60.577. PAYMENT.
(1) Except as provided in ORS 60.584, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall
pay each dissenter who complied with ORS 60.571, the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594.
60.581. FAILURE TO TAKE ACTION.
(1) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
60.584. AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by ORS 60.577
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of such demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest
was calculated and a statement of the dissenter's right to demand payment
under ORS 60.587.
<PAGE>
60.587. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of
interest due, and demand payment of the dissenter's estimate, less any payment
under ORS 60.577 or reject the corporation's offer under ORS 60.584 and demand
payment of the dissenter's estimate of the fair value of the dissenter's
shares and interest due, if:
(a) The dissenter believes that the amount paid under ORS 60.577 or
offered under ORS 60.584 is less than the fair value of the dissenter's shares
or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under ORS 60.577 within 60 days
after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within 30 days after the
corporation made or offered payment for the dissenter's shares.
60.591. COURT ACTION.
(1) If a demand for payment under ORS 60.587 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand under ORS 60.587 and petition the court under subsection (2) of
this section to determine the fair value of the shares and accrued interest.
If the corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount
demanded.
(2) The corporation shall commence the proceeding in the circuit court of
the county where a corporation's principal office is located, or if the
principal office is not in this state, where the corporation's registered
office is located. If the corporation is a foreign corporation without a
registered office in this state, it shall commence the proceeding in the
county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the circuit court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the court order appointing them, or in any amendment to
the order. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
<PAGE>
(5) Each dissenter made a party to the proceeding is entitled to judgment
for:
(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(b) The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under ORS 60.584.
60.594. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under ORS 60.591 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under ORS 60.587.
(2) The court may also assess the fees and expenses of counsel and experts
of the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ORS 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith with respect
to the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount
awarded the dissenters who were benefited.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
---------------------------------------------
Article X of the Company's by-laws as amended provides that the
Company will indemnify to the fullest extent permitted by the New York
Business Corporation Law (the "NYBCL") any officer or Director of the Company.
Article X of the Company's by-laws further requires the advancement of
expenses and permits the maintenance of insurance in connection with claims
for indemnification by officers and Directors. Other provisions of Article X
contain procedures to be followed by Directors and officers claiming
indemnification and by the Company's representatives in determining an
indemnitee's entitlement. The indemnification of officers and Directors under
Article X of the Company's by-laws is intended to be as extensive as is
permitted under applicable law. No statute, charter provisions, by-laws,
contract or other arrangements that insures or indemnifies a Director or
officer of the Company affects his or her liability in such capacity.
Section 721-726 of the NYBCL provides authorization for broad
indemnification of directors and officers by New York corporations. Section
721 of the NYBCL provides that rights granted to officers and directors
pursuant to the NYBCL shall not be deemed exclusive of any other rights which
a director or officer may have by specific corporate authorization, except
that a corporation may not, by the certificate of incorporation or the
by-laws, indemnify a director or officer for acts that were committed in bad
faith or were the result of deliberate dishonesty. A director or officer may,
however, still be indemnified for such acts by separate contract or by other
law. Section 722 of the NYBCL is the operative section of the statute that
contains the broad grant of authority for corporations to indemnify directors
and officers for losses and expenses, including attorneys' fees. Section 723
of the NYBCL provides that a person who has been successful in the defense of
a civil or criminal action or proceeding as an officer or director of a
corporation shall be entitled to indemnification even if indemnification was
not specifically authorized by the corporation. Section 724 of the NYBCL
provides that a person who is entitled to indemnification pursuant to Section
723 may seek such indemnification in court. Section 725 of the NYBCL provides
that expenses which were advanced to a person in defending a civil or criminal
action in connection with services performed as an officer and director shall
be returned if it is ultimately determined that such person was not entitled
to indemnification.
Item 21. Exhibits and Financial Statement Schedules.
----------------------------------------------
An Exhibit index, containing a list of all exhibits and financial
statement schedules to this registration statement, commences on page II-5.
Item 22. Undertakings.
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering;
(4) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request;
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective;
(7) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form; and
<PAGE>
(8) That every prospectus; (i) that is filed pursuant to paragraph
(7) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(9) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Scotts Valley and State of California on the 20th day of August, 1998.
MEDIWARE INFORMATION SYSTEMS, INC.
By: /s/ Les N. Dace
---------------
Les N. Dace
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Signature Title Date
- --------------------------- --------------------------------------- -------------
/s/ Les Dace President, CEO and Director (Principal August 20, 1998
- ---------------------------
(Les Dace) Executive Officer)
* George J. Barry Chief Financial Officer (Principal August 20, 1998
- ---------------------------
(George J. Barry) Accounting Officer)
* Lawrence Auriana Chairman of the Board and August 20, 1998
- ---------------------------
(Lawrence Auriana) Director
* Jonathan H. Churchill Director August 20, 1998
- ---------------------------
(Jonathan H. Churchill)
* Roger Clark Director August 20, 1998
- ---------------------------
(Roger Clark)
Director
(Joseph Delario)
* John C. Frieberg Director August 20, 1998
- ---------------------------
(John C. Frieberg)
Director
(Walter Kowsh, Jr.)
* Hans Utsch Director August 20, 1998
- ---------------------------
(Hans Utsch)
Director
(Clinton Weiman)
*By Les Dace
- ---------------------------
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -------------
<C> <S> <C>
<C> <C>
2 Agreement and Plan of Merger dated Filed as Annex A to the Prospectus
December 18, 1997, between Mediware
Information Systems, Inc. and
Informedics, Inc., as amended on April
30, 1998 and August 10, 1998
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. 333-07591)
3.2 By-laws *
5 Opinion of Winthrop, Stimson, Putnam
& Roberts *****
8 Opinion of Tonkon Torp LLP regarding tax matters
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 Services 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 Digimedics Corporation 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 to
Directors 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 No.
Joseph Delario 10.17 to the 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
10.19 1997 Stock Option Plan for Non- Incorporated by reference to Exhibit A to
Employee Directors Company's Proxy Statement dated
November 21, 1997
10.20 Letter outlining term of engagement for
John Tortorici
21 Subsidiaries of the registrant *
23.1 Consent of Winthrop, Stimson, Putnam & Roberts *****
(Contained in Exhibit 5)
23.2 Consent of Richard A. Eisner & Company, LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Tonkon Torp LLP (Contained in
Exhibit 8)
24 Powers of Attorney *****
</TABLE>
________________________
* 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 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.
**** 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, 1997.
***** Previously filed.</R.
<PAGE>
EXHIBIT 8
Mediware Information Systems, Inc.
Informedics Company, Inc.
August 20, 1998
Board of Directors Board of Directors
Mediware Information Systems, Inc. Informedics Company, Inc.
121 Old Walt Whitman Road 4000 Kruse Way Plaza
Melville, New York 11747 Suite 300, Building 3
Lake Oswego, Oregon 97035
Re: Merger of Informedics Company, Inc. into Mediware Acquisition
Corporation, Inc.
Ladies and Gentlemen:
We are giving this opinion to you in connection with the Agreement and Plan of
Merger (the "Agreement") among Mediware Information Systems, Inc., a New York
corpora-tion ("Parent"), its wholly owned subsidiary, Mediware Acquisition
Corporation, Inc., an Oregon corporation ("Acquisition") and Informedics,
Inc., an Oregon corporation ("Com-pany"), dated December 18, 1997, as amended
on April 30, 1998 and August 10, 1998. Pursuant to the Agreement, Company
will merge with and into Acquisition (the "Merger"), and Acquisition will
remain a wholly owned subsidiary of Parent.
Except as otherwise provided, capitalized terms have the meanings set forth in
the Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
For the purpose of rendering this opinion, we examined and are relying upon
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warran-ties contained in the following documents
(including all related schedules and exhibits) (the "Documents"):
The Agreement;
The Representation Letter to Tonkon Torp LLP from Company dated
August 20, 1998 in the form of Exhibit A;
- ---------------
The Representation Letter to Tonkon Torp LLP from Parent and Acquisition dated
August 19, 1998 in the form of Exhibit B;
- -----------------
The Registration Statement, as amended; and
Such other instruments and documents related to the formation, organization
and operation of Parent, Acquisition and Company or to the consummation of the
Merger and the transactions contemplated thereby as we have deemed necessary
or appropriate.
In connection with rendering this opinion, we assumed or obtained
representations (which we are relying on, without independent investigation or
review) that:
Original documents (including signatures) are authentic, documents submitted
to us as copies conform to the original documents, and all documents were duly
executed and deli-vered where due execution and delivery are prerequisites to
effectiveness of such documents;
The Merger will be consummated in accordance with the Agreement and will be
effective under the laws of the State of Oregon;
The shareholders of Company will collectively exchange a substantial portion
of the proprietary interests in the Company for proprietary interests in
Parent within the meaning of Treasury Regulations Section 1.368-1(e)(1)(i);
After the Merger, Acquisition will hold "substantially all" of its and
Company's properties within the meaning of Section 368(a)(2)(D) of the Code
and the regulations promulgated thereunder; and
To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treasury Regulations Section 1.368-1(c)
with respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187.
Based on our examination of the Documents and subject to the assumptions,
excep-tions, limitations and qualifications set forth herein, we are of the
opinion and so advise you that, for federal income tax purposes:
The Merger will constitute a reorganization within the meaning of Section
368(a) of the Code.
Each of Parent, Acquisition and Company will be a party to a reorganization
within the meaning of Section 368(b) of the Code.
No gain or loss will be recognized by Parent, Acquisition or Company as a
result of the Merger.
No gain or loss will be recognized by the holders of Company Common Stock upon
the exchange of Company Common Stock solely for shares of Parent Common Stock
as a result of the Merger.
The tax basis of the shares of Parent Common Stock received by a holder of
Company Common Stock in the Merger will be equal to the tax basis of the
shares of Company Common Stock exchanged therefor in the Merger.
The holding period for the shares of Parent Common Stock received by the
holders of Company Common Stock will include the holding period for the shares
of Company Common Stock exchanged therefor in the Merger, provided that the
shares of Company Common Stock are held as capital assets on the Effective
Date.
A Company shareholder who exercises dissenters' rights with respect to all of
such holder's shares of Company Common Stock will generally recognize gain or
loss for federal income tax purposes, measured by the difference between the
holder's basis in such shares and the amount of cash received, provided that
the payment is neither essentially equivalent to a dividend within the meaning
of Section 302 of the Code nor has the effect of a distribution of a dividend
within the meaning of Section 356(a)(2) of the Code (collectively, a "Dividend
Equivalent Transaction"). Such gain or loss will be capital gain or loss if
the Company Common Stock is held as a capital asset at the time of the Merger.
A sale of Company Com-mon Stock pursuant to an exercise of dissenters' rights
will generally not be a Dividend Equivalent Transaction if, as a result of
such exercise, the shareholder exercising dissenters' rights owns no shares of
Parent Common Stock or Company Common Stock (either actually or constructively
within the meaning of Section 318 of the Code). If, however, a shareholder's
sale for cash of Company Common Stock pursuant to an exercise of dissenters'
rights is a Dividend Equivalent Transaction, then such shareholder will
generally recognize ordinary income for federal income tax purposes in an
amount up to the amount of cash so received.
In addition to the assumptions set forth above, this opinion is subject to the
exceptions, limitations and qualifications set forth below.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws under the Code, existing judicial
decisions, administra-tive regulations and published rulings and procedures.
Our opinion is not binding upon the Internal Revenue Service or the courts,
and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be
given that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the matters specifically discussed above and does
not address any other federal, state, local or foreign tax consequences that
may result from the Merger or any other transaction (including any transaction
undertaken in connection with the Merger). In particular, we express no
opinion regarding (i) whether and the extent to which any Company shareholder
who has provided or will provide services to Company, Parent or Acquisition
will have compensation income under any provision of the Code; (ii) the
effects of such compensation income, including but not limited to the effect
upon the basis and holding period of Parent Common Stock received by any such
shareholder in the Merger; (iii) the potential application of the "golden
parachute" provisions (Sections 280G, 3121(v)(2) and 4999) of the Code, the
alternative minimum tax provisions (Sections 55, 56, and 57) of the Code or
Sections 305, 306, 357, 424, and 708 of the Code, or the regulations
promulgated thereunder; (iv) except as expressly stated above, the corporate
level tax consequences of the Merger to Parent, Acquisition or Company,
including without limitation the survival and/or availability, after the
Merger of any of the federal income tax attributes or elections of Company;
(v) except as expressly stated above, the basis of any assets of Company
acquired by Acquisition in the Merger; (vi) except as expressly stated above,
the tax consequences of any transaction in which Company shares or a right to
acquire Company shares was received; (vii) except as expressly stated above,
the tax consequences that may be relevant to particular classes of Company
shareholders such as dealers in securities, corporate shareholders subject to
the alternative minimum tax, foreign persons, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions; (viii)
the tax consequences of the assumption by Parent of the options and warrants
of Company; or (ix) the tax consequences to any Company shareholder arising
from any difference between (A) the sum of (I) the fair market value of Parent
Common Stock and (II) the amount of cash, if any, received by such Company
shareholder and (B) the fair market value of the Company shares surrendered in
exchange therefor.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at
all relevant times. If any one of the statements, representations, warranties
or assumptions upon which we have relied to issue this opinion is incorrect,
our opinion might be adversely affected and may not be relied upon.
We have delivered this opinion to you for the purpose of inclusion as an
exhibit to the Registration Statement being filed with respect to the Merger
and it is intended solely for your benefit; it may not be relied upon for any
other purpose or by any other person or entity, and may not be made available
to any other person or entity without our prior written consent.
We consent to the summarization of this opinion in the Registration Statement
under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
We also hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the reference made to our firm under "Certain
Federal Tax Consequences" in the Prospectus constituting part of the
Registration Statement. In giving such consent, we do not hereby admit that
we are within the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities and Exchange
Commission.
Very truly yours,
/s/ Tonkon Torp LLP
-------------------
TONKON TORP LLP
MFL/ld
<PAGE>
EXHIBIT 10.20
July 16, 1998
Mr. John Tortorici
4000 Kruse Way Place
Bldg.3, Suite 300
Lake Oswego, OR 97035
Dear John,
I am very pleased to offer you the position of "Vice President and General
Manager" for the Blood Bank Division of Mediware Information Systems which
includes Informedics and Hemo-care. This letter will formalize previous
discussions we have had concerning this position. This employment offer is
contingent on the closing of the merger agreement between Informedics and
Mediware. Your official hire date will be immediately following the close of
the merger between Informedics and Hemocare.
DESCRIPTION OF POSITION
- - You will be Vice President and General Manager for the Blood Bank
Division of Mediware Information Systems reporting directly to the President
and CEO of Mediware. You will be an integral member of the senior management
team and a member of the executive committee.
- - You will have full profit and loss responsibility for the Mediware Blood
Bank Division. As such you will have responsibility for product direction and
delivery strategies. You will have final authority on sales and service
contracts. You will have budgetary responsibilities for the Blood Bank
Division including capital expenditures and all staffing.
- - You have the right to hire and fire a controller, as well as a
regulatory/quality manager who will report directly to you. Both Roger
Colwell and Joe Schwoebel, the current employees filling these positions, are
acceptable to Mediware. Both Roger and Joe will be given competitive salary
packages with performance incentives and will be granted 9,500 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. Any unvested shares will
fully vest should there be a "change in control" of Mediware Information
Systems. The exercise price will be the "market price" on the day of closing
of the merger.
- - You do not have to relocate to the New York area, but recognize the
importance of spending an appropriate amount of time in the Melville office to
establish yourself with the staff and accomplish the Company goals.
- - The Company will pay all normal travel expenses per the Mediware
reimbursement policy including business related cell phone and car expenses.
BASE SALARY
You will receive a base salary of $120,000 per year, paid every two weeks.
OPTIONS
You will be granted options covering 40,000 shares of stock in Mediware's
stock option program at the commencement of employment. These share options
will fully vest over a 24-month period from date of grant, 25% of the total
shares vesting every six months following the date of grant, with the options
having a 10-year expiration term from date of option grant. Should there be a
"change in control" of Mediware Information Systems or a termination by
Mediware without cause as outlined below in the Severance section, all options
would immediately vest. The exercise price will be the "market price" on the
day of closing of the merger.
DIVISION PERFORMANCE BONUSES
Beginning with Mediware's fiscal 1999 year (July 1, 1998), you will be
eligible to participate in a bonus plan based on several qualifiers as listed
below. The bonus will be paid twice yearly, the first of which will be paid
following the filing of our 2nd quarter 10QSB, and the second to be paid
following the filing of our 10KSB. This bonus will be calculated at the rate
of 5% of the Blood Bank Division's "EBIT" (Earnings Before Interest and
Taxes). There is no cap for this bonus. EBIT calculations will exclude the
following:
All costs associated with the development of a new blood bank management
system. Any costs associated with the maintenance, support, or further
development of the current blood bank systems are not to be excluded.
SEVERANCE
The previously negotiated severance pay from Informedics' employment agreement
of $200,000 paid over two years remains in place and will be paid in addition
to any salary or bonuses paid by Mediware. Such payment will be made monthly
and shall begin in the month following the closing of the merger. In the
event your employment with Mediware terminates for any reason (including your
own volition), Mediware will continue such payments on an uninterrupted basis,
without regard to the other provisions of this Agreement.
In addition to the above, the following additional provisions apply to a
termination. For a termination without cause, all options will vest
immediately and you will be paid severance pay equal to (a) six months base
pay if terminated in the first six months and (b) three months base pay if
termination occurs after six months. A for-cause termination will be limited
to criminal offenses or material violations of written company policies
applicable to all employees.
BENEFITS
You and your dependents will be entitled to continue to participate in the
existing Informedics Healthcare plans, or in the alternative Mediware
Healthcare plans, 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 first day of the
month following your first full month of employment.
You will receive life insurance coverage equal to one year's salary; premiums
paid by Mediware.
You will be eligible to participate in Mediware's matching 401(k) plan
following your first full month of employment. Enrollment is done once per
quarter during the first month of each quarter.
Based on your eighteen years of seniority you are entitled to 20 paid days of
vacation each year, in accordance with the Mediware vacation policy plus seven
sick days per year. Mediware will recognize your 25 days of accrued vacation
with Informedics, and at termination of employment you will be paid for all
accrued vacation not taken per the Mediware policy.
As previously discussed, Mediware has no objection to the Informedics board
reissuing you options which are currently underwater or with the board issuing
you an additional 63,000 shares of Informedics common stock.
John, I look forward to your rapid and positive decision. Please indicate
your acceptance by signing below.
Sincerely yours,
Les N. Dace
President and Chief Executive Officer
Mediware Information Systems, Inc.
I have read the conditions of employment shown above and accept the offer
without modifications.
/s/ John Tortorici
____________________________
John Tortorici
Date: July 23, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-4 File No. 333-57693 of our report dated August 28, 1997
(with respect to: Note H[3], January 28, 1998; Note A[9], February 17, 1998;
and Note M, April 29, 1998) on our audits of the consolidated financial
statements of Mediware Information Systems, Inc. and subsidiaries. We also
consent to the reference to our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
August 19, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-57693 of Mediware Information Systems, Inc. of our report dated
January 9, 1998 on the financial statements of Informedics Inc., appearing in
the Proxy Statement/Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Proxy Statement/Prospectus. </R.
DELOITTE & TOUCHE LLP
Portland, Oregon
August 20, 1998
<PAGE>
INFORMEDICS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS SEPTEMBER 23, 1998
The undersigned hereby appoint(s) John Tortorici and Richard F. Emery, Jr.,
and each of them as proxies with full power of substitution, to represent and
vote, as designated below, all shares of Common Stock of Informedics, Inc.,
all shares that the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Company to be held on September 23, 1998, and any
adjournment or postponement thereof, with all powers that the undersigned
would have if personally present:
(1) APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED DECEMBER 18, 1997,
AS AMENDED, BY AND AMONG MEDIWARE INFORMATION SYSTEMS, INC., MEDIWARE
ACQUISITION CORPORATION AND INFORMEDICS, INC., PURSUANT TO WHICH INFORMEDICS,
INC. WILL MERGE WITH AND INTO MEDIWARE ACQUISITION CORPORATION AND BECOME A
WHOLLY OWNED SUBSIDIARY OF MEDIWARE INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
FOR AGAINST ABSTAIN
____ ____ ____
</TABLE>
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER
IN THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" THE MERGER AGREEMENT. IN ADDITION, THE PROXIES MAY VOTE IN THEIR
DISCRETION AS TO OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
<TABLE>
<CAPTION>
The Board of Directors recommends a vote "FOR" the Merger Agreement.
<C> <S>
<C>
Date _____________________________
Signature _________________________
Please sign exactly as your name appears below.
Attorneys, trustees, executors and other
fiduciaries acting in a representative capacity
should sign their names and give their titles. An
authorized person should sign on behalf of
corporations, partnerships, associations, etc. and
give his or her title. If your shares are held by
two or more persons, each person must sign.
</TABLE>
<PAGE>
