<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 000-19480
---------------------
PER-SE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-1651222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2840 MT. WILKINSON PARKWAY, SUITE 300 30339
ATLANTA, GEORGIA (Zip code)
(Address of principal executive offices)
</TABLE>
(770) 444-5300
(Registrant's telephone number, including area code)
MEDAPHIS CORPORATION
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
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 [ ]
Indicate the number of shares of stock outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
SHARES OUTSTANDING
TITLE OF CLASS AT NOVEMBER 5, 1999
-------------- -------------------
<S> <C>
Common Stock $0.01 Par Value................................ 88,724,301 Shares
Non-voting Common Stock $0.01 Par Value..................... 0 Shares
</TABLE>
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<PAGE> 2
PER-SE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements................................ 1
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998...................................... 1
Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998.......... 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998...................... 3
Notes to Consolidated Financial Statements................ 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings................................... 18
Item 5: Other Matters....................................... 18
Item 6: Exhibits and Reports on Form 8-K.................... 18
Index to Exhibits........................................... 21
</TABLE>
---------------------
THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
PER-SE TECHNOLOGIES, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND
78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF PER-SE TECHNOLOGIES, INC. AND MEMBERS OF ITS
MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE
NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND
THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-Q, AND ARE
HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER
TIME.
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 38,101 $ 54,409
Restricted cash........................................... 5,585 5,754
Accounts receivable, billed............................... 48,362 54,800
Accounts receivable, unbilled............................. 43,467 46,757
Other..................................................... 5,184 8,022
--------- ---------
Total current assets.............................. 140,699 169,742
Property and equipment, net................................. 37,796 47,954
Intangible assets........................................... 47,147 48,241
Net assets of discontinued operations....................... 8,345 11,872
Other....................................................... 5,785 8,912
--------- ---------
$ 239,772 $ 286,721
========= =========
Current Liabilities:
Accounts payable.......................................... $ 7,043 $ 8,550
Accrued compensation...................................... 21,387 21,234
Accrued expenses.......................................... 17,031 22,361
Accrued litigation settlements............................ 9,297 12,026
Current portion of long-term debt......................... 42 1,067
Deferred revenue.......................................... 20,760 18,289
--------- ---------
Total current liabilities......................... 75,560 83,527
Long-term debt.............................................. 175,000 175,013
Accrued litigation settlements.............................. 3,865 20,250
Other obligations........................................... 3,714 5,608
--------- ---------
Total liabilities................................. 258,139 284,398
--------- ---------
Stockholders' Equity:
Preferred stock, no par value, 20,000 authorized; none
issued................................................. -- --
Common stock, voting, $0.01 par value, 200,000 authorized;
90,924 and 78,745 issued and outstanding in 1999 and
1998, respectively..................................... 909 787
Common stock, non voting, $0.01 par value, 600 authorized;
none issued............................................ -- --
Paid-in capital........................................... 776,257 740,014
Warrants.................................................. 1,495 --
Accumulated deficit....................................... (797,028) (738,390)
--------- ---------
(18,367) 2,411
Less treasury stock, at cost -- 15 shares in 1998........... -- 88
--------- ---------
Total stockholders' equity........................ (18,367) 2,323
--------- ---------
$ 239,772 $ 286,721
========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenue...................................... $81,270 $ 81,979 $245,001 $ 266,657
------- --------- -------- ---------
Salaries and wages........................... 53,388 59,680 160,311 173,095
Other operating expenses..................... 26,363 39,083 84,260 95,699
Depreciation................................. 4,189 5,603 16,629 17,420
Amortization................................. 2,357 5,045 6,872 15,743
Interest expense, net........................ 4,075 6,196 11,858 18,418
Intangible asset impairment.................. -- 390,641 -- 390,641
Legal settlements............................ (4,439) 19,500 24,811 41,375
Restructuring and other charges.............. -- 1,770 -- 3,377
------- --------- -------- ---------
Total expenses..................... 85,933 527,518 304,741 755,768
------- --------- -------- ---------
Loss before income taxes..................... (4,663) (445,539) (59,740) (489,111)
Income tax expense (benefit)................. 22 67,621 (502) 62,582
------- --------- -------- ---------
Loss from continuing operations.............. (4,685) (513,160) (59,238) (551,693)
------- --------- -------- ---------
Discontinued operations, net of tax:
Income (loss) from discontinued
operations............................ 1,351 (2,845) 2,012 723
Gain (loss) on sale of subsidiary, net
of additional expenses................ (5,955) -- (1,468) --
------- --------- -------- ---------
(4,604) (2,845) 544 723
------- --------- -------- ---------
Loss before extraordinary item............... (9,289) (516,005) (58,694) (550,970)
Extraordinary item, net of tax............... -- -- -- (5,557)
------- --------- -------- ---------
Net loss........................... $(9,289) $(516,005) $(58,694) $(556,527)
======= ========= ======== =========
Basic net (loss) income per common share:
Loss from continuing operations......... $ (0.06) $ (6.52) $ (0.72) $ (7.22)
(Loss) income from discontinued
operations, net of tax................ (0.05) (0.04) 0.01 0.01
Extraordinary item, net of tax.......... -- -- -- (0.07)
------- --------- -------- ---------
Net loss................................ $ (0.11) $ (6.56) $ (0.71) $ (7.28)
======= ========= ======== =========
Weighted average shares outstanding.......... 85,394 78,655 82,573 76,442
======= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(58,694) $(556,527)
Adjustments to reconcile net loss to net cash used for
operating activities:
Income from discontinued operations....................... (2,012) (723)
Depreciation and amortization............................. 23,501 33,163
Loss on sale of subsidiaries.............................. 1,141 --
Impairment losses on long-lived assets.................... -- 390,641
Early extinguishment of debt.............................. -- 9,231
Non-cash legal settlement costs........................... 21,433 --
Deferred income taxes..................................... -- 60,857
Changes in assets and liabilities, excluding effects of
acquisitions and divestitures:
Restricted cash......................................... 392 2,500
Accounts receivable, billed............................. 6,438 8,605
Accounts receivable, unbilled........................... 3,290 11,556
Accounts payable........................................ (1,507) (1,341)
Accrued compensation.................................... 153 (1,701)
Accrued expenses........................................ (8,572) (6,962)
Accrued litigation settlements.......................... (8,153) 41,375
Deferred revenue........................................ 2,471 187
Other, net.............................................. 3,811 6,010
-------- ---------
Net cash used for continuing operations............ (16,308) (3,129)
Net cash (used for) provided by discontinued
operations........................................ (3,292) 2,351
-------- ---------
Net cash used for operating activities............. (19,600) (778)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (6,210) (18,590)
Software development costs................................ (5,777) (3,217)
Proceeds from sale of subsidiaries, net................... 12,664 --
Proceeds from sale of property and equipment.............. 2,751 764
Other..................................................... -- (468)
-------- ---------
Net cash provided by (used for) investing
activities........................................ 3,428 (21,511)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 920 1,446
Proceeds from the exercise of stock options............... 214 5,683
Proceeds from borrowings.................................. -- 339,467
Payments of debt.......................................... (1,038) (315,248)
Debt issuance costs....................................... (232) (12,432)
-------- ---------
Net cash (used for) provided by financing
activities........................................ (136) 18,916
-------- ---------
CASH AND CASH EQUIVALENTS:
Net change................................................ (16,308) (3,373)
Balance at beginning of period............................ 54,409 14,729
-------- ---------
Balance at end of period.................................. $ 38,101 $ 11,356
======== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest................................................ $ 16,761 $ 13,926
Income taxes............................................ 946 1,482
Non-cash investing and financing activities:
Issuance of Common Stock upon funding of litigation
settlement............................................ 32,710 52,500
Issuance of stock warrants.............................. 1,495 --
Additions to capital lease obligations.................. -- 42
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Per-Se Technologies, Inc. ("Per-Se" or the "Company"), formerly Medaphis
Corporation, are presented in accordance with the requirements of Form 10-Q and
Rule 10-01 of Regulation S-X. For further information, the reader of this Form
10-Q may wish to refer to the audited consolidated financial statements of the
Company for the fiscal year ended December 31, 1998 included in the Company's
Annual Report on Form 10-K filed March 19, 1999.
The unaudited condensed financial information has been prepared in
accordance with the Company's customary accounting policies and practices. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation of results for the
interim period, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
As more thoroughly discussed in Note 2, the Medaphis Services Corporation
("Hospital Services") and Impact Innovations Group ("Impact") segments have been
presented as discontinued operations for all periods presented.
NOTE 2. DISCONTINUED OPERATIONS
On November 30, 1998, the Company completed the sale of Hospital Services
to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. During
the first quarter of 1999, the Company received additional consideration of $0.8
million based on Hospital Services' final closing balance sheet and payment on
certain Hospital Services' accounts receivable retained by Per-Se. The
additional consideration resulted in the recognition of an additional gain of
$0.5 million, net of tax of $0.3 million. Also, Per-Se could receive a purchase
price adjustment of up to $10.0 million subject to Hospital Services'
achievement of various operational targets in 1999.
The Company sold the commercial division of Impact to Complete Business
Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the
final closing balance sheet adjustment of $0.6 million which was paid on July
16, 1999.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB No. 30"), the consolidated financial statements of the
Company have been presented to reflect both Hospital Services and Impact as
discontinued operations for all periods presented.
The net operating results of these segments have been reported in the
Consolidated Statements of Operations as "Income (loss) from discontinued
operations"; the net assets have been reported in the Consolidated Balance
Sheets as "Net assets of discontinued operations"; and the net cash flows have
been reported in the Consolidated Statements of Cash Flows as "Net cash (used
for) provided by discontinued operations."
4
<PAGE> 7
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Summarized financial information for the discontinued operations is as
follows (the 1999 Impact results include the commercial division through April
15, 1999 -- the effective date of the sale):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
-------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue........................................... $11,234 $29,124 $19,375 $48,499
======= ======= ======= =======
Income from discontinued operations before income
taxes........................................... 1,351 2,301 (4,203) (1,902)
Income tax expense................................ -- 943 -- 943
------- ------- ------- -------
Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
------- -----------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................................... $44,411 $81,081 $62,079 $143,160
======= ======= ======= ========
Income from discontinued operations before income
taxes.......................................... 2,210 6,247 (2,946) 3,301
Income tax expense............................... 198 2,578 -- 2,578
------- ------- ------- --------
Income from discontinued operations, net of
tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1999 1998
------------------- ------------------
IMPACT IMPACT
------------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Current assets..................................... $10,427 $16,399
Total assets....................................... 12,074 21,829
Current liabilities................................ 3,478 9,787
Total liabilities.................................. 3,729 9,957
Net assets of discontinued operations.............. 8,345 11,872
</TABLE>
NOTE 3. INTANGIBLE ASSET IMPAIRMENT
At September 30, 1998, the Company recorded an intangible asset impairment
charge of $390.6 million to adjust the intangible assets of the Physician
Services segment to their fair value. Management regularly monitors its results
of operations and other developments within the industry to adjust its cash flow
forecast, as necessary, to determine if an adjustment is necessary to the
carrying value of the Company's intangible assets.
NOTE 4. LEGAL MATTERS
SETTLED LEGAL MATTERS
On June 21, 1999, the Company finalized the settlement with the United
States government concerning its investigation of the Company's wholly-owned
subsidiary, PST Emergency Medicine Services, Inc. (the "Emergency Medicine
division"), formerly Gottlieb's Financial Services, Inc., requiring the Company
to pay to the United States and the various states a total of $15.0 million. The
Company paid $6.8 million to the United States on June 29, 1999, $1.2 million on
September 30, 1999 and $2.2 million, in the aggregate, to the participating
states on October 1, 1999. The balance of $4.8 million will be paid as follows:
$1.2 million to the United States on December 31, 1999 and $0.9 million to the
United States at the end of each calendar quarter of 2000. The deferred portion
of the settlement payment will bear interest at the one-year Treasury Bill rate.
All pending claims against the Company by the United States and the Relator in
underlying qui tam litigation
5
<PAGE> 8
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
have been dismissed with prejudice and the United States has released the
Company from all civil and administrative claims arising out of the emergency
room billing of government programs services provided by the Emergency Medicine
division from 1993 through the date of the settlement agreement with the United
States. The settlement agreements with the participating states provide for the
release of the Company by the states of all civil and administrative claims
arising out of the emergency room billing services provided by the Emergency
Medicine division from 1993 through the date of the settlement agreement with
the individual state.
On June 16, 1999, the Company agreed to settle certain contract claims
arising out of a 1996 contract for emergency room billing services to be
provided by the Emergency Medicine division to Spectrum Healthcare, Inc.
("Spectrum") and Emcare, Inc. ("Emcare"), the successor to Spectrum's emergency
business. The Company paid Emcare $1.75 million in cash in exchange for a
release by Spectrum and Emcare of all claims against the Emergency Medicine
division for breach of contract.
On June 24, 1999, the Company entered into a settlement agreement with the
former shareholders of Medical Management Sciences, Inc. ("MMS") related to
claims arising out of Per-Se's acquisition of MMS in December of 1995. The
litigation has been dismissed with prejudice. The settlement agreement provided
for the issuance by the Company to the MMS Shareholders of 500,000 shares of
Common Stock and warrants to purchase an additional 500,000 shares of Common
Stock. In addition, the Company entered into a five-year consulting agreement
with Providence Management Corporation, a company controlled by a former MMS
shareholder, providing for a $300,000 up front payment and $150,000 a year for
the five-year term. The Company also paid the MMS Shareholders $375,000 for the
MMS Shareholders' interest in a malpractice claim.
In October 1999, the Company and Foundation Health Services, Inc.
("Foundation"), formerly Health Systems International, Inc., settled litigation
arising out of Per-Se's acquisition of Health Data Sciences Corporation ("HDS")
in June of 1996. Pursuant to the settlement, Foundation realized $25.0 million
from its investment in HDS, consisting of $3.6 million from the sale of 976,771
shares of Per-Se Common Stock received by Foundation in the June 1996 HDS
transaction, $4.6 million in cash funded by the Company's insurers, $5.0 million
in cash paid by the Company and $11.8 million from the October 1999 sale by
Foundation of 4,000,000 shares of Per-Se Common Stock issued to Foundation.
On January 28, 1998, SCI Management Corporation ("SCI") filed a complaint
against BSG Alliance/IT, Inc. (later known as Impact Innovations Group, Inc.)
seeking recovery for alleged damages in connection with work performed by the
commercial division of Impact under a consulting contract. The Company sold the
commercial division of Impact effective April 15, 1999 but retained
responsibility for this matter. The Company and SCI have reached an agreement to
refund $5.3 million to SCI. The Company paid $3.2 million to SCI on November 4,
1999 and issued a promissory note for $2.1 million bearing interest at 8.25%
payable on October 31, 2000.
PENDING LEGAL MATTERS
On May 10, 1999, a motion to reopen the putative class action complaint
filed by Ernest Hecht and Stephen D. Strandberger was granted. During 1998, this
case had been dismissed with prejudice and without leave to amend. The
reinstated appeal is pending. The Company is unable to estimate a range of loss,
if any, related to this matter.
NOTE 5. RESTRUCTURING AND OTHER CHARGES
During the nine months ended September 30, 1998, the Company recorded
approximately $0.2 million of restructuring costs for the reorganization of
several corporate and operating division departments.
6
<PAGE> 9
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In the three and nine months ended September 30, 1998, the Company recorded
charges of $0.1 million and $0.8 million, respectively, for the legal and
administrative fees, costs and expenses associated with various legal matters.
In addition, the Company settled various legal matters for $1.2 million in the
third quarter of 1998.
The Company recorded charges of $0.5 million and $1.2 million in the three
and nine months ended September 30, 1998, respectively, for severance costs
associated with former executive management.
The description of the type and amount of restructuring costs recorded and
applied against each reserve in the nine months ended September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
RESERVE COSTS RESERVE
BALANCE APPLIED BALANCE
DECEMBER 31, AGAINST SEPTEMBER 30,
1998 RESERVE 1999
------------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease termination costs............................. $4,292 $ (601) $3,691
Severance........................................... 1,148 (875) 273
------ ------- ------
$5,440 $(1,476) $3,964
====== ======= ======
</TABLE>
NOTE 6. LONG TERM DEBT
Under the indenture governing the 9 1/2% $175 million of Senior Notes due
2005 (the "Notes"), the balance of the excess sale proceeds, as defined, from
the sale of Hospital Services, the commercial division of Impact, the government
division of Impact or from the sale of any other asset having a fair value in
excess of $1.0 million, must be invested in the Company's business within 360
days of receipt of proceeds related to the sale. To the extent that such excess
proceeds are not invested and the aggregate amount of excess proceeds is greater
than $10.0 million, the Company is required to offer to repurchase the Notes at
par with such proceeds. Currently, it is management's intention to invest the
excess proceeds from the November 1998 sale of Hospital Services and the April
1999 sale of the commercial division of Impact in the Company.
NOTE 7. INCOME TAXES
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
NOTE 8. STOCKHOLDERS' EQUITY
In April 1999, the Company issued 5,000,000 shares of Common Stock in
accordance with the January 13, 1999 settlement agreement of a previously
resolved legal matter. As a result of the issuance of the shares, non-current
accrued litigation settlements was reduced by $15.9 million with a corresponding
increase in stockholders' equity in the second quarter of 1999.
During the third quarter of 1999, the Company issued 500,000 shares of
Common Stock and warrants to purchase an additional 500,000 shares of Common
Stock in accordance with the June 24, 1999 settlement of the legal matter
related to Per-Se's acquisition of MMS. As a result of the issuance of the
shares and the warrants, non-current accrued litigation settlements was reduced
by $4.0 million with a corresponding increase in stockholders' equity in the
third quarter of 1999.
In July 1999, the Company reached an agreement in principle to settle its
legal dispute with Foundation resulting from the Company's acquisition of HDS in
1996. Based on the agreement in principle, the Company recorded a legal
settlement charge of $21.5 million in the second quarter of 1999.
7
<PAGE> 10
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In September 1999, the Company issued 6,200,000 shares of Common Stock to
Foundation to be sold by Foundation in order to satisfy the balance due under
the agreement in principle. If fewer than the 6,200,000 shares issued were
necessary to satisfy the remaining balance due, any excess shares would be
returned to the Company and cancelled. As a result of the issuance of the
shares, non-current accrued litigation settlements was reduced by $16.8 million
with a corresponding increase in stockholders' equity at September 30, 1999.
In October 1999, the agreement with Foundation was finalized and Foundation
realized $25.0 million from its investment in HDS as follows: $3.6 million from
the sale of 976,771 shares of Per-Se Common Stock received by Foundation in the
HDS transaction, $4.6 million in cash funded by the Company's insurers, $5.0
million in cash paid by Per-Se and $11.8 million from the sale of 4,000,000
shares of Per-Se Common Stock. The 2,200,000 excess shares were returned to the
Company and cancelled on October 29, 1999. As a result of the final settlement,
stockholders' equity will be decreased by $5.0 million during the fourth quarter
of 1999.
NOTE 9. SEGMENT REPORTING
The Company's reportable segments are strategic business units that offer
different services and products. Per-Se provides its services and products
through its Physician Services segment and its Software and E-Commerce segment
(formerly the Per-Se Technologies segment).
The Physician Services segment provides business management services to
physicians and healthcare organizations, including clinical data collection,
data input, medical coding, billing, contract management, cash collections and
accounts receivable management. These services are designed to assist healthcare
providers with the business management functions associated with the delivery of
healthcare services, allowing physicians and hospital staff to focus on
providing quality patient care. These services also assist physicians and
healthcare organizations in improving cash flows and reducing administrative
costs and burdens.
The Software and E-Commerce segment provides integrated financial and
clinical software to include patient scheduling, staff management, clinical
information systems and patient financial management software. In addition, the
Software and E-Commerce segment offers Internet-enabled connectivity to both
integrated healthcare delivery networks and physician practices, including
electronic claims processing, referral submissions, eligibility verification and
other electronic transaction processing.
The Software and E-Commerce segment includes the results of the electronic
commerce group for all periods presented. Some parts of this group had
previously been included in the Physician Services and Hospital Services
segments. Also, certain expenses previously included in Corporate overhead have
been reclassified to the Physician Services segment and the Software and
E-Commerce segment for all periods presented.
Per-Se evaluates each segment's performance based on operating profit or
loss. The Company accounts for intersegment sales as if the sales were to third
parties.
8
<PAGE> 11
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Information concerning the operations in these reportable segments is as
follows:
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Physician Services................. $60,224 $ 62,534 $183,143 $ 202,236
Software and E-Commerce............ 23,939 22,331 70,500 72,990
Eliminations....................... (2,893) (2,886) (8,642) (8,569)
------- --------- -------- ---------
$81,270 $ 81,979 $245,001 $ 266,657
======= ========= ======== =========
Operating profit (loss) (1):
Physician Services................. $(1,468) $ (11,494) $ (5,974) $ (10,252)
Software and E-Commerce............ 962 (9,766) (1,984) (8,290)
Corporate.......................... (4,521) (6,172) (15,113) (16,758)
------- --------- -------- ---------
$(5,027) $ (27,432) $(23,071) $ (35,300)
======= ========= ======== =========
Interest expense, net................ $ 4,075 $ 6,196 $ 11,858 $ 18,418
======= ========= ======== =========
Restructuring and other charges
(including intangible asset
impairment and legal settlements):
Physician Services................. $ -- $ 410,458 $ 1,750 $ 410,458
Software and E-Commerce............ -- (50) -- 112
Corporate.......................... (4,439) 1,503 23,061 24,823
------- --------- -------- ---------
$(4,439) $ 411,911 $ 24,811 $ 435,393
======= ========= ======== =========
Loss before income taxes............. $(4,663) $(445,539) $(59,740) $(489,111)
======= ========= ======== =========
Depreciation and amortization:
Physician Services................. $ 3,270 $ 7,355 $ 12,384 $ 23,502
Software and E-Commerce............ 2,186 2,325 6,857 6,921
Corporate.......................... 1,090 968 4,260 2,740
------- --------- -------- ---------
$ 6,546 $ 10,648 $ 23,501 $ 33,163
======= ========= ======== =========
Capital expenditures:
Physician Services................. $ 1,111 $ 763 $ 4,252 $ 12,822
Software and E-Commerce............ 371 594 1,299 3,382
Corporate.......................... 187 436 659 2,386
------- --------- -------- ---------
$ 1,669 $ 1,793 $ 6,210 $ 18,590
======= ========= ======== =========
</TABLE>
9
<PAGE> 12
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Identifiable Assets:
Physician Services........................................ $118,039 $134,485
Software and E-Commerce................................... 61,557 65,320
Corporate (2)............................................. 60,176 86,916
-------- --------
$239,772 $286,721
======== ========
</TABLE>
- ---------------
(1) Excludes restructuring and other charges, intangible asset impairment, legal
settlements and interest expense.
(2) Includes net assets of $8,345 and $11,872, respectively, related to the
discontinued operations.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Per-Se Technologies, Inc. ("Per-Se" or the "Company"), formerly Medaphis
Corporation, incorporated in 1985 in Delaware, is a global leader in delivering
comprehensive business management services, integrated financial and clinical
software solutions and Internet-enabled connectivity to healthcare providers.
Per-Se delivers its services and products through its Physician Services segment
and its Software and E-Commerce segment (formerly the Per-Se Technologies
segment).
Physician Services provides business management services to physicians and
healthcare organizations, including clinical data collection, data input,
medical coding, billing, contract management, cash collections and accounts
receivable management. These services are designed to assist healthcare
providers with the business management functions associated with the delivery of
healthcare services, allowing physicians and hospital staff to focus on
providing quality patient care. These services also assist physicians and
healthcare organizations in improving cash flows and reducing administrative
costs and burdens.
The Software and E-Commerce segment provides integrated financial and
clinical software to include patient scheduling, staff management, clinical
information systems and patient financial management software. In addition, the
Software and E-Commerce segment offers Internet-enabled connectivity to both
integrated healthcare delivery networks and physician practices, including
electronic claims processing, referral submissions, eligibility verification and
other electronic transaction processing.
The Company provides consulting services through its Impact Innovations
Group ("Impact") segment. After reviewing several alternatives for Impact
throughout 1998, management concluded a sale of this segment (comprised of two
divisions: commercial and government) would generate the greatest return to the
stockholders and finalized its plan to sell Impact. The Company sold the
commercial division of Impact to Complete Business Solutions, Inc. ("CBSI")
effective April 15, 1999 for $14.4 million, net of the final closing balance
sheet adjustment of $0.6 million which was paid on July 16, 1999.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
Per-Se markets its products and services primarily to integrated healthcare
delivery networks, hospitals, physician practices, long-term care facilities,
home health providers and managed care providers.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenue. Revenue classified by the Company's different operating segments
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Physician Services.............................. $60,224 $62,534
Software and E-Commerce......................... 23,939 22,331
Eliminations.................................... (2,893) (2,886)
------- -------
$81,270 $81,979
======= =======
</TABLE>
Physician Services' revenue decreased 3.7% to $60.2 million in the third
quarter of 1999 from $62.5 million in the same period in 1998. The decline in
revenue is attributable to operating issues resulting in client discontinuances
throughout 1998 primarily at the Company's wholly-owned operating subsidiary,
PST Emergency Medicine Services, Inc. (the "Emergency Medicine division"),
formerly Gottlieb's Financial Services, Inc. These discontinuances were
partially offset by the addition of new business during 1999.
11
<PAGE> 14
The Physician Services segment continues to be affected by the revenue pressures
on the physician accounts receivable operation resulting from an increase in
managed care.
Software and E-Commerce's revenue increased 7.2% to $23.9 million in the
third quarter of 1999 from $22.3 million in the same period in 1998. This
increase is a result of higher internal and external E-Commerce transaction
volumes. Software and E-Commerce also experienced increases in software
consulting services and software maintenance revenue. These increases were
partially offset by lower software license revenue.
Operating Profit (Loss). Operating profit (loss), which excludes
intangible asset impairment, legal settlements, restructuring and other charges
and interest expense, classified by the Company's reportable segments is as
follows:
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Physician Services.......................................... $(1,468) $(11,494)
Software and E-Commerce..................................... 962 (9,766)
Corporate................................................... (4,521) (6,172)
------- --------
$(5,027) $(27,432)
======= ========
</TABLE>
Physician Services' had an operating loss of $1.5 million for the three
months ended September 30, 1999 as compared to a loss of $11.5 million for the
same period in 1998. The decrease is attributable to a $4.0 million increase in
the allowance for doubtful accounts during the three months ended September 30,
1998, lower salaries and wages attributable to staff reductions and lower
amortization expense resulting from the intangible asset impairment charge of
$390.6 million which was recorded during the quarter ended September 30, 1998.
Software and E-Commerce had an operating profit of $1.0 million for the
three months ended September 30, 1999 as compared to a loss of $9.8 million for
the same period in 1998. The increase is primarily a result of increases in the
allowance for doubtful accounts of $7.3 million during the three months ended
September 30, 1998, lower salaries and wages expense and the previously
mentioned revenue increases during the quarter.
The Company's overhead decreased 26.8% for the three months ended September
30, 1999 as compared to the same period in 1998. The decrease in the Company's
overhead is related to management's continued commitment to reduce costs where
feasible and create efficient processes. For the quarter ended September 30,
1998, certain corporate overhead expenses of $1.6 million and $0.6 million have
been reclassified to the Physician Services segment and the Software and
E-Commerce segment, respectively.
Interest. Net interest expense was $4.1 million for the three months ended
September 30, 1999 as compared with $6.2 million for the three months ended
September 30, 1998. The decrease is attributable to less debt outstanding and
interest income of $0.6 million generated from the short-term investment of
cash.
Intangible Asset Impairment. At September 30, 1998, the Company recorded
an intangible asset impairment charge of $390.6 million to adjust the intangible
assets of the Physician Services segment to their fair value. As previously
disclosed, management regularly monitors its results of operations and other
developments within the industry to adjust its cash flow forecast, as necessary,
to determine if an adjustment is necessary to the carrying value of the
Company's intangible assets.
Legal Settlements. In September 1999, the Company reduced its legal
settlement expense by $4.4 million related to the Company's legal dispute with
Foundation Health Services, Inc. ("Foundation"), formerly Heath Systems
International, Inc., arising from Per-Se's June 1996 acquisition of Health Data
Sciences Corporation ("HDS"). The Company had recorded an estimated litigation
settlement expense of $21.5 million in the quarter ended June 30, 1999 based on
an agreement in principle with Foundation. When
12
<PAGE> 15
the agreement was finalized in October 1999, the cost to the Company was reduced
to $17.0 million. As a result, the legal settlement expense was reduced by $4.4
million.
The Company accrued $19.5 million during the third quarter of 1998 as a
result of its resolution with the government concerning two federal
investigations into billing and collection practices of the Company.
Restructuring and Other Charges. In addition to the $390.6 million
intangible asset impairment charge and the $19.5 million legal settlement charge
previously discussed, the Company recorded charges of $1.8 million during the
three months ended September 30, 1998 related to various severance and legal
matters.
Income Taxes. Based on recent events and the current operating forecast,
the Company does not believe it is more likely than not that net operating
losses (NOLs) will be realized; therefore a tax benefit has not been recognized
related to the NOLs during the three months ended September 30, 1999.
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
Discontinued Operations. Summarized financial information for the
discontinued operations for the three-month periods ended September 30, 1999 and
1998 is as follows (the 1999 Impact results exclude the commercial division
which was sold effective April 15, 1999):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
-------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue........................................... $11,234 $29,124 $19,375 $48,499
======= ======= ======= =======
Income from discontinued operations before income
taxes........................................... 1,351 2,301 (4,203) (1,902)
Income tax expense................................ -- 943 -- 943
------- ------- ------- -------
Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845)
======= ======= ======= =======
</TABLE>
On November 30, 1998, the Company completed the sale of Medaphis Services
Corporation ("Hospital Services") to NCO Group, Inc. for initial consideration
of $107.5 million. During the first quarter of 1999, the Company received
additional consideration of $0.8 million based on Hospital Services' final
closing balance sheet and payment on certain Hospital Services' accounts
receivable retained by Per-Se. The additional consideration resulted in the
recognition of an additional gain of $0.5 million, net of tax of $0.3 million.
Also, Per-Se could receive a purchase price adjustment of up to $10.0 million
subject to Hospital Services' achievement of various operational targets in
1999.
The Company sold the commercial division of Impact to CBSI effective April
15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of
$0.6 million which was paid July 16, 1999.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
The Company accrued $5.3 million for the period ended September 30, 1999 as
a result of an agreement with SCI Management Corporation ("SCI"), a former
client of the commercial division of Impact. SCI filed a complaint against the
commercial division of Impact in January of 1998 seeking recovery for alleged
damages in connection with work performed by the commercial division of Impact
under a consulting contract. Although the commercial division of Impact was sold
effective April 15, 1999, the Company retained responsibility for the matter
with SCI. The Company paid $3.2 million to SCI on November 4, 1999 and issued a
promissory note for $2.1 million bearing interest at 8.25% payable on October
31, 2000.
13
<PAGE> 16
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenue. Revenue classified by the Company's different operating segments
is as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Physician Services.......................................... $183,143 $202,236
Software and E-Commerce..................................... 70,500 72,990
Eliminations................................................ (8,642) (8,569)
-------- --------
$245,001 $266,657
======== ========
</TABLE>
Physician Services' revenue decreased 9.4% to $183.1 million for the nine
months ended September 30, 1999 from $202.2 million in the same period in 1998.
The decline in revenue is attributable to operating issues resulting in client
discontinuances throughout 1998 primarily at the Emergency Medicine division.
These discontinuances were partially offset by the addition of new business in
1999. The Physician Services segment continues to be affected by the revenue
pressures on the physician accounts receivable operation resulting from an
increase in managed care.
Software and E-Commerce's revenue decreased 3.4% to $70.5 million for the
nine months ended September 30, 1999 from $73.0 million in the same period in
1998. This decrease is primarily a result of lower software license revenue and
more contracts requiring percentage of completion accounting. The decrease in
software license revenue was partially offset by higher software maintenance
revenue, consulting revenue and E-Commerce revenue.
Operating Profit (Loss). Operating profit (loss), which excludes
intangible asset impairment, legal settlements, restructuring and other charges
and interest expense, classified by the Company's reportable segments is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Physician Services.......................................... $ (5,974) $(10,252)
Software and E-Commerce..................................... (1,984) (8,290)
Corporate................................................... (15,113) (16,758)
-------- --------
$(23,071) $(35,300)
======== ========
</TABLE>
Physician Services' had an operating loss of $6.0 million for the nine
months ended September 30, 1999 as compared to a loss of $10.3 million for the
same period in 1998. The decrease is attributable to a $4.0 million increase in
the allowance for doubtful accounts during the nine months ended September 30,
1998, lower salaries and wages attributable to staff reductions and lower
amortization expense resulting from the intangible asset impairment charge of
$390.6 million which was recorded during the nine months ended September 30,
1998.
Software and E-Commerce had an operating loss of $2.0 million for the nine
months ended September 30, 1999 as compared to a loss of $8.3 million for the
same period in 1998. The decrease is primarily the result of increases in
allowance for doubtful accounts recognized in 1998 and lower salaries and wages
expense in 1999 due to staff reductions.
The Company's corporate overhead decreased 9.8% for the nine months ended
September 30, 1999 as compared to the same period in 1998. The decrease in the
Company's overhead is related to management's continued commitment to reduce
costs where feasible and create efficient processes. For the nine months ended
September 30, 1998, certain corporate overhead expenses of $4.9 million and $2.1
million have been reclassified to the Physician Services segment and the
Software and E-Commerce segment, respectively.
14
<PAGE> 17
Interest. Net interest expense was $11.9 million for the nine-month period
ended September 30, 1999 as compared to $18.4 million in the same period of
1998. The decrease is primarily related to less debt outstanding and interest
income of $1.9 million generated from the short-term investment of cash.
Intangible Asset Impairment. At September 30, 1998, the Company recorded
an intangible asset impairment charge of $390.6 million to adjust the intangible
assets of the Physician Services segment to their fair value. As previously
disclosed, management regularly monitors its results of operations and other
developments within the industry to adjust its cash flow forecast, as necessary,
to determine if an adjustment is necessary to the carrying value of the
Company's intangible assets.
Legal Settlements. During the nine months ended September 30, 1999, the
Company recorded legal settlement charges of $17.0 million and $6.0 million
related to legal disputes arising from Per-Se's June 1996 acquisition of HDS and
December 1995 acquisition of Medical Management Sciences, Inc. ("MMS"),
respectively. In addition, the Company paid $1.8 million to settle contract
claims against the Emergency Medicine division which arose in January 1998 in
the ordinary course of business.
During the nine months ended September 30, 1998, the Company recorded an
estimated litigation settlement liability of $21.3 million associated with
claims made on behalf of certain former BSG Corporation ("BSG") shareholders in
connection with Per-Se's acquisition of BSG in June 1996. This settlement was
subsequently finalized during the fourth quarter of 1998 for $15.9 million. A
reduction to litigation settlements totaling approximately $5.4 million was
recorded in the fourth quarter to reflect the final settlement value.
In addition, the Company accrued $19.5 million during the third quarter of
1998 related to two federal investigations into billing and collection practices
of the Company. The Company also recorded $0.6 million in the nine months ended
September 30, 1998 in connection with the settlement of two other legal matters.
Restructuring and Other Charges. In addition to the $390.6 million
intangible asset impairment charge and the $41.4 million legal settlement charge
previously discussed, the Company recorded charges of $3.4 million during the
nine months ended September 30, 1998 related to various restructuring, severance
and legal matters.
Income Taxes. Based on recent events and the current operating forecast,
the Company does not believe it is more likely than not that net operating
losses (NOLs) will be realized; therefore a tax benefit has not been recognized
related to the NOLs during the nine months ended September 30, 1999.
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
Discontinued Operations. Summarized financial information for the
discontinued operations for the nine-month periods ended September 30, 1999 and
1998 is as follows (the 1999 Impact results include the commercial division
through April 15, 1999 -- the effective date of the sale):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
------- -----------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................................... $44,411 $81,081 $62,079 $143,160
======= ======= ======= ========
Income from discontinued operations before income
taxes.......................................... 2,210 6,247 (2,946) 3,301
Income tax expense............................... 198 2,578 -- 2,578
------- ------- ------- --------
Income from discontinued operations, net of
tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723
======= ======= ======= ========
</TABLE>
15
<PAGE> 18
Extraordinary Item. During the nine months ended September 30, 1998, the
Company recorded a charge of $5.6 million, net of tax of $3.6 million, to
write-off the unamortized costs associated with the Company's then-current debt
facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $65.1 million at September 30, 1999,
including $38.1 million of unrestricted cash and cash equivalents. The $16.3
million decrease in cash and cash equivalents from December 31, 1998 is
primarily a result of the payment of semi-annual interest payments required
under the 9 1/2% $175 million of Senior Notes due February 15, 2005 (the
"Notes") and payments made in accordance with the provisions of the settlement
reached with the government concerning the Emergency Medicine division.
The Company sold the commercial division of Impact to CBSI effective April
15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of
$0.6 million which was paid on July 16, 1999. On November 4, 1999, the Company
entered into a definitive stock purchase agreement for the sale of the
government division of Impact to J3 Technology Services Corp. The initial
purchase price is $45.0 million subject to certain closing adjustments. The
transaction is expected to close by the end of 1999.
Under the Indenture governing the Notes, the balance of the excess sale
proceeds, as defined, from the sale of Hospital Services, the commercial
division of Impact, the government division of Impact or the sale of any other
asset having a fair value in excess of $1.0 million, must be invested in the
Company's business within 360 days of receipt of proceeds related to the sale.
To the extent that such excess proceeds are not invested and the aggregate
amount of excess proceeds is greater than $10.0 million, the Company is required
to offer to repurchase the Notes at par with such proceeds. Currently, it is
management's intention to invest the estimated excess proceeds in the Company.
As of September 30, 1999, excess proceeds related to the sale of Hospital
Services were approximately $14.0 million of which $13.5 million must be
invested by November 25, 1999 and the balance of $0.5 million must be reinvested
by February 6, 2000. The excess proceeds from the sale of the commercial
division of Impact were approximately $6.7 million at September 30, 1999 and
must be invested by April 15, 2000.
The Company believes that its current cash position is sufficient to permit
the Company to meet its operating expenses, service its debt requirements as
they become due in the next twelve months and for the long term and to invest in
the business.
To enhance the Company's financial flexibility, management is currently
seeking a replacement credit facility. This flexibility would give management
the ability to make prudent strategic investments in the business. Additionally,
management anticipates receiving proceeds from the sale of the government
division of Impact by the end of 1999 which will be available to invest in the
business subject to the limitations discussed above.
YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the years 1999, 2000 or thereafter without error or
interruption (commonly known as the "Year 2000" problem). The Company has
conducted a Company-wide review of its business systems, including its computer
systems, and is querying its customers, vendors and resellers as to their
progress in identifying and addressing problems that their computer systems may
face in correctly interrelating and processing date information as the year 2000
approaches and is reached. Through its Company-wide review, the Company had
identified a number of older legacy systems, all within the Physician Services
business, that will be abandoned in favor of a limited number of more efficient
processing systems ("Systems Assimilation"), rather than make all the systems
Year 2000 compatible. The Company believes that it has completed substantially
all of the required transitions and is on track to continue with normal business
operations before the end of 1999. The detailed planning and inventory for all
of the Company's legacy systems that are being modified for Year 2000
compatibility have
16
<PAGE> 19
been completed. These legacy systems have completed their remediation and
testing activities and final documentation has been signed. Customers, vendors
and resellers have been identified and requests for information distributed
regarding the Year 2000 readiness of such parties. Responses have been received
throughout 1999 and follow up is planned for the remainder of the year. The
Company began to develop contingency plans during the fourth quarter of 1998 and
will continue refining these plans through the fourth quarter of 1999 in
response to assessments of the Year 2000 readiness of customers, vendors and
resellers.
In the second quarter of 1999, Software and E-Commerce completed testing
and documentation of Year 2000 compatible versions of the clinical information
system and the radiology information system. Those releases, along with Year
2000 compatible versions of the patient scheduling and staff management
products, are currently available to customers. Year 2000 testing for products
that will be generally available late in 1999 or early in 2000 will be done as a
routine part of quality assurance and documentation.
Through September 30, 1999, the Company has spent approximately $10.2
million on its Year 2000 and Systems Assimilation efforts, and it expects to
spend an additional $3.0 million to $5.0 million during the fourth quarter on
such efforts, the majority of which represents redirection of internal
resources. However, there can be no assurance that the Company will identify all
Year 2000 problems in its computer systems or those of its customers, vendors or
resellers in advance of their occurrence or that the Company will be able to
successfully remedy any problems that are discovered. The expenses of the
Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, could have a material adverse effect on the Company's business,
financial condition and results of operations. The revenue stream and financial
stability of existing customers may be adversely impacted by Year 2000 problems,
which could cause fluctuations in the Company's revenue. In addition, failure of
the Company to identify and remedy Year 2000 problems could put the Company at a
competitive disadvantage relative to companies that have corrected such
problems.
17
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is included in Note 4 of Notes to
Consolidated Financial Statements in Item 1 on pages 5 to 6.
ITEM 5. OTHER MATTERS
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<S> <C> <C>
2.1 -- Stock Purchase Agreement dated as of October 15, 1998,
between Registrant and NCO Group, Inc. (incorporated by
reference to Exhibit 2.1 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among
Complete Business Solutions Inc., E-Business Solutions.com,
Inc., Impact Innovations Holdings, Inc. and Registrant
(incorporated by reference to Exhibit 2.1 to Current Report
on Form 8-K filed on May 5, 1999).
2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among
J3 Technology Services Corp., Impact Innovations Holdings,
Inc., Impact Innovations Government Group, Inc. and
Registrant.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No. 33-42216).
3.2 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3 to
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
3.3 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form 8-A/A, filed on March 28,
1995).
3.4 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-8,
Registration No. 333-03213).
3.5 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
3.6 -- Certificate of Ownership and Merger merging Per-Se
Technologies, Inc. with and into Registrant (incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K
filed on August 16, 1999).
3.7 -- Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.5 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
4.1 -- Indenture dated as of February 20, 1998, among Registrant,
as Issuer, the Subsidiary Guarantors named in the Indenture
and State Street Bank and Trust Company, as Trustee
(including form of note) (incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K filed on March 3,
1998).
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<S> <C> <C>
4.2 -- Warrant Agreement dated as of July 8, 1998, between
Registrant and SunTrust Bank, Atlanta, as Warrant Agent
(including form of warrant certificate) (incorporated by
reference to Exhibit 4.2 to Registration Statement on Form
8-A filed on July 21, 1998)
4.3 -- Rights Agreement dated as of February 11, 1999, between
Registrant and American Stock Transfer & Trust Company
(including form of rights certificates) (incorporated by
reference to Exhibit 4 to Current Report on Form 8-K filed
on February 12, 1999).
4.4 -- Registration Rights Letter Agreement, dated as of May 3,
1999, by and among NFT Ventures Inc., Raymond J. Noorda,
Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and
the Registrant (incorporated by reference to Exhibit 4.8 to
Registration Statement on Form S-3, File No. 333-78775).
10.1 -- Employment Agreement dated as of June 1, 1999, between
Registrant and Philip M. Pead.
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Safe Harbor Compliance Statement for Forward-Looking
Statements.
</TABLE>
(B) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended September 30, 1999:
<TABLE>
<CAPTION>
FINANCIAL
STATEMENTS
ITEM REPORTED FILED DATE OF REPORT FILING DATE
- ------------- ---------- -------------- -----------
<S> <C> <C> <C>
Name Change from Medaphis Corporation to
Per-Se Technologies, Inc.................. No August 16, 1999 August 16, 1999
Definitive Agreement for settlement with
Foundation Health Systems, Inc............ No September 20, 1999 September 21, 1999
</TABLE>
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PER-SE TECHNOLOGIES, INC.
(Registrant)
By: /s/ WAYNE A. TANNER
------------------------------------
Wayne A. Tanner
Executive Vice President and
Chief Financial Officer
Date: November 12, 1999
20
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1 -- Stock Purchase Agreement dated as of October 15, 1998,
between Registrant and NCO Group, Inc. (incorporated by
reference to Exhibit 2.1 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among
Complete Business Solutions Inc., E-Business Solutions.com,
Inc., Impact Innovations Holdings, Inc. and Registrant
(incorporated by reference to Exhibit 2.1 to Current Report
on Form 8-K filed on May 5, 1999).
2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among
J3 Technology Services Corp., Impact Innovations Holdings,
Inc., Impact Innovations Government Group, Inc. and
Registrant.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No. 33-42216).
3.2 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3 to
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
3.3 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form 8-A/A, filed on March 28,
1995).
3.4 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-8,
Registration No. 333-03213).
3.5 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
3.6 -- Certificate of Ownership and Merger merging Per-Se
Technologies, Inc. with and into Registrant (incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K
filed on August 16, 1999).
3.7 -- Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.5 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
4.1 -- Indenture dated as of February 20, 1998, among Registrant,
as Issuer, the Subsidiary Guarantors named in the Indenture
and State Street Bank and Trust Company, as Trustee
(including form of note) (incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K filed on March 3,
1998).
4.2 -- Warrant Agreement dated as of July 8, 1998, between
Registrant and SunTrust Bank, Atlanta, as Warrant Agent
(including form of warrant certificate) (incorporated by
reference to Exhibit 4.2 to Registration Statement on Form
8-A filed on July 21, 1998)
4.3 -- Rights Agreement dated as of February 11, 1999, between
Registrant and American Stock Transfer & Trust Company
(including form of rights certificates) (incorporated by
reference to Exhibit 4 to Current Report on Form 8-K filed
on February 12, 1999).
4.4 -- Registration Rights Letter Agreement, dated as of May 3,
1999, by and among NFT Ventures Inc., Raymond J. Noorda,
Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and
the Registrant (incorporated by reference to Exhibit 4.8 to
Registration Statement on Form S-3, File No. 333-78775).
10.1 -- Employment Agreement dated as of June 1, 1999, between
Registrant and Philip M. Pead.
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Safe Harbor Compliance Statement for Forward-Looking
Statements.
</TABLE>
21
<PAGE> 1
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
BY AND AMONG
J3 TECHNOLOGY SERVICES CORP.,
IMPACT INNOVATIONS HOLDINGS, INC.,
IMPACT INNOVATIONS GOVERNMENT GROUP, INC.
AND
PER-SE TECHNOLOGIES, INC.
DATED AS OF NOVEMBER 4, 1999
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE 1 -PURCHASE AND SALE................................................................ 1
1.1 PURCHASE AND SALE.................................................................. 1
1.2 TIME AND PLACE OF CLOSING; CLOSING DELIVERIES...................................... 1
1.3 BONUS ACCRUAL...................................................................... 2
1.4 WORKING CAPITAL PURCHASE PRICE ADJUSTMENT.......................................... 2
1.5 RETENTION OF ASSETS................................................................ 3
1.6 FURTHER ASSURANCES................................................................. 4
ARTICLE 2 -REPRESENTATIONS AND WARRANTIES OF THE SELLER AND HOLDINGS........................ 5
2.1 ORGANIZATION, STANDING, AND POWER.................................................. 5
2.2 AUTHORITY; NO BREACH BY AGREEMENT.................................................. 5
2.3 OWNERSHIP INTERESTS; CAPITAL STOCK................................................. 6
2.4 SUBSIDIARIES....................................................................... 6
2.5 FINANCIAL STATEMENTS............................................................... 7
2.6 ABSENCE OF UNDISCLOSED LIABILITIES................................................. 7
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS............................................... 7
2.8 TAX MATTERS........................................................................ 7
2.9 ASSETS............................................................................. 9
2.10 INTELLECTUAL PROPERTY.............................................................. 10
2.11 ENVIRONMENTAL MATTERS.............................................................. 10
2.12 COMPLIANCE WITH LAWS............................................................... 11
2.13 LABOR RELATIONS.................................................................... 11
2.14 EMPLOYEE BENEFIT PLANS............................................................. 13
2.15 MATERIAL CONTRACTS................................................................. 14
2.16 LEGAL PROCEEDINGS.................................................................. 15
2.17 REPORTS............................................................................ 15
2.18 BROKERAGE.......................................................................... 15
2.19 YEAR 2000.......................................................................... 16
2.20 CUSTOMERS.......................................................................... 16
2.21 FEDERAL GOVERNMENT CONTRACTS....................................................... 16
ARTICLE 3 -REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................. 17
3.1 ORGANIZATION, STANDING, AND POWER.................................................. 17
3.2 AUTHORITY; NO BREACH BY AGREEMENT.................................................. 17
3.3 COMPLIANCE WITH LAWS............................................................... 18
3.4 LEGAL PROCEEDINGS.................................................................. 18
3.5 INVESTMENT INTENT.................................................................. 18
ARTICLE 4 -CONDUCT OF BUSINESS PENDING CONSUMMATION......................................... 19
4.1 AFFIRMATIVE COVENANTS WITH RESPECT TO COMPANY...................................... 19
4.2 NEGATIVE COVENANTS WITH RESPECT TO COMPANY......................................... 19
4.3 COVENANTS OF PURCHASERS............................................................ 20
4.4 ADVERSE CHANGES IN CONDITION....................................................... 21
4.5 REPORTS............................................................................ 21
4.6 RELATED PARTY TRANSACTIONS......................................................... 21
ARTICLE 5 -ADDITIONAL AGREEMENTS............................................................ 21
5.1 APPLICATIONS; ANTITRUST NOTIFICATION............................................... 21
5.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE.............................................. 21
5.3 INVESTIGATION AND CONFIDENTIALITY.................................................. 22
5.4 PRESS RELEASES..................................................................... 22
5.5 CERTAIN ACTIONS.................................................................... 22
5.6 TAX MATTERS........................................................................ 23
5.7 GOVERNMENT CONTRACT AUDITS......................................................... 24
5.8 EMPLOYEE BENEFITS AND CONTRACTS.................................................... 24
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.9 INSURANCE.......................................................................... 25
5.10 BONUS PAYMENT...................................................................... 25
5.11 HOLDINGS OPTIONS................................................................... 25
5.12 SUPPLEMENTAL DISCLOSURE............................................................ 25
ARTICLE 6 -CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE................................ 25
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY............................................ 25
6.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER......................................... 26
6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER............................................ 28
ARTICLE 7 -INDEMNIFICATION.................................................................. 28
7.1 INDEMNIFICATION OF PURCHASER........................................................ 28
7.2 INDEMNIFICATION OF SELLER........................................................... 29
7.3 NOTICE AND OPPORTUNITY TO DEFEND.................................................... 29
7.4 LIMITATIONS......................................................................... 29
7.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................................... 31
7.6 SUBROGATION......................................................................... 31
7.7 EXCLUSIVE REMEDY.................................................................... 31
7.8 DISPUTE RESOLUTION.................................................................. 31
7.9 ESCROW.............................................................................. 31
ARTICLE 8 -TERMINATION...................................................................... 32
8.1 TERMINATION........................................................................ 32
8.2 EFFECT OF TERMINATION.............................................................. 32
ARTICLE 9 -MISCELLANEOUS.................................................................... 33
9.1 DEFINITIONS........................................................................ 33
9.2 EXPENSES........................................................................... 40
9.3 BROKERS AND FINDERS................................................................ 40
9.4 ENTIRE AGREEMENT................................................................... 40
9.5 AMENDMENTS......................................................................... 40
9.6 WAIVERS............................................................................ 41
9.7 ASSIGNMENT......................................................................... 41
9.8 NOTICES............................................................................ 41
9.9 GOVERNING LAW...................................................................... 42
9.10 COUNTERPARTS....................................................................... 42
9.11 CAPTIONS; ARTICLES AND SECTIONS.................................................... 42
9.12 INTERPRETATIONS.................................................................... 42
9.13 SEVERABILITY....................................................................... 42
</TABLE>
EXHIBITS
EXHIBIT A RELEASE LETTER
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of November 4, 1999, by and among J3 Technology Services Corp.,
a Georgia corporation ("Purchaser"), IMPACT INNOVATIONS HOLDINGS, INC., a
Delaware corporation ("Holdings" or "Seller"), IMPACT INNOVATIONS GOVERNMENT
GROUP, INC., a Maryland corporation ("Impact" or the "Company"), and PER-SE
TECHNOLOGIES, INC., a Delaware corporation ("Per-Se").
PREAMBLE
Per-Se is the record and beneficial owner of all of the
issued and outstanding shares of Common Stock of Holdings. Holdings is the
record and beneficial owner of all of the issued and outstanding shares of
Common Stock of Impact (the "Shares"). Holdings desires to sell all of the
Shares to the Purchaser, and the Purchaser desires to purchase all of the
Shares from Holdings, upon the terms and subject to the conditions set forth in
this Agreement. The transactions described in this Agreement are subject to the
expiration of the required waiting period under the HSR Act and the
satisfaction of certain other conditions described in this Agreement.
Notwithstanding the foregoing, Purchaser intends at Closing to acquire Assets
of the Company such that the Assets so acquired are from an entity disregarded
as an entity separate from its owner for tax purposes. From and after the
Closing Date, all references to the Company or Impact set forth herein shall
mean and include the LLC as hereinafter defined.
Certain terms used in this Agreement are defined in Section
9.1 of this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, Holdings shall sell to the Purchaser and the
Purchaser shall purchase from Holdings, the Shares at the closing of the
transactions contemplated hereby (the "Closing"), free and clear of any Liens
(the "Stock Purchase") in exchange for $45 million in cash (the "Initial
Purchase Price"), plus the Conversion Payment, minus the Bonus Accrual and plus
or minus the Working Capital Purchase Price Adjustment as provided in Sections
1.3 and 1.4 respectively (the "Purchase Price").
1.2 Time and Place of Closing; Closing Deliveries.
(a) The Closing will take place at 9:00 A.M. on
the Closing Date, or at such other time as the Parties, acting through their
authorized officers, may mutually agree. To the extent not inconsistent with
any other provision of this Agreement, all of the Parties agree that for tax,
accounting and other purposes, the transactions described herein shall be
deemed to have occurred as of the Closing Date, 11:59 p.m., Eastern Time. The
Closing shall be held at the offices of Alston & Bird LLP, One Atlantic Center,
1201 West Peachtree Street, N.W., Atlanta, Georgia, or such other location as
may be mutually agreed upon by the Parties. Subject to the terms and conditions
hereof, unless otherwise mutually agreed upon in writing by the authorized
<PAGE> 5
officers of each Party, the Parties shall use their reasonable efforts to cause
the Closing to occur in December on the first business day following a payroll
date of the Company in the month in which occurs the last to occur of the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Stock Purchase.
(b) At the Closing:
(i) The Purchaser shall deliver to Per-Se
in immediately available funds by wire transfer to
an account specified by Per-Se cash in an amount
equal to the Initial Purchase Price less the
Estimated Bonus Accrual determined in accordance
with Section 1.3 below, less the Escrow Amount;
(ii) Per-Se or Holdings shall deliver to
the Purchaser (x) certificates representing the
Shares duly registered in the name of the Purchaser
(or such other Person as the Purchaser may designate
to Per-Se not less than five business days prior to
the Closing), free and clear of any Liens; and
(iii) The Purchaser shall deliver to the
Escrow Agent the Escrow Amount in immediately
available funds by wire transfer to be held in
escrow pursuant to the terms of the Escrow
Agreement. Distribution of the Escrow Amount to
either Purchaser, Per-Se or Seller shall be governed
by the terms of the Escrow Agreement. Taxes owed on
any interest earned on the Escrow Amount shall be
paid by Per-Se; and
(iv) the Parties shall deliver the
certificates and other documents set forth in
Article 6 hereof.
(c) Within ninety (90) days following the
Closing Date, Purchaser or the Company shall pay to Per-Se the Conversion
Payment.
1.3 Bonus Accrual. The Purchase Price shall be reduced by that
portion of the amount owed to the employees of the Company for the calendar
year 1999 under the Target Performance Bonus Program adjusted to reflect the
portion of the bonus attributable to that portion of the calendar year prior to
the Closing Date (the "Bonus Accrual"). Per-Se will submit to Purchaser a good
faith estimate of the Bonus Accrual within five days prior to Closing (the
"Estimated Bonus Accrual"). To the extent there is a discretionary portion of
the bonus, the Parties shall work in good faith to determine the discretionary
amount.
1.4 Working Capital Purchase Price Adjustment.
(a) The "Working Capital Purchase Price
Adjustment" shall be equal to the Net Working Capital of the Company as of the
Closing Date, as derived from the Closing Balance Sheet (as defined in Section
1.4(b)), minus $8,424,438.
(b) Within ninety (90) days after the Closing
Date, Purchaser will cause to be prepared and delivered to Per-Se an audited
balance sheet of the Company as of the Closing Date (the "Closing Balance
Sheet"), prepared in accordance with GAAP consistently
2
<PAGE> 6
applied and Purchaser's final calculation of the Working Capital Purchase Price
Adjustment and the Bonus Accrual. Purchaser will pay all expenses incurred in
connection with the preparation of the Closing Balance Sheet and Per-Se will
have an opportunity to participate in such audit and review and comment on the
workpapers related thereto prior to the delivery of the Closing Balance Sheet.
Within thirty (30) days after receipt of the Closing Balance Sheet (the
"Notification Period"), Per-Se will notify Purchaser in writing of any
objections Per-Se may have to the Closing Balance Sheet, the Working Capital
Purchase Price Adjustment and the Bonus Accrual. In the absence of such written
objections timely made, Per-Se will be deemed to have approved the Closing
Balance Sheet for purposes of the Working Capital Purchase Price Adjustment, if
any, and the Bonus Accrual to be made pursuant to this Section 1.4 on the
expiration of the Notification Period. If Per-Se timely notifies Purchaser in
writing of objections to the Closing Balance Sheet, the calculation of the
Working Capital Purchase Price Adjustment or the Bonus Accrual and if any such
objections cannot be resolved by Per-Se and Purchaser within thirty (30) days
after receipt by Purchaser of such objections (the notice of which shall also
state with reasonable specificity the reasons for any disagreement and the
amounts in dispute), such dispute will immediately be submitted to the
Accountants for a final and binding resolution of such dispute within thirty
(30) days (the "Determination") and the Determination shall be conclusive and
binding. The fees of such firm incurred in resolving such dispute will be paid
by the party against whom such objections are resolved. Purchaser will, upon
request of Per-Se make available to Per-Se's accountants and to the
Accountants, all work papers prepared in connection with the preparation of the
Closing Balance Sheet, together with reasonable access to the information and
individuals as necessary to determine the accuracy of the Working Capital
Purchase Price Adjustment and the Bonus Accrual.
(c) If, after following the procedures set
forth in Section 1.4(b) above, the Working Capital Purchase Price Adjustment is
a positive number, or if the Estimated Bonus Accrual exceeds the Bonus Accrual,
the amount(s) so determined shall be paid by Purchaser to Seller in immediately
available funds within five (5) days after the earliest to occur of (i) final
approval of the Closing Balance Sheet by Per-Se or agreement between the
Parties on the Working Capital Purchase Price Adjustment or the Bonus Accrual,
(ii) expiration of the Notification Period with no written objections being
received by Purchaser, or (iii) receipt by Purchaser and Per-Se of the
Determination.
(d) If, after following the procedures set
forth in Section 1.4(b) above, the Working Capital Purchase Price Adjustment is
a negative number, or if the Bonus Accrual exceeds the Estimated Bonus Accrual,
the amount(s) so determined shall be paid by Seller to Purchaser in immediately
available funds within five (5) days after the earliest to occur of (i) final
approval of the Closing Balance Sheet by Per-Se or agreement between the
Parties on the Working Capital Purchase Price Adjustment or the Bonus Accrual,
(ii) expiration of the Notification Period with no written objections being
received by Purchaser, or (iii) receipt by Purchaser and Per-Se of the
Determination. Purchaser, at its discretion, may notify the Escrow Agent
pursuant to the terms of the Escrow Agreement of the amount owed to Purchaser
and receive the amount owed to Purchaser hereunder from the Escrow Amount.
1.5 Retention of Assets. Purchaser acknowledges and
agrees that it is acquiring the Cash Amount at the Closing (the Cash Amount
shall be equal to actual cash in the Company bank accounts retained by the
Company after Closing), and agrees that the Company may make a distribution at
Closing to Per-Se in an amount equal to all cash on hand of the Company on the
Closing Date in excess of such amount.
3
<PAGE> 7
1.6 Further Assurances. Holdings and Per-Se after the
Closing Date, at Purchaser's request, will execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications, and
further assurances as Purchaser may reasonably require in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, any
of the Assets or the Impact Common Stock, or to better enable Purchaser to
complete, perform or discharge the obligations of the Company. Without limiting
the generality of the foregoing, if any party to a Government Contract (other
than the Company itself) requires an assignment or novation Contract be entered
into to continue performance under the Government Contract, the Parties will
cooperate to the fullest extent reasonably practicable, including executing a
novation agreement on terms no less favorable to the U.S. Government as the
terms are reflected in the form novation agreement set forth in 42.12 of the
FAR. Each of the Parties hereto will cooperate with the other and execute and
deliver to the other Parties hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence, and confirm the
intended purposes of this Agreement.
1.7 (a) Notwithstanding the other provisions of the
Agreement to the contrary, Per-Se and Purchaser agree that, prior to the
Closing Date, Per-Se shall cause Company to be converted, by means of a merger
or conversion (collectively, the "Conversion") to a Delaware or Maryland
limited liability company (the "LLC"), all of the membership units and other
economic interests (collectively, the "Units") of which are held by Holdings.
In connection therewith, the Parties agree to take the following actions prior
to the Closing Date:
(i) Per-Se, at its expense, shall cause the
Conversion to occur such that all of the Assets and
Liabilities of the Company immediately after the Conversion
shall be held in the LLC and only such Assets and Liabilities
shall be held by the LLC immediately after the Conversion.
(ii) Per-Se shall cause all of the issued and
outstanding Shares of the Company to be converted into and
exchanged for the Units.
(iii) Per-Se shall cause the LLC to be taxed as a
business entity which shall be disregarded as an entity
separate from its owner for Tax purposes within the meaning
of Treasury Regulation Section 301.7701-3(b)(1)(ii).
(iv) The Parties will execute such documents,
certificates and agreements reasonably necessary to carry
out the Conversion.
(b) At the Closing, the representations and warranties
set forth in Section 2 of the Agreement as they relate to the Company shall be
restated as provided in Section 6.2(a), except that those representations and
warranties which relate to the Company's corporate status and authority shall
be given by the LLC with respect to the appropriate counterparts of its status
under applicable limited liability company Laws and those representations and
warranties which relate to the effect of the Stock Purchase on circumstances or
documents shall be given by the LLC with respect to the LLC Conversion. In
addition, covenants of Per-Se, Holdings and the Company in the Agreement shall
be conformed and restated to become consistent with the Company's LLC status
and the effect of an LLC Conversion rather than a Stock Purchase. Per-Se shall
cause the LLC to deliver such additional certificates or documents (including
opinions) as shall be reasonably requested by Purchaser to evidence the same.
4
<PAGE> 8
(c) Purchaser shall prepare a schedule allocating the
Purchase Price (together with all other capitalizable costs) among the Assets
of Impact (the "Allocation Schedule") for Per-Se's review and approval,
provided that Per-Se shall not unreasonably withhold such approval. Such
allocation will comply with the requirements of Section 1060 of the Code.
Purchaser and Per-Se each agrees to file IRS Form 8594, and all federal, state,
local and foreign Tax Returns, in accordance with the Allocation Schedule.
Per-Se agrees to provide promptly to Purchaser any other information required
to complete the Allocation Schedule.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PER-SE AND HOLDINGS
Per-Se and Holdings hereby jointly and severally represent
and warrant to the Purchaser as follows:
2.1 Organization, Standing, and Power. Each of Holdings,
Impact and Per-Se is a corporation validly existing and in good standing under
the Laws of the jurisdiction of its incorporation, and has the corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its material Assets. The Company is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of
the United States and foreign jurisdictions where the character of its Assets
or the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Company Material Adverse Effect. The minute book and other organizational
documents for Company have been made available to Purchaser for its review and
are true and complete in all material respects as in effect as of the date of
this Agreement and accurately reflect in all material respects all amendments
thereto and all proceedings of the Board of Directors and shareholders thereof.
The stock record book of the Company, which has been made available for review,
contains true, complete and accurate records of the stock ownership of the
Company and the transfer of the shares of its capital stock. Section 2.1 of the
Company Disclosure Memorandum lists the names of all directors and officers of
the Company.
2.2 Authority; No Breach By Agreement.
(a) Each of Holdings, Impact and the Seller
has the corporate power and authority to execute and deliver this Agreement and
the Closing Documents to which it is a party and to perform its obligations
under this Agreement and the Closing Documents. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
corporate action on the part of each of Holdings, Impact and Per-Se. This
Agreement represents a legal, valid, and binding obligation of Holdings, Impact
and Per-Se, enforceable against them in accordance with its terms (except in
all cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Upon the execution and delivery of the Closing
Documents to which it is a party, such Closing Documents will constitute the
legal, valid, and binding obligations of Holdings, Impact and/or Per-Se,
enforceable against such Party in accordance with their respective terms.
5
<PAGE> 9
(b) Neither the execution and delivery of this
Agreement by Holdings, Impact or Per-Se, nor the consummation by any of them of
the transactions contemplated hereby, nor compliance by any of them with any of
the provisions hereof, will (i) conflict with or result in a breach of any
provision of their respective Articles or Certificates of Incorporation or
Bylaws, or (ii) except as disclosed in Section 2.2(b) of the Company Disclosure
Memorandum or except for Consents required under Contracts, constitute or
result in a Default under, or result in the creation of any Lien on any
material Asset of the Company under, any material Contract or Permit, or (iii)
constitute or result in a Default under any Law or Order applicable to the
Company, Holdings or Per-Se or any of the Company's material Assets (including
the Company becoming subject to or liable for the payment of any Tax, or any of
the Assets owned by Purchaser or any Affiliate including the Company, being
reassessed or revalued by any Taxing authority).
(c) Other than in connection or compliance
with the provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than (i) Consents required from Regulatory
Authorities set forth on Section 2.2(c) of the Company Disclosure Memorandum;
(ii) notices to or filings with the Internal Revenue Service or the Pension
Benefit Guaranty Corporation with respect to any employee benefit plans; (iii)
filings with the Defense Security Service set forth on Section 2.2(c) of the
Company Disclosure Memorandum; and (iv) filings under the HSR Act which, if
applicable, will be made by the Parties prior to Closing, no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by Per-Se or Holdings of the transactions contemplated in this
Agreement.
2.3 Ownership Interests; Capital Stock.
(a) Per-Se is the owner of all right, title
and interest (legal and beneficial) in and to all of the issued and outstanding
shares of Common Stock of Holdings. Holdings is the owner of all right, title
and interest (legal and beneficial) in and to all of the Shares, free and clear
of all Liens. The authorized capital stock of Impact consists of 20,000,000
shares of Impact Common Stock, of which 100 shares are issued and outstanding
as of the date of this Agreement and will be outstanding on the Closing Date.
All of the issued and outstanding shares of Impact Common Stock are duly and
validly issued and outstanding, are fully paid and nonassessable, and were not
issued in violation of any federal or state securities Laws for which a remedy
is available and for which the Company or the Purchaser bear any Liability.
None of the outstanding shares of capital stock of Impact has been issued in
violation of any preemptive rights of the current or past shareholders of
Impact. There are no Liabilities of Holdings that relate to Liabilities of the
Company such that the September 30, 1999 Company Financial Statements do not
fully and accurately reflect the financial position of the Company as of such
date.
(b) Except as set forth in Section 2.3(a), or
as disclosed in Section 2.3(b) of the Company Disclosure Memorandum, there are
no shares of capital stock or other equity securities of the Company
outstanding and no outstanding Equity Rights relating to the capital stock of
Company. Except as specifically contemplated by this Agreement, no Person has
any Contract or any right or privilege (whether pre-emptive or contractual)
capable of becoming a Contract for the purchase from Per-Se or Holdings of any
of the Shares, or any Contract or Equity Right for the purchase, subscription
or issuance of any securities of Holdings.
2.4 Subsidiaries. Impact has no Subsidiaries. Section
2.4 of the Company Disclosure Memorandum reflects with respect to Impact its
jurisdiction of incorporation, and each jurisdiction in which it is qualified
and/or licensed to transact business. No capital stock (or other equity
interest) of Impact is or may become required to be issued by reason of any
Equity
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Rights. There are no Contracts relating to the rights of Holdings to vote or to
dispose of any shares of the capital stock (or other equity interests) of
Impact.
2.5 Financial Statements. The Company Financial
Statements are attached to Section 2.5 of the Company Disclosure Memorandum.
Each of the Company Financial Statements (including, in each case, any related
notes) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to
such financial statements), and fairly presented in all material respects the
financial position of the Company as and at the respective dates and the
results of operations and cash flows for the periods indicated, except that the
interim financial statements (i) do not contain notes or reflect income Taxes
and (ii) were or are subject to normal and recurring year end adjustments which
were not or are not expected to be material in amount or effect. Except as
disclosed in Section 2.5 of the Company Disclosure Memorandum, the Company
Financial Statements do not contain any items of special or nonrecurring income
or other income not earned in the ordinary course of business, individually in
excess of $15,000 and in the aggregate in excess of $45,000.
2.6 Absence of Undisclosed Liabilities. The Company has
no Liabilities which are of a nature required by GAAP to be accrued or reserved
against on the Company Financial Statements except (i) Liabilities which are
accrued or reserved against in the balance sheets of the Company as of December
31, 1998 and September 30, 1999, included in the Company Financial Statements
or reflected in the notes thereto or (ii) Liabilities incurred or paid since
September 30, 1999 in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect or (iii) in connection with
the transactions contemplated by this Agreement. Except as disclosed in Section
2.6 of the Company Disclosure Memorandum, the Company is not directly or
indirectly liable, by guarantee, indemnity, or otherwise, upon or with respect
to, or obligated, by discount or repurchase agreement or in any other way, to
provide funds in respect to, or obligated to guarantee or assume any Liability
or any Person for any amount in excess of $75,000. The Company has no long term
indebtedness except as disclosed on the September 30, 1999 Company Financial
Statement.
2.7 Absence of Certain Changes or Events. Since June 30,
1999, except as disclosed in the Company Financial Statements or as disclosed
in Section 2.7 of the Company Disclosure Memorandum, (i) there have been no
events, changes, or occurrences which have had, or are reasonably likely to
have, individually or in the aggregate, a Company Material Adverse Effect, and
(ii) the Company has not taken any action, or failed to take any action, prior
to the date of this Agreement, which action or failure, if taken after the date
of this Agreement, would represent or result in a material breach or violation
of any of the covenants and agreements of the Company provided in Article 4.
2.8 Tax Matters.
(a) A correct and complete list of each of
the income or franchise Tax Returns for which the Company is a party for any
periods from January 1, 1996 to the date hereof are attached to Section
2.8(a)(i) of the Company Disclosure Memorandum. The Company Entities' federal
income Tax Returns have never been audited by the IRS. All Tax Returns required
to be filed by or on behalf of any of the Company Entities have been timely
filed or requests for extensions have been timely filed, granted, and have not
expired for periods ended on or before December 31, 1998, and on or before the
date of the most recent fiscal year end immediately preceding the Closing Date,
and all Tax Returns filed are complete and accurate in
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all material respects. All Taxes, whether or not shown on filed Tax Returns,
have been paid. As of the date of this Agreement, there is no audit
examination, deficiency, or refund Litigation with respect to any Taxes, except
as reserved against in the Company Financial Statements or as disclosed in
Section 2.8(a)(ii) of the Company Disclosure Memorandum. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
refund Litigation have been paid. There are no material Liens with respect to
Taxes upon any of the Assets of Impact.
(b) Impact has not executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due (excluding such statutes that relate to years currently under examination
by the Internal Revenue Service or other applicable taxing authorities) that is
currently in effect or agreed to any extension of time with respect to a tax
assessment or deficiency .
(c) The provision for any Taxes due or to
become due for Impact for the period or periods through and including the date
of the respective Company Financial Statements that has been made and is
reflected on such Company Financial Statements is sufficient to cover all such
Taxes.
(d) Deferred Taxes of Impact have been provided
for in accordance with GAAP.
(e) Any Tax sharing agreement with respect to
which the Company is or has been a party shall be terminated prior to the date
of this Agreement and will have no further effect or Liability to the Company
for any taxable year or period prior to, including, or following the date of
this Agreement. The Company shall have no Liability for Taxes of any Person
(other than Impact) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law) as transferee or successor or by
Contract or otherwise.
(f) The Company is in compliance with, and
its records contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information reporting
and Tax withholding requirements under federal, state, and local Tax Laws, and
such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code. The Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with all amounts paid or owing to any employee, independent
contractor, creditor or other third party.
(g) The Company has not (i) filed any consent
or agreement under Section 341(f) of the Code, (ii) applied for any tax ruling,
(iii) entered into a closing agreement with any Taxing authority, (iv) filed an
action under Section 338(g) or 338(h) (10) of the Code (nor has a deemed
election under Section 338(e) of the Code occurred), or (v) been a party to any
Tax allocation or Tax Sharing agreement except as set forth in Section 2.8(g)
of the Company Disclosure Memorandum. The Company is not a "United States Real
Property Holding Company" within the meaning of Section 897 of the Code. The
Company has disclosed in accordance with applicable Law on its federal income
Tax Returns all positions therein that could give rise to an understatement of
federal income Tax. Except as disclosed in Section 2.8(g) of the Company
Disclosure Memorandum, the Company has not made any payments, is not obligated
to make any payments, or is a party to any Contract that could obligate it to
make any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
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(h) The Company does not have, and has not
had in any foreign country a permanent establishment, as defined in any
applicable tax treaty or convention between the United States and such foreign
country.
2.9 Assets.
(a) Except as disclosed in Section 2.9(a) of
the Company Disclosure Memorandum or as disclosed or reserved against in the
Company Financial Statements, Impact has good title, free and clear of all
Liens, to all of its material Assets. All material tangible properties used in
the businesses of the Company are in reasonable condition, reasonable wear and
tear excepted, and are usable in the ordinary course of business consistent
with the Company's past practices.
(b) Except for the nonrecoverable travel
expenses of approximately $86,608, all earnings of the Company in excess of
billings as set forth on the most recent balance sheet included in the Company
Financial Statements delivered prior to the date of this Agreement or arising
since the date thereof have arisen solely out of bona fide sales and deliveries
of goods, performance of services and other business transactions in the
ordinary course of business consistent with past practices; are not subject to
valid defenses, set-offs or counterclaims; and are collectible within 120 days
after billing at the full recorded amount thereof less the recorded allowance
for collection losses.
(c) The accounts receivable of the Company
as set forth on the most recent balance sheet included in the Company Financial
Statements delivered prior to the date of this Agreement or arising since the
date thereof are valid and genuine; have arisen solely out of bona fide sales
and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice;
are not subject to valid defenses, set-offs or counterclaims; and are
collectible within 120 days after billing at the full recorded amount thereof
less, in the case of accounts receivable appearing on the most recent balance
sheet included in the Company Financial Statements delivered prior to the date
of this Agreement, the recorded allowance for collection losses on such balance
sheet. The allowance for collection losses on such balance sheet has been
determined in accordance with GAAP and are adequate in light of the Company's
historical methods and practices is establishing such allowances.
(d) All Assets which are material to the
Business or held under leases or subleases by the Company, are held under valid
Contracts that are enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be brought), and each
such Contract is in full force and effect.
(e) Section 2.9(e) of the Company
Disclosure Memorandum contains a complete and accurate list of all insurance
policies held or owned by Per-Se, Holdings or the Company relating to the
Business and now in force and such Section of the Company Disclosure Memorandum
indicates the name of the insurer, the type and number of each policy.
(f) The Assets of the Company include all
Assets used by the Company to operate the business of the Company as presently
conducted, except for Assets related to administrative or corporate services
provided by Per-Se to the Company, certain of
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which services are the subject of the Transition Services Agreement. The
Company owns no real property.
(g) A list of the names and addresses of each
bank, together with the name and number of each account, in which the Company
has an account or safe-deposit box, the names of all persons entitled to draw
thereon or to have access thereto, and the names of any persons holding powers
of attorney with respect to the Company, are set forth in Section 2.9(f) of the
Company Disclosure Memorandum.
2.10 Intellectual Property. Section 2.10(a) of the
Company Disclosure Memorandum contains a true and correct list of all material
registered patents, copyrights and trademarks Intellectual Property owned or
used by the Company relating to or used in connection with the Business,
containing a brief description of each item of Intellectual Property and the
nature of the Company's interest therein. The Assets of the Company include (or
will by Closing include), all patents, designs, art work, designs-in-progress,
formulations, know-how, inventions, trademarks, trade names, trade styles,
service marks, copyrights, manufacturing processes, and confidential or
proprietary information used and necessary for the conduct of the Company's
business as presently conducted, including all rights Per-Se or Holdings
possess to use the name "Impact Innovations", and Per-Se, Holdings and the
Company have no Knowledge of any adverse claims. No claim is pending or, to the
Knowledge of the Company and Per-Se, threatened, and, except as set forth on
Section 2.10(b) of the Company Disclosure Memorandum, the Company has not
received notice that the conduct of the Business (including without limitation,
the Company's use of any Intellectual Property) infringes upon or conflicts
with any rights claimed therein by any third party. No use by the Company of
any material Intellectual Property licensed to it violates the terms of any
agreement pursuant to which it is licensed. No claim is pending, or to the
Knowledge of the Company, threatened, which alleges that any material
Intellectual Property owned or licensed by the Company for use in the Business
is invalid or unenforceable by the Company. With respect to the Business, the
Company does not manufacture products which are the subject of patents, patent
applications, copyrights, copyright applications, trademarks, trademark
applications, trade styles, service marks, or trade secrets owned by or
licensed from third parties. No royalties or fees are currently payable by the
Company to anyone for use of the Intellectual Property. True, correct, and
complete copies of all Contracts pursuant to which the Company has any license
or right to use any material Intellectual Property are attached to Section
2.10(c) of the Company Disclosure Memorandum. All such Contracts are in full
force and effect and there are no existing defaults or events of default, real
or claimed, or events which with or without notice or lapse of time or both
would constitute defaults under such Contracts that would give the
non-defaulting party a right to terminate such agreement or a right to receive
any material payment pursuant to such agreement. With respect to the Business,
the Company has not received any notice that its business operations or any
Asset employed by the Company, violates or infringes upon any claims of any
United States or foreign patent or patent application owned or held by any
third party. The Company owns, or will own by Closing, the exclusive and entire
right, title and interest to the name "Impact Innovations" and all variations
or derivations thereof.
2.11 Environmental Matters.
(a) To the Knowledge of the Company and
Per-Se, the Company, and its Operating Properties are, and have been, in
compliance with all material Environmental Laws.
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(b) To the Knowledge of the Company and
Per-Se, there is no Litigation pending or threatened before any court,
governmental agency, or authority or other forum in which the Company or any of
its Operating Properties (or the Company in respect of such Operating Property)
has been or, with respect to threatened Litigation, may be named as a defendant
(i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by the Company or any of its Operating
Properties.
(c) During the period of (i) the Company's
ownership or operation of any of its current properties, or (ii) the Company's
holding of a security interest in a Operating Property, there have been no
releases, discharges, spillages, or disposals of Hazardous Material in, on,
under, adjacent to, or affecting (or potentially affecting) such properties.
Prior to the period of (i) the Company's ownership or operation of any of its
current properties, or (ii) the Company's holding of a security interest in an
Operating Property, to the Knowledge of the Company and the Per-Se, there were
no releases, discharges, spillages, or disposals of Hazardous Material in, on,
under, or affecting any such property, or any Operating Property.
2.12 Compliance with Laws. The Company is in material
compliance with all Laws applicable to it, its business and the ownership and
present uses of its Assets. The Company has in effect all material Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit which has not been cured. Except as disclosed in Section 2.12 of the
Company Disclosure Memorandum, the Company is not:
(a) in Default under any of the
provisions of its Articles or Certificate of Incorporation or Bylaws (or other
governing instruments);
(b) in Default under any Laws, Orders, or
Permits applicable to its business or employees conducting its business; or
(c) since January 1, 1994, in receipt of any
notification or communication from any agency or department of federal, state,
or local government or any Regulatory Authority or the staff thereof (i)
asserting that the Company is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces, (ii)
threatening to revoke any Permits, or (iii) requiring the Company to enter into
or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment, or memorandum of understanding, or to adopt any Board
resolution or similar undertaking.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to
Purchaser.
2.13 Labor Relations.
(a) Except as disclosed on Section 2.13(a) of
the Company Disclosure Memorandum, the Company is not the subject of any
Litigation asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or comparable state Law) or seeking
to compel it to bargain with any labor organization as to wages or conditions
of employment, nor is the Company a party to any collective bargaining
agreement,
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nor is there any strike or other labor dispute involving the Company, pending
or threatened, or to the Knowledge of the Company, Holdings and Per-Se, is
there any activity involving any of the Company 's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
(b) The Company, within the last three (3)
years, has not experienced any organized slowdown, work interruption, strike,
or work stoppage by employees of the Company. The Company, within the last
three (3) years, has not had a plant closing or mass layoff, as those terms are
defined in the Worker Adjustment Retraining and Notification Act ("WARN"), or
similar event requiring notification or payment of severance pay under any
state, local or foreign Law and has not violated WARN or any similar state,
local or foreign Law. Neither the Company, nor any of its officers, directors,
or employees has been charged or, to the Company's or Per-Se's or Holdings'
Knowledge, threatened with the charge of any unfair labor practice, with
respect to the Business within the last two (2) years. The Company is in
material compliance with all applicable federal, state, local and foreign Laws
and regulations concerning the employer-employee relationship and with all
agreements relating to the employment of the Company's employees, including
applicable wage and hour Laws, plant closing or layoff notification Laws, wage
payment Laws, fair employment Laws, safety Laws, worker compensation statutes,
unemployment Laws, and social security Laws. There are no pending or, to the
Company's or Per-Se's or Holdings' Knowledge, threatened in writing, material
claims, investigations, audits, inspections, compliance reviews, charges,
citations, hearings, consent decrees, conciliation agreements, Orders, or
Litigation concerning: wages, compensation, bonuses, commissions, awards, or
payroll deductions; equal employment or human rights violations regarding race,
color, religion, sex, national origin, age, handicap, veteran's status, marital
status, disability, or any other recognized class, status, or attribute under
any federal, state, local or foreign equal employment Law prohibiting
discrimination; affirmative action obligations; representation petitions or
unfair labor practices; grievances or arbitrations pursuant to current or
expired collective bargaining agreements; occupational safety and health;
workers' compensation; wrongful termination, negligent hiring, invasion of
privacy or defamation; immigration or any other claim based on the employment
relationship or termination of the employment relationship (collectively,
"Labor Claims"). The Company is not liable for any unpaid wages, bonuses, or
commissions (other than those not yet due or accrued on the Closing Balance
Sheet) or any Tax, penalty, assessment, or forfeiture for failure to comply
with any of the foregoing. There is no outstanding agreement or arrangement
with respect to severance payments with respect to any employee of the Company.
All Contracts with independent contractors validly establish an independent
contractor relationship and such independent contractors are not employees of
the Company, and are not treated as such.
(c) Except as disclosed on Section 2.13(c) of
the Company Disclosure Memorandum, none of which disclosures individually or in
the aggregate constitute a Company Material Adverse Effect, the Company is in
material compliance with and has not violated the terms and provisions of the
Immigration Reform and Control Act of 1986, and all regulations thereunder
("Immigration Laws"). The Company has not been the subject of any inspection or
investigation relating to its compliance with or violation of the Immigration
Laws, nor has it been warned, fined or otherwise penalized by reason of any
failure to comply with the Immigration Laws, nor is any such proceeding pending
or, to the Knowledge of the Company, Per-Se or Seller, threatened. With respect
to each employee of the Company for whom compliance with the Immigration Laws
by an employer is required, the Company has made available, or shall make
available prior to the Closing Date, such employees' Form I-9 (Employment
Eligibility Verification Form) and all other records, documents or other papers
which are retained with the Form I-9 by the Company pursuant to the Immigration
Laws.
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2.14 Employee Benefit Plans.
(a) The Company has disclosed in Section 2.14(a)
of the Company Disclosure Memorandum, and has delivered or made available to
Purchaser prior to the execution of this Agreement copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
the Company for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries are eligible to participate (collectively, the "Company
Benefit Plans") and such related documents and information as the Purchaser may
reasonably request. Any of the Company Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "Company ERISA Plan." Each Company ERISA Plan which is
also a "defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code) is referred to herein as a "Company Pension Plan."
(b) Except as disclosed in Section 2.14(b) of
the Company Disclosure Memorandum, all Company Benefit Plans are in material
compliance with the terms thereof and all applicable terms of ERISA, the
Internal Revenue Code, and any other applicable Laws. Each Company ERISA Plan
which is intended to be qualified under Section 401(a) of the Internal Revenue
Code has received a favorable determination letter from the Internal Revenue
Service, and Company, Seller and Per-Se are not aware of any circumstances
likely to result in revocation of any such favorable determination letter. To
the Knowledge of the Company, Holdings and Per-Se, the Company has not engaged
in a transaction with respect to any Company Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
the Company to a Tax imposed by either Section 4975 of the Internal Revenue
Code or Section 502(i) of ERISA. Neither the Company nor any ERISA Affiliate of
the Company nor any employee or agent thereof, has made any oral or written
representation to any participant in or beneficiary of a Company Benefit Plan,
or to any other individual or entity that is contrary to the terms of any
Company Benefit Plan.
(c) Neither the Company nor any entity which
is considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code of Section 302 of ERISA (whether or
not waived) (an "ERISA Affiliate") maintains or contributes or has maintained
or contributed to a Company Pension Plan that is or was subject to Title IV of
ERISA or Section 412 of the Internal Revenue Code.
(d) Except as disclosed in Section 2.14(d) of
the Company Disclosure Memorandum, to the Knowledge of the Company and Per-Se,
the Company has no Liability for retiree health and life benefits under any of
the Company Benefit Plans and there are no restrictions on the rights of the
Company to amend or terminate any such retiree health or benefit Plan without
incurring any Liability thereunder.
(e) Except as disclosed in Section 2.14(e)
of the Company Disclosure Memorandum, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in any payment (including
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severance, unemployment compensation, golden parachute, or otherwise) becoming
due to any director or any employee of the Company from the Company under any
Company Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any Company Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit. The Company does not, and will not,
upon consummation of the Stock Purchase have any Liability to anyone for rights
and obligations of any entity under any bonus plan and the Impact Innovations
Key Employee Incentive Plan or under any stock option agreement issued
thereunder.
(f) To the Knowledge of the Company and Per-Se,
the actuarial present values of all accrued deferred compensation entitlements
(including entitlements under any executive compensation, supplemental
retirement, or employment agreement) of employees and former employees of the
Company and their respective beneficiaries, have been fully reflected on the
Company Financial Statements to the extent required by and in accordance with
GAAP.
(g) To the extent a Company Benefit Plan has
excluded any individual from coverage, such exclusion is (i) consistent with
the written terms of the Company Benefit Plan, (ii) enforceable under the terms
of such Plan, (iii) consistent with the terms of any agreement with such
individual (whether written or oral); and (iv) enforceable under applicable
Law.
(h) After the Closing Date, neither Purchaser
nor the Company shall have any liability or obligation with respect to any
Company Benefit Plan or any other employee benefit, plan, program, arrangement
or policy that covers employees of the Company, other than those disclosed in
Section 2.14(h) of the Company Disclosure Memorandum. Regardless of whether it
is disclosed in Section 2.14 (h) of the Company Disclosure Memorandum, neither
Purchaser nor Company shall have any liability or obligation with respect to
the Minimum Premium Agreement with Great-West Life & Annuity Insurance Company
that provides benefits pursuant to a plan that covers employees of the Company.
With respect to any Company Benefit Plan under which the Company is not the
sole named insured, neither Purchaser nor the Company shall have any liability
or obligation as to payment of premiums, benefits or other charges that accrue
or are attributable to coverage or claims incurred after the Closing Date,
other than those that are reflected on the Closing Balance Sheet.
2.15 Material Contracts. Except as disclosed in Section
2.15 of the Company Disclosure Memorandum or otherwise reflected in the Company
Financial Statements, the Company is not a party to (i) any employment,
severance, termination, consulting, independent contractor, change in control,
restrictive covenant, or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $75,000, (ii) any Contract
relating to the borrowing of money by the Company or the guarantee by the
Company of any such obligation (other than Contracts evidencing trade payables,
Contracts relating to borrowings or guarantees made in the ordinary course of
business and guarantees to be released prior to Closing), (iii) any Contract
which prohibits or restricts the Company from engaging in any business
activities in any geographic area, line of business or otherwise in competition
with any other Person, (iv) any Contract between or among the Company and any
Affiliate of the Company, (v) any Contract involving Intellectual Property
(other than Contracts entered into in the ordinary course with customers and
"shrink-wrap" software licenses) providing for aggregate payments in excess of
$25,000, (vi) any Contract relating to the provision of data processing,
network communication, or other technical services to or by the Company
providing for aggregate payments in excess of $50,000, (vii) any Contract
relating to the purchase or sale of any goods or services (other than Contracts
involving payments under any individual Contract not in excess of $50,000),
(viii) any
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Contract for the lease or possession of real property, (ix) any settlement
agreement, consent decree, conciliation agreement or other Contract relating to
the resolution of any Litigation, potential Litigation, Order, investigation,
compliance review, inspection or audit for which obligations remain outstanding,
(x) any Contract that provides indemnity or warranty rights to any Person
(other than third party application software, purchase orders and other
Contracts in the ordinary course of business), (xi) any Contract for the
management of the Company by a third party, (xii) any Contract for the lease of
machinery, vehicles, equipment and other tangible Property used or employed by
the Company, except those that are terminable by the Company without penalty on
60 or fewer days notice or that provide for annual rental payments of less than
$12,000, (xiii) any fixed price Contract for services, and (xiv) any Contract
not otherwise described in (i) through (xiii) above involving payments in
excess of $50,000 (together with all Contracts referred to in Sections 2.10 and
2.14(a), the "Company Contracts"). A correct and complete copy of all Company
Contracts have been provided to, or made available to, Purchaser. With respect
to each Company Contract and except as disclosed in Section 2.15(b) of the
Company Disclosure Memorandum: (i) the Contract is in full force and effect;
(ii) the Company is not in material Default thereunder, nor will the
transactions contemplated hereunder cause a Default; (iii) the Company has not
repudiated or waived any material provision of any such Contract; and (iv) no
other party to any such Contract is, to the Knowledge of the Company and
Per-Se, in Default in any respect, or has repudiated or waived any material
provision thereunder. There is no outstanding indebtedness of the Company for
money borrowed and the Company at Closing will not be liable for any
indebtedness of any Affiliate of the Company.
2.16 Legal Proceedings. Except as disclosed on Section
2.16(a) of the Company Disclosure Memorandum, there is no (i) Litigation
instituted or pending, or, to the Knowledge of the Company and Per-Se,
threatened (or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an unfavorable
outcome) or (ii) settlement entered into within the past two years from the
date hereof involving payment by the Company or any director, agent, employee
or employee benefit plan of the Company against the Company, or against any
director, agent, employee or employee benefit plan of the Company that, in each
case is reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
the Company that are reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. Section 2.16(b) of the Company
Disclosure Memorandum contains a summary of all Litigation and Orders as of the
date of this Agreement to which the Company is a party.
2.17 Reports. Since January 1, 1994, or the date of
organization if later, the Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with Regulatory Authorities. As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all material respects with all
applicable Laws. As of its respective date, each such report and document did
not, in all material respects, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
2.18 Brokerage. Except as set forth in Section 9.3, the
Company has not made any agreement or taken any other action which might cause
anyone to become entitled to a broker's fee or commission as a result of the
transactions contemplated hereby. Any such broker's fee shall be paid by
Holdings or Per-Se at Closing.
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2.19 Year 2000. The Company's software (except for
software licensed or leased from third parties by the Company) included among
the Assets of the Company has and will have the ability to: (a) accept input
and provide output of data involving dates or portions of dates correctly and
without ambiguity as to the twentieth or twenty-first centuries; (b) manage,
store, manipulate, sort, sequence, and perform calculations (collectively
"Process") with respect to data involving dates or portions of dates, before,
during, and after January 1, 2000 (including single century or multi-century
date formulas) without malfunctions, abends or aborts; and (c) correctly
Process leap years including the year 2000. To the Knowledge of Per-Se and
Holdings, any inability of the Company's software licensed or leased from third
parties by the Company or hardware to Process data as described above shall not
cause a Company Material Adverse Effect.
2.20 Customers. Section 2.20 of the Company Disclosure
Memorandum sets forth a list of the 10 largest customers of the Company
(determined by gross revenue) from whom payments were received for the calendar
year ended December 31, 1998, together with a list of the 10 largest customers
of the Company (determined by gross revenue) from whom payments were received
for the nine month period ended September 30, 1999 (the "Material Customers").
2.21 Federal Government Contracts.
(a) With respect to each and every Government
Contract or Bid to which the Company is a party and for which final payment has
not been made by the Closing Date, and except as set forth in Section 2.21(a)
of the Company Disclosure Memorandum: (i) the Company has fully complied with
all material terms and conditions of such Government Contract or Bid, including
all clauses, provisions and requirements incorporated expressly, by reference
or by operation of Law therein; (ii) the Company has fully complied with all
requirements of statute, rule, regulation, order or agreement pertaining to
such Government Contract or Bid; (iii) all representations and certifications
executed, acknowledged or set forth in or pertaining to such Government
Contract or Bid were current, accurate and complete as of their effective date,
and the Company has fully complied with all such representations and
certification; (iv) neither the U.S. Government nor any prime contractor,
subcontractor or other person has notified the Company, either orally or in
writing, that the Company has breached or violated any statute, rule,
regulation, certification, representation, clause, provision or requirement;
(v) no termination for convenience, termination for default, cure notice or
show cause notice has been issued and remains uncorrected; (vi) no material
cost incurred or invoice rendered by the Company has been questioned or
disallowed; and (vii) no material money due to the Company has been (or has
attempted to be) withheld or set off.
(b) Except as set forth in Section 2.21(b) of
the Company Disclosure Memorandum: (i) neither the Company, any of the
Company's Affiliates nor any of the Company's directors, officers, employees,
agents or consultants is (or to Per-Se's or the Company's Knowledge for the
last five years has been) under administrative, civil or criminal
investigation, indictment or information, audit or internal investigation with
respect to any alleged irregularity, mischarging, misstatement or omission
arising under or relating to any Government Contract or Bid; (ii) during the
last five years neither Company nor any of the Company's Affiliates has made a
voluntary disclosure to the U.S. Government with respect to any alleged
irregularity, mischarging, misstatement or omission arising under or relating
to any Government Contract or Bid that in any case has led or could reasonably
be expected to lead, either before or after the Closing Date, to any of the
consequences set forth in (i) - (ii) above or any other damage, penalty
assessment, recoupment of payment or disallowance of cost.
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(c) Except as set forth in Section 2.21(c) of
the Company Disclosure Memorandum, there exist (i) no financing arrangements
with respect to performance of any current Government Contract; (ii) no
outstanding material claims against the Company, either by the U.S. Government
or by any prime contractor, subcontractor, vendor or other third party, arising
under or relating to any Government Contract or Bid; or (iii) no facts to which
the Company has Knowledge which would reasonably be likely to result in a claim
in the future; (iv) no disputes between the Company and the U.S. Government or
any prime contractor, subcontractor or vendor arising under or relating to any
Government Contract or Bid; and (v) no facts to which the Company has Knowledge
which would reasonably be likely to result in a dispute in the future. Except
as set forth in Section 2.21(c) of the Company Disclosure Memorandum, the
Company has no interest (other than those expressly arising under a Government
Contract related to the Company's right to be paid for services rendered) in
any pending claim against the U.S. Government or any prime contractor,
subcontractor or vendor arising under or relating to any Government Contract or
Bid.
(d) Except as set forth in Section 2.21(d)(i)
the Company Disclosure Memorandum, and except for circumstances specified in
the organizational conflict of interest provisions in the Contracts disclosed
in Section 2.21(d)(ii) of the Company Disclosure Memorandum, neither the
Company, any of the Company's Affiliates nor any of the Company's directors,
officers or employees is (or to Per-Se's or the Company's Knowledge for the
last five years has been) suspended, proposed for debarment or debarred from
doing business with the U.S. Government or has been declared nonresponsible or
ineligible for U.S. Government contracting or subcontracting. Per-Se, Holdings
and the Company know of no circumstances that could warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or such
ineligibility on the part of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to Holdings and
Per-Se as follows:
3.1 Organization, Standing, and Power. Purchaser is a
corporation validly existing, and in good standing under the Laws of the State
of Georgia, and has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its material Assets. Purchaser
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Purchaser Material Adverse Effect.
3.2 Authority; No Breach By Agreement.
(a) Purchaser has the corporate power and
authority to execute and deliver this Agreement and the Closing Documents to
which it is a party and to perform its obligations under this Agreement and the
Closing Documents. The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action on the part of
Purchaser. This Agreement represents a legal, valid, and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms (except
in all cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
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injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Upon the execution and delivery of the Closing
Documents to which it is a party, such Closing Documents will constitute the
legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their respective terms.
(b) Neither the execution and delivery of
this Agreement by Purchaser, nor the consummation by Purchaser of the
transactions contemplated hereby, nor compliance by Purchaser with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of Purchaser's Articles of Incorporation or Bylaws, or (ii) except as
disclosed in Section 3.2 of the Purchaser Disclosure Memorandum constitute or
result in a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of Purchaser under, any Contract or Permit,
or, (iii) subject to receipt of the requisite Consents referred to in Section
6.2(c), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to Purchaser or any of its material
Assets.
(c) Other than in connection or compliance
with the provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than: (i) Consents required from Regulatory
Authorities; (ii) notices to or filings with the Internal Revenue Service or
the Pension Benefit Guaranty Corporation with respect to any employee benefit
plans; and (iii) filings under the HSR Act; no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
Purchaser of the transactions contemplated in this Agreement.
3.3 Compliance with Laws. Purchaser has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted. Except as disclosed in Section 3.3 of
the Purchaser Disclosure Memorandum, Purchaser is not:
(a) in Default under any of the
provisions of its Articles or Certificate of Incorporation or Bylaws (or other
governing instruments);
(b) in Default under any Laws, Orders, or
Permits applicable to its business or employees conducting its business; or
(c) since January 1, 1994, in receipt of any
notification or communication from any agency or department of federal, state,
or local government or any Regulatory Authority or the staff thereof (i)
asserting that Purchaser is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces, (ii)
threatening to revoke any Permits, or (iii) requiring Purchaser to enter into
or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking.
3.4 Legal Proceedings. There is no Litigation instituted
or pending, or, to the Knowledge of Purchaser, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against Purchaser, or against
any director, employee or employee benefit plan of Purchaser, nor are there any
Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against Purchaser.
3.5 Investment Intent. The Purchaser is acquiring the
Shares for its own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act of 1933, as amended. The
Purchaser confirms that Per-Se, Holdings and the Company have made available to
the Purchaser and its representatives and agents the opportunity
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to ask questions of the officers and management employees of the Company and to
acquire such additional information about the business and financial condition
of the Company as the Purchaser has requested.
ARTICLE 4
CONDUCT OF BUSINESS PENDING CONSUMMATION
4.1 Affirmative Covenants With Respect to Company. From
the date of this Agreement until the earlier of the Closing Date or the
termination of this Agreement, unless the prior written consent of Purchaser
shall have been obtained, and except as otherwise expressly contemplated
herein, Per-Se and Holdings shall cause Company to (a) operate its business
only in the usual, regular, and ordinary course, (b) preserve intact its
business organization and Assets and maintain its rights and franchises, and
(c) take no action which would (i) adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of Section 6.1(a) or 6.2(c), or (ii) adversely affect the ability of
any Party to perform its covenants and agreements under this Agreement.
4.2 Negative Covenants With Respect to Company. From the
date of this Agreement until the earlier of the Closing Date or the termination
of this Agreement, unless the prior written consent of Purchaser shall have
been obtained, and except as otherwise expressly contemplated herein, Per-Se
shall not, and neither Per-Se nor Holdings shall permit the Company to do or
agree or commit to do any of the following with respect to the Company:
(a) amend the Articles of Incorporation,
Bylaws or other governing instruments of Impact; or
(b) incur any debt obligation or obligation
for borrowed money, or impose, or suffer the imposition, on any Asset of the
Company of any Lien or permit any such Lien to exist (other than in connection
with Liens in effect as of the date hereof that are disclosed in the Company
Disclosure Memorandum which will be released at Closing); or
(c) repurchase, redeem, or otherwise acquire
or exchange (other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities convertible into
any shares, of the capital stock of Impact, or, except as contemplated by this
Agreement, declare or pay any dividend or make any other distribution in
respect of Company's capital stock; or
(d) except for this Agreement, issue, sell,
pledge, encumber, authorize the issuance of, enter into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise permit to
become outstanding, any additional shares of Impact Common Stock or any other
capital stock of the Company or other Equity Right; or
(e) adjust, split, combine or reclassify any
capital stock of the Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Impact Common Stock,
or sell, lease, mortgage or otherwise dispose of or otherwise encumber (x) any
shares of capital stock of the Company, or (y) any Asset having a book value in
excess of $50,000 other than in the ordinary course of business for reasonable
and adequate consideration; or
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(f) except for purchases of U.S. Treasury
securities or U.S. Government agency securities, which in either case have
maturities of three years or less, purchase any securities or make any material
investment, either by purchase of stock of securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person, or
otherwise acquire direct or indirect control over any Person, other than in
connection with the creation of new wholly owned Subsidiaries organized to
conduct or continue activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or
benefits to the employees or officers of the Company, except in accordance with
past practice disclosed in Section 4.2(g) of the Company Disclosure Memorandum
or as required by Law; pay any severance or termination pay or any bonus other
than pursuant to written policies or guidelines or written Contracts in effect
on the date of this Agreement and disclosed in Section 4.2(g) of the Company
Disclosure Memorandum; and enter into or amend any severance agreements with
officers of the Company; grant any material increase in fees or other increases
in compensation or other benefits to directors of the Company except in
accordance with past practice disclosed in Section 4.2(g) of the Company
Disclosure Memorandum; or
(h) enter into or amend any employment
Contract between the Company and any Person having a salary thereunder in
excess of $50,000 per year (unless such amendment is required by Law) that the
Company does not have the unconditional right to terminate without Liability
(other than Liability for services already rendered), at any time on or after
the Closing Date; or
(i) adopt any new employee benefit plan of
the Company or terminate or withdraw from, or make any material change in or
to, any existing employee benefit plans of the Company other than any such
change that is required by Law or that, in the opinion of counsel, is necessary
or advisable to maintain the tax qualified status of any such plan, or make any
distributions from such employee benefit plans, except as required by Law, the
terms of such plans or consistent with past practice; or
(j) make any significant change in any Tax
or accounting methods or systems of internal accounting controls, except as may
be appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in
accordance with past practice, settle any Litigation involving any Liability of
the Company for material money damages or restrictions upon the operations of
the Company; or
(l) except in the ordinary course of business,
enter into, modify, amend or terminate any material Contract or waive, release,
compromise or assign any material rights or claims; or
(m) make any capital expenditure involving
in excess of $100,000 in the case of a single expenditure or $250,000 in the
case of all capital expenditures.
4.3 Covenants of Purchaser. From the date of this
Agreement until the earlier of the Closing Date or the termination of this
Agreement, unless the prior written consent of Holdings or Per-Se shall have
been obtained, and except as otherwise expressly contemplated herein, the
Purchaser covenants and agrees that it shall take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated
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hereby without imposition of a condition or restriction of the type referred to
in the last sentences of Section 6.1(a) or 6.2(c), or (ii) adversely affect the
ability of any Party to perform its covenants and agreements under this
Agreement; provided, that the foregoing shall not prevent Purchaser from
discontinuing or disposing of any of its Assets or business if such action is,
in the judgement of Purchaser, desirable in the conduct of the business of
Purchaser and its Subsidiaries.
4.4 Adverse Changes in Condition. Each Party agrees to
give written notice promptly to the other Party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to it
or any of its Subsidiaries which (i) is reasonably likely to have, individually
or in the aggregate, a Company Material Adverse Effect or a Purchaser Material
Adverse Effect, as applicable, or (ii) would cause or constitute a material
breach of any of its representations, warranties, or covenants contained
herein, and to use its reasonable efforts to prevent or promptly to remedy the
same.
4.5 Reports. Each Party shall file all reports required
to be filed by it with Regulatory Authorities between the date of this
Agreement and the Closing Date and shall deliver to the other Party copies of
all such reports promptly after the same are filed. Any financial statements
contained in any reports to a Regulatory Authority shall be prepared in
accordance with Laws applicable to such reports.
4.6 Related Party Transactions. Per-Se, Impact and
Holdings have caused the $342,000 account receivable to be reflected on the
books of the Company and all indebtedness and other Liabilities owed to the
Company by any Affiliate of the Company or Per-Se or Holdings, and E-Business
Solutions.Com, Inc. to be paid in full on or prior to the Closing Date, and
caused all indebtedness and other Liabilities owed by the Company to any
Affiliate of the Company or to E-Business Solutions.Com, Inc. to be discharged
and released in full on or prior to the Closing Date.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Applications; Antitrust Notification. The Purchaser
shall promptly prepare and file, and Per-Se and Holdings shall cooperate in the
preparation and, where appropriate, filing of, applications with all Regulatory
Authorities having jurisdiction over the transactions contemplated by this
Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. To the extent required by the HSR
Act, each of the Parties will promptly file with the United States Federal
Trade Commission and the United States Department of Justice the notification
and report form required for the transactions contemplated hereby and any
supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act and will comply in all material
respects with the requirements of the HSR Act. The Parties shall deliver to
each other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
5.2 Agreement as to Efforts to Consummate. Subject to the
terms and conditions of this Agreement, each Party agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper, or advisable under applicable Laws to
consummate and make effective, as soon as reasonably practicable after the date
of this Agreement, the transactions contemplated by this Agreement, including
using its reasonable efforts to lift or rescind any Order adversely affecting
its ability to consummate the transactions contemplated herein and to cause to
be satisfied the conditions referred to in Article
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6; provided, that nothing herein shall preclude either Party from exercising
its rights under this Agreement. Each Party shall use its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
5.3 Investigation and Confidentiality.
(a) Prior to the Closing Date, the Company
shall keep the Purchaser advised of all material developments relevant to its
business and to consummation of the Stock Purchase and shall permit Purchaser
to make or cause to be made such investigation of the business and properties
of Company and of their respective financial and legal conditions as Purchaser
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) The Purchaser shall, and shall cause its
advisers and agents to, maintain the confidentiality of all confidential
information furnished to it by Company concerning Company and its businesses,
operations, and financial positions and shall not use such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Closing Date, Purchaser
shall promptly return or certify the destruction of all documents and copies
thereof, and all work papers containing confidential information received from
Company.
(c) Per-Se and its Affiliates shall use their
reasonable efforts to exercise their rights under confidentiality agreements
entered into with Persons which were considering a transaction with respect to
Company to preserve the confidentiality of the information relating to the
Company provided to such Persons and their Affiliates and Representatives.
(d) Each Party agrees to give the other Party
notice as soon as practicable after any determination by it of any fact or
occurrence relating to the other Party which it has discovered through the
course of its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty, covenant
or agreement of the other Party or which has had or is reasonably likely to
have a Company Material Adverse Effect or a Purchaser Material Adverse Effect,
as applicable; provided, however, that the failure to give such notice shall
not give rise to any Liability against the Party or otherwise affect the
representations, warranties, covenants or agreements of the Parties set forth
herein (or the rights and remedies of the Party in the event of a breach
thereof) or any of the other terms and conditions of this Agreement.
5.4 Press Releases. Prior to the Closing Date, Per-Se and
Purchaser shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 5.4 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
5.5 Certain Actions. Except with respect to this
Agreement and the transactions contemplated hereby, no Company Entity nor any
shareholder nor any Affiliate thereof nor any Representatives thereof retained
by Per-Se or Company shall directly or indirectly solicit any Acquisition
Proposal by any Person. No Company Entity, any shareholder or any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally
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obligated to furnish, negotiate with respect to, or enter into any Contract
with respect to, any Acquisition Proposal, but Per-Se, Holdings or the Company
may communicate information about such an Acquisition Proposal to its
shareholders if and to the extent that it is required to do so in order to
comply with its legal obligations as advised by outside counsel.
5.6 Tax Matters.
(a) Cooperation and Exchange of Information.
Per-Se and the Purchaser will provide each other with such cooperation and
information as any of them reasonably may request of the other in filing any
Tax Return, amended return or claim for refund, determining a Liability for
Taxes or a right to a refund of Taxes or participating in or conducting any
audit or other proceeding in respect of Taxes. Such cooperation and information
shall include providing copies of relevant Tax Returns or portions thereof,
together with accompanying schedules and related work papers and documents
relating to rulings or other determinations by Tax authorities, but in no event
shall Per-Se or the Purchaser be required to disclose to the other any
information relating to the operations of either, as the case may be, other
than information relating to a Liability for Taxes of the Company. Per-Se and
the Purchaser shall make their respective employees available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Per-Se and Holdings will take no position on such Tax
Returns that relate to the Company that would adversely affect the Company
after the Closing Date, unless such position would be reasonable and consistent
with past practice as if Per-Se or Holdings had owned the Company both before
and after the Closing Date. Per-Se and the Purchaser will retain all Tax
Returns, schedules and work papers and all material books and records or other
documents relating to Tax matters of the Company for its taxable period ending
on or before the Closing Date until the expiration of the statute of
limitations of the taxable periods to which such returns and other documents
relate, without regard to extensions (but taking into account any extended
statute of limitations applicable to a year in which a net operating loss is
reported) except to the extent notified by the other party in writing of such
extensions for the respective Tax periods. Any information obtained under this
Section 5.6(a) shall be kept confidential, except as may be otherwise necessary
in connection with the filing of returns or claims for refund or in conducting
an audit or other proceeding. Notwithstanding anything in this Section 5.6(a)
to the contrary, no party shall be required to divulge any information to the
other party that would operate as a waiver of the attorney-client privilege.
Purchasers and the Seller shall use reasonable efforts not to destroy or allow
the destruction of any such books and records and workpapers without first
providing 60 days written notice of intention to destroy to the other
party(ies), and allowing such other party(ies) to take possession of such
records.
(b) Tax Indemnification. Notwithstanding any
provision of this Agreement to the contrary, Per-Se and Holdings shall be
jointly and severally liable, and shall pay, indemnify, and hold harmless
(including any Tax owed by the Purchaser as a result of this indemnification
payment) the Purchaser and the Company for (i) all Liability for Taxes of the
Company (including Taxes owed by Purchaser as a result of such indemnification
payment), for all periods or portions thereof ending on or prior to the Closing
Date; (ii) all Liability for Taxes of any affiliated, consolidated, unitary or
combined group or any member thereof, which affiliated, consolidated, unitary
or combined group includes or has included the Company for any period or
portion thereof ending on or prior to the Closing Date; and (iii) all Liability
for Taxes of the Company for all taxable periods beginning before the Closing
Date and ending after such date but only with respect to the portion of such
period ending on the Closing Date. Any Taxes under (iii) for a period
commencing prior to but ending after the Closing Date will be apportioned, in
the case of real and personal property Taxes, on a per diem basis and, in the
case of other Taxes, on
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the basis of the actual activities, taxable income or taxable loss of the
Company during the periods before and after the Closing Date, based upon a
closing of the books and determined as if such period ended with respect to
Per-Se on the Closing Date and commenced with respect to the Purchaser on the
date after the Closing Date. The Purchaser agrees to indemnify Per-Se for any
additional Tax owed by Per-Se (including Tax owed by Per-Se due to this
indemnification payment) resulting from any transaction initiated by Purchaser
and not in the ordinary course of business occurring on the date of this
Agreement. The Purchaser and Per-Se agree to report all transactions initiated
by the Purchaser and not in the ordinary course of business occurring on the
date of this Agreement on the Purchaser's federal income Tax Return to the
extent permitted by Section 1.1502-76(b)(1)(ii)(B) of the Treasury Regulations
promulgated pursuant to the Code. Any refund of Taxes received, or reduction of
Taxes realized by Per-Se, or any Affiliate of Per-Se, that is directly
attributable to Taxes paid or losses or credits generated by the Company with
respect to any period or portion thereof ending after the Closing Date is to be
paid to Purchaser within thirty (30) days after the receipt or credit thereof.
Per-Se and Holdings shall comply with Purchaser's requests in obtaining such
refunds, including, but not limited to, the filing of amended returns and
claims for refund. Any refund of Taxes received by the Purchaser, or any
Affiliate of Purchaser, that is directly attributable to Taxes paid by the
Company with respect to any period or portion thereof ending on or before the
Closing Date is to be paid to Per-Se within thirty (30) days after the receipt
or credit thereof. The Purchaser shall comply with Per-Se's requests in
obtaining such refunds, including, but not limited to, the filing of amended
returns and claims for refund.
5.7 Government Contract Audits. Purchaser shall give
notice to Per-Se of any notice Purchaser or the Company receives of any
scheduled audits requested by the Defense Contract Audit Agency related to
services provided prior to Closing under existing Government Contracts. Per-Se
shall have the right to observe the audit process and review the results.
Purchaser agrees to cause the Company to act reasonably and in good faith to
mitigate the adverse consequences to any Party resulting from such an audit.
5.8 Employee Benefits and Contracts.
(a) Following the Closing Date, the Purchaser
shall provide generally to officers and employees of the Company employee
benefits under employee benefit and welfare plans (other than stock option or
other plans involving the potential issuance of Purchaser Common Stock), on
terms and conditions which when taken as a whole are substantially similar to
those currently provided by the Purchaser to its similarly situated officers
and employees. For purposes of participation, to the extent permitted under
Purchaser's employee benefit plans, vesting and (except in the case of
Purchaser retirement plans) benefit accrual under Purchaser's employee benefit
plans, the service of the employees of the Company prior to the Closing Date
shall be treated as service with Purchaser for purposes of participating in
such employee benefit plans. Purchaser agrees that expenses incurred by
employees of the Company with respect to Company health plans for the current
year shall be credited for purposes of satisfying health plans for the current
year. Per-Se shall cause Per-Se or Holdings to honor in accordance with their
terms all employment, severance, consulting and other compensation Contracts
disclosed in Section 5.8(a) of the Company Disclosure Memorandum to Purchaser
between Holdings or Per-Se and any current or former director, officer, or
employee thereof. Until such Plans are amended by the Company, Purchaser shall
cause the Company to honor all provisions for benefits or other amounts earned
or accrued through the Closing Date under the Company Benefit Plans retained by
the Company in accordance with the terms of such Company Benefit Plans. Any
retention agreements or change in control agreements shall be fulfilled or
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paid out by Holdings or Per-Se at Closing if the Stock Purchase triggers any
event under any such agreement.
(b) Seller or Holdings shall make 401(k)
distributions to the Company's employees pursuant to Section
1.401(k)-1(d)(1)(v) of the Code.
5.9 Insurance. To the extent the Company suffers a Loss
the circumstances for which are covered by insurance retained by Per-Se, Per-Se
agrees to make a claim and seek insurance proceeds for the benefit of the
Company. All such insurance proceeds (regardless of whether Purchaser has
indemnification rights related to the Loss) actually received by Per-Se shall
be promptly remitted to the Company less any applicable deductible and less
actual costs incurred out-of-pocket by Per-Se to obtain the proceeds.
5.10 Bonus Payment. Purchaser shall cause the Company to
pay Company employees amounts due under the Target Performance Bonus Program in
accordance with the terms of such Bonus Program. If, on the date the bonuses
are due to the Company employees, the amount payable under the Bonus Program on
which the Bonus Accrual was calculated is determined to be greater than the
amount actually paid pursuant to the terms of the Bonus Program, and if such
determination has not been reflected in the adjustments to the Purchase Price
as set forth in Sections 1.3 or 1.4 hereof, Purchaser shall cause the excess to
be paid to Per-Se or Holdings within five (5) days of such determination.
5.11 Holdings Options. Per-Se or Holdings will cash out
within 45 days of Closing all outstanding stock options granted pursuant to the
Impact Innovations Key Employee Incentive Plan (the "Holdings Stock Plan") and
Per-Se will use its best efforts to cause the options holders to release the
Parties and acknowledge the cancellation or termination of the stock option
agreements related thereto.
5.12 Supplemental Disclosure. The Parties shall have the
continuing obligation up to and including the Closing Date to supplement
promptly or amend the Company Disclosure Memorandum or the Purchaser Disclosure
Memorandum as applicable, with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or listed in the applicable Disclosure
Memorandum; provided, however, that for the purpose of the rights and
obligations of the Parties hereunder, any such supplemental disclosure shall
not be deemed to have been disclosed as of the date of this Agreement unless so
agreed to in writing by Purchaser. Purchaser's remedy for supplemental
disclosures to which it does not agree to in writing shall be to terminate the
Agreement pursuant to Section 8.1(c) hereof.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
6.1 Conditions to Obligations of Each Party. The
respective obligations of each Party to perform this Agreement and consummate
the Stock Purchase and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 9.6:
(a) Regulatory Approvals. All Consents of,
filings and registrations with, and notifications to, all Regulatory
Authorities required for consummation of the Stock Purchase shall have been
obtained or made and shall be in full force and effect and all waiting periods
required by Law shall have expired or been terminated. No Consent obtained from
any
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Regulatory Authority which is necessary to consummate the transactions
contemplated hereby, shall be conditioned or restricted in a manner (including
requirements relating to the raising of additional capital or the disposition
of Assets) which in the reasonable judgment of the Board of Directors of
Purchaser and Holdings would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement that, had
such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(b) Legal Proceedings. No court or
governmental or regulatory authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
6.2 Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to perform this Agreement and consummate the Stock
Purchase and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by the Purchaser
pursuant to Section 9.6(a):
(a) Representations and Warranties. For
purposes of this Section 6.2(a), the accuracy of the representations and
warranties of Per-Se and Holdings set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). There shall not exist inaccuracies in the
representations and warranties of Per-Se and Holdings set forth in this
Agreement such that the aggregate effect of such inaccuracies has, or is
reasonably likely to have, a Company Material Adverse Effect; provided that,
for purposes of this sentence only, those representations and warranties which
are qualified by references to "material" or "Material Adverse Effect" or to
the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) Performance of Agreements and Covenants.
Each and all of the agreements and covenants of Per-Se, Holdings and the
Company to be performed and complied with pursuant to this Agreement and the
other agreements contemplated hereby prior to the Closing Date shall have been
duly performed and complied with.
(c) Consents and Approvals. Each Party
shall have obtained any and all Consents reasonably deemed by Purchaser to be
required for consummation of the Stock Purchase or to continue the benefits to
Company under such Contracts, or for the preventing of any Default under any
Company Contract or Permit of such Party, including Consents for the Company
Contracts or Permits listed in Section 6.2(c) of the Company Disclosure
Memorandum. No such Consent so obtained which is necessary to consummate the
transactions contemplated hereby, shall be conditioned or restricted in a
manner (including requirements relating to the raising of additional capital or
the disposition of Assets) which in the reasonable judgment of the Board of
Directors of Purchaser and Holdings would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement that, had such condition or requirement been known, such Party would
not, in its reasonable judgment, have entered into this Agreement.
(d) Certificates. Per-Se shall have delivered
to the Purchaser (i) a certificate, dated as of the Closing Date, and signed on
its behalf by duly authorized officers, to
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the effect that the conditions set forth in Section 6.1 as relates to Per-Se
and in Sections 6.2(a), 6.2(b) and 6.2(c) have been satisfied, all in such
reasonable detail as the Purchaser and its counsel shall request and (ii)
certified copies of Articles or Certificate(s) of Incorporation or other
formation documents of Holdings and Impact, certified bylaws of Holdings and
Impact and resolutions duly adopted by Per-Se and Holdings' Board of Directors
and, if applicable, shareholders, evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as the Purchaser shall request.
(e) Opinion of Counsel. Purchaser shall have
received from Randolph L.M. Hutto, General Counsel for Seller, an opinion dated
the Closing Date, in form reasonably satisfactory to Purchaser.
(f) Net Working Capital. The Net Working
Capital as of the Closing shall not be less than $8,000,000. Cash at Closing
shall not be less than the Cash Amount.
(g) Satisfactory Instruments. All instruments
of conveyance and transfer required on the Company's or Per-Se's part to
effectuate and consummate the transactions contemplated hereby will be
delivered to Purchaser and will be in form and substance reasonably
satisfactory to Purchaser and its counsel. Purchaser shall have received
evidence satisfactory to it that all Liens against the Assets of the Company
have been released or terminated prior to or at Closing. The officers and
directors of the Company shall have resigned as of the Closing Date, effective
upon consummation of the Stock Purchase.
(h) Litigation. No Order of any court or
administrative agency will be in effect which enjoins or prohibits the
transactions contemplated hereby or which would materially adversely affect the
Company or the business of the Company, and there will not have been
threatened, nor will there be pending, any action or proceeding by or before
any Regulatory Authority (i) challenging any of the transactions contemplated
by this Agreement or seeking monetary relief by reason of the consummation of
such transactions or (ii) which, if resolved against the Company on its terms,
would reasonably be expected to have a Company Material Adverse Effect on the
future conduct of the business of the Company, taking into account the
magnitude and likelihood of exposure.
(i) No Material Adverse Effect; Condition
of Assets. As of Closing, there will not have occurred any Company Material
Adverse Effect, or any condition or event which is reasonably likely to result
in a Company Material Adverse Effect.
(j) Escrow Agreement, Non-Compete Agreement;
Transition Services Agreement. Per-Se and Holdings shall have entered into,
executed and delivered the Escrow Agreement, the Non-Compete Agreement and the
Transition Services Agreement.
(k) Indenture Release. State Street Bank and
Trust Company shall have entered into the Release Letter substantially in the
form of Exhibit A.
(l) RSSI Plan. Per-Se shall have caused
the sponsorship of the Rapid Systems Solutions, Inc. 401(k) Savings and Profit
Sharing Plan to be transferred to either Per-Se or Holdings prior to the
Closing Date.
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(m) Assignment Documents. Holdings shall have
assigned all confidentiality agreements and other agreements with employees of
the Company to the Company. Holdings and Per-Se shall have assigned all
Contracts of the Company which are currently in the names of Holdings, Per-Se,
or any former Affiliate of Per-Se to the Company.
(n) Cost Submission Reports. The Company
shall have submitted all submission reports required under all Government
Contracts for the years 1996, 1997 and 1998 no later than the Closing Date.
6.3 Conditions to Obligations of the Seller. The
obligations of Per-Se and Holdings to perform this Agreement and consummate the
Stock Purchase and the other transactions contemplated hereby are subject to
the satisfaction of the following conditions, unless waived by Per-Se pursuant
to Section 9.6(b):
(a) Representations and Warranties. For
purposes of this Section 6.3(a), the accuracy of the representations and
warranties of the Purchaser set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). There shall not exist inaccuracies in the
representations and warranties of the Purchaser set forth in this Agreement
such that the aggregate effect of such inaccuracies has, or is reasonably
likely to have, a Purchaser Material Adverse Effect; provided that, for
purposes of this sentence only, those representations and warranties which are
qualified by references to "material" or "Material Adverse Effect" or to the
"Knowledge" of any Person shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants.
Each and all of the agreements and covenants of the Purchaser to be performed
and complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Closing Date shall have been duly performed
and complied with.
(c) Certificates. The Purchaser shall have
delivered to Per-Se (i) a certificate, dated as of the Closing Date and signed
on its behalf by duly authorized officers, to the effect that the conditions
set forth in Section 6.1 as relates to the Purchaser and in Section 6.3(a) and
6.3(b) have been satisfied, all in such reasonable detail as the Seller and its
counsel shall request, and (ii) certified copies of resolutions duly adopted by
the Purchaser's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as the Seller and its counsel shall request.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification of Purchaser. Subject to the terms
and conditions in this Article 7, Per-Se and Holdings shall jointly and
severally indemnify, defend and hold harmless the Purchaser, and its officers,
directors, shareholders, controlling persons, Affiliates and Representatives,
from and against any Losses (but excluding consequential and incidental damages
of Purchaser), suffered or incurred by the Purchaser, as and when incurred, by
reason of, or arising out of, (i) any misrepresentation, breach of warranty or
breach or non-fulfillment of any agreement of Per-Se, Holdings or the Company
contained in this Agreement (except for a misrepresentation or breach of
warranty found in Section 2.21) or in any document executed and
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delivered in connection with this Agreement, and for purposes of this Section
7.1 any qualification of such representations and warranties by reference to
the materiality of matters having or not having a "Material Adverse Effect,"
and any limitation of such representations and warranties as being "to the
Knowledge of" or "Known to" or words of similar effect, shall be disregarded in
determining any inaccuracy, untruth, incompleteness or each thereof; (ii) the
breach or nonfulfillment of any covenant or agreement of the Seller contained
in this Agreement or in the Closing Documents; (iii) the sale of E-Business
Solutions.com, Inc. by Holdings to Complete Business Solutions, Inc. and the
Rose Budd Lawsuit (iv) the Retention Agreements for Company employees that
Purchaser has notified Per-Se it will not employ post-Closing, Liabilities
arising prior to the Closing for benefits or other charges under the Minimum
Premium Agreement with Great-West Life & Annuity Insurance, any stock option
plan or grants of the Company or any Affiliate of Holdings or Per-Se, including
the Holdings Stock Plan (and any stock options issued thereunder), or any
operational defects in the frozen Rapid Systems Solutions, Inc. 401(k) Plan,
(v) any misrepresentation or breach of warranty of Per-Se or Holdings contained
in Section 2.21 of this Agreement, or Losses arising from any audit performed
post-Closing in respect of the performance of any Government Contract occurring
prior to the Closing Date.
7.2 Indemnification of Seller. Subject to the terms and
conditions in this Article 7, the Purchaser shall indemnify, defend and hold
harmless Per-Se, and its respective officers, directors, shareholders,
controlling persons, Affiliates and Representatives, from and against any
Losses (but excluding consequential and incidental damages of Per-Se) suffered
or incurred by Per-Se, as and when incurred, by reason of, or arising out of,
(i) any misrepresentation, breach of warranty or breach or non-fulfillment of
any agreement of the Purchaser contained in this Agreement or in any document
executed and delivered in connection with this Agreement, and (ii) the breach
or nonfulfillment of any covenant or agreement of the Purchaser contained in
this Agreement or in the Closing Documents.
7.3 Notice and Opportunity to Defend. The party
indemnified hereunder (the "Indemnified Party") shall notify in writing the
indemnifying party (the "Indemnifying Party") within thirty (30) days after a
third party claim is presented to the Indemnified Party and the Indemnifying
Party shall defend such claim at its expense and may select the attorneys for
such defense, who shall be reasonably acceptable to the Indemnified Party. If
the Indemnifying Party does not defend such claim, the Indemnified Party may do
so without the Indemnifying Party's participation, in which case the
Indemnifying Party shall pay the expenses of such defense. Neither the
Indemnified Party nor the Indemnifying Party may settle or compromise such
claim without the other party's consent, which shall not be unreasonably
withheld. If the Indemnified Party fails to notify the Indemnifying Party of a
third party claim as provided in this Section 7.3, and if the Indemnifying
Party is thereby prejudiced by such failure of notice in its defense of the
claim, the Indemnifying Party's obligation of indemnity hereunder shall be
extinguished with respect to such claim to the extent that the Indemnifying
Party has been prejudiced by the failure to give such notice. The Indemnified
Party and Indemnifying Party agree to cooperate in good faith in the defense
and/or settlement of any such claim.
7.4 Limitations.
(a) A party otherwise entitled to
indemnification under Section 7.1(i) or (ii) or Section 7.2 is not entitled to
indemnification until the aggregate indemnifiable Losses for which it is
otherwise entitled to indemnification hereunder shall equal or exceed U.S.
$500,000 (the "Threshold Amount"). A party otherwise entitled to
indemnification under Sections 7.1(v) is not entitled to indemnification until
the aggregate indemnifiable Losses for
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which it is otherwise entitled to indemnification hereunder shall equal or
exceed U.S. $250,000 (the "Government Contract Threshold Amount"). The
Threshold Amount and Government Contract Threshold Amount limitations set forth
in this Section shall not apply to any intentional misrepresentation or breach
of warranty of any indemnitor or any intentional failure to perform or comply
with any covenant or agreement of any indemnitor, or to indemnifications rights
provided in Sections 7.1(iii), (iv), or to any Tax Liability of the Company
related to periods ended on or prior to the Closing Date, including the
indemnification provided in Section 5.6(b); and the indemnitors shall be liable
for all Losses with respect thereto. With respect to Sections 7.1(i) or (ii) or
Section 7.2 described above, if and when the sum of all indemnifiable Losses of
a party hereunder equals or exceeds the Threshold Amount, then such party may
request indemnification for all indemnifiable Losses in excess of the Threshold
Amount. With respect to Sections 7.1(v)described above, if and when the sum of
all indemnifiable Losses of a party thereunder equals or exceeds the Government
Contract Threshold Amount, then such party may request indemnification for all
indemnifiable Losses in excess of the Government Contract Threshold Amount, and
the Government Contract Threshold Amount shall be counted towards the Threshold
Amount. To the extent covered by insurance, any indemnifiable Loss will be
deemed reduced by the amount of insurance proceeds actually received by the
Indemnified Party and its Affiliates in respect of such Loss; provided,
however, that in no event shall this sentence be deemed to require any
Indemnified Party to maintain any level of insurance. In no event shall a
party's collective Liability under this Article 7 exceed $6,750,000, except for
Liabilities related to Taxes or matters for which Purchaser is entitled to
indemnification under Sections 7.1(iii) and (iv) (the "Maximum Liability").
(b) The indemnitors will have no liability
to the Indemnified Parties under or in connection with: (a) a breach of any of
the representations, warranties, covenants, or agreements made or to be
performed by the indemnitors contained in this Agreement (other than the
representations and warranties set forth in Sections 2.2, 2.8, 2.9, 2.11, 2.14
and 2.21), unless written notice asserting an Indemnification Claim based
thereon is given to Per-Se or Purchaser, as applicable, prior to the later of
(i) September 30, 2001 or (ii) the first anniversary of the date on which such
covenant or agreement is to be performed hereunder; (b) a breach of any of the
representations, warranties, indemnities, covenants or agreements made or to be
performed by the indemnitors contained in this Agreement related to the
Government Contracts, including without limitation, those representations,
warranties, indemnities, covenants or agreements made by the indemnitors in
Section 7.1(v), unless written notice asserting an Indemnification Claim based
thereon is given to Per-Se on or prior to December 31, 2002; (c) a breach of
any representation, warranty, covenant or agreement made or to be performed by
the indemnitors contained in this Agreement related to any Taxes or employee
benefit plans, including without limitation, those representations and
warranties made by the indemnitors in Sections 2.8 and 2.14, unless written
notice asserting an Indemnification Claim based thereon is given to Per-Se or
Purchaser, as applicable, prior to the later of (i) ninetieth (90th) day after
the date upon which the liability to which any such claim may relate is barred
by all applicable statutes of limitation and (ii) the ninetieth (90th) day
after the date upon which any claim for refund or credit related to such claim
is barred by all applicable statutes of limitation; (d) a breach of any
representation, warranty, covenant or agreement made or to be performed by the
indemnitor contained in this Agreement related to any environmental matters,
including without limitation, those representations and warranties made by the
indemnitor in Section 2.11, unless written notice asserting an indemnification
claim based thereon is given to the Seller or Purchaser, as applicable, prior
to two years from the date hereof; provided, however, the liability of the
indemnitors relating to, arising out of or based upon those representations and
warranties of the indemnitors set forth in Section 2.2(a) and (b)(i) and the
first sentence of 2.9(a) may be asserted at any time.
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7.5 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of Per-Se, the Company
and Purchaser will survive the Closing and shall not be deemed waived or
otherwise affected by any investigation conducted with respect thereto.
7.6 Subrogation. Upon payment in full of any claim by a
third party under this Article 7 (irrespective of the method of payment), the
Indemnifying Party shall be subrogated to the extent of such payment to the
rights of the Indemnified Party against any Person with respect to the subject
matter of such claim.
7.7 Exclusive Remedy. Except for remedies reflected in
the Agreement related to adjustments to the Purchase Price and remedies based
upon fraud, the remedies provided for in this Article 7 constitute the sole and
exclusive remedies for recovery against Per-Se or the Purchaser based upon the
inaccuracy, untruth, incompleteness or breach of any representation or warranty
of such party contained in this Agreement or in any document executed and
delivered in connection with this Agreement, or based upon the failure of
Per-Se, Holdings, the Company or the Purchaser to perform any covenant,
agreement or undertaking required by the terms hereof to be performed by such
party.
7.8 Dispute Resolution.
(a) If an Indemnified Party incurs any Loss
indemnifiable under this Article 7("Indemnifiable Loss"), it shall promptly
provide written notice to the Indemnifying Party stating in reasonable detail
the nature and amount of such Indemnifiable Loss or potential Indemnifiable
Loss (a "Loss Notice"). In addition, with respect to third party claims, the
Indemnified Party shall comply with Section 7.3. If the Indemnifying Party
disputes the amount sought under any such Loss Notice or otherwise disputes the
right of the Indemnified Party to be indemnified hereunder, it shall provide
the Indemnified Party a written notice objecting to such claim for
indemnification within thirty (30) days of the date any such Loss Notice is
received by the Indemnifying Party (a "Protest Notice").
(b) If (i) the Indemnifying Party and the
Indemnified Party are unable to resolve a Loss Notice with respect to which the
Indemnified Party has received a Protest Notice (a "Disputed Loss Notice")
within thirty days of the date the Indemnified Party receives the Protest
Notice, or (ii) there is any other controversy or claim arising out of or
relating to this Agreement or a breach hereof, then any of the parties hereto
may require such Disputed Loss Notice or other controversy or claim to be
submitted to arbitration in the venue of Atlanta, Georgia in accordance with
the then-current expedited procedures of the commercial arbitration rules of
the American Arbitration Association ("AAA"). In any arbitration hereunder, the
Purchaser shall select one arbitrator, Per-Se shall select one arbitrator, and
the two arbitrators so chosen shall select a third. All such arbitrators must
be selected from the list of arbitrators maintained by the AAA. Any decision of
the arbitration panel shall require the vote of at least two (2) of such
arbitrators and shall be deemed conclusive and each party shall be deemed to
have waived any rights to appeal therefrom. Each party shall bear its own legal
fees and related expenses incurred in connection with the arbitration
proceedings.
7.9 Escrow. Upon notice to Per-Se specifying in
reasonable detail the basis therefor, Purchaser may give notice of an
Indemnification Claim under the Escrow Agreement until September 30, 2001.
Neither the exercise of, nor the failure to exercise such right to give a
notice of an Indemnification Claim under the Escrow Agreement shall constitute
an election of
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remedies nor limit the Indemnified Party in any manner in the enforcement of
any other remedies that may be available to it.
ARTICLE 8
TERMINATION
8.1 Termination. Notwithstanding any other provision of
this Agreement, this Agreement may be terminated and the Stock Purchase
abandoned at any time prior to the Closing Date:
(a) By mutual consent of the Purchaser and
Per-Se; or
(b) By either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within 30
days after the giving of written notice to the breaching Party of such breach;
or
(c) By either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within 30
days after the giving of written notice to the breaching Party of such breach;
or
(d) By either Party in the event any Consent of
any Regulatory Authority required for consummation of the Stock Purchase and
the other transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal; or
(e) By either Party in the event that
the Stock Purchase shall not have been consummated by December 31, 1999, if the
failure to consummate the transactions contemplated hereby on or before such
date is not caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 8.1(e); or
(f) By either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event that any of the conditions precedent to the obligations of such Party to
consummate the Stock Purchase cannot be satisfied or fulfilled within 60 days
after the giving of written notice to the Party not satisfying the condition
precedent.
8.2 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section 8.1, this
Agreement shall become void and have no effect, except that (i) the provisions
of Section 5.3(b), this Section 8.2 and Article 9 shall survive any such
termination and abandonment, and (ii) a termination pursuant to Sections
8.1(b), 8.1(c), 8.1(e) or 8.1(f) shall not relieve the breaching Party from
Liability for an uncured willful breach of a representation, warranty,
covenant, or agreement giving rise to such termination.
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ARTICLE 9
MISCELLANEOUS
9.1 Definitions.
(a) Except as otherwise provided herein, the
capitalized terms set forth below shall have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition
of all of the stock or assets of, or other business combination
involving the acquisition of such Party or any of its Subsidiaries or
the acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries.
"Accountants" shall mean KPMG, or such other large accounting
firm which has no prior or existing relationship with the Parties hereto
and which is agreed to by the Parties hereto.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any
officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity or voting interest of such Person; or
(iii) any other Person for which a Person described in clause (ii) acts
in any such capacity.
"Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized
in such Person's business, directly or indirectly, in whole or in part,
whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of such
Person and wherever located.
"Bid" means any quotation, bid or proposal by the Company or
any of its Affiliates which, if accepted or awarded, would lead to a
Contract with the U.S. Government, or a prime contractor or a
higher-tier subcontractor to the U.S. Government, for the sale of goods
or the provision of services by the Company or a contracting team of
which the Company is a member.
"Business" shall mean the business of the Company as
currently conducted.
"Cash Amount" shall mean, $500,000.
"Closing Date" shall mean the date on which the Closing
occurs.
"Closing Documents" shall mean the documents, agreements and
certificates executed and delivered at Closing pursuant to the terms of
this Agreement.
"Company Disclosure Memorandum" shall mean the written
information entitled "Company Disclosure Memorandum" delivered prior to
the date of this Agreement to Purchaser describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect
to one Section
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<PAGE> 37
shall not be deemed to be disclosed for purposes of any other Section
not specifically referenced with respect thereto.
"Company Entities" shall mean, collectively, Per-Se, Holdings
and Impact and Affiliate thereof.
"Company Financial Statements" shall mean (i) the balance
sheets (including related notes and schedules, if any) of Company as of
September 30, 1999, and as of December 31, 1998, and the related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for the six months ended
September 30, 1999, and for each of the three fiscal years ended
December 31, 1998, and (ii) the balance sheets of Company (including
related notes and schedules, if any) and related statements of income,
changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) with respect to periods ended subsequent to
September 30, 1999.
"Company Material Adverse Effect" shall mean an event, change
or occurrence which, individually or together with any other event,
change or occurrence, has a material adverse impact on the financial
position, business or results of operations of the Company or the
ability of the Company or the Seller to perform its obligations under
this Agreement or to consummate the Stock Purchase or the other
transactions contemplated by this Agreement, provided that "Company
Material Adverse Effect" shall not be deemed to include the impact of
(a) changes in Laws of general applicability or interpretations thereof
by courts or governmental authorities, (b) changes in generally accepted
accounting principles or regulatory accounting principles generally
applicable to the Company, or (c) actions and omissions of either the
Company or the Seller taken with the prior informed written Consent of
the Purchaser in contemplation of the transactions contemplated hereby.
"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument,
lease, obligation, plan, practice, restriction, understanding, or
undertaking of any kind or character, or other document to which any
Person is a party or that is binding on any Person or its capital stock,
Assets or business.
"Conversion Payment" shall mean $500,000.
"Current Assets" of the Company means all assets of the
Company (including Net Account Receivables and cash) permitted by GAAP
to be classified as current assets.
"Current Liabilities" of the Company means all Liabilities of
the Company acquired by Purchaser which are permitted by GAAP to be
classified as current Liabilities, excluding (i) the Bonus Accrual, and
(ii) the current portion of all capital lease obligations.
"Default" shall mean (i) any breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Order, or
Permit, (ii) any occurrence of any event that with the passage of time
or the giving of notice or both would constitute a breach or violation
of, default under, contravention of, or conflict with, any Contract,
Law, Order, or Permit, or (iii) any occurrence of any event that with or
without the passage of time or the
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<PAGE> 38
giving of notice would give rise to a right of any Person to exercise
any remedy or obtain any relief under, terminate or revoke, suspend,
cancel, or modify or change the current terms of, or renegotiate, or to
accelerate the maturity or performance of, or to increase or impose any
Liability under, any Contract, Law, Order, or Permit.
"Environmental Laws" shall mean all Laws relating to
pollution or protection of human health or the environment (including
ambient air, surface water, ground water, land surface, or subsurface
strata) and which are administered, interpreted, or enforced by the
United States Environmental Protection Agency and state and local
agencies with jurisdiction over, and including common Law in respect of,
pollution or protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
relating to emissions, discharges, releases, or threatened releases of
any Hazardous Material, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of any Hazardous Material.
"Equity Rights" shall mean all arrangements, calls,
commitments, Contracts, options, rights to subscribe to, scrip,
understandings, warrants, or other binding obligations of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of a Person or by which a
Person is or may be bound to issue additional shares of its capital
stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Escrow Agent" means SunTrust Bank or such other party as
mutually agreed upon by Purchaser and Per-Se.
"Escrow Agreement" means the escrow agreement executed by
Purchaser, Per-Se, and the Escrow Agent in form mutually agreed upon by
Purchaser and Per-Se.
"Escrow Amount" shall mean $1,000,000.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Government Contract" means any prime Contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering
agreement, letter agreement, purchase order, delivery order, Bid, change
order or other commitment between the Company and (i) the U.S.
Government, (ii) any prime contractor to the U.S. Government or (iii)
any subcontractor with respect to any contract described in clause (i)
or (ii).
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products, or oil (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated
biphenyls).
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"Holdings Common Stock" shall mean the common stock, par
value $.10 per share, of Holdings.
"HSR Act" shall mean Section 7A of the Clayton Act, as added
by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Impact Common Stock" shall mean the common stock, par value
$.001 per share, of Impact.
"Indemnification Claim" shall mean a claim for indemnification
under Article VII.
"Intellectual Property" means (a) any and all ideas,
inventions, discoveries, prototypes, processes, art-work, know-how,
compositions, techniques, methods, concepts, schematics, flow charts,
works under the copyright Laws (for example, computer programs,
including source and object code), formulas, systems, mask works, data
bases, data, client lists (current clients, former clients or
prospective clients), vendor lists, business associates/partners list,
manuals, notes, designs, drawings, training materials, company
information and records, brand names, trade names (including the name
"Impact Innovations" or any variations or derivations thereof),
trademarks, service marks, other marks, company names, company goodwill
and goodwill associated with any trademark, service mark or other mark,
phone numbers, domain names, Internet Protocol addresses and all other
intangible property of any kind, (b) all copyrights, rights of
authorship, rights of publicity or broadcast, patent rights, right of
inventorship, trade dress rights, trade secrets and proprietary
information, rights of attribution and integrity and other moral rights,
and other intellectual property rights of any type under state Law,
federal Law of the United States, the Laws of any other nation or
international treaty, (c) all rights of registration or rights in
applications for (a) and (b), including without limitation, any
trademark application for "Impact Innovation or Rapid Systems Solution
and design and trademark application for "Impact Innovation or Rapid
Systems Solution", and (d) the medium in which (a), (b) or (c) resides
where applicable (e.g., brochure upon which service mark resides, disk
or CD upon which computer code resides).
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
"Knowledge" as used with respect to a Person (including
references to such Person being aware of a particular matter) shall mean
those facts that are known or should reasonably have been known after
due inquiry by the chairman, president, chief executive officer, chief
financial officer, chief accounting officer, chief operating officer,
general counsel, or any senior or executive vice president of such
Person.
"Law" shall mean any code, law (including common law),
ordinance, regulation, reporting or licensing requirement, rule, or
statute applicable to a Person or its Assets, Liabilities, or business,
including those promulgated, interpreted or enforced by any Regulatory
Authority.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person
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<PAGE> 40
(other than endorsements of notes, bills, checks, and drafts presented
for collection or deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest,
title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable, and (iii) Liens which do
not materially impair the use of or title to the Assets subject to such
Lien.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, governmental or other
examination or investigation, hearing, administrative or other
proceeding relating to or affecting a Party, its business, its Assets
(including Contracts related to it), or the transactions contemplated by
this Agreement.
"Losses" shall mean any and all demands, claims, actions or
causes of action, assessments, losses, diminution in value, damages
(including special and consequential damages), Liabilities, costs, and
expenses, including interest, penalties, cost of investigation and
defense, and reasonable attorneys' and other professional fees and
expenses.
"Net Accounts Receivable" of the Company means the accounts
receivables of the Company acquired by Purchaser, net of all reserves
required by GAAP.
"Net Working Capital" of the Company means the difference
between the Current Assets of the Company and the Current Liabilities of
the Company, each as set forth on the Company's balance sheet prepared
in accordance with GAAP consistently applied.
"Non-Compete Agreement" shall mean the non-competition
agreement between Seller and Purchaser.
"Operating Property" shall mean any property owned, leased,
or operated by the Party in question or by any of its Subsidiaries or in
which such Party or Subsidiary holds a security interest or other
interest (including an interest in a fiduciary capacity), and, where
required by the context, includes the owner or operator of such
property, but only with respect to such property.
"Order" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency, or Regulatory
Authority.
"Party" shall mean any of Holdings, Impact, the Seller or the
Purchaser, and "Parties" shall mean all of Holdings, Impact, the Seller
and the Purchaser.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to
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which any Person is a party or that is or may be binding upon or inure
to the benefit of any Person or its securities, Assets, or business.
"Person" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in concert,
or any person acting in a representative capacity.
"Purchaser Material Adverse Effect" shall mean an event,
change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse impact on the
ability of the Purchasers to perform their obligations under this
Agreement or to consummate the Stock Purchase or the other transactions
contemplated by this Agreement, provided that "Purchaser Material
Adverse Effect" shall not be deemed to include the impact of (a) changes
in Laws of general applicability or interpretations thereof by courts or
governmental authorities, (b) changes in generally accepted accounting
principles or regulatory accounting principles generally applicable to
Purchaser, or (c) actions and omissions of either Purchaser taken with
the prior informed written Consent of the Seller in contemplation of the
transactions contemplated hereby.
"Purchaser Disclosure Memorandum" shall mean the written
information entitled "Purchaser Disclosure Memorandum" delivered prior
to the date of this Agreement to Company describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made.
"Regulatory Authorities" shall mean, collectively, the
Securities and Exchange Commission, the Federal Trade Commission, the
United States Department of Justice, and all other federal, state,
county, local or other governmental or regulatory agencies, authorities
(including self-regulatory authorities), instrumentalities, commissions,
boards or bodies having jurisdiction over the Parties and their
respective Subsidiaries.
"Release Letter" shall mean the letter executed by State
Street Bank and Trust Company releasing the Company from the Subsidiary
Guarantee.
"Representative" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative
engaged by a Person.
"Rose Budd lawsuit" shall mean the lawsuit referenced on
Schedule 2.16(b) of the Company Disclosure Memorandum.
"Securities Laws" shall mean the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Subsidiaries" shall mean all those corporations,
associations, or other business entities of which the entity in question
either (i) owns or controls 50% or more of the outstanding equity
securities either directly or through an unbroken chain of entities as
to each of which 50% or more of the outstanding equity securities is
owned directly or indirectly by its parent (provided, there shall not be
included any such entity the equity
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securities of which are owned or controlled in a fiduciary capacity),
(ii) in the case of partnerships, serves as a general partner, (iii) in
the case of a limited liability company, serves as a managing member, or
(iv) otherwise has the ability to elect a majority of the directors,
trustees or managing members thereof.
"Tax Return" shall mean any report, return, information
return, or other information required to be supplied to a taxing
authority in connection with Taxes, including any return of an
affiliated or combined or unitary group that includes a Party or its
Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county,
local, or foreign taxes, charges, fees, levies, imposts, duties, or
other assessments, including income, gross receipts, excise, employment,
sales, use, transfer, license, payroll, franchise, severance, stamp,
occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid-up capital,
profits, withholding, Social Security, single business and unemployment,
disability, real property, personal property, registration, ad valorem,
value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposes or required to be
withheld by the United States or any state, county, local or foreign
government or subdivision or agency thereof, including any interest,
penalties, and additions imposed thereon or with respect thereto.
"Transition Services Agreement" means the agreement executed
by Per-Se, Purchaser and the Company related to the provision of certain
services similar to those currently provided by Per-Se to the Company
for a period of time following the Closing Date, the form of which
agreement and the length of time shall be mutually agreed upon by Per-Se
and Purchaser.
"U.S. Government" means the United States government,
including any and all departments, agencies, commissions, branches and
instrumentalities thereof, as well as any corporations owned or
chartered by the United States government.
(b) The terms set forth below shall have
the meanings ascribed thereto in the referenced sections:
<TABLE>
<S> <C>
AAA Section 7.8(b)
Agreement Preamble
Allocation Schedule Section 1.7
Bonus Accrual Section 1.3
Code Section 1.7
Company Preamble
Company Benefit Plans Section 2.14(a)
Company Contracts Section 2.15
Company ERISA Plan Section 2.14(a)
Company Pension Plan Section 2.14(a)
Conversion Date Section 1.7
ERISA Affiliate Section 2.14(b)
Estimated Bonus Accrual Section 1.3
Government Contract Threshold Amount Section 7.4(a)
Holdings Preamble
Holdings Stock Plan Section 5.11
Immigration Laws Section 2.13 (c)
</TABLE>
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<TABLE>
<S> <C>
Impact Preamble
Indemnified Party Section 7.3
Indemnifying Party Section 7.3
Initial Purchase Price Section 1.1
Labor Claims Section 2.13(b)
Material Customers Section 2.20
Per-Se Preamble
Process Section 2.19
Purchase Price Section 1.1
Purchaser Preamble
Seller Preamble
Shares Preamble
Stock Purchase Section 1.1
Threshold Amount Section 7.4(a)
WARN Section 2.13(b)
</TABLE>
(c) Any singular term in this Agreement shall
be deemed to include the plural, and any plural term the singular. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed followed by the words "without limitation."
9.2 Expenses. Except as otherwise provided in this
Section 9.2, each of the Parties shall bear and pay all direct costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including filing, registration and application fees,
printing fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and counsel.
9.3 Brokers and Finders. Each of the Parties represents
and warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the transactions
contemplated hereby, other than, in the case of Per-Se, Donaldson, Lufkin &
Jenrette, the fees and expenses of whom shall be the sole responsibility of
Per-Se. In the event of a claim by any broker or finder based upon his or its
representing or being retained by or allegedly representing or being retained
by Holdings, Impact or Per-Se or by the Purchaser, each of Per-Se and the
Purchaser, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
9.4 Entire Agreement. Except as otherwise expressly
provided herein, this Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement between the Parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. Nothing
in this Agreement expressed or implied, is intended to confer upon any Person,
other than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
9.5 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of the Parties
upon the approval of each of the Parties, whether before or after shareholder
approval of this Agreement has been obtained.
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9.6 Waivers.
(a) Prior to or on the Closing Date, the
Purchaser, acting through its Board of Directors, chief executive officer or
other authorized officer, shall have the right to waive any Default in the
performance of any term of this Agreement by Per-Se, Holdings or the Company,
to waive or extend the time for the compliance or fulfillment by Per-Se,
Holdings or the Company of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
Purchasers under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by duly authorized officers of the Purchaser.
(b) Prior to or on the Closing Date, Per-Se,
acting through its Board of Directors, chief executive officer or other
authorized officer, shall have the right to waive any Default in the
performance of any term of this Agreement by the Purchaser, to waive or extend
the time for the compliance or fulfillment by the Purchaser of any and all of
its obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of the Per-Se under this Agreement, except any
condition which, if not satisfied, would result in the violation of any Law. No
such waiver shall be effective unless in writing signed by duly authorized
officers of the Seller.
(c) The failure of any Party at any time
or times to require performance of any provision hereof shall in no manner
affect the right of such Party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the breach of any
term contained in this Agreement in one or more instances shall be deemed to be
or construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
9.7 Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party; provided, that
Purchaser may assign its rights and its obligations to a Subsidiary and may
assign its rights but not its obligations under this Agreement or under any
other Closing Document as collateral to any lenders providing financing to
Purchaser in connection with the transactions contemplated by this Agreement.
Notwithstanding any such assignment(s), the Purchaser shall not be relieved of
any of its obligations hereunder. Subject to the preceding, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors and assigns.
9.8 Notices. All notices or other communications which
are required or permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
Seller: Per-Se Technologies, Inc.
2840 Mt. Wilkinson Parkway
Suite 300
Atlanta, Georgia 30339
Telecopy Number: (770) 444-4502
Attention: Randolph L.M. Hutto
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<PAGE> 45
Copy to Counsel: Powell, Goldstein Frazer & Murphy LLP
191 Peachtree Street, N.E.
16th Floor
Atlanta, Georgia 30306
Telecopy Number: (404) 572-6999
Attention: Thomas R. McNeill, Esq.
Purchaser: J3 Technology Services Corp.
1144 Canton Street
Suite 204
Atlanta, Georgia 30075
Telecopy Number: (770) 552-8316
Attention: James W. Childs
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309
Telecopy Number: (404) 881-4777
Attention: Teri L. McMahon, Esq.
9.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the Laws of the State of Georgia, without
regard to any applicable conflicts of Laws.
9.10 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
9.11 Captions; Articles and Sections. The captions
contained in this Agreement are for reference purposes only and are not part of
this Agreement. Unless otherwise indicated, all references to particular
Articles or Sections shall mean and refer to the referenced Articles and
Sections of this Agreement.
9.12 Interpretations. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against any
party, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. The parties acknowledge and agree
that this Agreement has been reviewed, negotiated, and accepted by all parties
and their attorneys and shall be construed and interpreted according to the
ordinary meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
9.13 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
[Signatures to Continue on Following Page]
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IN WITNESS WHEREOF, each of Purchaser, Holdings, Impact and
Per-Se has caused this Agreement to be executed on its behalf by its duly
authorized officers as of the day and year first above written.
J3 TECHNOLOGY SERVICES CORP.
By: /s/JAMES W. CHILDS
-----------------------------------
James W. Childs
Title: President
IMPACT INNOVATIONS HOLDINGS, INC.
By: /s/RANDOLPH L. M. HUTTO
-----------------------------------
Randolph L.M. Hutto
Executive Vice President
PER-SE TECHNOLOGIES, INC.
By: /s/RANDOLPH L. M. HUTTO
-----------------------------------
Randolph L.M. Hutto
Executive Vice President
IMPACT INNOVATIONS GOVERNMENT
GROUP, INC.
By: /s/RANDOLPH L. M.HUTTO
-----------------------------------
Randolph L.M. Hutto
Executive Vice President
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<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
as of the 1st day of June 1999, by and between Per-Se Technologies, Inc., a
Delaware corporation (the "Company") and a wholly-owned subsidiary of Medaphis
Corporation, a Delaware corporation ("Medaphis"), and Philip M. Pead, a
resident of the State of Georgia (the "Employee").
Statement of Background Information
The Company : (a) develops, markets and licenses to hospitals,
integrated healthcare delivery systems, and other healthcare providers and
other end users (collectively "Providers"), (i) strategic, operational and
financial information systems and services and decision support tools for
healthcare providers, (ii) software systems which provide claims and
reimbursement services and electronic claims processing, and (iii) software
applications which assist Providers with automated scheduling and resource
management (the items discussed in Sections (a)(i), (a)(ii) and (a)(iii) of
this paragraph are referred to as "Systems"), which Systems include, but are
not limited to, nurse scheduling and management information systems, operating
room patient scheduling and surgery information systems, enterprise wide
patient scheduling and resource management systems, enterprise-wide employee
scheduling and management information systems and related software interfaces
to other information systems; and (b) provides to Providers installation and
support services related to the Company's Systems (the "Systems Business")(the
Systems Business and any other distinct business segment in which the Company
engages during Employee's employment are collectively referred to herein as the
"Business").
In consideration of the mutual covenants, promises and conditions set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions set forth in
this Agreement.
2. Duties of Employee. Employee's title will be President of the Company.
Employee agrees to perform and discharge such other duties as may be
assigned to Employee from time to time by the Company to the
reasonable satisfaction of the Company, and such duties will be
consistent with those duties regularly and customarily assigned by the
Company to the position of President and by Medaphis to heads of
operating subsidiaries. Employee also agrees to comply with all of
Medaphis' and the Company's policies, standards and regulations as
promulgated and in effect from time to time, and to follow the
instructions and directives of Employee's superiors within Medaphis.
Employee will devote Employee's full professional and business-related
time, skills and best efforts to such duties and will not, during the
term of this
1
<PAGE> 2
Agreement, be engaged (whether or not during normal business hours) in
any other business or professional activity, whether or not such
activity is pursued for gain, profit or other pecuniary advantage,
without the prior written consent of the Chief Executive Officer of
Medaphis, which consent will not be unreasonably withheld. This
Section will not be construed to prevent Employee from (a) investing
personal assets in businesses which do not compete with the Company in
such form or manner that will not require any services on the part of
Employee in the operation or the affairs of the companies in which
such investments are made and in which Employee's participation is
solely that of an investor; (b) purchasing securities in any
corporation whose securities are listed on a national securities
exchange or regularly traded in the over-the-counter market, provided
that Employee at no time owns, directly or indirectly, in excess of
one percent (1%) of the outstanding stock of any class of any such
corporation engaged in a business competitive with that of the
Company; or (c) participating in conferences, preparing and publishing
papers or books or teaching, so long as the Chief Executive Officer of
Medaphis approves such participation, preparation and publication or
teaching prior to Employee's engaging therein.
3. Term. The term of this Agreement will be for a two (2) year period of
time, commencing as of May 1, 1999 and expiring on the second
anniversary thereof subject to earlier termination as provided for in
Section 4 of this Agreement. This Agreement shall be automatically
renewed for successive one (1) year periods at the end of the initial
term, unless either party gives notice to the other of its intent to
terminate this Agreement not less than sixty (60) days prior to the
commencement of any such one (1) year period. In the event such notice
is properly and timely given, this Agreement shall terminate at the
end of the initial term or one (1) year period in which such notice is
given without further payment by or obligation on the part of the
Company.
4. Termination.
(a) Termination by Company for Cause. Notwithstanding anything
contained in Section 3 to the contrary, the Company may terminate this
Agreement and all of its obligations hereunder immediately if any of
the following events occur:
(i) Employee materially breaches any of the terms or
conditions set forth in this Agreement and fails to cure such
breach within ten (10) days after Employee's receipt from the
Company of written notice of such breach (notwithstanding the
foregoing, no cure period shall be applicable to breaches by
Employee of Sections 6, 7 or 8 of this Agreement);
(ii) Employee commits any other act materially detrimental to
the business or reputation of the Company;
2
<PAGE> 3
(iii) Employee commits or is convicted of any crime involving
fraud, deceit or moral turpitude; or
(iv) Employee dies or becomes mentally or physically
incapacitated or disabled so as to be unable to perform
Employee's duties under this Agreement. Without limiting the
generality of the foregoing, Employee's inability adequately
to perform services under this Agreement for a period of
sixty (60) consecutive days will be conclusive evidence of
such mental or physical incapacity or disability, unless such
inability adequately to perform services under this Agreement
is pursuant to a mental or physical incapacity or disability
covered by the Family Medical Leave Act, in which case such
sixty (60)-day period shall be extended to a one hundred and
twenty (120)-day period.
(b) Termination by Company Without Cause.
Notwithstanding anything contained in Section 3 to the contrary, the
Company may terminate Employee's employment pursuant to this Agreement
without cause upon at least thirty (30) days' prior written notice to
Employee. In the event Employee's employment with the Company is
terminated by the Company without cause or Employee elects to
terminate voluntarily his employment following the occurrence of
events constituting "Good Reason" for his voluntary termination of
employment (in each case, other than in connection with a Change in
Control in which event the provisions of subsection (c) of this
section 4 will apply, it being understood that the provisions of
subsection (c) of this section and this subsection (b) are mutually
exclusive), the Company shall pay to Employee an amount equal to his
then current salary (not including the right to receive any incentive
bonus payments) multiplied by the greater of (i) the number of months
remaining in the initial or any renewal term of this Agreement, as
applicable or (ii) twelve (12). Such amount shall be paid pursuant to
the Company's normal payroll practices over the period of such
payments. For purposes of this Agreement, "Good Reason" is defined as
(w) a material reduction (greater than 10%) in Employee's annual base
salary; (x) a change in Employee's work location to a work location
more than 50 miles from Employee's existing work location, except for
required travel on the Company's business to an extent consistent with
Employee's then present business travel obligations; (y) an assignment
to any duties inconsistent in any material adverse respect with
Employee's current position, duties or responsibilities, other than an
insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by Employee; or (z) the
failure by the Company to continue any material benefit or
compensation plan in which Employee is participating unless Employee
is provided with comparable benefits.
3
<PAGE> 4
(c) Change in Control. In the event there is a Change in
Control (as defined herein) of the Company or Medaphis and if: (A)
Employee's employment is terminated by the Company without cause or by
Employee for Good Reason within one (1) year following any such Change
in Control; (B) if Employee's employment is terminated by the Company
at the request of or pursuant to an agreement with a third party who
has taken steps reasonably calculated to effect a Change in Control;
or (C) if Employee's employment is terminated by the Company or by
Employee for Good Reason in connection with or in anticipation of a
Change in Control, then Employee will be entitled to receive severance
payments, payable over a two year period, equal in the aggregate to
two times the sum of: (i) Employee's then current annual base salary;
and (ii) the most recent incentive bonus payment received by Employee
prior to the Change in Control. In addition, Employee shall be
entitled to receive monthly for a period of eighteen (18) months
commencing on the date of termination in connection with a Change in
Control an amount equal to the difference between the monthly cost to
Employee of healthcare coverage at the levels at which Employee is
participating on the date of such termination and the monthly cost of
comparable COBRA coverage actually incurred. All amounts payable
pursuant to this Section 4 (c) shall be paid in accordance with the
Company's normal payroll practices. For purposes of this Agreement, a
"Change in Control" of the Company shall be deemed to occur upon any
of the following:
(i) a consolidation or merger of Medaphis or the Company with
or into any other corporation, or any other entity or person,
in the case of the Company, other than Medaphis or a
wholly-owned subsidiary of Medaphis, excluding any
transaction in which the shares of Medaphis common stock or
the Company's common stock, as applicable, outstanding
immediately prior to any such consolidation or merger
represent immediately thereafter more than 50% of the
combined voting power of the resulting entity after the
transaction;
(ii) any corporate reorganization, including an exchange
offer, in which Medaphis or the Company shall not be the
continuing or surviving entity resulting from such
reorganization, excluding any transaction in which the shares
of Medaphis common stock or the Company's common stock
outstanding immediately prior to any such reorganization
represent immediately thereafter more than 50% of the
combined voting power of the resulting entity after the
transaction; or
(iii) the failure for any reason of individuals who
constitute the Incumbent Board to continue to constitute at
least a majority of the Board. For purposes of this Section 4
(d), the term "Board" shall mean the Board of Directors of
Medaphis or the Company, as applicable, and the term
"Incumbent Board" shall mean the members of the Board as of
the date hereof and any person
4
<PAGE> 5
becoming a member of the Board hereafter whose election or
nomination is by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of the
directors of Medaphis or the Company, as applicable, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended).
5. Compensation and Benefits.
a) Annual Salary. During the term of this Agreement and for all
services rendered by Employee under this Agreement, the Company will
pay Employee a base salary of Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) per annum to be paid in accordance with the
Company's regular payroll practices, provided, however, that such
payments shall be made no less frequently than in equal monthly
installments. Such annual salary will be subject to adjustments in the
normal course of business.
b) Incentive Compensation. Employee shall be eligible to
participate in the current Medaphis Incentive Compensation Plan (and
any comparable future incentive compensation plans during the term of
this Agreement) at a participation category of up to Eighty Percent
(80 %) of Employee's base salary, payable at the discretion of the
Board of Directors of the Company.
c) Other Benefits. Employee will be entitled to such fringe
benefits as may be provided from time-to-time by the Company to its
Employees, including, but not limited to, group health insurance, life
and disability insurance, vacation and any other fringe benefits, in
each case as now or hereafter provided by the Company to its
Employees, if and when, and for so long as, Employee meets the
eligibility requirements for such benefits. The Company reserves the
right to change or discontinue any employee benefit plans or programs
now being offered to its employees; provided, however, that all
benefits provided for employees of the same position and status as
Employee will be provided to Employee on an equal basis.
d) Business Expenses. Employee will be reimbursed for all
reasonable expenses incurred in the discharge of Employee's duties
under this Agreement pursuant to the Company's standard reimbursement
policies.
e) Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal
income taxes, FICA and other amounts normally withheld from
compensation due employees.
5
<PAGE> 6
6. Non-Disclosure of Proprietary Information. Employee recognizes and
acknowledges that the Trade Secrets (as defined below) and
Confidential Information (as defined below) of the Company and its
affiliates and all physical embodiments thereof (as they may exist
from time-to-time, collectively, the "Proprietary Information") are
valuable, special and unique assets of the Company's and its
affiliates' businesses. Employee further acknowledges that access to
such Proprietary Information is essential to the performance of
Employee's duties under this Agreement. Therefore, in order to obtain
access to such Proprietary Information, Employee agrees that, except
in connection with performing duties assigned to him by the Company,
Employee shall hold in confidence all Proprietary Information and will
not reproduce, use, distribute, disclose, publish or otherwise
disseminate any Proprietary Information, in whole or in part, and will
take no action causing, or fail to take any action necessary to
prevent causing, any Proprietary Information to lose its character as
Proprietary Information, nor will Employee make use of any such
information for Employee's own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the
Company) under any circumstances.
For purposes of this Agreement, the term "Trade Secrets" means
information, without regard to form, including, but not limited to,
any technical or non-technical data, formula, pattern, compilation,
program, device, method, technique, drawing, process, financial data,
financial plan, product plan, list of actual or potential customers or
suppliers, or other information similar to any of the foregoing, which
is not commonly known by or available to the public and (i) derives
economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other
persons who can derive economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. For purposes of this Agreement,
the term "Trade Secrets" does not include information that Employee
can show by competent proof (i) was known to Employee and reduced to
writing prior to disclosure by the Company (but only if Employee
promptly notifies the Company of Employee's prior knowledge); (ii) was
generally known to the public at the time the Company disclosed the
information to Employee; (iii) became generally known to the public
after disclosure by the Company through no act or omission of
Employee; or (iv) was disclosed to Employee by a third party having a
bona fide right both to possess the information and to disclose the
information to Employee. The term "Confidential Information" means any
data or information of the Company, other than trade secrets, which is
valuable to the Company and not generally known to competitors of the
Company. The provisions of this Section 6 will apply to Trade Secrets
for so long as such information remains a trade secret and to
Confidential Information during Employee's employment with the Company
and for a period of two (2) years following any termination of
Employee's employment with the Company for whatever reason.
6
<PAGE> 7
7.A. Non-Competition Covenant. During Employee's employment by the Company
Employee will be a member of the Company's management team. Employee
agrees that during his employment and for a period of two (2) years
following any termination of Employee's employment for whatever
reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of or on behalf of any other individual or
entity, compete with the Company within the Geographical Area (as
hereinafter defined). The term "compete" means to engage in, have any
equity or profit interest in, make any loan to or for the benefit of,
or render services of any marketing, management, sales,
administrative, supervisory or consulting nature, directly or
indirectly, on Employee's own behalf or in the service of or on behalf
of any other individual or entity, either as a proprietor, employee,
agent, independent contractor, consultant, director, officer, partner
or stockholder (other than a stockholder of a corporation listed on a
national securities exchange or whose stock is regularly traded in the
over-the-counter market, provided that Employee at no time owns,
directly or indirectly, in excess of one percent (1%) of the
outstanding stock of any class of any such corporation) any business
which provides Business products or services. For purposes of this
Agreement, the term "Geographical Area" means the territory located
within a seventy-five (75) mile radius of Company headquarters of any
Company facility for which Employee exercised managerial control.
B. Non-Solicitation of Clients Covenant. Employee agrees that during
Employee's employment by the Company and for a period of two (2) years
following the termination of Employee's employment for whatever reason,
Employee will not, directly or indirectly, on Employee's own behalf or
in the service of or on behalf of any other individual or entity,
divert, solicit or attempt to divert or solicit any individual or
entity (i) who is a client of the Company at any time during the six
(6)-month period prior to Employee's termination of employment with the
Company ("Client"), or was actively sought by the Company as a
prospective client, and (ii) with whom Employee had material contact
while employed by the Company, to provide Business services or products
to such Clients or prospects.
C. Construction. The parties hereto agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 below
may, if it chooses, sever any portion of the Geographical Area, client
base, prospective relationship or prospect list or any prohibited
business activity from the coverage of such Section and to apply the
provisions of such Section to the remaining portion of the
Geographical Area, the client base or the prospective relationship or
prospect list, or the remaining business activities not so severed by
such judicial authority. In addition, it is the intent of the parties
that the judicial authority may, if it chooses, replace each such
severed provision with a provision as similar in terms to such severed
provision as may be possible and be legal, valid and enforceable. It
is the intent of the parties that Sections 7 and 8 be enforced to the
maximum extent permitted by law. In the event
7
<PAGE> 8
that any provision of either such Section is determined not to be
specifically enforceable, the Company shall nevertheless be entitled
to bring an action to seek to recover monetary damages as a result of
the breach of such provision by Employee.
8. Non-Solicitation of Employees Covenant. Employee further agrees and
represents that during Employee's employment by the Company and for a
period of two (2) years following any termination of Employee's
employment for whatever reason, Employee will not, directly or
indirectly, on Employee's own behalf or in the service of, or on
behalf of any other individual or entity, divert or solicit, or
attempt to divert or solicit, to or for any individual or entity which
is engaged in providing Business services or products, any person
employed by the Company, whether or not such employee is a full-time
employee or temporary employee of the Company, whether or not such
employee is employed pursuant to written agreement and whether or not
such employee is employed for a determined period or at-will.
9. Existing Restrictive Covenants. Employee represents and warrants that
Employee's employment with the Company does not and will not breach
any agreement which Employee has with any former employer to keep in
confidence confidential information or not to compete with any such
former employer. Employee will not disclose to the Company or use on
its behalf any confidential information of any other party required to
be kept confidential by Employee.
10. Return of Proprietary Information. Employee acknowledges that as a
result of Employee's employment with the Company, Employee may come
into the possession and control of Proprietary Information, such as
proprietary documents, drawings, specifications, manuals, notes,
computer programs, or other proprietary material. Employee
acknowledges, warrants and agrees that Employee will return to the
Company all such items and any copies or excerpts thereof, in any form
or medium, and any other properties, files or documents obtained as a
result of Employee's employment with the Company, immediately upon the
termination of Employee's employment with the Company.
11. Proprietary Rights. During the course of Employee's employment with
the Company, Employee may make, develop or conceive of useful
processes, machines, compositions of matter, computer software,
algorithms, works of authorship expressing such algorithm, or any
other discovery, idea, concept, document or improvement which relates
to or is useful to the Company's Business (the "Inventions"), whether
or not subject to copyright or patent protection, and which may or may
not be considered Proprietary Information. Employee acknowledges that
all such Inventions will be "works made for hire" under United States
copyright law and will remain the sole and exclusive property of the
Company. Employee also hereby assigns and agrees to assign to the
Company, in perpetuity, all right, title and interest Employee may
have in and to such Inventions, including without limitation,
8
<PAGE> 9
all copyrights, and the right to apply for any form of patent, utility
model, industrial design or similar proprietary right recognized by
any state, country or jurisdiction. Employee further agrees, at the
Company's request and expense, to do all things and sign all documents
or instruments necessary, in the opinion of the Company, to eliminate
any ambiguity as to the ownership of, and rights of the Company to,
such Inventions, including filing copyright and patent registrations
and defending and enforcing in litigation or otherwise all such
rights.
Employee will not be obligated to assign to the Company any Invention
made by Employee while in the Company's employ which does not relate
to any business or activity in which the Company is or may reasonably
be expected to become engaged, except that Employee is so obligated if
the same relates to or is based on Proprietary Information to which
Employee will have had access during and by virtue of Employee's
employment or which arises out of work assigned to Employee by the
Company. Employee will not be obligated to assign any Invention which
may be wholly conceived by Employee after Employee leaves the employ
of the Company, except that Employee is so obligated if such Invention
involves the utilization of Proprietary Information obtained while in
the employ of the Company. Employee is not obligated to assign any
Invention which relates to or would be useful in any business or
activities in which the Company is engaged if such Invention was
conceived and reduced to practice by Employee prior to Employee's
employment with the Company.
12. Remedies. Employee agrees and acknowledges that the violation of any of
the covenants or agreements contained in Sections 6, 7, 8, 9, 10 and 11
of this Agreement would cause irreparable injury to the Company, that
the remedy at law for any such violation or threatened violation
thereof would be inadequate, and that the Company will be entitled, in
addition to any other remedy, to temporary and permanent injunctive or
other equitable relief without the necessity of proving actual damages
or posting a bond.
13. Notices. Any notice or communication under this Agreement will be in
writing and sent by registered or certified mail addressed to the
respective parties as follows:
If to the Company: If to Employee:
Medaphis Corporation Philip M. Pead
2840 Mt. Wilkinson Parkway 1030 Lakeshore Overlook
Suite 300 Alpharetta, Georgia 30005
Atlanta, GA 30339
Attn: General Counsel
9
<PAGE> 10
or to such other address or agent as may be hereafter designated in
writing by either party hereto. All such notices shall be deemed given
on the date personally delivered or mailed.
14. Severability. Subject to the application of Section 7(C) to the
interpretation of Sections 7 and 8, in case one or more of the
provisions contained in this Agreement is for any reason held to be
invalid, illegal or unenforceable in any respect, the parties agree
that it is their intent that the same will not affect any other
provision in this Agreement, and this Agreement will be construed as if
such invalid or illegal or unenforceable provision had never been
contained herein. It is the intent of the parties that this Agreement
be enforced to the maximum extent permitted by law.
15. Entire Agreement. This Agreement embodies the entire agreement of the
parties relating to the subject matter of this Agreement and
supersedes all prior agreements, oral or written, regarding the
subject matter hereof. No amendment or modification of this Agreement
will be valid or binding upon the parties unless made in writing and
signed by the parties.
16. Binding Effect. This Agreement will be binding upon the parties and
their respective heirs, representatives, successors, transferees and
permitted assigns.
17. Assignment. This Agreement is one for personal services and will not
be assigned by Employee. The Company may assign this Agreement to its
parent company or to any of its subsidiaries or affiliated companies;
provided that the parent or any subsidiary or affiliate fulfills the
obligations of the Company under this Agreement.
18. Governing Law. This Agreement is entered into and will be interpreted
and enforced pursuant to the laws of the State of Georgia. The parties
hereto hereby agree that the appropriate forum and venue for any
disputes between any of the parties hereto arising out of this
Agreement shall be any federal court in the state where the Company
has its principal place of business and each of the parties hereto
hereby submits to the personal jurisdiction of any such court. The
foregoing shall not limit the rights of any party to obtain execution
of judgment in any other jurisdiction. The parties further agree, to
the extent permitted by law, that a final and unappealable judgment
against either of them in any action or proceeding contemplated above
shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a
certified exemplified copy of which shall be conclusive evidence of
the fact and amount of such judgment.
19. Indemnification. Employee shall be entitled to the indemnification and
exculpation offered through and set forth in the Company's Charter and
By-laws.
10
<PAGE> 11
20. Surviving Terms. Sections 6, 7, 8, 9, 10, 11 and 12 of this Agreement
shall survive termination of this Agreement.
* * * * * * *
(signatures appear on next page)
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written, effective as of May 1, 1999.
COMPANY: EMPLOYEE:
By: /s/ RANDOLPH L. M. HUTTO /s/ PHILIP M. PEAD
------------------------ ------------------
Randolph L.M. Hutto Philip M. Pead
Title: Executive Vice President
12
<PAGE> 13
EXHIBIT A
INVENTIONS
Employee represents that there are no Inventions.
/s/ PMP
-------------------
Employee's Initials
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PER-SE TECHNOLOGIES FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 38,101
<SECURITIES> 0
<RECEIVABLES> 91,829
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 140,699
<PP&E> 37,796
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,772
<CURRENT-LIABILITIES> 75,560
<BONDS> 175,000
0
0
<COMMON> 909
<OTHER-SE> (19,276)
<TOTAL-LIABILITY-AND-EQUITY> 239,772
<SALES> 0
<TOTAL-REVENUES> 245,001
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 292,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,858
<INCOME-PRETAX> (59,740)
<INCOME-TAX> (502)
<INCOME-CONTINUING> (59,238)
<DISCONTINUED> 544
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,694)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. Per-Se Technologies,
Inc. intends to qualify both its written and oral forward-looking statements
for protection under the Reform Act and any other similar safe harbor
provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain because they are based on
various expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties which could cause
actual events or results to differ materially from those projected. Due to
those uncertainties and risks, the investment community is urged not to place
undue reliance on written or oral forward-looking statements of Per-Se
Technologies, Inc. We undertake no obligation to update or revise this Safe
Harbor Compliance Statement for Forward-Looking Statements to reflect future
developments. In addition, we undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
We are providing the following risk factor disclosure in connection
with our continuing effort to qualify our written and oral forward-looking
statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include the disclosures contained in the Form 10-Q
to which this statement is appended as an exhibit and also include the
following:
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.
We have a significant amount of indebtedness and, as a result,
significant obligations to make payments on our debt. If we are unable to make
the required debt payments, we could be required to reduce or delay capital
expenditures, sell certain of our assets, restructure or refinance our
indebtedness, or seek additional equity capital. Our ability to make payments
on our debt obligations will depend on our future operating performance, which
will be affected by certain conditions that are beyond our control.
Our substantial indebtedness could have important consequences to our
financial performance. For example:
- - our ability to obtain additional financing in the future may be
impaired;
- - if a substantial portion of our cash flow from operations is dedicated
to the payment of debt, we may have reduced funds available for
operations;
- - the terms of our existing debt places restrictions on us, including
our ability to incur additional debt or pay dividends; and
- - we may be more leveraged than our competitors, which may limit our
flexibility to respond to changes in the marketplace and may place us
at a competitive disadvantage.
WE ARE SUBJECT TO ONGOING LITIGATION AND A GOVERNMENT INVESTIGATION WHICH MAY
ADVERSELY AFFECT OUR BUSINESS.
<PAGE> 2
We are involved in several lawsuits which may expose us to material
loss contingencies. These lawsuits include, but are not limited to, claims
brought by former shareholders of companies that we acquired. We have also
received written demands from customers and former customers that have not yet
resulted in legal action and may receive demands with respect to the operation
of our business and actions we have taken, including modifications made to a
computerized coding tool to assist in healthcare reimbursement used by one of
our subsidiaries and the transition from the computerized coding tool to manual
coding. We are also subject to a formal, non-public investigation by the
Securities and Exchange Commission into, among other things, trading and other
issues relating to restatements of our financial statements.
We may not be able to successfully defend any of these lawsuits. In
addition, other lawsuits may be filed and other governmental investigations may
be commenced against us. Existing or new lawsuits or new government
investigations could have a material adverse effect on us. The ongoing
governmental investigation against us may result in significant fines, damages
or other penalties and the Commission could require further restatements of our
financial statements. The investigation could have a material adverse effect on
us. Also, in the event of an adverse outcome with respect to pending lawsuits,
there is the risk that our insurance coverage may not fully cover any damages
assessed against us. The litigation with which we are involved (as well as
future litigation) could have a disruptive effect upon the operations of the
business and consume the time and attention of our senior management.
WE HAVE INCURRED SIGNIFICANT LOSSES IN RECENT YEARS.
We had losses in each of 1995, 1996, 1997, 1998 and 1999. Most of
these losses result from restructuring and other charges, litigation
settlements, intangible asset impairment and acquisition costs. We cannot
assure you when or if we will become profitable in the future.
WE HAVE SUFFERED SIGNIFICANT SETBACKS IN RECENT YEARS AND MAY NOT BE ABLE TO
TURNAROUND SUCCESSFULLY.
We have suffered several setbacks in recent years, including:
- - government investigations;
- - the failure successfully to integrate acquired companies;
- - restatements of our 1994, 1995, 1996 and interim 1997 financial
statements;
- - the discontinuance of the operations of one of the businesses we
acquired;
- - the abandonment of an extensive reengineering program that failed;
- - a steep drop in the price of our common stock; and
- - the filing of various lawsuits and claims against us.
As a result of these setbacks, we have been operating in what is
commonly described as a "turnaround" situation. In addition to risks associated
with "turnaround" situations, we face certain challenges more specific to our
operations, including:
- - successfully integrating acquired companies;
- - shifting our strategic focus from acquiring compatible businesses to
running our existing businesses efficiently and profitably;
<PAGE> 3
- - managing our customers' perceptions of our continued viability and
focusing on customer service;
- - combating employee turnover;
- - reducing costs and increasing efficiencies; and
- - reevaluating the efficiency of our operations following our
abandonment of the reengineering initiative in 1996.
WE MAY NOT BE ABLE TO KEEP UP WITH CHANGES IN OUR INDUSTRY.
The markets for our software products and services are characterized
by rapidly changing technology, evolving industry standards and frequent new
product introductions. We may not be able to keep pace with changes in our
industry. Our success depends in part upon our ability to:
- - enhance our existing products and services;
- - introduce new products and services quickly and cost effectively;
- - achieve market acceptance for new products and services; and
- - respond to emerging industry standards and other technological
changes.
Also, our competitors may develop competitive products that could adversely
affect our operating results. In addition, it is possible that:
- - we will be unsuccessful in refining, enhancing and developing our
software and billing systems going forward;
- - the costs associated with refining, enhancing and developing our
software and systems may increase significantly in the future; or
- - our existing software and technology will become obsolete as a result
of ongoing technological developments in the marketplace.
WE COULD LOSE CERTAIN CUSTOMERS IF WE ARE NOT SUCCESSFUL ON SEVERAL MAJOR
CLIENT PROJECTS.
Our client/server information technology business involves projects
designed to reengineer customer operations through the strategic use of
imaging, client/server and other advanced technologies. Failure to meet our
customers' expectations with respect to a major project could have the
following consequences:
- - damage our reputation and standing in this marketplace;
- - impairment of our ability to attract new client/server information
technology business;
- - the payment of damages to a customer; and
- - the inability to collect for services already performed on the
project.
WE MAY INCUR ADDITIONAL COSTS BECAUSE OF POTENTIAL "YEAR 2000" PROBLEMS.
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the
<PAGE> 4
century. If not corrected, many computer applications could fail or create
erroneous results as we approach or when we reach the Year 2000.
We have undertaken an assessment of our Year 2000 issues. We have
identified some older computer systems that we will replace with more efficient
processing systems, rather than attempting to make all these older systems Year
2000 compliant. Until we have replaced all these older systems, we cannot be
sure that our efforts to address Year 2000 issues are appropriate, adequate or
complete. In addition, we cannot be sure that we have identified all Year 2000
problems in the computer systems of our customers, vendors or resellers, or
that we will be able to successfully remedy any future problems that are
discovered.
As a result of Year 2000 issues and the replacement of older computer
systems, we may suffer the following consequences:
- - we may incur a significant amount of additional expenses to remedy
Year 2000 issues and we may experience a significant loss of revenues;
- - our existing customers may be adversely impacted by Year 2000
problems, which could cause fluctuations in our revenue; and
- - our failure to identify and remedy all Year 2000 problems could put us
at a competitive disadvantage relative to companies that have
corrected such problems.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER MANAGEMENT SERVICES
COMPANIES.
The medical management services business is highly competitive. We
compete with national and regional physician and hospital reimbursement
organizations and collection businesses, national information and data
processing organizations, and physician groups and hospitals that provide their
own business management services. We are uncertain whether we can continue to
compete successfully with all of these competitors.
Potential industry and market changes that could adversely affect our
ability to compete for billing and collection business include:
- - an increase in the number of managed care providers compared to
fee-for-service providers; and
- - new alliances between healthcare providers and third-party payors in
which healthcare providers are employed by such third-party payors.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER INFORMATION TECHNOLOGY
COMPANIES.
The business of providing application software, information technology
and consulting services is also highly competitive. We compete with national
and regional companies in this regard. Certain of our competitors have longer
operating histories and greater financial, technical and marketing resources
than we do. We are uncertain whether we can continue to compete successfully
with these competitors.
OUR REVENUE AND OPERATIONS MAY BE ADVERSELY AFFECTED BY PRICING PRESSURES WHICH
ADVERSELY AFFECT OUR CUSTOMERS.
We believe that the revenue growth rate experienced by our healthcare
clients continues to be adversely affected by managed care pricing and
declining government reimbursement levels. At the same time, the process of
submitting healthcare claims for reimbursement to third-party payors in
accordance with applicable industry and regulatory standards grows in
complexity and cost. We believe that these
<PAGE> 5
trends have adversely affected and could continue to adversely affect our
customers' revenues and profitability and, therefore, adversely affect us too.
CHANGES IN THE HEALTHCARE MARKETPLACE MAY DECREASE DEMAND FOR OUR BILLING
SERVICES.
In general, consolidation initiatives in the healthcare marketplace
may result in fewer potential customers for our services. Some of these types
of initiatives include:
- - employer initiatives such as creating purchasing cooperatives, like
HMOs;
- - provider initiatives, such as risk-sharing among healthcare providers
and managed care companies through capitated contracts; and
- - integration among hospitals and physicians into comprehensive delivery
systems.
We believe that the continued consolidation of management and billing
services through integrated delivery systems could result in a decrease in
demand for our billing and collection services for particular physician
practices.
FUTURE INVESTIGATIONS OF HEALTHCARE BILLING AND COLLECTION PRACTICES MAY
ADVERSELY AFFECT OUR BUSINESS.
Our medical billing and collection activities are governed by numerous
federal and state civil and criminal laws. Federal and state regulators
increasingly use these laws to investigate healthcare providers and companies,
like us, that provide billing and collection services. In connection with these
laws:
- - we may be subjected to federal or state government investigation and
possible civil or criminal fines;
- - we may ultimately be required to defend a false claims action;
- - we may be sued by private payors; or
- - we may be excluded from Medicare, Medicaid and/or other government
funded healthcare programs.
We have been the subject of several federal investigations, and we may
become the subject of false claims litigation or additional investigations
relating to our billing and collection activities. Any such proceeding or
investigation could have a material adverse effect on our business.
The ownership and operation of hospitals is also subject to
comprehensive regulation by federal and state governments which may adversely
affect hospital reimbursement. This regulation could have an adverse effect on
the operations of hospitals in general, and consequently reduce the amount of
our revenues related to hospital clients. Current or future government
regulations or healthcare reform measures may have a material adverse effect
upon our business.
OUR STOCK PRICE HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE
SUBSTANTIALLY.
Our common stock is listed on the Nasdaq National Market. The market
price of our common stock has been volatile and could fluctuate substantially,
based on a variety of factors, including the following:
- - announcements relating to governmental investigations;
- - our liquidity and financial resources;
<PAGE> 6
- - our divestiture of businesses;
- - the status of lawsuits or other demands;
- - healthcare reform measures;
- - quarter-to-quarter and year-to-year variations in financial results;
and
- - failure to continue to meet Nasdaq National Market listing
requirements.
Furthermore, stock prices for many companies fluctuate widely for
reasons that may be unrelated to their operating results. These fluctuations
and general economic, political and market conditions may adversely affect the
market price of our common stock.
LISTING ON NASDAQ NATIONAL MARKET.
Our common stock is currently traded on the Nasdaq National Market.
Nasdaq has notified us that we are out of compliance with the Nasdaq National
Market's continued listing requirements of a minimum bid price of $5.00 or net
tangible assets of $4 million. Nasdaq has notified us that our situation is
being reviewed, and that a decision by Nasdaq is likely to be issued in
December 1999. We expect that we have until that time to:
- - meet the requirements;
- - file an appeal with Nasdaq; or
- - make an application to have our common stock traded on the Nasdaq
SmallCap Market or other exchange.
We have formulated plans, including a possible reverse stock split,
that we could implement to avoid a change in our Nasdaq National Market
listing.
In addition, since we currently meet all listing requirements for the
Nasdaq SmallCap Market, we are prepared to make an application for listing of
our common stock on that market, if necessary.
There can be no assurance that we will be able to implement these
plans successfully. If our stock price does not otherwise regain compliance
with the Nasdaq National Market requirements then our common stock could
potentially be de-listed from the Nasdaq National Market depending upon our
ability to implement certain of these plans. In that event, our common stock
would then be traded in the over-the-counter market. Such a result could
adversely impact the liquidity of our common stock.
