<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-19393
MANAGED CARE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3338328
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _______
There were 4,602,723 shares of common stock outstanding as of April 1, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets...................................3
Consolidated Statements of Operations.........................4
Consolidated Statements of Cash Flows.........................5
Notes to Unaudited Consolidated Financial Statements........6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................8-10
Part II OTHER INFORMATION
Item 2. Changes in Securities
C. Recent Sales of Unregistered Securities.................10
Item 6. Exhibits and Reports on Form 8-K..........................10-12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents, including restricted cash of $8,027,000
and $5,304,000 $ 11,030,000 $ 7,212,000
Short-term investments 1,512,000 1,503,000
Accounts and notes receivable and unbilled services, net 3,197,000 3,998,000
Related party accounts and notes receivable 18,000 26,000
Prepaid expenses and other current assets 338,000 1,735,000
Deferred income taxes, net 930,000 971,000
-------------- --------------
Total current assets 17,025,000 15,445,000
Notes receivable - 315,000
Related party notes receivable 674,000 941,000
Property and equipment, net 4,636,000 3,723,000
Performance bonds 3,794,000 3,737,000
Goodwill, net 2,917,000 3,191,000
Other assets 829,000 665,000
-------------- --------------
$ 29,875,000 $ 28,017,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 495,000 $ 350,000
Accrued medical claims 7,690,000 7,080,000
Risk pool payable 1,137,000 2,035,000
Related party risk pool payable 298,000 301,000
Accrued expenses 3,043,000 2,668,000
Current portion of long-term debt 117,000 200,000
-------------- --------------
Total current liabilities 12,780,000 12,634,000
Long-term debt - 67,000
Related party long-term debt 3,878,000 3,643,000
Deferred income taxes, net 203,000 203,000
-------------- --------------
Total liabilities 16,861,000 16,547,000
-------------- --------------
Commitments - -
Stockholders' Equity:
Voting preferred stock, $1,000 par value
Authorized, issued and outstanding - 6.85 shares 7,000 7,000
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 4,598,000 and 4,394,000 shares 46,000 44,000
Capital in excess of par value 15,508,000 14,497,000
Accumulated deficit (2,547,000) (3,078,000)
-------------- --------------
Total stockholders' equity 13,014,000 11,470,000
-------------- --------------
$ 29,875,000 $ 28,017,000
============== ==============
3
The accompanying notes are an integral part of these statements.
</TABLE>
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MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 17,104,000 $ 14,592,000 $ 47,949,000 $ 49,693,000
------------ ------------ ------------ ------------
Direct cost of operations 13,591,000 11,373,000 38,238,000 40,072,000
Marketing, sales and administrative 3,342,000 3,246,000 9,219,000 11,209,000
------------ ------------ ------------ ------------
Total costs and expenses 16,933,000 14,619,000 47,457,000 51,281,000
------------ ------------ ------------ ------------
Operating income (loss) 171,000 (27,000) 492,000 (1,588,000)
------------ ------------ ------------ ------------
Interest income 219,000 170,000 623,000 405,000
Interest expense (92,000) (95,000) (285,000) (226,000)
------------ ------------ ------------ ------------
Net interest income 127,000 75,000 338,000 179,000
------------ ------------ ------------ ------------
Income (loss) before income taxes 298,000 48,000 830,000 (1,409,000)
Provision (benefit) for income taxes 122,000 (71,000) 299,000 (121,000)
------------ ------------ ------------ ------------
Net income (loss) $ 176,000 $ 119,000 $ 531,000 $ (1,288,000)
============ ============ ============ ============
Net income (loss) per common share - basic $ 0.04 $ 0.03 $ 0.12 $ (0.30)
============ ============ ============ ============
Weighted average common shares
outstanding 4,513,000 4,365,000 4,433,000 4,365,000
============ ============ ============ ============
Net income (loss) per share--assuming dilution $ 0.04 $ 0.03 $ 0.12 $ (0.30)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 4,833,000 4,382,000 4,589,000 4,365,000
============ ============ ============ ============
4
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 531,000 $ (1,288,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Bad debt expense 27,000 900,000
Depreciation and amortization 1,386,000 1,334,000
Loss on sale of property and equipment 28,000 -
Deferred income taxes 41,000 (227,000)
Changes in assets and liabilities:
Accounts receivable and unbilled services 774,000 (1,727,000)
Prepaid expenses and other current assets 1,397,000 (564,000)
Accounts payable 145,000 313,000
Accrued medical claims 610,000 1,528,000
Risk pool payable (898,000) 1,329,000
Related party risk pool payable (3,000) 143,000
Accrued expenses 375,000 376,000
Loss contract reserve - (510,000)
Other assets (164,000) 257,000
------------ ------------
Net cash provided by operating activities 4,249,000 1,864,000
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,060,000) (1,549,000)
Proceeds from sale of property and equipment 7,000 14,000
Purchase of short-term investments (10,000) (2,722,000)
Proceeds from maturity/sale of short-term investments 1,000 3,801,000
Proceeds from related party notes receivable 275,000 1,991,000
Collection from (issuance of) notes receivable 315,000 (95,000)
Increase in assets securing performance bond (57,000) (396,000)
------------ ------------
Net cash provided by (used in) investing activities (1,529,000) 1,044,000
------------ ------------
Cash flows from financing activities:
Due to Medicus Systems Corporation - (647,000)
Principal payment on long-term debt (150,000) (1,584,000)
Issuance of/increase in long-term debt 235,000 3,179,000
Issuance of stock and stock warrants 1,013,000 121,000
------------ ------------
Net cash provided by financing activities 1,098,000 1,069,000
------------ ------------
Net increase in cash and cash equivalents 3,818,000 3,977,000
Cash and cash equivalents, beginning of period 7,212,000 3,804,000
------------ ------------
Cash and cash equivalents, end of period $ 11,030,000 $ 7,781,000
============ ============
</TABLE>
5
The accompanying notes are an integral part of these statements.
<PAGE>
MANAGED CARE SOLUTIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented. The results of operations for the period ended
February 28, 1998 are not necessarily indicative of the results to be expected
for the full year. The interim consolidated financial statements should be read
in conjunction with Managed Care Solutions, Inc. ("MCS" or "Company")
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended May 31, 1997.
NOTE 2 - NET INCOME PER SHARE
Net income (loss) per common share has been computed by dividing net income
(loss) by the weighted average common equivalent shares outstanding during the
period. Common stock equivalents include shares issuable on the exercise of
stock options and warrants when dilutive, using the treasury stock method from
date of grant.
The following is the computation of the reconciliation of the numerators and
denominators of net income per common share and net income per common share,
assuming dilution in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 was issued in February 1997
and is effective for financial statements for both interim and annual periods
ending after December 15, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Net income per common share:
Income available to common stockholders $ 176,000 4,513,000 $ 0.04 $ 119,000 4,365,000 $ 0.03
Effect of dilutive securities:
Stock options and warrants - 320,000 - 17,000
---------- --------- ---------- ---------
Net income per common share,
Assuming dilution:
Income available to common
stockholders and assumed conversions $ 176,000 4,833,000 $ 0.04 $ 119,000 4,382,000 $ 0.03
========== ========= ====== ========== ========= ======
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------------------------------------
FEBRUARY 28, 1998 FEBRUARY 28, 1997
------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Net income (loss) per common share:
Income (loss) available to common
stockholders $ 531,000 4,433,000 $ 0.12 $(1,288,000) 4,365,000 $(0.30)
Effect of dilutive securities:
Stock options and warrants - 156,000 - -
---------- --------- ----------- ---------
Net income (loss) per common share,
Assuming dilution:
Income (loss) available to common
stockholders and assumed conversions $ 531,000 4,589,000 $ 0.12 $(1,288,000) 4,365,000 $(0.30)
========== ========= ====== =========== ========= ======
</TABLE>
At February 28, 1998, no shares of common stock had been issued upon conversion
of the two convertible notes issued in October 1996. These notes are convertible
into an aggregate of 857,143 shares of common stock. These shares were not
included in the calculation of diluted earnings per share for the three and nine
month periods ended February 28, 1998 and 1997 due to the anti-dilutive effect
they would have on earnings per share if converted.
Due to the Company's loss in the nine month period ended February 28, 1997, a
calculation of earnings per share assuming dilution is not required. During this
period, dilutive securities consisted of options and warrants convertible into
approximately 84,000 shares of common stock.
NOTE 3 - RESTRICTIONS ON FUND TRANSFERS
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with certain net worth, reserve and
deposit requirements. To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to the parent organization, MCS. Net assets of subsidiaries (after inter-company
eliminations) which, at February 28, 1998, may not be transferred to MCS by
subsidiaries in the form of loans, advances or cash dividends without the
consent of a third party are referred to as "Restricted Net Assets". Total
Restricted Net Assets of these operating subsidiaries were $8,868,000 at
February 28, 1998, with deposit and reserve requirements (performance bonds)
representing $3,794,000 of the Restricted Net Assets and net worth requirements,
in excess of deposit and reserve requirements, representing the remaining
$5,074,000.
NOTE 4 - SALE OF SECURITIES
On January 7, 1998, the Company entered into a purchase agreement with Beverly
Enterprises, Inc., pursuant to which, the Company received $1,000,000 and issued
200,000 shares of the Company's common stock at $5 per share. These transactions
were effected pursuant to the exemption contained in section 4(2) of the
Securities Act of 1933.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Managed Care Solutions, Inc. ("MCS" or the "Company") is involved in a variety
of health care programs, many of which serve indigent and Medicaid populations.
The Company's operations include a long-term care Arizona based health
maintenance organization ("HMO") subsidiary, Ventana Health Systems ("Ventana");
an Arizona based primary and acute care HMO subsidiary, Arizona Health Concepts
("AHC"); management contracts pursuant to which the Company administers
privately owned HMOs located in Hawaii, Michigan, New Mexico, and Texas; the
management of healthcare services for an indigent population for the County of
San Diego; a contractual arrangement with the State of Indiana Medicaid Agency;
and a subsidiary providing home healthcare and community worker services to
Ventana.
In January 1998, the Company announced the election of Michael Hernandez,
President of The Cova Corporation, as Chairman and Chief Executive Officer of
the Company. James Burns will retain the title of President and Chief Operating
Officer. Mr. Hernandez has over 20 years of experience in investment and
merchant banking along with significant health care experience.
RESULTS OF OPERATIONS
Revenues for the three-month period ended February 28, 1998 increased $2,512,000
as compared to the same period of the prior year. Revenues for the
nine-month period ended February 28, 1998 decreased $1,744,000 versus the
comparable period of the prior year.
For the three and nine month periods ended February 28, 1998, $6,934,000 and
$18,581,000, respectively, represented fees for management of health plans not
owned by the Company. Management fee revenue increased 53% for the three months
ended February 28, 1998 as compared to the same period of the prior year. For
the nine months ended February 28, 1998, management fee revenue increased 21%
over the comparable period of the prior year. The increase in management fee
revenue is due to two plans, Lovelace Community Health Plan in New Mexico and
Rio Grande HMO in Texas, that began enrolling members on October 1 and
January 1, respectively. Also adding to the rise in revenue was the increased
membership in the AlohaCare health plan located in Hawaii.
Capitation revenue of $10,169,000 received by Ventana and AHC remained
relatively constant for the three-month period ended February 28, 1998 as
compared to the same period of the prior year. Capitation revenue received from
these entities during the nine-month period ended February 28, 1998 decreased
15% to $29,368,000. The decline is primarily a result of a decrease in AHC
revenues of $4,679,000 for the nine month period ended February 28, 1998 due to
the transition of members in Maricopa County to a different plan on
December 1, 1996.
Direct costs of operations increased $2,218,000 to $13,591,000 for the
three-month period ended February 28, 1998 versus the same period of the prior
year. For the nine-month period ended February 28, 1998, direct costs of
operations decreased $1,834,000 to $38,238,000 as compared to the corresponding
period of the previous year. For the three and nine month periods ended
February 28, 1998, direct costs of operations consisted of $4,539,000 and
$12,754,000, respectively, related to fees generated from management of plans
not owned by the Company and $9,052,000 and $25,483,000, respectively, from
combined operating expenses of Ventana and AHC. The direct cost of operations to
manage plans as a percentage of revenue for the three month period ended
February 28, 1998 decreased to 65% from 69% for the same period of the previous
year. The decrease is primarily due to the recognition of $288,000 of risk
sharing revenue received from AlohaCare as settlement of prior year risk pools.
Direct costs of operations to manage plans as a percentage of revenue for the
nine-month period ended February 28, 1998 increased 4% to 69%. The increase is
due to the additional costs related to the pre-operational phase of Rio
Grande HMO in Texas, which began accepting members January 1, 1998.
8
<PAGE>
The direct costs of operations as a percentage of related revenue for Ventana
was 84% for both the three and nine month periods ended February 28, 1998, and
98% and 92% during the respective periods for AHC. The higher costs experienced
by AHC during the three month versus the nine month periods ended
February 28, 1998 are primarily due to seasonally higher utilization of
healthcare services during the winter months.
Marketing, sales and administrative expenses for the three-month period ended
February 28, 1998 increased from $3,246,000 to $3,342,000. The increase is due
to the additional expenses related to the pre-operational phase of the Rio
Grande HMO in Texas, which began accepting members January 1, 1998. For the
nine-month period ended February 28, 1998, marketing, sales and administrative
expenses decreased from $11,209,000 to $9,219,000. The Decrease is primarily a
result of the termination of unprofitable contracts during the second quarter of
fiscal year 1997, the workforce reduction plan implemented in July 1996 and an
effort to reduce administrative costs.
The effective income tax rate was 36% for the nine-month period ended
February 28, 1998 and 9% for the comparable period of the prior fiscal year.
The lower rate in fiscal year 1997 reflects the utilization of net operating
loss carry backs.
Net interest income for the three and nine-month periods ended February 28, 1998
were $127,000 and $338,000, respectively, versus $75,000 and $179,000 for the
comparable periods of the prior year. Net interest income is primarily related
to investments held by Ventana and AHC, partially offset by interest expense on
outstanding convertible debt.
Net income was $176,000 and $531,000 for the three and nine-month periods ended
February 28, 1998, respectively, compared to net income of $119,000 and net loss
of $1,288,000 for the corresponding periods of the previous year. The primary
reasons for the change in profitability are the costs included in the prior year
related to terminated contracts in Colorado, Illinois and Missouri and costs
related to severance agreements with employees terminated as part of the
workforce reduction effort in July 1996. The administrative services contract
with Lovelace Community Health Plan, which began operation on July 1, 1997 and
currently with 37,000 members, and the increase in AlohaCare membership from
approximately 25,000 to 30,000 during the open enrollment process on
September 1, 1997 also contributed to the improvement in profitability.
In January 1998, the Company was notified that mandatory enrollment in the
STAR+PLUS program in Texas, scheduled to begin March 1, 1998 would be delayed
until April 1, 1998. The Company was further notified during March 1998 that of
the total mandatory phase enrollees, those eligible for long term care services,
would be delayed to begin May 1, 1998. The mandatory enrollment phase enrolls
those eligible beneficiaries that have not chosen a particular plan during the
voluntary enrollment phase. The STAR+PLUS program will provide comprehensive
managed health care services to approximately 60,000 aged, blind and disabled
Medicaid beneficiaries. On April 1, 1998, Rio Grande HMO had approximately
18,500 members including approximately 430 long term care members.
In March 1998, the Company received notification from the State of Michigan that
the health plan to which it provides administrative services, was recommended
for an award to expand it's operations to the majority of counties within the
State. This expansion, which is subject to final State approval, is scheduled to
occur in the second calendar quarter of 1998. Community Choice Michigan was the
only HMO recommended for a statewide award through a competitive procurement
process. The plan, Community Choice Michigan, currently operates in 22 counties
with approximately 28,000 members.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended February 28, 1998, the Company's cash and
cash equivalents increased by $3,818,000 to $11,030,000. Operating activities
provided $4,249,000 for the nine-month period ended February 28, 1998 as
compared to $1,864,000 for the same period of the prior year. The primary
reasons for the increase were a decrease in accounts receivable, prepaid
expenses and an increase in accrued medical claims, offset by a decrease in risk
pools payable.
9
<PAGE>
Investing activities used $1,529,000 of cash during the nine-month period ended
February 28, 1998 versus providing $1,044,000 of cash during the comparable
period of the previous year. Sources of cash for the nine months ended
February 28, 1998 consisted primarily of funds received in payment of notes
receivable. The funds received were offset by $2,060,000 in fixed asset
purchases.
Financing activities provided $1,098,000 for the nine months ended
February 28, 1998 versus $1,069,000 during the same period of the prior year.
Sources of cash for the nine-month period ended February 28, 1998 consisted
primarily of cash received from Beverly Enterprises, Inc. for the purchase of
200,000 shares of the Company's common stock at $5 per share.
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with certain net worth, reserve and
deposit requirements. To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to MCS. Net assets of subsidiaries (after inter-company eliminations) which, at
February 28, 1998, may not be transferred to MCS by subsidiaries in the form of
loans, advances or cash dividends without the consent of a third party are
referred to as "Restricted Net Assets". Total Restricted Net Assets of these
operating subsidiaries were $8,868,000 on February 28, 1998, with deposit and
reserve requirements (performance bonds) representing $3,794,000 of the
Restricted Net Assets and net worth requirements, in excess of deposit and
reserve requirements, representing the remaining $5,074,000. The outstanding
balance on funds provided by Ventana to MCS under loan agreements totaled
$586,000 at February 28, 1998. Ventana provided these loans in the normal course
of operations. All such agreements were pre-approved as required by Arizona
Health Care Cost Containment System Administration.
FORWARD LOOKING INFORMATION
This report contains statements that may be considered forward-looking, such as
the discussion of the Company's strategic goals, new contracts and cash flow.
These statements speak of the Company's plans, goals or expectations, refer to
estimates, or use similar terms. Actual results could differ materially from the
results indicated by these statements because the realization of those results
is subject to many uncertainties.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
C. RECENT SALES OF UNREGISTERED SECURITIES
On January 7, 1998 the Company entered into a purchase agreement with Beverly
Enterprises, Inc., pursuant to which, the Company received $1,000,000 and issued
200,000 shares of the Company's common stock at $5 per share. These transactions
were effected pursuant to the exemption contained in section 4(2) of the
Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.1) Agreement between the registrant and the State of Indiana.
(10.2) Purchase Agreement between the registrant and Beverly
Enterprises, Inc.
(27) Financial data schedule.
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANAGED CARE SOLUTIONS, INC.
By: /s/ Michael D. Hernandez
------------------------
Michael D. Hernandez, Chairman and Chief
Executive Officer
By: /s/ Michael J. Kennedy
----------------------
Michael J. Kennedy, Chief Financial Officer
Dated: April 14, 1998
11
<PAGE>
EXHIBIT 10.1
CONTRACT BETWEEN
THE OFFICE OF MEDICAID POLICY AND PLANNING
AND
MANAGED CARE SOLUTIONS, INC.
This contract is made and entered into by and between the State of Indiana
[hereinafter "State" or "State of Indiana"], through the Office of Medicaid
Policy and Planning [hereinafter "Office"], of the Indiana Family and Social
Services Administration, 402 West Washington Street, W382, Indianapolis,
Indiana, and Managed Care Solutions, Inc., 7600 N. 16th Street, Suite 150,
Phoenix, Arizona 85020 [hereinafter "Contractor"].
WHEREAS, I.C. 12-15-30-1 authorizes the Office to enter into contracts
to assist in the administration of the Indiana Medicaid program;
WHEREAS, the Contractor is willing and able to perform the desired
services for the Medicaid program;
WHEREAS, the State of Indiana is desirous to contract for the services of
an enrollment broker for its Medicaid managed care programs as procured through
Broad Agency Announcement 98-13;
THEREFORE, the parties to this contract agree that the terms and
conditions specified below will apply to services in connection with this
contract, and such terms and conditions are as follows:
I. TERM
This contract is effective from January 1, 1998, to December 31, 1999. At
the discretion of the Office of Medicaid Policy and Planning, the term may be
extended for up to two additional years. In no event shall the term exceed
December 31, 2001.
II. DUTIES OF THE PARTIES
A. The Contractor agrees to provide the services set out in Broad Agency
Announcement 98-13 and in the Contractor's Response to BAA 98-13, attached
as Exhibits A and B-1, B-2 and B-3, respectively and incorporated herein.
B. The Contractor and the Office agree that the additional duties proposed
by the Contractor in Sections 4.3.4 (direct access to DSS [Decision
Support System]), 4.3.5 (provider enrollment update function performed
by fiscal agent) and 4.3.8 (facilitation of MCO [managed care
organization] policy/operations meeting performed by fiscal agent) of
Exhibit B-1 shall only be performed if the Office provides specific
written direction to the Contractor to perform any one or all of these
duties.
Page 1 of 15
<PAGE>
C. The Contractor and the Office further agree that the language of Section
4.3.3.5 of BAA 98-13 shall be deleted and the following added to read as
follows:
Section 4.3.3.5 Performance Standards for Hotline Maintenance and
Management
1) Ninety-seven percent (97%) of all calls shall reach the Hoosier
Healthwise Helpline menu on or before the fourth ring.
2) No more than two calls per Helpline representative should be in the
queue at any time.
3) The average wait time for answered calls shall not exceed 45
seconds.
4) The busy rate shall not exceed 5%.
5) Calls should be of sufficient length to ensure adequate information
is imparted to the recipient.
6) The lost call (abandonment) rate shall not exceed 10%.
7) Eighty-five percent (85%) of all issues from callers should be
resolved on line. If information cannot be provided to a caller in a
timely manner, Helpline representatives should request a name, phone
number and/or address (if necessary) and respond to the caller
within 24 hours from the time of contact.
8) An answering machine (or service) must be available for after-hours
calls. All after-hours calls must be returned within the next
business day.
9) The Hotline must be equipped with the appropriate technology (e.g.
TDD) to accept calls from all members of the Hoosier Healthwise
program. The Contractor is responsible for ensuring that deaf and
hearing impaired persons and persons with limited English
proficiency have access to communication services (i.e. AT&T
Telecommunication Relay Services, Sign Language Interpreter
Services, AT&T's Language Line Service) that enables all recipients
to utilize the Hotline.
Page 2 of 15
<PAGE>
The Contractor is encouraged to perform at a level exceeding these minimum
standards.
For purposes of these standards, the Hotline means the Hoosier Healthwise
Helpline (1-800-889-9949) and includes all calls received through that
line from providers, recipients and the general public.
D. The parties further agree that Section 4.4.2.1 of the BAA is deleted.
E. The parties further agree that the following provisions shall be added to
the BAA 98-13:
1. 4.3.3.5.1 Non-compliance With Hotline Maintenance and Management
Standards
Because actual damages caused by non-compliance with the standards
set forth in sections 4.3.3.5 is not subject to exact determination,
the Office will assess the Contractor, as liquidated damages, and
not as a penalty, up to twelve thousand dollars ($12,000) per month
for each month that the Contractor remains out of compliance with
any three of the standards numbered 1, 3, 4, 6, 8, or 9 as set forth
in Sections 4.3.3.5. Such assessment shall not occur until after
three consecutive months of documented non-compliance for which the
Contractor has received notice. After three consecutive months of
non-compliance, liquidated damages shall be assessed beginning with
the third month of non-compliance, and continuing for each
consecutive month of non-compliance. The following example
illustrates the application of this section. If the Contractor does
not meet standards 1, 4, 8, in month one and in month two does not
meet standards 3, 6, and 8, but is in compliance with standard 1,
the Contractor shall be considered non-compliant for two consecutive
months. If the Contractor continues to fail to meet any three
standards in the third month, one month's damages will be assessed.
Assessment of damages shall continue for successive consecutive
months of non-compliance.
The Office shall provide written notice to the Contractor of
non-compliance within thirty (30) days of the Office's discovery of
such failure.
Page 3 of 15
<PAGE>
2. Section 4.2.1.1 Deduction from Payments
Amounts due the Office as liquidated damages which have been
assessed under either Section 4.2.1 or Section 4.3.3.5.1 shall be
deducted by the Office from any money payable to the Contractor
pursuant to this Contract. The Office shall notify the Contractor in
writing of any claim for liquidated damages at least fifteen (15)
days prior to the date the Office deducts such sums from money
payable to the Contractor.
III. HIERARCHY OF DOCUMENTS GOVERNING THE DUTIES OF THE PARTIES
Any inconsistency or ambiguity in this contract shall be resolved by
giving precedence to the documents identified below in the following order:
1) The express terms of this contract document.
2) Broad Agency Announcement 98-13 (Exhibit A).
3) The Contractor's Response to BAA 98-13, Volumes I, II and III
(Exhibits B-1, B-2 and B-3).
IV. PAYMENT
A. In consideration of the services to be performed by the Contractor, the
Office agrees to reimburse the Contractor in an amount not-to-exceed
eleven million five hundred seventy-two thousand six hundred sixty-eight
dollars ($11,572,668).
B. The Office will provide the above-specified funding on a reimbursement
basis, with the Contractor submitting claims directly to the attention of
Judith E. Becherer, Director of Program Operations - Long Term Care within
the Office.
1. The Contractor is paid for activities or services performed and must
submit with each invoice a monthly summary and narrative report of
activity documenting the contracted tasks.
a. The invoice must reflect the charges for the
activities/services as specified in the BAA.
b. The monthly summary must have as headings the requested tasks
in the BAA. Under each task, the Contractor must specify the
activities performed to meet the goals in each task area, what
level of staff performed these tasks and the number of hours.
The Contractor shall also provide aggregate amounts incurred
compared to budget for each category.
Page 4 of 15
<PAGE>
c. The monthly report must provide a narrative description of the
activities documented by the monthly summary.
d. The name and telephone number of the individual who can
provide clarification or answers about the invoice or monthly
report must be listed. If the individual is different for each
report, please specify.
2. All invoices must be received by the Office by the tenth (10th) day
of the month following the month which is being billed to insure
payment at the end of that month.
C. All payment obligations are subject to the encumbrance of monies and shall
be made in arrears in accordance with Indiana law and the State of
Indiana's fiscal policies and procedures. The Contractor may not submit
claim forms before the services have been performed.
D. It is understood and agreed upon by the parties that all obligations of
the State of Indiana are contingent upon the availability and continued
appropriation of State and Federal funds, and IN NO EVENT SHALL THE
-----------------------
STATE OF INDIANA BE LIABLE FOR ANY PAYMENTS IN EXCESS OF AVAILABLE
--------------------------------------------------------------------------
APPROPRIATED FUNDS. When the Director of the State Budget Agency makes
-------------------
a written determination that funds are not appropriated or otherwise
available to support continuation of performance of this contract, the
contract shall be canceled. A determination by the State Budget
Director that funds are not appropriated or otherwise available to
support continuation of performance shall be final and conclusive.
V. NOTICE
A. Whenever notice is required to be given to the other party, it shall be
made in writing and delivered to that party. Delivery shall be deemed to
have occurred if a signed receipt is obtained when delivered by hand or
according to the date on the return receipt if sent by certified mail,
return receipt requested. Notices shall be addressed as follows:
In case of notice to the Contractor:
Page 5 of 15
<PAGE>
Rick Jelinek
Senior Vice President
Managed Care Solutions, Inc.
7600 N. 16th Street, Suite 150
Phoenix, Arizona 85020
In case of notice to the Office:
Judith E. Becherer, Director
Program Operations - Long Term Care
Office of Medicaid Policy and Planning
Indiana Family and Social Services Administration
State of Indiana, 402 W. Washington St., Room W382
Indianapolis, Indiana 46204
B. Said notices shall become effective on the date of delivery or the date
specified within the notice, whichever comes later. Either party may
change its address for notification purposes by mailing a notice stating
the change and setting forth the new address.
VI. MISCELLANEOUS PROVISIONS
A. ENTIRE AGREEMENT. This Contract constitutes the entire agreement between
the parties with respect to the subject matter; all prior agreements,
representations, statements, negotiations, and undertakings are superseded
hereby.
B. CHANGES. Any changes to this Contract shall be by formal amendment of this
Contract signed by all parties required by Indiana law.
C. TERMINATION. The Office may, without cause, cancel and terminate this
-----------
Contract in whole or in part upon one hundred eighty (180) days' prior
written notice. The Contractor will be reimbursed for services
performed prior to the date of termination consistent with the terms of
the Contract. The Office will not be liable for services performed
after notice of termination, but before the date of termination,
without written authorization from the Office. The Office will
identify those services it authorizes the Contractor to continue
performing, and include written authorization for payment as a part of
the notice of termination. In no event will the Office be liable for
services performed after the termination date.
The parties agree that they shall convene the meeting required under
Paragraph J as soon as practicable in order to address the completion and
conveyance activities as set forth
Page 6 of 15
<PAGE>
in that paragraph.
In the event that the Office requests that the Contractor perform any
additional services associated with the transition or turnover of the
contract, the Office agrees to pay reasonable costs for those additional
services specifically requested by the Office.
D. DISPUTES. Should any disputes arise with respect to this Contract, the
Contractor and the State of Indiana agree to act immediately to resolve
any such disputes. Time is of the essence in the resolution of disputes.
The Contractor agrees that, the existence of a dispute notwithstanding, it
will continue without delay to carry out all its responsibilities under
this Contract which are not affected by the dispute. Should the Contractor
fail to continue without delay to perform its responsibilities under this
Contract in the accomplishment of all non-disputed work, any additional
costs incurred by the Contractor or the State of Indiana as a result of
such failure to proceed shall be borne by the Contractor, and the
Contractor shall make no claim against the State of Indiana for such
costs. If the Contractor and the State of Indiana cannot resolve a dispute
within ten (10) working days following notification in writing by either
party of the existence of said dispute, then the following procedure shall
apply:
1. The parties agree to resolve such matters through submission of
their dispute to the Commissioner of the Indiana Department of
Administration who shall reduce her decision to writing and mail or
otherwise furnish a copy thereof to the Contractor and the State of
Indiana within ten (10) working days after presentation of such
dispute for her decision. Her decision shall be final and
conclusive unless the Contractor mails or otherwise furnishes to the
Commissioner of Administration, within ten (10) working days after
receipt of the Commissioner's decision, a written appeal. Within
ten (10) working days of receipt by the Commissioner, she may
reconsider her decision. If no reconsideration is provided within
ten (10) working days the Contractor may submit the dispute to an
Indiana court of competent jurisdiction.
2. The State of Indiana may withhold payments on disputed items pending
resolution of the dispute. The non-payment by the State of Indiana
to the
Page 7 of 15
<PAGE>
Contractor of one or more invoices not in dispute shall not
constitute default, however, the Contractor may bring suit to
collect such monies without following the disputes procedure
contained herein.
E. COMPLIANCE WITH LAWS AND HOLD HARMLESS. The Contractor agrees to
------------------------------------------
comply with all applicable Federal, State, and local laws, rules,
regulations, or ordinances, and all provisions required thereby to be
included herein are hereby incorporated by reference. The Contractor
agrees to indemnify and hold the State of Indiana harmless from any
loss, damage, or liability resulting from a violation on the part of
the Contractor of such laws, rules, regulations, or ordinances;
provided, however, that the Contractor has been afforded the prior
opportunity to participate in the settlement and/or litigation of any
such claims.
F. COMPLIANCE WITH CIVIL RIGHTS LAWS. The Contractor and its
-----------------------------------------
subcontractors hereby assure that thy will comply with all Federal and
Indiana Civil Rights Laws, including, but not limited to, I.C.
22-9-1-10, to the end that they shall not discriminate against any
employee or applicant for employment, to be employed in the performance
of this Contract, with respect to his/her hire, tenure, terms,
conditions or privileges of employment or any matter directly or
indirectly related to employment, because of his/her race, color,
religion, sex, disability, national origin, ancestry or status as a
veteran. The Contractor understands that the State of Indiana is a
recipient of federal funds. Pursuant to that understanding, the
Contractor, and its subcontractors, if any, agree that if the
Contractor employs 50 or more employees and does at least $50,000 worth
of business with the State of Indiana and is not exempt, the Contractor
will comply with the reporting requirements of 41 CFR 60-1.7, if
applicable. Breach of this covenant may be regarded as a material
breach of the Contract. The State of Indiana shall comply with Section
202 of Executive Order 11246, as amended, and 41 CFR 60-741, as
amended, which are incorporated herein by specific reference.
G. CONFIDENTIALITY OF STATE OF INDIANA INFORMATION. The Contractor
-----------------------------------------------------
understands and agrees that data, materials and information disclosed
to the Contractor may contain confidential and protected data;
therefore, the Contractor promises and assures that data, material, and
information gathered, based upon or disclosed to the Contractor for the
purpose of this Contract will not be disclosed to others or discussed
with other parties without the prior written consent of the State of
Indiana.
Page 8 of 15
<PAGE>
H. CONFIDENTIALITY OF DATA, PROPERTY RIGHTS IN PRODUCTS, AND COPYRIGHT
--------------------------------------------------------------------------
PROHIBITION. The Contractor further agrees that all information, data,
-----------
findings, recommendations, proposals, etc., by whatever name described
and by whatever form therein, secured developed, written, or produced
by the Contractor in furtherance of this Contract shall be the property
of the State of Indiana and that the Contractor shall take such action
as is necessary under law to preserve such property rights in and of
the State of Indiana while such property is within the control and/or
custody of the Contractor.
By this Contract the Contractor specifically waives and/or releases to the
State of Indiana any cognizable property right in the Contractor to
copyright or patent such information, data, findings, recommendations,
proposals, etc.
I. OWNERSHIP OF DOCUMENTS AND MATERIALS. All documents, records,
------------------------------------------
programs, data, film, tape, articles, memoranda, and other materials
developed under this contract will be the property of the State of
Indiana. Use of these materials other than related to contract
performance by the Contractor without the prior written consent of the
State of Indiana is prohibited. During the performance of the services
specified herein, the Contractor shall be responsible for any loss or
damage to these materials developed for or supplied by the State of
Indiana and used to develop or assist in the services provided herein,
while they are in the possession of the Contractor, and any loss or
damage thereto shall be restored at the Contractor's expense. Full,
immediate and unrestricted access to the work product of the Contractor
during the term of this contract shall be available to the State of
Indiana. The Contractor will give to the State of Indiana, or the
State of Indiana's designee, all records of other materials described
in this section, after termination of the Contract and upon five (5)
days notice of a request from the State of Indiana.
All documents, records, data, programs, film, tape, articles, memoranda or
other materials owned by the Contractor that were used in, but not
developed in the course of, the Contract shall remain the exclusive
property of the Contractor.
J. CONVEYANCE OF DOCUMENTS AND CONTINUATION OF EXISTING ACTIVITY: Should
----------------------------------------------------------------
the Contract for whatever reason, (i.e. completion of a contract with
no renewal, or termination of service by either party), be discontinued
and the activities
Page 9 of 15
<PAGE>
as provided for in the Contract for services cease,
the Contractor and any subcontractors employed by the terminating
Contractor in the performance of the duties of the Contract shall
promptly convey to the State of Indiana, copies of all vendor working
papers, data collection forms, reports, charts, programs, cost records
and all other material related to work performed on this Contract.
The Contractor and the Office shall convene immediately upon notification
of termination or non-renewal of the Contract to determine what work shall
be suspended, what work shall be completed, and the timeframe for
completion and conveyance. The Office will then provide the Contractor
with a written schedule of the completion and conveyance activities
associated with termination. Documents/materials associated with suspended
activities shall be conveyed by the Contractor to the State of Indiana
upon five days' notice from the State of Indiana. Upon completion of those
remaining activities noted on the written schedule, the Contractor shall
also convey all documents and materials to the State of Indiana upon five
days' notice from the State of Indiana.
K. INDEPENDENT CONTRACTOR. The Office and the Contractor acknowledge and
agree that the Contractor is an independent contractor and not an officer,
employee or agent of the State of Indiana.
L. GOVERNING LAWS. This Contract shall be construed in accordance with
and governed by the laws of the State of Indiana and suit, if any, must
be brought in the State of Indiana.
M. VALIDITY. The invalidity in whole or in part of any provision of this
Contract shall not void or affect the validity of any other provision.
N. WAIVER OF BREACH. No waiver of breach of any provision of this
Contract shall constitute a waiver of any other breach or of such
provision.
Failure of the Office to enforce at any time any provision of this
contract shall not be construed as a waiver thereof. The remedies herein
reserved shall be cumulative and additional to any other remedies in law
or equity.
O. FORCE MAJEURE; SUSPENSION AND TERMINATION. In the event either party
--------------------------------------------
is unable to perform any of its obligations under this Contract or to
enjoy any of its benefits because of (or if failure to perform the
service is caused by) natural disaster, actions or decrees of
governmental bodies,
Page 10 of 15
<PAGE>
or communication line failure not the fault of the
affected party (hereinafter referred to as a "Force Majeure Event"),
the party who has been so affected shall immediately give notice to the
other party and shall take reasonable measures to resume performance.
Upon receipt of such notice, all obligations under this Contract shall
be immediately suspended. If the period of non-performance exceeds
thirty (30) days from the receipt of notice of the Force Majeure Event,
the party whose ability to perform has not been so affected may, by
giving written notice, terminate this Contract.
P. SUCCESSORS AND ASSIGNEES. The Contractor binds its successors, executors,
assignees, and administrators, to all covenants of this Contract. Except
as set forth above, the Contractor shall not assign, sublet, or transfer
the Contractor's interest in this Contract without the prior written
consent of the Office.
Q. MAINTAINING A DRUG-FREE WORKPLACE (EXECUTIVE ORDER NO. 90-5)
1. The Contractor hereby covenants and agrees to make a good faith
effort to provide and maintain during the term of this Contract a
drug-free workplace, and that it will give written notice to the
Office and the Indiana Department of Administration within ten (10)
days after receiving actual notice that an employee of the
Contractor has been convicted of a criminal drug violation occurring
in the Contractor's workplace.
2. In addition to subparagraph (1), the Contractor hereby further
agrees that this Contract is expressly subject to the terms,
conditions, and representations contained in the drug-free workplace
certification executed by the Contractor in conjunction with this
Contract and which is attached hereto.
3. It is further expressly agreed that the failure of the Contractor
to in good faith comply with the terms of subparagraph (1) above,
or falsifying or otherwise violating the terms of the
certification referenced in subparagraph (2) above shall
constitute a material breach of this Contract, and shall entitle
the State of Indiana to impose sanctions against the Contractor
including, but not limited to, suspension of contract payment,
termination of this Contract and/or debarment of the Contractor
from doing further business with the State of Indiana for up to
three (3) years.
R. LOBBYING ACTIVITIES. Pursuant to 31 U.S.C. 1352, and any
--------------------
Page 11 of 15
<PAGE>
regulations promulgated thereunder, the Contractor hereby assures and
certifies that no federally appropriated funds have been paid, or will be
paid, by or on behalf of the Contractor, to any person for influencing or
attempting to influence an officer or employee of any agency, a member
of Congress, an officer or employee of Congress, or an employee of a
member of Congress, in connection with the awarding of any federal
contract, the making of any federal grant, the making of any federal
loan, the entering into of any cooperative contract, and the extension,
continuation, renewal, amendment, or modification of any federal
contract, grant, loan or cooperative contract. If any funds other than
federally appropriated funds have been paid or will be paid to any
person for influencing or attempting to influence an officer or
employee of any agency, a member of Congress, an officer or employee of
Congress, or an employee of a member of Congress in connection with
this Contract, the Contractor shall complete and submit Standard
Form-LLL, "Disclosure Form to Report Lobbying", in accordance with its
instructions.
S. ACCESS TO RECORDS. The Contractor and any subcontractor shall maintain
-----------------
all books, documents, papers and records which are directly pertinent
to this Contract and shall make such materials available at all
reasonable times during the contract period and for three (3) years
from the date of final payment under the Contract or until all pending
matters are closed, whichever date is later, for inspection by the
Office, or any other duly authorized representative of the State of
Indiana or the Federal government.
T. ENVIRONMENTAL STANDARDS. If the contract amount set forth in this
------------------------
Contract is in excess of $100,000, the Contractor shall comply with all
applicable standards, orders, or requirements issued under section 305
of the Clean Air Act (42 USC 7606), section 508 of the Clean Air Act
(33 USC 1368), Executive Order 11738, and Environmental Protection
Agency regulations (40 CFR Part 15), which prohibit the use under
non-exempt Federal contracts of facilities included on the EPA List of
Violating Facilities. The Contractor shall report any violations of
this paragraph to the State of Indiana and to the United States
Environmental Protection Agency Assistant Administrator for Enforcement.
U. CONFLICT OF INTEREST
--------------------
1. As used in this section:
"Immediate family" means the spouse and the unemancipated
children of an individual.
Page 12 of 15
<PAGE>
"Interested party" means:
a. The individual executing this Contract;
b. An individual who has an interest of three percent (3%) or
more of the Contractor if the Contractor is not an individual;
or
c. Any member of the immediate family of an individual specified
under subdivision a or b.
"Department" means the Indiana Department of Administration.
"Commission" means the State Ethics Commission.
2. The Department may cancel this Contract without recourse by the
Contractor if any interested party is an employee of the State of
Indiana.
3. The Department will not exercise its right of cancellation under
section 2 above if the Contractor gives the Department an opinion
by the Commission indicating that the existence of this Contract
and the employment by the State of Indiana of the interested
party does not violate any statute or code relating to ethical
conduct of state employees. The Department may take action,
including cancellation of this Contract consistent with an
opinion of the Commission obtained under this section.
4. The Contractor has an affirmative obligation under this Contract to
disclose to the Department when an interested party is or becomes an
employee of the State of Indiana. The obligation under this section
extends only to those facts which the Contractor knows or reasonably
could know.
V. PARKING PERMIT. As Ken Kubisty, Lynn Irelan and Jean Terrell, employees of
the Contractor, will be on-site for an average of three days per week
throughout the contract term, the Office agrees to request two parking
permits for use of these individuals to park at the Indiana Government
Center parking facility.
The Office will complete all relevant paperwork and request formal
approval of all relevant state entities for these individuals to be
assigned two parking permits. Mr. Kubisty, Ms. Irelan and Ms. Terrell
will comply with all the usual
Page 13 of 15
<PAGE>
parking policies applicable to a state employee provided with a
parking pass. Upon expiration of the contract, the Contractor will
return the parking passes to the Office.
In the event of a leave of absence, resignation, or termination of either
Mr Kubisty, Ms. Irelan or Ms. Terrell in their employment with the
Contractor, the Office will follow the procedures outlined in the second
paragraph of this section to request formal approval for a parking permit
for the replacement employee. The replacement will comply with the usual
parking policies as outlined in the second paragraph of this section.
W. ASSURANCE OF COMPLIANCE WITH CIVIL RIGHTS ACT OF 1964, SECTION 504 OF THE
REHABILITATION ACT OF 1973 AND THE AGE DISCRIMINATION ACT OF 1975: The
Contractor agrees that it will comply with the following:
a. Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352), as
amended, and all requirements imposed by or pursuant to the
Regulation of the Department of Health and Human Services (45
C.F.R. Part 80), to the end that, in accordance with Title VI of
that Act and the Regulation, no person in the United States shall
on the ground of race, color, or national origin, be excluded
from participation in, be denied the benefits of, or be otherwise
subjected to discrimination under any program or activity for
which the Contractor receives Federal financial assistance under
this Contract.
b. Section 504 of the Rehabilitation Act of 1973 (Pub. L. 93-112),
as amended, and all requirements imposed by or pursuant to the
Regulation of the Department of Health and Human Services (45
C.F.R. Part 84), to the end that, in accordance with Section 504
of that Act and the Regulation, no otherwise qualified
handicapped individual in the United States shall, solely by
reason of his/her handicap, be excluded from participation in, be
denied the benefits of, or be subjected to discrimination under
any program or activity for which the Contractor receives Federal
financial assistance under this Contract.
c. The Age Discrimination Act of 1975 (Pub. L. 94-135), as amended,
and all requirements imposed by or pursuant to the Regulation of
the Department of Health and Human Services (45 C.F.R. Part 91),
to the end that, in accordance with the Act and the Regulation,
no person in the United States shall, on the basis of age, be
denied the benefits of, be excluded from participation
Page 14 of 15
<PAGE>
in, or be subjected to discrimination under any program or
activity for which the Contractor receives Federal financial
assistance under this Contract.
The Contractor agrees that compliance with this assurance constitutes a
condition of continued receipt of Federal financial assistance, and that
it is binding upon the Contractor, its successors, transferees and
assignees for the period during which such assistance is provided. The
Contractor further recognizes that the United States shall have the right
to seek judicial enforcement of this assurance.
X. NON-COLLUSION AND ACCEPTANCE. The undersigned attests, subject to the
----------------------------
penalties for perjury, that he is the contracting party, or that he is
the representative, agent, member or officer of the contracting party,
that he has not, nor has any other member employee, representative,
agent or officer of the firm, company, corporation or partnership
represented by him, directly or indirectly, to the best of his
knowledge, entered into or offered to enter into any combination,
collusion or agreement to receive or pay, and that he has not received
or paid, any sum of money or other consideration for the execution of
this agreement other than that which appears upon the face of the
agreement.
Page 15 of 15
<PAGE>
WHEREOF, the parties have executed this Contract.
For the Contractor: For the State of Indiana:
/s/ Rick Jelinek /s/ Kathleen D. Gifford
- -------------------------- -------------------------
Rick Jelinek Kathleen D. Gifford
Senior Vice President Assistant Secretary
Managed Care Solutions, Inc. Office of Medicaid Policy Planning
Date: 1/19/98 Date: 1/21/98
------------------- -------------------
APPROVED: APPROVED:
/s/ Ali Khan for /s/ Jay D. McQueen for
- ------------------------- -------------------------
Peggy Boehm, Director Betty Cockrum
State Budget Agency Commissioner
Department of Administration
Date: 2/16/98 Date: 2/5/98
------------------- -------------------
APPROVED AS TO FORM AND LEGALITY
/s/ Jeffrey W. Hagedorn, Deputy
- -------------------------
Jeffrey A. Modisett
Attorney General of Indiana
Date: 2/18/98
-------------------
<PAGE>
EXHIBIT 10.2
PURCHASE AGREEMENT
This purchase agreement ("the Agreement") is made and entered into as of
this 7th day of January, 1998 by and between Beverly Enterprises, Inc., a
Delaware corporation (the "Purchaser"), and Managed Care Solutions, Inc., a
Delaware corporation (the "Seller").
RECITAL
The Seller desires to sell to the Purchaser, and the Purchaser desires to
purchase from the Seller, 200,000 shares of Common Stock, $.01 par value, per
share, of the Seller (the "Shares") at an aggregate purchase price of $1,000,000
on the terms and conditions hereinafter set forth.
AGREEMENTS
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained, the parties hereto agree as
follows:
1.0 PURCHASE AND SALE
1.1 The Seller agrees to sell, transfer, assign and deliver to the
Purchaser at the Closing, and the Purchaser agrees to purchase and accept from
the Seller, on the terms and subject to the conditions set forth in this
Agreement, the Shares, free and clear of all liens, claims, charges, security
interests, restrictions on transfer (other than restrictions under federal and
state securities laws). The Shares shall be registered in such name or names as
the Purchaser shall direct in a written notice delivered to the Seller at least
three days prior to the Closing Date. On or before the Closing (as hereinafter
defined), the Seller will have authorized the issuance and sale to Purchaser of
the Shares in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware which Shares shall have the terms set
forth in the Seller's Certificate of Incorporation, as amended, a copy of which
is attached hereto as EXHIBIT A.
1.2 As consideration for the Shares, the Purchaser agrees, on the
terms and subject to the conditions set forth in this Agreement, to pay to or
for the account of Seller the Purchase Price as set forth in Section 2.3.
2.0 CLOSING
2.1 The closing of the purchase and sale of the Shares shall take
place at the offices of Bell, Boyd & Lloyd, at 1:00 P.M., local time, on January
5, 1998. In this Agreement, such event is referred to as the "Closing" and such
date and time are referred to as the "Closing Date."
<PAGE>
2.2. At the Closing, the Seller shall deliver to the Purchaser:
2.2.1 a Certificate in proper form representing the Shares
duly executed by the proper officers of the Seller;
2.2.2 a legal opinion of Bell, Boyd & Lloyd, dated as of the
Closing Date satisfactory to the Purchaser, to the effect that (A) the
Seller is a corporation validly existing in good standing under the laws
of the State of Delaware, (B) the Seller has the corporate power to
execute, deliver and perform its obligations under the terms of this
Agreement and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby, (C) this Agreement has been duly executed and
delivered by the Seller and is a valid and legally binding obligation of
the Seller, (D) no permit, consent, approval, or authorization of, or
declaration to or filing with, any Governmental Body (as hereinafter
defined) is necessary for the execution and delivery by the Seller of this
Agreement or for the consummation by the Seller of the transaction
contemplated hereby, (E) assuming the accuracy of the representations and
warranties of the Purchaser set forth in Section 4.5 hereof, the issuance
and sale of the Shares is exempt from registration and prospectus delivery
requirements under the Securities Act and applicable state securities
laws, (F) issuance and sale of the Shares does not violate the Seller's
governing documents and (G) the Shares when issued upon payment of the
Purchase Price by the Purchaser to the Seller will be duly authorized,
validly issued, fully paid and nonassessable Shares of Common Stock, $.01
par value per share, of the Seller. The legal opinion of Bell, Boyd &
Lloyd may be rendered in a form consistent with the Legal Opinion Accord
of the ABA Section of Business Law (1992); and
2.2.3 a certificate of a duly authorized officer of Seller
certifying that all representations and warranties of the Seller contained
in this Agreement are true and correct on the Closing Date.
2.3 At Closing, the Purchaser shall deliver to the Seller legal
opinions of counsels, dated as of the Closing Date satisfactory to the Seller,
to the effect that (A) the Purchaser is a corporation validly existing in good
standing under the laws of the State of Delaware, (B) the Purchaser has the
corporate power to execute, deliver and perform its obligations under the terms
of this Agreement and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, and (C) this Agreement has been duly executed and delivered by the
Purchaser and is a valid and legally binding obligation of the Purchaser.
2.4 The Purchase Price for the Shares shall be $1,000,000. At
Closing, in consideration for the delivery and transfer of the Shares, the
Purchaser shall pay to the Seller the Purchase Price by wire transfer of
immediately available funds to an account designated by the Seller at least one
day prior to the Closing Date.
<PAGE>
3.0 REPRESENTATIONS AND WARRANTIES OF THE SELLER
In order to induce the Purchaser to enter into this Agreement and to
purchase the Shares, the Seller represents and warrants to the Purchaser as
follows, which representations and warranties shall be true and correct on the
date hereof and on the Closing Date:
3.1 The Seller is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware and has all power
(corporate and other) necessary to carry on its business as now being conducted
and to own, lease and operate its properties. The Seller is duly licensed,
qualified and authorized to conduct its business in Arizona and in all other
jurisdictions in which the character and location of the assets owned by it or
the nature of the business transacted by it requires licensing, qualification or
authorization. This Agreement has been duly authorized, executed and delivered
by the Seller and is a valid and legally binding obligation of the Seller,
enforceable in accordance with its terms, except to the extent enforceability
may be limited by (i) bankruptcy, insolvency, moratorium, liquidation,
reorganization or similar laws affecting creditors' rights generally, regardless
of whether such enforceability is considered in equity or law, and (ii) general
equity principles. The Seller has taken all corporate action necessary to
authorize issuance of the Shares. Upon Closing and the payment of the Purchase
Price by the Purchaser, the Shares will be duly authorized and validly issued,
fully paid, and non-assessable.
3.2 Neither the execution or delivery of this Agreement nor the
issuance, sale or delivery of the Shares, nor the performance by the Seller of
its obligations under this agreement, nor the consummation of the transactions
contemplated hereby:
i. violate any provision of the governing documents of the
Seller;
ii. violate any statute, law, rule or regulation or any
judgment, decree, order, regulation or rule of any court or
governmental authority to which the Seller or any of its
properties may be subject, except for such violations
which, individually or in the aggregate, would not have a
material adverse effect on the condition, financial or
otherwise, results of operation, business or prospects of
the Seller or its subsidiaries, taken as a whole (a
"Material Adverse Effect"); or
iii. violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent
of any person under, or result in the creation of any lien
upon any property of the Seller under, any mortgage,
indenture, loan agreement, note, debenture or other
agreement for borrowed money or any other agreement to
which the Seller is a party or by which the Seller (or its
properties) may be bound, except for such violations,
conflicts, defaults, terminations and liens which,
individually or in the aggregate, would not have a Material
Adverse Effect or which violations, conflicts or defaults
have been consented to or otherwise waived by the other
party or parties to any such mortgage, indenture, loan
agreement, note, debenture or other agreement for borrowed
money or any other agreement to which the Seller is a party.
<PAGE>
3.3 Except as contemplated in the consolidated financial statements
of the Seller and its subsidiaries for the fiscal year ended May 31, 1997, as
set forth in the Seller's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for Seller's fiscal year ended May 31, 1997 (the
"1996/1997 Financial Statements"), (a) there is no action, proceeding or
investigation pending, or threatened against or affecting the Seller or its
business or the business of any of its subsidiaries in any court or before any
governmental authority or arbitration board or tribunal, foreign or domestic,
except for such actions which, if adversely determined, singly and in the
aggregate, would not have a Material Adverse Effect, and there is no such action
seeking to restrain, enjoin, prevent the consummation of or otherwise challenge,
the transactions contemplated by this Agreement including, but not limited to
the issuance and sale of the Shares. All applications, reports and other filings
required by any governmental authority or agency to be filed through the date
hereof have been duly and timely filed as of the date hereof and (b) neither the
Seller nor its business is subject to any judgment, order, or decree of any
court, governmental authority or arbitration board or tribunal, and there are no
material actions, proceedings or other matters pending before any state
insurance department to which Seller or any of its subsidiaries is a party.
3.4 At the Closing, the Seller will convey to Purchaser good and
marketable title to the Shares free and clear of any liens, encumbrances,
pre-emptive rights or other claims.
3.5 The Seller has no obligation to pay any fees or commissions to
any investment banker, broker, finder or agent with respect to the sale of the
Shares contemplated by this Agreement.
3.6 The net proceeds from the sale of the Shares hereunder will be
used for the Seller's general corporate purposes.
3.7 The authorized and outstanding capital stock of the Seller is as
stated in the 1996/1997 Financial Statements.
<PAGE>
All such outstanding shares have been duly authorized and validly
issued and are paid and nonassessable.
Except as set forth on Schedule 3.7, as of the date hereof and after
giving effect to the Closing (a) there are no outstanding subscriptions,
warrants, options, calls or commitments of any character relating to or
entitling any person or entity to purchase or otherwise acquire any capital
stock or other equity securities of Seller; (b) there are no obligations or
securities convertible into or exchangeable or exercisable for shares of any
capital stock or other equity securities of Seller or any commitments of any
character relating to or entitling any person or entity to purchase or otherwise
acquire any such obligations or securities; and (c) there are no preemptive or
similar rights to subscribe for or to purchase any capital stock or other equity
securities of Seller which are not disclosed in the Seller's filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Seller has not entered into any agreement to register its equity or
debt securities under the Securities Act, except as identified on Schedule 3.7
hereto.
3.8 Except as set forth on Schedule 3.8, the Seller's outstanding
indebtedness is as stated in the 1996/1997 Financial Statements.
3.9 The 1996/1997 Financial Statements have been prepared in
accordance with GAAP and fairly present the financial position and results of
operations of the Seller as of the dates and for the periods indicated.
3.10 Except as set forth on Schedule 3.10, since May 31, 1997, there
has been no change and no event has occurred with respect to Seller or any of
its subsidiaries or with respect to the business of Seller and its subsidiaries
which would constitute a Material Adverse Effect.
3.11 None of the documents or information regarding Seller and its
business furnished by or on behalf of the Seller to Purchaser in connection with
the negotiation and sale of the Shares, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Seller which the Seller has
not disclosed to Purchaser which could have a Material Adverse Effect.
3.12 All tax returns required to be filed by the Seller and each of
its subsidiaries in any jurisdiction (including foreign jurisdictions) have been
so filed, and all taxes, assessments, fees and other charges due or claimed to
be due which are due and payable have been paid, other than those being
contested in good faith or those currently payable without penalty or interest.
The Seller knows of no actual or proposed material additional tax assessments or
any fiscal period with respect to the Seller and each of its subsidiaries or of
any basis therefor. Except as set forth in Schedule 3.12, no tax returns are
under audit, and no waivers of the statute of limitations or extensions of time
with respect to any tax returns have been granted.
3.13
i. The execution and delivery of this Agreement and the sale of
the Shares will not involve any prohibited transaction within
the meaning of the Employee Retirement Income Security Act of
1974 ("ERISA") or Section 4975 of the Code.
<PAGE>
ii. The Seller is in compliance in all material respects with
any applicable provisions of ERISA and the Code and the
regulations and published interpretations thereunder with
respect to all employee pension benefit plans
(collectively, "Pension Plans") and all employee welfare
benefit plans (collectively "Welfare Plans") maintained or
contributed to by the Seller. No reportable event has
occurred or is reasonably expected to occur with respect to
any Pension Plan. There are no unfunded benefit
liabilities under any of the Pension Plans. The Seller has
not incurred or is not reasonably expected to incur any
withdrawal liability under Title IV or ERISA with respect
to any multi-employer plan maintained or contributed to by
the Seller. The Seller has no obligation to make any
payment to or with respect to any former employee of the
Seller pursuant to any retiree medical benefit or other
Welfare Plan.
As used in this Section 3.13, the terms "employee pension
benefit plan," "employee welfare benefit plan," "reportable
event," "unfunded benefit liabilities," "withdrawal liability"
and "multi-employer plan" shall have the meanings assigned to
such terms in ERISA.
Schedule 3.13 contains a complete list of all employee pension
benefit plans, employee welfare benefit plans and
multi-employer plans with (i) are maintained or contributed to
by the Company.
3.14 To its knowledge, the Seller is not in violation of any
statutes, laws, ordinances, or governmental rules or regulations or any
judgment, order or decree (federal, state, local or foreign) to which it or its
business is subject or has it failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership or operation of
its properties or the conduct of its businesses.
3.15 The offer, issuance, sale or delivery of the Shares at the
Closing as contemplated hereby requires no consent, approval or authorization
of, or notice to, or filing, registration or qualification with, any
governmental authority other than the filings, registrations or qualifications
under the state securities laws or "blue sky" laws of any state of the United
States of America that may be required to be made or obtained, all of which
shall have been made or obtained on the Closing Date (and copies of which shall
have been delivered to Purchaser).
3.16 Assuming the accuracy of the representations of Purchaser in
Section 4.5, the sale of the Shares hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
<PAGE>
The Purchaser is the sole purchaser of the Shares. The Seller agrees
that neither it, nor anyone acting on its behalf, will offer or sell any shares
of its common stock or any portion of them, if such offer or sale might bring
the issuance and sale of the Shares hereunder within the provisions of Section 5
of the Securities Act, or offer any similar securities for issuance or sale to,
or solicit any offer to acquire any of the same from, or otherwise approach or
negotiate with respect thereto with, anyone if the sale of the Shares and any
such securities could be integrated as a single offering for the purposes of the
Securities Act.
3.17 To its knowledge, the Seller is in compliance with the
provisions of all environmental laws relating to its business, properties and
assets; (ii) the Seller has not violated any provision of any applicable
environmental laws; and (iii) to its knowledge, the Seller has no liability,
absolute or contingent, under any environmental law.
4.0 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
In order to induce the Seller to enter into this Agreement and to
sell the Shares, the Purchaser represents and warrants as follows:
4.1 The Purchaser is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has all
power (corporate and other) necessary to enter into this Agreement. This
Agreement has been duly executed and delivered by the Purchaser and is a valid
and legally binding obligation of the Purchaser, enforceable in accordance with
its terms, except to the extent enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, liquidation, reorganization or similar laws affecting
creditors' rights generally, regardless of whether such enforceability is
considered in equity or law, and (ii) general equity principles.
4.2 Neither the execution, delivery and performance of this
Agreement by the Seller, nor the Consummation by it of the transaction
contemplated hereby, will violate any law or regulation, or any order, writ,
injunction, or decree of the United States or any court, arbitrator, or
governmental or regulatory official, body, subdivision, instrumentality, agency
or authority, whether federal, state or local ("Governmental Body"), applicable
to the Purchaser, its business or properties, or will, in any material respect,
conflict or be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under, any
material agreement to which the Purchaser is a party or by which it is bound. No
permit, consent, approval, or authorization of, or declaration to or filing
with, any Governmental Body or any other person is necessary for the execution
and delivery by the Seller of this Agreement or for the consummation by the
Purchaser of the purchase of the Shares contemplated hereby.
4.3 There are no actions, suits, investigations or proceedings
pending or, to the actual knowledge of the Purchaser, threatened against or
affecting the Purchaser or its respective assets by or before any Governmental
Body or any other tribunal that could, if adversely decided, have a material
adverse effect on the consummation of the sale of the Shares contemplated
hereby.
<PAGE>
4.4 The Purchaser has no obligation to pay any fees or commissions
to any investment banker, broker, finder or agent with respect to the sale of
the Shares contemplated by this Agreement.
4.5 The Purchaser is acquiring the Shares for investment and the
Purchaser understands that the Shares are to be held for investment purposes
only and not for distribution. The Purchaser understands that the Shares have
not been registered under the Securities Act of 1933 and, therefore, cannot be
sold or transferred unless either they are subsequently registered under such
Act (as well as under any applicable state securities laws) or an exemption from
such registration is available. The Purchaser is an accredited investor, as such
term is defined in Regulation D under the Securities Act of 1933, as amended.
5.0 COVENANTS
5.1 FURTHER ASSURANCES. From and after the Closing, upon the
reasonable request of the Purchaser, the Seller shall execute, acknowledge and
deliver all such further acts, deeds, bills of sale, assignments, transfers,
conveyances, powers of attorney and assurances as may reasonably be required to
convey and transfer to and vest in the Purchaser and protect the Purchaser's
right, title and interest in the Shares.
5.2 REGISTRATION RIGHTS.
5.2.1 DEMAND REGISTRATIONS. (a) Upon the written request of the
Purchaser that the Seller register all or part of the Shares (which
request shall satisfy the requirements of paragraph (c) of this Section
5.2.1), the Seller shall, subject in all cases to the provisions of
paragraph (b) of this Section 5.2.1, thereupon, use its reasonable best
efforts to cause the Shares specified in such request to be so registered
as soon as practicable, but not later than 90 days after the date of the
Purchaser's written request to register.
(b) The Seller's obligation to register all or part of the Shares
pursuant to paragraph (a) of this Section 5.2.1 shall in all cases be
subject to the following limitations and qualifications:
(i) The Seller shall (x) be required to effect only one such
demand registration with respect to shares of Common Stock,
including the Shares owned by the Purchaser, if such registration is
ordered or declared effective and (y) not be obligated to file a
registration statement at any time if a special audit of the Seller
would be required by the rules and regulations of the Securities and
Exchange Commission (the "Commission") in connection therewith; and
<PAGE>
(ii) The Seller shall be entitled to postpone for a reasonable
period of time not to exceed 90 days the filing of any registration
statement otherwise required to be prepared and filed by it if, at
the time it receives a request for registration, the Seller
determines, in its reasonable judgment, that such registration would
materially interfere with any financing, acquisition, corporate
reorganization or other material transaction then being contemplated
by its Board of Directors, involving the Seller, and promptly gives
the Purchaser written notice of such determination and the reasons
therefor, provided that the Seller shall not defer its obligations
in this manner more than twice in any twelve month period and the
Seller shall not defer its obligation until 90 days have expired
after any prior deferral. In such event, the Purchaser shall have
the right to withdraw the request for registration by giving written
notice to the Seller within 30 days after receipt of the notice of
postponement (and, in the event of such withdrawal, such request
shall be ignored for purposes of counting the demand registration to
which the Purchaser is entitled pursuant to this paragraph (b)).
For purposes of this paragraph (b), "special audit" shall mean an
audit other than a year-end audit, requiring an opinion of the Seller's
independent public accountants.
(c) Any written request of the Purchaser made pursuant to paragraph
(a) of this Section 5.2.1 shall:
(i) specify the number of the Shares which the Purchaser
intends to offer and intends to sell and the source of such shares
(transaction in which they were acquired);
(ii) state the firm intention of the Purchaser to offer such
shares for sale;
(iii) describe the intended method of distribution of such
shares; and
(iv) contain an undertaking on the part of the Purchaser to
provide all such information and materials concerning the Purchaser
and take all such action as may be required to permit the Seller to
comply with all applicable requirements of the Commission and to
obtain acceleration of the effective date of the registration
statement.
<PAGE>
5.2.2 PARTICIPATION REGISTRATIONS. (a) If, at any time from the date
hereof, the Seller shall propose to register under the Securities Act of
1933 (the "Securities Act") an offering of Common Stock to be offered and
sold by it or any stockholder, it shall give written notice of such
proposed registration to the Purchaser as promptly as possible and shall,
subject in all cases to paragraph (b) of this Section 5.2.2, use its
reasonable best efforts to include in the offering such number of the
Shares then owned by the Purchaser as the Purchaser shall request, within
10 days after the giving of such notice, to be included, such offering to
be upon the same terms (including the method of distribution) as the
Common Stock being sold by the Seller pursuant to any such offering.
(b) The Seller's obligation to include the Shares owned by the
Purchaser in any offering pursuant to paragraph (a) of this Section 5.2.2
shall in all cases be subject to the following limitation and
qualifications:
(i) The Seller shall not be required to give notice to the
Purchaser or include such shares in any such registration if the
proposed registration is (x) a registration of stock option or
compensation plan or of Common Stock issued or issuable pursuant to
any such plan, or (y) a registration of Common Stock proposed to be
issued in exchange for securities or assets of, or in connection
with a merger or consolidation with, another corporation;
(ii) The Seller may require that the number of such Shares
requested to be included in such registration be reduced, or that
all such Shares be excluded from any such registration, if it is
advised in writing by its managing underwriter that such reduction
or exclusion, as the case may be, is necessary to permit the orderly
sale and distribution of the securities being offered by the Seller.
Any reduction shall be made pro rata among all selling shareholders
in proportion to the relative number of Shares sought by each to be
registered. If the Seller shall require such a reduction, the
Purchaser shall have the right to withdraw from the offering;
(iii) The Seller may, in its sole discretion and without the
consent of the Purchaser, withdraw such registration statement and
abandon the proposed offering in which the Purchaser had requested
to participate; and
(iv) The Seller shall be required to effect only one such
registration; provided that the Purchaser's right to registration
under this Section 5.2.2 shall not expire unless all Shares the
Purchaser has requested under Section 5.2.2(a) to be registered have
been so registered.
<PAGE>
5.3 CERTAIN COVENANTS OF THE SELLER. (a) In connection with any
registration of the Shares undertaken by the Seller pursuant to Section 5.2.1
and, if and to the extent appropriate, Section 5.2.2, the Seller shall:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such Shares
and use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement current for such period not to exceed 270 days as the Purchaser
shall request and to comply with the provisions of the Securities Act with
respect to the sale of all of the Shares covered by such registration
statement during such period;
(iii) provide the Purchaser a reasonable opportunity to review and,
in the case of registrations effected pursuant to Section 5.2.1, approve
prior to filing (x) any registration statement filed by the Seller in
connection with a registration effected pursuant to Section 5.1.2 or
Section 5.2.2 and (y) any amendments or supplements to such registration
statement and any prospectus used in connection therewith;
(iv) furnish to the Purchaser such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus and prospectus supplement), copies of which are in
conformity with the requirements of the Securities Act, and such other
documents as the Purchaser may reasonably request in order to facilitate
the sale of the Shares covered by such registration statement;
(v) use its best efforts to register or qualify the Shares covered
by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Purchaser shall reasonably request, and
do any and all other acts and things which may be reasonably necessary or
advisable to enable the Purchaser to consummate the sale in such
jurisdictions of such Shares; provided that the Seller shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this paragraph (v) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
<PAGE>
(vi) notify the Purchaser, at any time when a prospectus relating to
the Shares covered by such registration statement is required to be
delivered under the Securities Act, of the Seller's becoming aware that
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and at the request of the Purchaser promptly prepare and furnish
to the Purchaser a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers
of such Shares, such prospectus shall not include an 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 not misleading in
light of the circumstances then existing;
(vii) provide a transfer agent and registrar for the Shares covered
by such registration statement not later than the effective date of such
registration statement;
(viii) enter into such agreements (including an underwriting
agreement in customary form) and take such other actions as the Purchaser
reasonably requests in order to expedite or facilitate the disposition of
such shares;
(ix) The Seller shall pay all expenses incident to all registration
and filing fees, fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the registrable securities),
rating agency fees, printing expenses, messenger and delivery expenses,
the fees and expenses incurred in connection with the listing of the
securities to be registered on securities exchanges or NASDAQ, fees and
disbursements of counsel for the Seller and its independent certified
public accountants. Except as provided above, the Seller will not have any
responsibility for any of the expenses of the Purchaser incurred in
connection with any registration hereunder, including, without limitation,
underwriting discounts or commissions attributable to the sale of
registrable securities; and
(x) INDEMNIFICATION. (1) In connection with any registration of the
Shares of the Purchaser pursuant to Sections 5.2.1 and 5.2.2 hereof, the
Seller agrees to indemnify, to the full extent permitted by law, the
Purchaser, and its respective directors, officers, partners, agents and
affiliates, against all losses, claims, damages, liabilities and expenses
(including attorneys' fees and disbursements) to which Purchaser or any
such director, officer, partner, agent, affiliate or controlling person or
entity may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue or alleged untrue statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus (or
<PAGE>
any amendment or supplement thereto) or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar
as the same are caused by any such untrue statement or alleged untrue
statement or any such omission or alleged omission if (x) such untrue
statement or omission is completely corrected in an amendment or
supplement to such preliminary prospectus or prospectus supplement, the
seller of the Shares has an obligation under the Securities Act to deliver
a prospectus or prospectus supplement in connection with such sale of the
Shares and the seller of such Shares thereafter fails to deliver such
prospectus or prospectus supplement as so amended or supplemented prior to
or concurrently with the sale of the Shares to the person asserting such
loss, claim, damage or liability after the Seller has furnished the seller
with a sufficient number of copies of the same, or (y) such untrue
statement or omission is caused by or contained in any information with
respect to the Purchaser furnished in writing to the Seller by the
Purchaser expressly for use therein, or caused by the Purchaser's failure
to deliver to a prospective purchaser a copy of the registration statement
or prospectus or any amendments or supplements thereto. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of such Purchaser or any such director, officer, partner,
employee, agent, affiliate or controlling person and shall survive the
transfer of the Shares by such Purchaser.
(2) In connection with any registration in which the Purchaser is
participating, the Purchaser will furnish to the Seller in writing such
information with respect to it as the Seller reasonably requests for use
in connection with any such registration statement, prospectus or
preliminary prospectus and agrees to indemnify, to the full extent
permitted by law, the Seller, its directors and officers and each person
who controls the Seller (within the meaning of the Securities Act) and, in
connection with an underwritten offering, each underwriter and each person
who controls the underwriters (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses (including
attorneys' fees and disbursements) caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, to the extent,
but only to the extent, that such untrue statement or omission is in
conformity with and contained in any information with respect to the
Purchaser so furnished in writing by the Purchaser expressly for use
therein, PROVIDED, HOWEVER, that (x) the indemnifying party shall not be
liable in any such case to the extent that any such statement or omission
is completely corrected in the final prospectus, in the case of a
preliminary prospectus, or in an amendment or supplement to a prospectus
or prospectus supplement and (y) the liability of such indemnifying party
under this Section 5.3(a)(x) shall be limited to the amount of proceeds
received by such indemnifying party in the offering giving rise to such
liability. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Seller or any
such director, officer, or controlling person and shall survive the
transfer of the Shares of the Purchaser.
<PAGE>
(3) Any person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the receipt by such
person of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which
such person will claim indemnification or contribution pursuant to this
Agreement (PROVIDED, HOWEVER, that the failure of any indemnified party to
give such notice shall not relieve the indemnifying party of its
obligations under Sections 5.3(a)(x)(1) or (2) hereof except to the extent
that the indemnifying party is materially prejudiced by such failure to
give notice) and, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such indemnified party. If
the indemnifying party is not entitled to, or elects not to, assume the
defense of a claim, it will not be obligated to pay the fees and expenses
of more than one counsel with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the fees and expenses of such additional counsel
or counsels. The indemnifying party will not be subject to any liability
for any settlement made without its consent, which consent shall not be
unreasonably withheld or delayed.
(4) If the indemnification provided for in this Section 5.3(a) from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred
to in any notice referred to in 5.3(a)(x)(3), then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 5.3(a)(x)(2), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
<PAGE>
(b) The Seller shall take all reasonable actions necessary so as to enable
the Purchaser to make sales of the Shares under Rule 144 (or any successor rule)
under the Securities Act and in accordance with applicable laws, rules and
regulations, the requirements of the Seller's transfer agent(s), and the
reasonable requirements of the broker through which the sales are proposed to be
executed. Seller shall make all filings required to be made under the Securities
Exchange Act of 1934 and the rules thereunder, and shall provide to Purchaser
copies of such filings on request.
(c) From and after the date of the Shares, the Seller shall not, without
the written consent of the Purchaser, enter into any agreement granting to any
person or entity any registration rights that are more favorable than the
registration rights granted to the Purchaser under this Agreement, unless the
same rights are granted to the Purchaser.
5.4 STANDSTILL. In the event of a registered public offering, the
Purchaser will agree with the underwriters not to sell any Shares for up to 180
days following commencement of the offering if and only if the Purchaser has
been offered the opportunity to participate in the offering and the underwriters
have not reduced the number of shares that the Purchaser may sell.
5.5 ACQUISITION OF ADDITIONAL SHARES. The Purchaser agrees that
without the consent of the Seller it will not acquire shares of Common Stock
$.01 par value per share of the Seller, in the open market or otherwise, if such
acquisition would cause Purchaser immediately after the consummation thereof to
own more than 10% of the outstanding shares of Common Stock $.01 par value per
share of the Seller.
5.6 LEGEND. The Purchaser and the Seller agree that the certificates
for the Shares delivered pursuant to Section 2.2.2 hereof may, if Purchaser
deems it necessary, have imprinted therein the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND THE
HOLDER HEREOF, BY HIS ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES THAT THE
SHARES MUST BE HELD INDEFINITELY UNLESS (I) A REGISTRATION STATEMENT
RELATING TO THE SHARES AND DESCRIBING THE PROPOSED TRANSFER HAS BECOME
EFFECTIVE UNDER THE ACT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
ITS COUNSEL, OR OF COUNSEL SATISFACTORY TO IT, THAT THE PROPOSED TRANSFER
WILL NOT VIOLATE THE REGISTRATION REQUIREMENTS OF THE ACT. THE CORPORATION
WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A
DESCRIPTION OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF
THE CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, AS WELL AS A DESCRIPTION
OF RESTRICTIONS AGREED TO BY THE ORIGINAL HOLDER OF THE SHARES."
<PAGE>
Seller agrees to remove such legend two years after the Closing Date.
6.0 INDEMNIFICATION
6.1 The Seller agrees to indemnify, defend and hold harmless the
Purchaser and its directors, employees and agents (collectively, the "Purchaser
Indemnified Persons"), from and against all losses, claims, damages,
liabilities, expenses (including reasonable legal fees and expenses), judgments,
fines, settlements and other amounts incurred or suffered by the Purchaser or
the Purchaser Indemnified Persons and arising out of (i) the inaccuracy of any
of the representations and warranties made by the Seller in this Agreement or
(ii) any breach by the Seller of this Agreement.
6.2 The Purchaser agrees to indemnify, defend and hold harmless the
Seller and its directors, employees and agents (the "Seller Indemnified
Persons") from and against all losses, claims, damages, liabilities, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements
and other amounts incurred or suffered by the Seller or the Seller Indemnified
Persons and arising out of (i) the inaccuracy of any of the representations and
warranties made by the Purchaser in this Agreement or (ii) any breach by the
Purchaser of this Agreement.
6.3 Any party entitled to indemnification hereunder will give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of such counsel a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
7.0 MISCELLANEOUS
7.1 The representations, warranties, covenants and agreements
contained herein are continuing in nature and shall survive the execution and
delivery of this Agreement and the Closing, regardless of any investigation made
by or on behalf of any party to this Agreement.
<PAGE>
7.2 The parties hereto may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
7.3 Each party to this Agreement shall pay all of the expenses
incurred by it in connection with this Agreement, including without limitation
its legal and accounting fees and expenses, and the commissions, fees and
expenses of any person employed or retained by it to bring about, or to
represent it in, the sale of the Shares contemplated hereby.
7.4 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
7.5 This instrument and the exhibits and schedules attached hereto
contain the entire agreement of the parties hereto with respect to the purchase
of the Shares, and supersede all prior understandings and agreements of the
parties with respect to the subject matter hereof.
7.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
7.7 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
7.8 All notices provided for in this Agreement shall be in writing,
duly signed by the party giving such notice, and shall be sent by Federal
Express or other reliable overnight courier, sent by fax or mailed by registered
or certified mail, return receipt requested, as follows:
If to the Purchaser, addressed to such party at:
Beverly Enterprises, Inc.
5111 Rodgers Avenue
Suite 40-A
Fort Smith, Arkansas 72919
Attention: Phillip Small
with a copy to:
Latham & Watkins
Sears Tower, Suite 5800
Chicago, Illinois 60606
Attention: Christopher D. Lueking
<PAGE>
If to the Seller, addressed to:
Managed Care Solutions, Inc.
7600 N. 16th Street
Suite 150
Phoenix, Arizona 85020
Attention: President
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602-4207
Attention: William G. Brown
Each notice shall be deemed to have been given upon the earliest of (i) the
receipt of such notice by the intended recipient thereof, (ii) two days after it
is sent by Federal Express or other reliable overnight courier or sent by fax,
or (iii) five days after it is mailed by registered or certified mail, postage
prepaid, return receipt requested.
7.9 This Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona applicable to contracts made and to be
performed therein.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BEVERLY ENTERPRISES, INC.
By: /s/ David G. Merrill
-------------------------------
Its: Vice President
---------------------------
MANAGED CARE SOLUTIONS, INC.
By: /s/ Michael J. Kennedy
-------------------------------
Its: Chief Financial Officer
---------------------------
<PAGE>
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<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 11,030,000
<SECURITIES> 1,512,000
<RECEIVABLES> 4,026,000
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0
7,000
<COMMON> 46,000
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<TOTAL-LIABILITY-AND-EQUITY> 29,875,000
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<EXTRAORDINARY> 0
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