<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 31, 1996
--------------------------------
Physician Support Systems, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-80731 13-3624081
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File number) Identification No.)
Route 230 and Eby-Chiques Road, Mt. Joy, PA 17552
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 653-5340
-----------------------------
not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On August 31, 1996, Physician Support Systems, Inc., a Delaware
corporation (the "Company"), acquired the capital stock outstanding of EE&C
Financial Services, Inc., a New York corporation ("EEC"), through a merger of a
wholly owned subsidiary of the Company into EEC (the "Merger"). EEC provides
accounts receivable management and other services to hospitals.
All of the shares of capital stock of EEC issued and outstanding
immediately before the Merger were converted at the time of the Merger into the
right to receive an aggregate of 1,026,852 shares of common stock, par value
$.001 per share (the "Common Stock"), of the Company. In connection with the
Merger, the Company also repaid certain outstanding indebtedness of EEC in an
aggregate amount of $2,622,971 by issuing an aggregate of 131,148 additional
shares of Common Stock. The Merger will be accounted for by the Company as a
"pooling of interests."
In connection with the transaction, the Company granted the EEC
stockholders the right to include their shares of Common Stock acquired in the
Merger in certain registrations of Common Stock and to demand, under certain
circumstances and subject to certain limitations, that their shares of Common
Stock be registered in public sales at various times.
The President and Chief Executive Officer of EEC entered into an
employment agreement with EEC in connection with the Merger, pursuant to which
he agreed to be employed by EEC for a period of three years after the Merger.
Pursuant to the Merger Agreement, the President and Chief Executive Officer of
EEC will be appointed to the Board of Directors of the Company.
Item 7. Financial Statements. Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
(b) Pro Forma Financial Information.
As of the date of this Report, it is impracticable to provide the
required financial statements and pro forma financial information relating to
EEC. Such statements and information will be filed as soon as they become
available, and in any event not later than 60 days after the date this Report is
filed with the Securities and Exchange Commission.
(c) Exhibits.
(2) Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or
Succession. Exhibit 2 - Agreement and Plan of Merger among Physician
Support Systems, Inc., PSS EE&C Financial Services, Inc. and EE&C
Financial Services, Inc., dated as of August 30, 1996 (omitting
schedules and exhibits thereto, which will be furnished supplementally
to the Commission upon request).
(10) Material Contracts. Exhibit 10.1 - Registration Rights Agreement, dated
as of August 30, 1996 among Physician Support Systems, Inc., Eltman,
Eltman & Cooper, P.C., each of the shareholders of EE&C Financial
Services, Inc., and Peter D. Cooper, as representative of the
shareholders.
Exhibit 10.2 - Employment Agreement, dated as of August 30, 1996 between
EE&C Financial Services, Inc. and Peter D. Cooper.
(99) Additional Exhibits. Exhibit 99 - Copy of press release issued by the
Company September 3, 1996.
2
<PAGE>
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 hereunder duly authorized.
PHYSICIAN SUPPORT SYSTEMS, INC.
Date September 13, 1996 By /s/ David S. Geller
--------------------------
David S. Geller
Senior Vice President
<PAGE>
EXHIBIT INDEX
Exhibit 2
Agreement and Plan of Merger among Physician Support Systems, Inc., PSS EE&C
Financial Services, Inc. and EE&C Financial Services, Inc., dated as of August
30, 1996 (omitting schedules and exhibits thereto, which will be furnished
supplementally to the Commission upon request).
Exhibit 10.1
Registration Rights Agreement, dated as of August 30, 1996 among Physician
Support Systems, Inc., Eltman, Eltman & Cooper, P.C., each of the shareholders
of EE&C Financial Services, Inc., and Peter D. Cooper, as representative of the
shareholders.
Exhibit 10.2
Employment Agreement, dated as of August 30, 1996 between EE&C Financial
Services, Inc. and Peter D. Cooper.
Exhibit 99
Copy of press release issued by the Company September 3, 1996.
<PAGE>
EXHIBIT 2
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 30, 1996
AMONG
PHYSICIAN SUPPORT SYSTEMS, INC.,
PSS EE&C FINANCIAL SERVICES, INC.
AND
EE&C FINANCIAL SERVICES, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
INTRODUCTION....................................................1
ARTICLE I
THE MERGER......................................................1
SECTION 1.1. The Merger.........................................1
SECTION 1.2. Closing............................................1
SECTION 1.3. Effective Time.....................................1
SECTION 1.4. Effects of the Merger..............................2
SECTION 1.5. Articles of Incorporation and By-Laws..............2
SECTION 1.6. Directors..........................................2
SECTION 1.7. Officers...........................................2
SECTION 1.8. Parent Directors...................................2
SECTION 1.9. Tax-Free Reorganization............................2
SECTION 1.10. Accounting Treatment..............................2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES..................3
SECTION 2.1. Effect on Capital Stock............................3
(a) Capital Stock of Merger Subsidiary..................3
(b) Cancellation of Treasury Stock and Parent-Owned
Stock...............................................3
(c) Conversion of Company Common Stock..................3
(d) Adjustment of Exchange Ratio........................3
SECTION 2.2. Exchange of Certificates...........................3
(a) Parent To Provide Merger Consideration..............3
(b) Exchange Procedure..................................3
(c) Distributions with Respect to Unexchanged Shares....4
(d) No Further Ownership Rights in Common Stock.........4
(e) No Liability........................................4
(f) No Fractional Shares................................5
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................... 5
SECTION 3.1. Representations and Warranties of the Company... 5
(a) Organization, Standing and Power................. 5
(b) Authority; Binding Agreements.................... 5
(c) Capitalization; Equity Interests................. 5
(d) Conflicts; Consents.............................. 6
(e) Financial Information............................ 7
(f) Absence of Changes............................... 7
(g) Assets, Property and Related Matters; Real
Property......................................... 8
(h) Patents, Trademarks and Similar Rights........... 9
(i) Insurance........................................10
(j) Agreements, Etc..................................10
(k) Litigation, Etc..................................10
(l) Compliance; Governmental Authorizations..........10
(m) Labor Relations; Employees.......................11
(n) Accounts Receivable..............................12
(o) Customers........................................12
(p) Accounts Payable.................................13
(q) Related Party Transactions.......................13
(r) Billing and Collection Practices.................13
(s) Tax Matters......................................14
(t) Disclosure.......................................14
(u) Bank Accounts; Powers-of-Attorney................15
(v) Accounting Matters...............................15
(w) Brokers..........................................15
(x) Accredited Investor..............................15
SECTION 3.2. Representations and Warranties by Merger
Subsidiary and Parent...........................15
(a) Organization, Standing and Power.................15
(b) Authority; Binding Agreements....................16
(c) Conflicts; Consents..............................16
(d) Capitalization...................................16
(e) SEC Documents; Financial Statements; No
Undisclosed Liabilities..........................17
(f) Absence of Certain Changes or Events.............17
(g) Litigation, Etc..................................17
(h) Compliance; Governmental Authorizations..........17
(i) Accounting Matters...............................18
(j) Brokers..........................................18
(k) Billing and Collection Practices.................18
ii
<PAGE>
(l) Insurance........................................18
(m) Labor Relations..................................19
ARTICLE IV
ADDITIONAL AGREEMENTS........................................19
SECTION 4.1. Expenses........................................19
SECTION 4.2. Affiliates......................................19
SECTION 4.3. Agreements of Parent Affiliates.................19
SECTION 4.4. Nasdaq..........................................19
SECTION 4.5. Pooling.........................................19
SECTION 4.6. Public Announcements............................19
SECTION 4.7. Confidentiality.................................20
SECTION 4.8. Parent Agreement................................20
ARTICLE V
DOCUMENTS TO BE DELIVERED AT CLOSING.........................20
SECTION 5.1. Documents to be Delivered at Closing............20
(a) Representations and Warranties...............21
(b) Performance of Obligations of the Company....21
(c) Consents, Amendments and Terminations........21
(d) Opinion of Counsel...........................21
(e) Indemnification Agreement....................21
(f) Employment Agreements........................21
(g) Non-Competition Agreement....................21
(h) Investment and Affiliate Letter; Affiliate
Agreement....................................21
(i) Resignation Letters..........................21
(j) Representations and Warranties...............21
(k) Registration Rights Agreement................22
(l) Opinion......................................22
(m) Other Documents..............................22
ARTICLE VI
MISCELLANEOUS.................................................22
SECTION 6.1. Entire Agreement.................................22
SECTION 6.2. Descriptive Headings; Certain Interpretations....22
SECTION 6.3. Notices..........................................22
SECTION 6.4. Counterparts.....................................23
SECTION 6.5. Survival.........................................23
iii
<PAGE>
SECTION 6.6. Benefits of Agreement............................23
SECTION 6.7. Amendments and Waivers...........................24
SECTION 6.8. Assignment.......................................24
SECTION 6.9. Enforceability...................................24
SECTION 6.10. GOVERNING LAW...................................24
EXHIBITS
A Form of Letter of Transmittal
B Form of Indemnification Agreement
C Form of Opinion of Counsel of the Company and the Shareholders
D Form of Employment Agreement
E Form of Non-Competition Agreement
F Form of Investment and Affiliate Letter
G Form of Affiliate Agreement
H Form of Registration Rights Agreement
I Form of Opinion of Counsel of Parent and Merger Subsidiary
iv
<PAGE>
Agreement And Plan Of Merger (the "Agreement"), dated as of August 30,
1996, among Physician Support Systems, Inc., a Delaware corporation
("Parent"), PSS EE&C Financial Services, Inc., a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Subsidiary"), and
EE&C Financial Services, Inc., a New York corporation (the "Company").
INTRODUCTION
------------
The Board of Directors of each of Parent, Merger Subsidiary and the
Company, and the stockholders of the Company, each have unanimously approved the
merger of Merger Subsidiary into the Company (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement. As a result of the
Merger, each issued and outstanding share of the Common Stock, no par value per
share (the "Company Common Stock"), of the Company not owned directly or
indirectly by Parent or the Company will be converted into the right to receive
the consideration provided in this Agreement.
The parties to this Agreement intend that the Merger qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
Parent, Merger Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
The parties agree as follows:
ARTICLE I
THE MERGER
----------
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
----------
set forth in this Agreement, and in accordance with the New York Business
Corporation Law ("New York Law") and the Delaware General Corporation Law
("Delaware Law"), Merger Subsidiary shall be merged with and into the Company at
the Effective Time of the Merger (defined below in Section 1.3). Following the
Merger, the separate corporate existence of Merger Subsidiary shall cease and
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations of
Merger Subsidiary in accordance with New York Law and Delaware Law.
SECTION 1.2. Closing. The closing of the Merger (the "Closing") will
-------
take place at 10:00 a.m. on August 30, 1996 at the offices of Howard, Darby &
Levin, 1330 Avenue of the Americas, New York, New York 10019, unless another
date or place is agreed to in writing by the parties hereto (such date upon
which the Closing occurs, the "Closing Date").
SECTION 1.3. Effective Time. As soon as practicable, the parties
--------------
shall file a copy of a certificate of merger or other appropriate documents in
the office of the New York Secretary of State (the "New York Certificate of
Merger") executed in accordance with the relevant provisions of New York Law and
a certificate of merger or other appropriate documents in the office of the
Delaware Secretary of State (the "Delaware Certificate of Merger") executed in
accordance with the relevant provisions of Delaware Law, and shall make all
other filings or recordings required under New York Law or Delaware Law. The
Merger shall become effective at such time as a copy of the New York Certificate
of Merger is duly filed with the New York
<PAGE>
Secretary of State and the Delaware Certificate of Merger is duly filed with the
Delaware Secretary of State (the time the Merger becomes effective, the
"Effective Time of the Merger").
SECTION 1.4. Effects of the Merger. The Merger shall have the effects
---------------------
set forth in the New York Law and the Delaware Law.
SECTION 1.5. Articles of Incorporation and By-Laws. (a) The Articles
-------------------------------------
of Incorporation of the Company as in effect at the Effective Time of the Merger
shall be the Articles of Incorporation of the Surviving Corporation, until
changed or amended.
(b) The By-Laws of the Company as in effect at the Effective Time of
the Merger shall be the By-Laws of the Surviving Corporation, until changed or
amended.
SECTION 1.6. Directors. Following the Effective Time of the Merger,
---------
the directors of the Surviving Corporation shall be Peter D. Cooper, Hamilton F.
Potter III, Peter W. Gilson and David S. Geller, until the earlier of their
resignation or removal or until their successors are duly elected and qualified.
As long as Peter D. Cooper is an employee of the Surviving Corporation, Parent
shall take such action as shall be necessary so that Peter D. Cooper is elected
to the Board of Directors of the Surviving Corporation.
SECTION 1.7. Officers. The officers of the Company at the Effective
--------
Time of the Merger shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their successors are duly
elected and qualified.
SECTION 1.8. Parent Directors. Parent shall take such action as shall
----------------
be necessary so that, promptly after the Effective Time of the Merger, Peter D.
Cooper shall be appointed to the Board of Directors of Parent with a term in
office expiring at Parent's next annual meeting of its stockholders. As long as
Peter D. Cooper and the holders of record of shares of Company Common Stock
immediately prior to the Effective Time of the Merger together shall
beneficially own, in the aggregate, at least 10% of the issued and outstanding
shares of Parent Common Stock (as hereinafter defined), Parent's Board of
Directors shall (i) include Peter D. Cooper in the slate of nominees recommended
by Parent's Board of Directors to stockholders for election as directors at each
annual meeting of stockholders of Parent, commencing with the annual meeting of
stockholders next following the date hereof (unless Mr. Cooper dies, becomes
incapacitated or no longer wishes to serve as a director, in which case, in the
event of his death or incapacity, Mr. Cooper's heirs or representatives shall
have the right to designate a nominee in Mr. Cooper's stead), and (ii) use its
best efforts to cause the shares for which Parent's management or Board of
Directors holds proxies or is otherwise entitled to vote to be voted in favor of
the election of Mr. Cooper or such other nominee. In the event that the Board
of Directors of Parent is expanded to include fourteen or more directorships,
the provisions of the preceding sentence shall apply to two directorships, one
to be held by a person designated by Mr. Cooper or such heirs or representatives
and approved by a majority of Parent's Board of Directors, such approval not to
be unreasonably withheld.
SECTION 1.9. Tax-Free Reorganization. The Merger is intended to be a
-----------------------
reorganization within the meaning of Section 368 of the Code, and this Agreement
is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the Code.
SECTION 1.10. Accounting Treatment. The business combination to be
--------------------
effected by the Merger is intended to be treated for accounting purposes as a
"pooling of interests."
2
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
--------------------------------------------------
SECTION 2.1. Effect on Capital Stock. As of the Effective Time
-----------------------
of the Merger, by virtue of the Merger and without any action on the part of the
holder of any shares of Company Common Stock or any shares of capital stock of
Merger Subsidiary:
(a) Capital Stock of Merger Subsidiary. Each issued and
----------------------------------
outstanding share of the capital stock of Merger Subsidiary shall be converted
into and become one fully paid and nonassessable share of Common Stock, no par
value per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each
-----------------------------------------------------
share of Company Common Stock that is owned by the Company or by any subsidiary
(defined in Section 3.1(c)) of the Company and each share of Company Common
Stock that is owned by Parent, Merger Subsidiary or any other subsidiary of
Parent shall automatically be canceled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section
----------------------------------
2.2(f), each issued and outstanding share of Company Common Stock (other than
shares to be canceled in accordance with Section 2.1(b)) shall be converted into
the right to receive (the "Merger Consideration") 14,212.48 fully paid and
nonassessable shares of Common Stock, par value $.001 per share (the "Parent
Common Stock"), of Parent (rounded to the nearest ten-thousandth of a share)
(the "Exchange Ratio"). As of the Effective Time of the Merger, all such shares
of Company Common Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration and any cash in lieu of fractional shares of Parent Common Stock
to be issued in exchange therefor upon surrender of such certificate in
accordance with Section 2.2(f) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.2(c), in each case, without
interest.
(d) Adjustment of Exchange Ratio. If after the date hereof and
----------------------------
prior to the Effective Time of the Merger, Parent shall have declared a stock
split (including a reverse split) of Parent Common Stock or a dividend payable
in Parent Common Stock, or any other distribution of securities or extraordinary
dividend (in cash or otherwise) to holders of Parent Common Stock with respect
to their Parent Common Stock (including such a distribution or dividend made in
connection with a recapitalization, reclassification, merger, consolidation,
reorganization or similar transaction), then the Exchange Ratio referred to in
Section 2.1(c) shall be appropriately adjusted to reflect such stock split or
dividend or other distribution of securities.
SECTION 2.2. Exchange of Certificates. (a) Parent To Provide
------------------------ -----------------
Merger Consideration. Parent shall take all necessary steps to have available
- --------------------
promptly after the Effective Time of the Merger the certificates representing
the shares of Parent Common Stock issuable in exchange for the outstanding
shares of Company Common Stock pursuant to Section 2.1 and, from time to time,
cash for payment in lieu of fractional shares pursuant to Section 2.2(f).
(b) Exchange Procedure. At or prior to the Effective Time of the
------------------
Merger, Parent shall make available to each holder of record of a certificate or
certificates which immediately prior to the Effective Time of the Merger
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.1, (i) a Letter of Transmittal in the form
3
<PAGE>
set forth as Exhibit A to this Agreement and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to Parent or to
such agent or agents as may be appointed by the Parent, together with such
Letter of Transmittal, duly executed, and such other documents as may reasonably
be required by Parent or such agent, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration into which the
shares of Company Common Stock shall have been converted pursuant to Section
2.1, cash in lieu of fractional shares of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(f) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(c), and
the Certificate so surrendered shall be canceled. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, payment may be made to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. At any time after the Effective
Time of the Merger, each Certificate shall be deemed to represent only the right
to receive upon surrender the Merger Consideration into which the shares of
Company Common Stock shall have been converted pursuant to Section 2.1, cash in
lieu of any fractional shares of Parent Common Stock as contemplated by Section
2.2(f) and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.2(c), in each case, without interest thereon.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions with respect to Parent Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock, and
no cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(f), in each case until the surrender of such Certificate
in accordance with this Article II. Subject to the effect of applicable escheat
laws, following surrender of any such Certificate, there shall be paid to the
holder of the certificate representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section 2.2(f)
and the amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such whole shares
of Parent Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time of
the Merger but prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Common Stock. All Merger
-------------------------------------------
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (including any cash paid pursuant to Section 2.2(f))
shall be deemed to have been paid in full satisfaction of all rights pertaining
to the shares of Company Common Stock represented by such Certificates, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
(e) No Liability. If any Certificates shall not have been surrendered
------------
prior to six months after the Effective Time of the Merger, the Merger
Consideration (and any cash payable pursuant to Section 2.2(c) or 2.2(f))
payable in respect of such Certificates shall be held by Parent, after which
time any holders of such Certificates shall look only to Parent for such Merger
Consideration (and such cash) in respect of such Certificates. None of Parent,
Merger Subsidiary or the Company shall be liable to any person in respect of any
Merger Consideration
4
<PAGE>
(or any cash payable pursuant to Section 2.2(c) or 2.2(f)) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(f) No Fractional Shares. No certificates or scrip representing
--------------------
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Parent.
Notwithstanding any other provision of this Agreement, each holder of shares of
Company Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Parent Common Stock (after
taking into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of Parent Common Stock multiplied by $21.75.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.1. Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to Parent and Merger Subsidiary as
follows:
(a) Organization, Standing and Power. The Company (i) is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
State of New York and (ii) has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified to do business and is in good standing
in each jurisdiction set forth in Section 3.1(a) of the Disclosure Schedule.
Section 3.1(a) of the Disclosure Schedule also sets forth each other
jurisdiction in which such qualification is necessary because of the property
owned, leased or operated by it or because of the nature of its business as now
being conducted. The Company has delivered to Parent complete and correct copies
of its Articles of Incorporation and By-Laws and all amendments thereto to the
date hereof and has made available to Parent its minute books and stock records.
Section 3.1(a) of the disclosure schedule delivered by the Company to Parent and
Merger Subsidiary simultaneously with the execution of this Agreement (the
"Disclosure Schedule") contains (i) a true and correct list of the jurisdictions
in which the Company is qualified to do business as a foreign corporation and
(ii) a true and correct list of the directors and officers of the Company as of
the date of this Agreement and at all times since the last action of the board
of directors and the shareholders of the Company.
(b) Authority; Binding Agreements. The execution and delivery of this
-----------------------------
Agreement and the consummation of the Merger and the other transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action of the Company. The Company has all requisite corporate power
and authority to enter into this Agreement and to consummate the Merger and the
other transactions contemplated hereby and the Company has duly executed and
delivered this Agreement. The stockholders of the Company have approved this
Agreement, the Merger and the other transactions contemplated hereby in
accordance with the requirements of New York Law and the Articles of
Incorporation and By-Laws of the Company. This Agreement is the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general equitable principles.
(c) Capitalization; Equity Interests. The authorized capital stock of
--------------------------------
the Company consists of 1,000 shares of Company Common Stock. At the time of
execution of this
5
<PAGE>
Agreement, 72.25 shares of Company Common Stock were issued and outstanding.
Section 3.1(c) of the Disclosure Schedule contains a true and correct list of
all of the owners (of record and beneficial) of the issued and outstanding
shares of Company Common Stock specifying the number of such shares owned by,
and the address of, each such person. Except as set forth above, at the time of
execution of this Agreement, no shares of capital stock or other voting
securities of the Company are issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are not any bonds, debentures, notes or other indebtedness or securities of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of the
Company may vote. Except as set forth in Section 3.1(c) of the Disclosure
Schedule, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company is a party or by which the Company is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or obligating
the Company to issue, grant, extend or enter into any such security, option,
warrant, call right, commitment, agreement, arrangement or undertaking. Except
as set forth in Section 3.1(c) of the Disclosure Schedule, there are no
outstanding rights, commitments, agreements, arrangements or undertakings of any
kind obligating the Company to repurchase, redeem or otherwise acquire any
shares of capital stock or other voting securities of the Company or any
securities of the type described in the two immediately preceding sentences.
Except as set forth in Section 3.1(c) of the Disclosure Schedule, the Company
does not have any subsidiaries and does not own or hold any equity or other
security interests in any other entity. For purposes of this Agreement, a
"subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which ) is owned directly or indirectly by such first
person; and a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity
(governmental or private).
(d) Conflicts; Consents. The execution and delivery of this Agreement,
-------------------
the consummation of the Merger and the other transactions contemplated hereby
and the compliance by the Company with the provisions hereof do not and will not
(i) conflict with or result in a breach of the charter, by-laws or other
constitutive documents of the Company, (ii) conflict with or result in a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the provisions of any note, bond, lease, mortgage, indenture, or any
material license, franchise, permit, agreement or other instrument or obligation
to which the Company is a party, or by which the Company or any of the Company's
properties or assets, may be bound or affected, except for such conflicts,
breaches or defaults as are set forth in Section 3.1(d) of the Disclosure
Schedule, which disclosure also shall set forth what, if any, waivers or
consents to such conflicts, breaches or defaults shall have been obtained on or
before the Closing), (iii) violate any law, statute, rule or regulation or
order, writ, injunction or decree applicable to the Company or any of the
Company's properties or assets, except for any such violations that are
immaterial to the Company or any of the Company's properties or assets or (iv)
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets used or held by the Company. Except as
set forth in Section 3.1(d) of the Disclosure Schedule, no consent or approval
by, or any notification of or filing with, any person is required in connection
with the execution, delivery and performance by the Company of this Agreement or
the consummation of the Merger and the other transactions expressly contemplated
hereby except for (i) the filing with the Securities and Exchange Commission
(the "SEC") such reports under Sections 13 and 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the Merger and the other transactions contemplated hereby,
(ii) such filings as may be required under state securities or "blue sky" laws
in connection with the issuance of the Parent Common Stock in connection with
6
<PAGE>
the Merger, (iii) the filing of a copy of the New York Certificate of Merger
with the New York Secretary of State and the Delaware Certificate of Merger with
the Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
and (iv) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in Section 3.1(d) of the Disclosure
Schedule.
(e) Financial Information. (i) The following financial statements are
---------------------
contained in Section 3.1(e) of the Disclosure Schedule:
(A) the audited balance sheet of the Company at December 31, 1995 and
the related statement of operations for the year ended December 31, 1995;
(B) the unaudited, internally prepared quarterly balance sheets of the
Company as of the end of each quarter commencing January 1, 1995 through the
quarter end prior to the date of this Agreement and the related statement of
operations for each such quarter; and
Except as indicated in Section 3.1(e) of the Disclosure Schedule, all such
financial statements have been prepared in conformity with United States
generally accepted accounting principles ("GAAP") and, except that the quarterly
financial statements referred to in subsection (B) above do not contain foot
notes and except as set forth in Section 3.1(e) of the Disclosure Schedule,
applied on a basis consistent with prior periods and fairly present the
financial condition, results of operations and cash flows of the Company. The
balance sheets of the Company as at the dates set forth present fairly the
financial position of the Company as at the dates thereof, and the related
statements of operations of the Company for each of the respective specified
periods then ended present fairly the results of operations of the Company for
each of the respective periods then ended. For the purposes of this Agreement,
all financial statements referred to in this paragraph shall include any notes
and schedules to such financial statements.
(ii) There were no liabilities or obligations (whether absolute,
accrued, contingent or otherwise, and whether due or to become due) in respect
of the Company which were required to be, in accordance with GAAP, and were not
shown or provided for on the balance sheets of the Company to which such
liabilities or obligations related. All reserves established by the Company are
reflected on the balance sheets of the Company or in the footnotes to the
financial statements of the Company and are adequate and there are no loss
contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such balance sheets.
(f) Absence of Changes. Except as set forth in Section 3.1(f) of the
------------------
Disclosure Schedule, since December 31, 1995, the Company has been operated in
the ordinary course consistent with past practice and there has not been:
(i) any material adverse change in its condition (financial or
otherwise), assets, liabilities, operations, customer contracts or other
customer arrangements, management personnel, billings, revenues, earnings or
business;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Company, other than obligati ons under customer contracts, current
obligations and liabilities incurred in the ordinary course of business and
consistent with past practice;
7
<PAGE>
(iii) any payment, discharge or satisfaction of any claim or
obligation of the Company, except in the ordinary course of business and
consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of the
Company or any direct or indirect redemption, purchase or other acquisition
of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities convertible
into or exercisable for shares of capital stock of the Company;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company, except as
contemplated by this Agreement, or any sale, assignment, transfer or other
disposition of any patents, trademarks, service marks, trade names,
copyrights, licenses, franchises, know-how or any other intangible assets;
(vii) any creation of any material claim or other encumbrance on
any property of the Company;
(viii) any material write-down of the value of any asset or
inventory of the Company or any material write-off as uncollectible of any
accounts or notes receivable or any portion thereof;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company;
(x) any capital expenditure or commitment or addition to
property, plant or equipment of the Company, individually or in the
aggregate, in excess of $25,000 ;
(xi) any general increase in the compensation of employees of
the Company (including any increase pursuant to any bonus, pension, profit-
sharing or other benefit or compensation plan, policy or arrangement or
commitment), or any increase in any such compensation or bonus payable to
any officer, shareholder, director, consultant or agent of the Company
having an annual salary or remuneration in excess of $40,000;
(xii) any material damage, destruction or loss (whether or not
covered by insurance) affecting any asset or property of the Company;
(xiii) any change in the independent public accountants of the
Company or in the accounting methods or accounting practices followed by
the Company or any change in depreciation or amortization policies or
rates;
(xiv) any agreement or action not otherwise referred to in items
(i) through (xiii) above entered into or taken that is material to the
Company; or
(xv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiv).
(g) Assets, Property and Related Matters; Real Property.
---------------------------------------------------
Except as set forth in Section 3.1(g) of the Disclosure Schedule, (i) the
Company has good title to, or a valid leasehold interest in, as applicable, all
of the assets reflected on the financial statements contained in Section 3.1(e)
of the Disclosure Schedule, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind. Such assets (A) are in good operating
condition and repair, subject
8
<PAGE>
to ordinary wear and tear and (B) constitute all of the material properties,
interests, assets and rights held for use or used in connection with the
business and operations of the Company and constitute all those necessary to
continue to operate the business of the Company consistent with current and
historical practice. All items of personal property owned by the Company as of
June 30, 1996 with an original cost or book value in excess of $5,000 are listed
in Section 3.1(g)(i) of the Disclosure Schedule.
(ii) Section 3.1(g)(ii) of the Disclosure Schedule sets forth a
list of all real property and of all personal property owned or leased by the
Company. The Company does not own any real property. With respect to property
leased by the Company (I) the Company is the owner and holder of all the
leasehold interests and estates purported to be granted by such leases, (II) all
leases to which the Company is a party are in full force and effect and
constitute valid and binding obligations of the Company and, to the knowledge of
the Company, of the other parties thereto, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles, and (III) the Company has
made available to Parent true and complete copies of all written leases referred
to in Section 3.1(g)(ii) of the Disclosure Schedule. There exists no default, or
any event which upon notice or the passage of time, or both, would give rise to
any default, in the performance by the Company or by any lessor under any lease.
Except as set forth in Section 3.1(g) of the Disclosure Schedule, the Company
has not, and to the knowledge of the Company, no other person has, granted any
oral or written right to anyone other than the Company to lease, sublease or
otherwise occupy any of the properties described in Section 3.1(g)(ii) of the
Disclosure Schedule through the end of the applicable lease periods.
(iii) The real estate listed in Section 3.1(g)(ii) of the
Disclosure Schedule and all appurtenances and improvements, as used, constructed
or maintained by the Company at any time, to the knowledge of the Company,
conform to applicable Federal, state, local and foreign laws and regulations,
except for any non-conformities that are immaterial to the Company or any of the
Company's properties or assets. To the knowledge of the Company, the use of the
buildings and structures located on such real property or any appurtenances or
equipment does not violate any restrictive covenants or encroach on any property
owned by others. No condemnation proceeding is pending or, to the knowledge of
the Company, threatened which would preclude or impair the use of any such
property by the Company for the uses for which they are intended.
(h) Patents, Trademarks and Similar Rights. The Company owns or licenses
--------------------------------------
all patents, trademarks, service marks, trade names and copyrights, in each case
registered or unregistered, inventions, software (including documentation and
object and source code listings), know-how, trade secrets and other intellectual
property rights (collectively, the "Intellectual Property") used in its business
as presently conducted. Section 3.1(h) of the Disclosure Schedule contains a
list of all Intellectual Property owned and used by the Company and any
Intellectual Property which is licensed for use by others. No Intellectual
Property which is material to the business of the Company infringes any rights
owned or held by any other person. There is no pending or, to the knowledge of
the Company, threatened claim or litigation against the Company contesting its
right exclusively to use any Intellectual Property. To the knowledge of the
Company, no person is infringing the rights of the Company in any Intellectual
Property. No product or service sold by the Company violates or infringes any
intellectual property right owned or held by any other person. To the knowledge
of the Company, in the case of commercially available "shrink-wrap" software
programs (such as Lotus 1-2-3), neither the Company nor any of its employees has
made or is using any unauthorized copies of any such software programs at any
Company location.
9
<PAGE>
(i) Insurance. Section 3.1(i) of the Disclosure Schedule contains a
---------
true and complete list of all policies of casualty, liability, theft, fidelity,
life and other forms of insurance held by the Company. True and complete copies
of such policies have been delivered or made available for inspection and copy
by Parent. All insurance policies are in the name of the Company, outstanding
and in full force and effect, all premiums with respect to such policies are
currently paid and such policies will not be affected by, or terminated or lapse
by reason of, the transactions contemplated by this Agreement. The Company has
not received notice of cancellation or termination of any such policy, nor has
it been denied or had revoked or rescinded any policy of insurance, nor borrowed
against any such policies. No claim under any such policy is pending.
(j) Agreements, Etc. Section 3.1(j) of the Disclosure Schedule contains
---------------
a true and complete list of all written or oral contracts, agreements and other
instruments to which the Company is a party (i) relating to indebtedness for
money borrowed or capital leases, (ii) of duration of six months or more from
the date hereof and not cancelable without penalty on 30 days or less notice,
(iii) relating to commitments in excess of $10,000, (iv) relating to the
employment or compensation of any director, officer, employee, consultant or
other agent of the Company, (v) relating to the sale or other disposition of any
assets, properties or rights, (vi) relating to the lease or similar arrangement
of any machinery, equipment, motor vehicles, furniture, fixture or similar
property, (vii) between the Company and any shareholder of the Company or
affiliates of any shareholder of the Company, (viii) that restricts the
operation of the Company anywhere in the world or (ix) that is otherwise
material to the Company or entered into other than in the ordinary course of
business. The Company is not in default under any such agreement or instrument
where such default could, singly or in the aggregate with defaults under other
agreements or instruments, have a material adverse effect on the Company's
condition (financial or otherwise), assets, liabilities, operations, customer
contracts or other customer arrangements, management personnel, billings,
revenues, earnings or business (a "Company Adverse Effect"), and, to the
knowledge of the Company, all such agreements or instruments are in full force
and effect. The Company has furnished to, or made available for inspection and
copy by, Parent true and complete copies of all documents described in Section
3.1(j) of the Disclosure Schedule.
(k) Litigation, Etc. Except as set forth in Section 3.1(k) of the
---------------
Disclosure Schedule, there have not been for the past two years, nor are there,
any suits, actions, claims, investigations or legal or administrative or
arbitration proceedings in respect of the Company, pending or, to the knowledge
of the Company, threatened, whether at law or in equity, or before or by any
Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Except as set forth in
Section 3.1(k) of the Disclosure Schedule, there are no judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Company or any of its assets or
properties.
(l) Compliance; Governmental Authorizations. (i) The Company has
---------------------------------------
complied and is in compliance with all Federal, state, local and foreign laws,
ordinances, regulations, interpretations and orders (including those relating to
disposal of materials, environmental protection and occupational safety and
health) applicable to the Company, except where the failure, singly or in the
aggregate, to so be in compliance would not have a Company Adverse Effect. The
Company has all Federal, state, local and foreign governmental licenses and
permits necessary to conduct its business as presently being conducted, which
licenses and permits (and any exceptions thereto) are set forth in Section
3.1(l) of the Disclosure Schedule. Such licenses and permits are in full force
and effect, no violations are or have been recorded in respect of any thereof,
no proceeding is pending or, to the knowledge of the Company, threatened, to
revoke or limit any thereof, and the Company does not know of any basis for any
such proceeding.
10
<PAGE>
(ii) There are no conditions relating to the Company or relating to
the Company's ownership, use or maintenance of any real property previously
owned or operated by the Company or any of its affiliates, and the Company does
not know or have reason to know of any such condition in respect of such real
property not related to the ownership, use or maintenance, that could lead to
any liability for violation of any Federal, state, county or local laws,
regulations, orders or judgments relating to pollution or protection of the
environment or any other applicable environmental, health or safety statutes,
ordinances, orders, rules, regulations or requirements. The Company has
received, handled, used, stored, treated, shipped and disposed of all hazardous
or toxic materials, substances and wastes (whether or not on its properties or
properties owned or operated by others) in material compliance with all
applicable environmental, health or safety statutes, ordinances, orders, rules,
regulations or requirements, except where the failure, singly or in the
aggregate, to be so in compliance would not have a Company Adverse Effect.
(m) Labor Relations; Employees. (i) Within the last five years, the
--------------------------
Company has not experienced any labor disputes with, or any work stoppages by, a
group of employees due to labor disagreements and, to the knowledge of the
Company, there is no such dispute or work stoppage threatened against the
Company. No employee of the Company is represented by any union or collective
bargaining agent and, to the knowledge of the Company, there has been no union
organizational effort in respect of any employees of the Company within the past
five years.
(ii) Section 3.1(m)(ii) of the Disclosure Schedule contains a list
of each pension, retirement, savings, deferred compensation, and profit-sharing
plan and each stock option, stock appreciation, stock purchase, performance
share, bonus or other incentive plan, severance plan, health, group insurance or
other welfare plan, or other similar plan and any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), under which the Company has any current or future
obligation or liability or under which any employee or former employee (or
beneficiary of any employee or former employee) of the Company has or may have
any current or future right to benefits (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being hereinafter
referred to individually as a "Plan"). The Company has delivered to Parent true
and complete copies of (A) each Plan, (B) the summary plan description for each
Plan and (C) the latest annual report, if any, which has been filed with the IRS
for each Plan. Each Plan intended to be tax qualified under Sections 401(a) and
501(a) of the Internal Revenue Code of 1986 (the "Code") has been determined by
the IRS to be tax qualified under Sections 401(a) and 501(a) of the Code and,
since such determination, no amendment to or failure to amend any such Plan
adversely affects its tax qualified status. There has been no prohibited
transaction within the meaning of Section 4975 of the Code and Section 406 of
Title I of ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section 412 of the
Code or Part 3 of Subtitle B of Title I of ERISA. No Plan is subject to Title IV
of ERISA. During the past five years, neither the Company nor any business or
entity then controlling, controlled by, or under common control with the Company
contributed to or was obliged to contribute to an employee pension plan that was
subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations (other
than routine claims for benefits) pending, or, to the knowledge of the Company,
threatened, with respect to any Plan or the assets of any Plan, and the Company
has no knowledge of any facts which could give rise to any such actions, claims,
lawsuits or arbitrations (other than routine claims for benefits). The Company
has satisfied all funding, compliance and reporting requirements for all Plans.
With respect to each Plan, the Company has paid all contributions (including
employee salary reduction contributions) and all insurance premiums that have
11
<PAGE>
become due and any such expense accrued but not yet due has been properly
reflected in the financial information in Section 3.1(e) of the Disclosure
Schedule.
(v) Except as described in Section 3.1(m)(ii) of the Disclosure
Schedule, no Plan provides or is required to provide, now or in the future,
health, medical, dental, accident, disability, death or survivor benefits to or
in respect of any person beyond termination of employment, except to the extent
required under any state insurance law or under Part 6 of Subtitle B of Title I
of ERISA and under Section 4980(B) of the Code. No Plan covers any individual
other than an employee of the Company, other than dependents of employees under
health and child care policies listed in Section 3.1(m)(ii) of the Disclosure
Schedule and delivered to Parent.
(vi) Except as described in Section 3.1(m)(ii) of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (A) entitle any employee of the Company to severance pay or termination
benefits for which Parent or any of its affiliates may become liable, (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee or former employee for which Parent or any
of its affiliates may become liable or (C) obligate Parent or any of its
affiliates to pay or otherwise be liable for any compensation, vacation days,
pension contribution or other benefits to any employee, consultant or agent of
the Company for periods before the Closing Date or for personnel whom Parent
does not actually employ.
(vii) The Company has made no representations or warranties
(whether written or oral, express or implied) contractually or otherwise to any
client or customer of the Company that the Company's employees rendering
services to such client or customer are not "leased employees" (within the
meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer of
the Company relating either to (A) providing benefits to employees of the
Company under a Pension Benefit Plan of the Company or (B) making contributions
to or reimbursing such client or customer for any contributions made to a
Pension Benefit Plan of such client or customer on behalf of employees of the
Company.
(n) Accounts Receivable. Section 3.1(n) of the Disclosure Schedule
-------------------
contains a true aged list of unpaid accounts and notes receivable owing to the
Company as of July 31, 1996 (which is the most recent date for which such
information is available), all of which, to the Company's knowledge and except
as set forth in Section 3.1(n) of the Disclosure Schedule, are collectible in
the ordinary course of business.
(o) Customers. Section 3.1(o) of the Disclosure Schedule contains (i) a
---------
true and complete list of the customers of the Company for each of the years
ended December 31, 1993, 1994 and 1995 and the period beginning January 1, 1996
and ended June 30, 1996 and, as of the date hereof, any additions or deletions
of customers from June 30, 1996 to the date of this Agreement, (ii) a
description of the revenues for each of the years ended December 31, 1993, 1994
and 1995 and each month commencing January 1, 1996 and ended June 30, 1996 under
contracts with each of the customers of the Company listed on Section 3.1(o) of
the Disclosure Schedule, (iii) a true and complete list of all contracts as of
June 30, 1996 pursuant to which the Company provides goods or services to its
customers (the "Client Contracts") and (iv) a true and correct description of
(A) the terms and conditions of each oral Client Contract, (B) to the knowledge
of the Company, any and all disputes or defaults arising under or with respect
to the Client Contracts in connection with which a client has threatened, or is
expected to, terminate its contract with the Company or claim for damages, and
(C) all loans or advances made by the Company to or on behalf of its customers,
which description includes the date of such loan or advance and the principal
balance outstanding as of the date of this Agreement under each such
12
<PAGE>
loan or advance. The Client Contracts are valid and enforceable in accordance
with their respective terms with respect to the Company, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles. To the Company's knowledge and except as set forth in
Section 3.1(o) of the Disclosure Schedule, no customer of the Company has
threatened to terminate, fail to renew or adversely modify any relationship with
the Company.
(p) Accounts Payable. Section 3.1(p) of the Disclosure Schedule
----------------
contains a true and complete list of all accounts payable of the Company as of
July 31, 1996 (which is the most recent date for which such information is
available).
(q) Related Party Transactions. Except as set forth in Section 3.1(q)
--------------------------
of the Disclosure Schedule, no current or former partner, director, officer,
employee or shareholder of the Company or any associate or affiliate (as defined
in the rules promulgated under the Exchange Act) thereof, or any relative with a
relationship of not more remote than first cousin of any of the foregoing, is
presently, or during the 12-month period ending on the date hereof has been, (i)
a party to any transaction with the Company (including, but not limited to, any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, employee or shareholder or such
associate) or (ii) to the knowledge of the Company, the direct or indirect owner
of an interest in any corporation, firm, association or business organization
which is a present (or potential) competitor, supplier or customer of the
Company, nor does any such person receive income from any source other than the
Company which relates to the Company's business or should properly accrue to the
Company.
(r) Billing and Collection Practices. (i) The current practices and
--------------------------------
procedures of the Company with respect to (A) billing on behalf of customers,
(B) receiving and processing Medicare and Medicaid payments due to customers,
(C) holding and transfer of such payments and (D) the method of determining and
collecting the fees received by the Company for services provided by providers
and physicians participating in the Medicare or Medicaid programs are not in
violation of the restriction on assignment as set forth in 42 U.S.C. Section
1395g(c), 42 U.S.C. Section 1395u(b)(6) and 42 U.S.C. Section 1396a(a)(32), and
the regulations promulgated thereunder or similar provisions of any state
Medicaid program, except where such violations, singly or in the aggregate,
would not have a Company Adverse Effect.
(ii) The Company is not engaged in any activity, whether alone or in
concert with one or more of its clients, which would constitute a violation of
any Federal laws or the laws of any state (including, without limitation, (A)
Federal antifraud and abuse or similar laws pertaining to Medicare, Medicaid, or
any other Federal health or insurance program, (B) state laws pertaining to
Medicaid or any other state health or insurance program, (C) state or Federal
laws pertaining to billings to insurance companies, health maintenance
organizations, and other managed care plans or to insurance fraud, and (D)
Federal and state laws relating to collection agencies and the performance of
collection services) prohibiting fraudulent, abusive or unlawful practices
connected in any way with the provision of health care services, the
determination of eligibility for health care services, the billing for such
services provided to a beneficiary of any state, Federal or private health or
insurance program or credit collection services, except where such violations,
singly or in the aggregate, would not have a Company Adverse Effect.. Without
limiting the generality of the foregoing, the Company has not, directly or
indirectly, paid, offered to pay or agreed to pay, or solicited or received, any
fee, commission, sum of money, property or other remuneration to or from any
person which the Company knows or has reason to believe to have been illegal
under 42 U.S.C. Section 1320a-7b(b) or any similar state law.
13
<PAGE>
(iii) Except as set forth in Section 3.1(r) of the Disclosure Schedule,
the Company does not currently use, and has not in the past established or used,
trust accounts in connection with its business.
(s) Tax Matters. The Company is a "small business corporation" and has
-----------
maintained a valid election to be an "S" corporation under Subchapter S of the
Code, and the equivalent provisions of all applicable state income tax statutes
since January 1, 1991. Except as set forth in Section 3.1(s) of the Disclosure
Schedule, all Federal, state, local and foreign tax returns and tax reports for
periods ending on or prior to the Closing Date by the Company have been or will
be filed, or a valid request for extension has been or will be filed with
respect thereto, on a timely basis (including any extensions) with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed. All such returns and reports are and will be
true, correct and complete. Except as set forth in Section 3.1(s) of the
Disclosure Schedule, all Federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment and other taxes
(including interest, penalties and withholdings of tax) due from and payable by
the Company on or prior to the Closing Date have been fully paid on a timely
basis. Except as set forth in Section 3.1(s) of the Disclosure Schedule, the
Company is not currently the beneficiary of any extension of time within which
to file any tax return. To the Company's knowledge, no claim has ever been made
by an authority in a jurisdiction where the Company does not file tax returns
that it is or may be subject to taxation by that jurisdiction, and the Company
has not received any notice, or request for information from any such authority.
Except as set forth in Section 3.1(s) of the Disclosure Schedule, no issues have
been raised with the Company by the Internal Revenue Service (the "IRS") or any
other taxing authority in connection with any tax return or report filed by the
Company and there are no issues which, either individually or in the aggregate,
could result in any liability for tax obligations of the Company relating to
periods ending on or before December 31, 1995 in excess of the accrued liability
for taxes shown on the financial statements contained in Section 3.1(e)(i) of
the Disclosure Schedule. No waivers of statutes of limitations have been given
or requested with respect to the Company. Except as set forth in Section 3.1(s)
of the Disclosure Schedule, no differences exist between the amounts of the book
basis and the tax basis of assets that are not accounted for by an accrual on
the books of the Company for Federal income tax purposes. Except as set forth in
Section 3.1(s) of the Disclosure Schedule, the Company is not required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by the Company, and
the IRS has proposed no adjustment or change in accounting method. The Company
is not a party to any agreement, contract or arrangement that would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code. All transactions or
methods of accounting that could give rise to an understatement of Federal
income tax (within the meaning of Section 6661 of the Code for tax returns filed
on or before December 31, 1990, and within the meaning of Section 6662 of the
Code for tax returns filed after December 31, 1990) have been adequately
disclosed on the tax returns in accordance with Section 6661(b)(2)(B) of the
Code for tax returns filed on or prior to December 31, 1990, and in accordance
with Section 6662(d)(2)(B) of the Code for tax returns filed after December 31,
1990. The Company is not and has not been a United States real property holding
company (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(ii) of the Code. The Company has complied
(and until the Closing will comply) with all applicable laws relating to the
payment and withholding of taxes (including withholding and reporting
requirements under Section 1441 through 1464, 3401 through 3406, 6041 and 6049
of the Code and similar provisions under any other laws) and, within the time
and in the manner prescribed by law, has withheld from wages, fees and other
payments and paid over to the proper governmental or regulatory authorities all
amounts required.
(t) Disclosure. To the Company's knowledge, there have been no events,
----------
transactions or information relating to the Company which, singly or in the
aggregate, could
14
<PAGE>
reasonably be expected to have a Company Adverse Effect, other than general
events prevailing throughout the medical billing and accounts receivable
management services industry which affect firms that directly compete in such
industry. No representation or warranty of the Company contained in this
Agreement, as modified by the Disclosure Schedule, and no statement contained in
any certificate, schedule, annex, list or other writing furnished to Parent,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statement contained herein or therein, in light of
the circumstances under which they were made, not misleading.
(u) Bank Accounts; Powers-of-Attorney. (i) Section 3.1(u) of the
---------------------------------
Disclosure Schedule contains a true and complete list of (A) all bank accounts
and safe deposit boxes of the Company and all persons who are signatories
thereunder or who have access thereto and (B) the names of all persons holding
general or special powers-of-attorney from the Company and a summary of the
terms thereof.
(ii) Except as set forth in Section 3.1(u) of the Disclosure Schedule,
the Company does not and has not maintained any escrow or custody accounts with
respect to customer funds.
(v) Accounting Matters. To the knowledge of the Company, neither the
------------------
Company nor any of its affiliates has taken or agreed to take any action that,
without giving effect to any action taken or agreed to be taken by Parent or any
of its affiliates, would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling of interests."
(w) Brokers. No agent, broker, investment banker, person or firm acting
-------
on behalf of the Company or under the authority of the Company is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any of
the transactions contemplated hereby.
(x) Accredited Investor. Each stockholder of the Company (i) is an
-------------------
"accredited investor" as such term is defined in Rule 501 under the Securities
Act or (ii) has appointed Peter D. Cooper as his or her purchaser representative
in connection with the Merger.
SECTION 3.2. Representations and Warranties by Merger Subsidiary and
-------------------------------------------------------
Parent. Merger Subsidiary and Parent jointly and severally represent and
- ------
warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Merger Subsidiary and
--------------------------------
Parent (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and (ii) has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of Parent, its subsidiaries
and Merger Subsidiary is duly qualified to do business and is in good standing
in each jurisdiction in which such qualification is necessary because of the
property owned, leased or operated by it or because of the nature of its
business as now being conducted, except where the failure, singly or in the
aggregate, to be so qualified or in good standing could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, operations, customer contracts or other
customer arrangements, management personnel, billings, revenues, earnings or
business of Parent and its subsidiaries taken as a whole (a "Parent Adverse
Effect"). Parent has provided the Company with complete and correct copies of
its and Merger Subsidiary's Certificate of Incorporation and By-Laws.
15
<PAGE>
(b) Authority; Binding Agreements. The execution and delivery of this
-----------------------------
Agreement and the consummation of the Merger and the other transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action (including any action by the shareholders thereof) on the part
of Parent and Merger Subsidiary. Each of Parent and Merger Subsidiary has all
requisite corporate power and authority to enter into this Agreement and to
consummate the Merger and the other transactions contemplated hereby and each of
Parent and Merger Subsidiary has duly executed and delivered this Agreement.
This Agreement constitutes a valid and binding obligation of each of Parent and
Merger Subsidiary enforceable against such party in accordance with its terms.
(c) Conflicts; Consents. The execution and delivery of this Agreement,
-------------------
the consummation of the Merger and the other transactions contemplated hereby
and compliance by Parent and Merger Subsidiary with the other provisions hereof
do not and will not (i) conflict with or result in a breach of the charter, by-
laws or other constitutive documents of Parent or Merger Subsidiary, (ii)
conflict with or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the provisions of any note, bond,
lease, mortgage, indenture, license, franchise, permit, agreement or other
instrument or obligation to which Parent or Merger Subsidiary is a party, or by
which Parent or Merger Subsidiary or Parent's or Merger Subsidiary's properties
or assets, may be bound or affected, except for such conflict, breach or default
as to which requisite waivers or consents shall be obtained before the Closing,
or (iii) violate any law, statute, rule or regulation or order, writ, injunction
or decree applicable to Parent or Merger Subsidiary or Parent's or Merger
Subsidiary's properties or assets. No consent or approval by, or any
notification of or filing with, any person is required in connection with the
execution, delivery and performance by Parent or Merger Subsidiary of this
Agreement or the consummation of the Merger and the other transactions expressly
contemplated hereby, except for (i) the filing with the SEC such reports under
Sections 13 and 16 of the Exchange Act, as may be required in connection with
this Agreement, the Merger and the other transactions contemplated hereby, (ii)
such filings as may be required under state securities or "blue sky" laws in
connection with the issuance of the Parent Common Stock in connection with the
Merger, and (iii) the filing of a copy of the New York Certificate of Merger
with the New York Secretary of State and the Delaware Certificate of Merger with
the Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business.
(d) Capitalization. The authorized capital stock of Parent consists of
--------------
100,000,000 shares of Parent Common Stock and 10,000,000 shares of preferred
stock. At the close of business on August 29, 1996, (i) 7,221,628 shares of
Parent Common Stock were issued and outstanding, (ii) no shares of Parent Common
Stock were held by Parent in its treasury, (iii) 195,000 shares of Parent Common
Stock were reserved for issuance upon exercise of outstanding employee stock
options to purchase shares of Parent Common Stock and (iv) 774,750 shares of
Parent Common Stock were reserved for issuance upon exercise of employee stock
options that are not outstanding but may be issued in the future under Parent's
1996 Stock Option Plan. Except as set forth above, at the time of execution of
this Agreement, no shares of capital stock or other voting securities of Parent
are issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of Parent are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness or securities of Parent having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which stockholders of Parent may vote. Except as set
forth above, as of the date of this Agreement, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Parent or any of its
subsidiaries is a party or by which any of them is bound obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Parent
16
<PAGE>
or of any of its subsidiaries or obligating Parent or any of its subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no
outstanding commitments, agreements, arrangements or undertakings of any kind
obligating Parent or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock or other voting securities of Parent or any
of its subsidiaries. As of the date of this Agreement, the authorized capital
stock of Merger Subsidiary consists of 1,000 shares of common stock, par value
$.01 per share, all of which have been validly issued, are fully paid and
nonassessable and are owned by Parent free and clear of any liens.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities.
---------------------------------------------------------------
Parent has filed all required reports, forms and other documents with the SEC
since the filing of Parent's Registration Statement on Form S-1 for the initial
public offering of Parent Common Stock on December 21, 1995 (the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
state therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments not material in scope or amount). Except as
set forth in the Parent Filed SEC Documents (defined in Section 3.2(f)), neither
Parent nor any of its subsidiaries has any material liabilities or obligations
required by generally accepted accounting principles to be recognized or
disclosed on a consolidated balance sheet of Parent and its consolidated
subsidiaries or in the notes thereto and which, singly or in the aggregate,
could reasonably be expected to have a Parent Adverse Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
Parent SEC Documents filed and publicly available prior to the date of this
Agreement (the "Parent Filed SEC Documents"), since the date of the most recent
financial statements contained in the Parent Filed SEC Documents, there has not
been any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, customer contracts or other customer
arrangements, management personnel, billings, revenues, earnings or business of
Parent and its subsidiaries taken as a whole.
(g) Litigation, Etc. Except as disclosed in the Parent Filed SEC
---------------
Documents, there are no suits, actions, claims, investigations or legal or
administrative or arbitration proceedings in respect of Parent or any of its
subsidiaries, pending or, to the knowledge of Parent, threatened, whether at law
or in equity, or before or by any Federal, foreign, state or municipal or other
governmental department, commission, board, bureau, agency or instrumentality
that, individually or in the aggregate, could reasonably be expected to have a
material adverse effect on Parent and its subsidiaries taken as a whole.
(h) Compliance; Governmental Authorizations. Except as disclosed in the
---------------------------------------
Parent Filed SEC Documents, Parent and its subsidiaries have complied and are in
material compliance with all Federal, state, local and foreign laws, ordinances,
regulations, interpretations and order (including those relating to disposal of
materials, environmental protection and
17
<PAGE>
occupational safety and health) applicable to Parent and its subsidiaries,
except where the failure, singly or in the aggregate, to be so in compliance
would not have a Parent Adverse Effect. Parent and its subsidiaries have all
Federal, state, local and foreign governmental licenses and permits necessary to
conduct their businesses as presently being conducted. Such licenses and permits
are in full force and effect, no violations are or have been recorded in respect
of any thereof, no proceeding is pending, or, to the knowledge of Parent,
threatened, to revoke or limit any thereof, and Parent does not know of any
basis for any such proceeding.
(i) Accounting Matters. To the knowledge of Parent, neither Parent nor
------------------
any of its affiliates has taken or agreed to take any action that, without
giving effect to any action taken or agreed to be taken by the Company or any of
its affiliates, would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling of interests."
(j) Brokers. Except for Williams Financial, no agent, broker,
-------
investment banker, person or firm acting on behalf of Parent or Merger
Subsidiary or under the authority of Parent or Merger Subsidiary is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with any of
the transactions contemplated hereby.
(k) Billing and Collection Practices. (i) The current practices and
--------------------------------
procedures of Parent and its subsidiaries with respect to (A) billing on behalf
of customers, (B) receiving and processing Medicare and Medicaid payments due to
customers, (C) holding and transfer of such payments and (D) the method of
determining and collecting the fees received by Parent and its subsidiaries for
services provided by providers and physicians participating in the Medicare or
Medicaid programs are not in violation of the restriction on assignment as set
forth in 42 U.S.C. Section 1395g(c), 42 U.S.C. Section 1395u(b)(6) and 42 U.S.C.
Section 1396a(a)(32), and the regulations promulgated thereunder or similar
provisions of any state Medicaid program, except where such violations, singly
or in the aggregate, would not have a Parent Adverse Effect.
(ii) Parent and its subsidiaries are not engaged in any activity,
whether alone or in concert with one or more of its clients, which would
constitute a violation of any Federal laws or the laws of any state (including,
without limitation, (A) Federal antifraud and abuse or similar laws pertaining
to Medicare, Medicaid, or any other Federal health or insurance program, (B)
state laws pertaining to Medicaid or any other state health or insurance
program, (C) state or Federal laws pertaining to billings to insurance
companies, health maintenance organizations, and other managed care plans or to
insurance fraud, and (D) Federal and state laws relating to collection agencies
and the performance of collection services) prohibiting fraudulent, abusive or
unlawful practices connected in any way with the provision of health care
services, the determination of eligibility for health care services, the billing
for such services provided to a beneficiary of any state, Federal or private
health or insurance program or credit collection services, except where such
violations, singly or in the aggregate, would not have a Parent Adverse Effect.
Without limiting the generality of the foregoing, Parent and its subsidiaries
have not, directly or indirectly, paid, offered to pay or agreed to pay, or
solicited or received, any fee, commission, sum of money, property or other
remuneration to or from any person which the Company knows or has reason to
believe to have been illegal under 42 U.S.C. Section 1320a-7b(b) or any similar
state law.
(l) Insurance. Parent and its subsidiaries maintain casualty,
---------
liability, theft, fidelity, life and other forms of insurance which are
customary for businesses in Parent's industry. All insurance policies are in the
name of the Parent, outstanding and in full force and effect, all premiums with
respect to such policies are currently paid and such policies will not be
affected by, or terminated or lapse by reason of, the transactions contemplated
by this Agreement. The Parent has not received notice of cancellation or
termination of any such policy,
18
<PAGE>
nor has it been denied or had revoked or rescinded any policy of insurance, nor
borrowed against any such policies. No claim under any such policy is pending.
(m) Labor Relations. Within the last five years, Parent and its
---------------
subsidiaries have not experienced any labor disputes with, or any work stoppages
by, a group of employees due to labor disagreements and, to the knowledge of
Parent, there is no such dispute or work stoppage threatened against Parent or
its subsidiaries. No employee of Parent or its subsidiaries is represented by
any union or collective bargaining agent and, to the knowledge of Parent, there
has been no union organizational effort in respect of any employees of Parent or
its subsidiaries within the past five years.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
SECTION 4.1. Expenses. Each of Parent and Merger Subsidiary shall pay
--------
its own fees, costs and expenses incurred in connection with this Agreement and
the Merger and the other transactions contemplated by this Agreement, including,
without limitation, the fees, costs and expenses of its financial advisors,
accountants and counsel. The Company's fees, costs and expenses incurred in
connection with this Agreement and the Merger and the other transactions
contemplated by this Agreement, including, without limitation, the reasonable
fees, costs and expenses of its financial advisors, accountants and counsel, up
to a maximum of $125,000, shall be paid by the Company. Parent shall be
indemnified by the Company's stockholders under the Indemnification Agreement
attached hereto as Exhibit B for any such fees, costs and expenses of the
Company which exceed the maximum amount set forth in the preceding sentence.
Notwithstanding the foregoing, Parent shall pay any fees and expenses due
Williams Financial as a result of the consummation of the Merger.
SECTION 4.2. Affiliates. The Company shall list in Section 4.2 of the
----------
Disclosure Schedule all persons who are "affiliates" of the Company for purposes
of the SEC's Accounting Series Releases concerning "pooling of interests"
treatment for business combinations, which list shall include all of the
Company's directors, executive officers and stockholders.
SECTION 4.3. Agreements of Parent Affiliates. Prior to the Effective
-------------------------------
Time of the Merger, Parent will use its reasonable best efforts to obtain the
execution of agreements with respect to the sale of Parent Common Stock with
each person who is an "affiliate" of Parent for purposes of compliance with
pooling restrictions.
SECTION 4.4. Nasdaq. Parent shall use its reasonable best efforts to
------
have the Parent Common Stock to be issued in the Merger approved for listing on
the National Association of Securities Dealers, Inc. Automated Quotations System
(the "Nasdaq National Market"), subject to official notice of issuance.
SECTION 4.5. Pooling. To the knowledge of any such person, neither
-------
Parent, nor Merger Subsidiary, nor the Company shall take or cause to be taken
any action, whether before or after the Effective Time of the Merger, which
would disqualify the Merger as a "pooling of interests" for accounting purposes.
SECTION 4.6. Public Announcements. Parent and Merger Subsidiary, on
--------------------
the one hand, and the Company, on the other hand, will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to
19
<PAGE>
such consultation, except as may be required by applicable law, court process or
by obligations pursuant to any listing agreement with any national securities
exchange or the Nasdaq National Market.
SECTION 4.7. Confidentiality. (a) Parent, Merger Subsidiary and the
---------------
Company each agree that all financial or other information about Parent, Merger
Subsidiary or the Company, or other information of a confidential or proprietary
nature, disclosed to the other at any time in connection with the proposed
transaction shall be kept confidential by the party receiving such information
and shall not be disclosed to any person or used by the receiving party (other
than to its agents or employees or in connection with the transactions
contemplated by this Agreement) except: (i) with the prior written consent of
the disclosing party; (ii) as may be required by applicable law, regulation,
court process or by obligations pursuant to any listing agreement with any
national securities exchange (including the Nasdaq National Market); (iii) such
information which may have been acquired or obtained by such party (other than
through disclosure by the other party in connection with the transaction
contemplated by this Agreement); or (iv) such information which is or becomes
generally available to the public other than as a result of a violation of this
provision.
(b) In the event of a breach or threatened breach by any party of the
provisions of this Section, the non-breaching party shall be entitled to an
injunction restraining such party from such breach. Nothing contained in this
paragraph (b) or elsewhere in this Agreement shall be construed as prohibiting
the non-breaching party from pursuing any other remedies available at law or
equity for such breach or threatened breach of this Agreement nor limiting the
amount of damages recoverable in the event of a breach or threatened breach by
any party of the provisions of this Section.
SECTION 4.8. Parent Agreement. (a) Parent agrees to indemnify and
----------------
hold harmless any and all guarantors listed in Section 4.8(a) of the Disclosure
Schedule from and against any and all liabilities, judgments, claims,
settlements, losses, damages, fees, liens, taxes, penalties, obligations, costs
and expenses incurred or suffered (directly or indirectly) by any such person
(including, without limitation, reasonable costs of investigation and reasonable
attorney's fees and expenses) arising from, by reason of or in connection with
any failure by the Surviving Corporation to pay, discharge or otherwise satisfy,
as and when due, any debt, note or other obligation of the Company outstanding
at the Effective Date and listed in Section 4.8(a) of the Disclosure Schedule.
Any claim under this indemnity shall be made in accordance with the provisions
of Section 2(c) of the Indemnification Agreement in substantially the form of
Exhibit B, with such guarantor being deemed a "Stockholder Indemnified Party"
for such purpose; provided that such indemnification shall not be subject to or
count toward the PSS Basket Amount set forth in Section 2(d)(v) of the
Indemnification Agreement.
(b) Parent agrees to pay, or cause to be paid, on the Closing Date the
obligations of the Company listed in Section 4.8(b) of the Disclosure Schedule;
provided that any indemnification obligation arising out of a breach by PSS of
its obligations set forth in this Section 4.8(b) shall not be subject to or
count toward the PSS Basket Amount set forth in Section 2(d)(v) of the
Indemnification Agreement.
ARTICLE V
DOCUMENTS TO BE DELIVERED AT CLOSING
------------------------------------
SECTION 5.1. Documents to be Delivered at Closing. The obligations of
------------------------------------
Parent, Merger Subsidiary and the Company to effect the Merger are subject to
the delivery by each party thereto of the following documents:
20
<PAGE>
(a) Representations and Warranties. Parent shall have received a
------------------------------
certificate signed on behalf of the Company by the chief executive officer and
the chief financial officer of the Company to the effect that the
representations and warranties of the Company set forth in the Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of the Company set forth in this Agreement that
are not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date, as though made
on and as of the Closing Date.
(b) Performance of Obligations of the Company. Parent shall have
-----------------------------------------
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect that the
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date.
(c) Consents, Amendments and Terminations. Parent shall have received
-------------------------------------
duly executed and delivered copies of all requisite approvals under New York Law
to the Merger by the Stockholders of the Company and such other waivers,
consents, terminations and approvals contemplated by Section 3.1(d) and Section
3.1(d) of the Disclosure Schedule, all in form and substance reasonably
satisfactory to Parent. Parent acknowledges that as of the Closing it may not
have received al of the waivers, consents, terminations or approvals
contemplated by Section 3.1(d) of the Disclosure Schedule.
(d) Opinion of Counsel. Parent shall have received the opinion dated
------------------
the Closing Date of Tashlik, Kreutzer & Goldwyn P.C., counsel to the Company and
the Company's shareholders, in the form of Exhibit C.
(e) Indemnification Agreement. The Indemnification Agreement, in the
-------------------------
form of Exhibit B, shall have been duly executed and delivered by the parties
hereto.
(f) Employment Agreement. Peter D. Cooper and the Company shall have
--------------------
executed and delivered to Parent an Employment Agreement, in the form of Exhibit
D.
(g) Non-Competition Agreement. Each of the stockholders of the Company
-------------------------
(other than Peter D. Cooper, whose Employment Agreement contains a non-
competition covenant) shall have executed and delivered to Parent a Non-
Competition Agreement, in the form of Exhibit E.
(h) Investment and Affiliate Letter; Affiliate Agreement. Each person
----------------------------------------------------
who is a stockholder of the Company shall have executed and delivered to Parent
an Investment and Affiliate Letter, in the form of Exhibit F. Each person who is
listed as an affiliate of the Company in Section 4.3 of the Disclosure Schedule
who is not also a stockholder of the Company shall have executed and delivered
to Parent an Affiliate Agreement, in the form of Exhibit G.
(i) Resignation Letters. Each of the directors of the Company (other
-------------------
than Peter D. Cooper) shall have tendered to Parent their respective
resignations from such positions, effective immediately following the Closing
Date.
(j) Representations and Warranties. The Company shall have received a
------------------------------
certificate signed on behalf of each of Parent and Merger Subsidiary by the
chief executive officer and the chief financial officer of such entity to the
effect that the representations and warranties of Parent and Merger Subsidiary
set forth in this Agreement that are qualified as to materiality shall be true
and correct, and the representations and warranties of Parent and Merger
Subsidiary set forth in this Agreement that are not so qualified shall be true
and correct in all
21
<PAGE>
material respects, in each case as of the date of this Agreement and as of the
Closing Date, as though made on and as of the Closing Date.
(k) Registration Rights Agreement. Parent shall have entered into the
-----------------------------
Registration Rights Agreement with the stockholders of the Company, in the form
of Exhibit H.
(l) Opinion. The Company shall have received an opinion dated the
-------
Closing Date from Howard, Darby & Levin, counsel to Parent, in the form of
Exhibit I.
(m) Other Documents. Parent, Merger Subsidiary and the Company shall
---------------
have received such other documents, certificates or instruments as they each may
reasonably request.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1. Entire Agreement. This Agreement and the schedules and
----------------
exhibits hereto contain the entire agreement among the parties with respect to
the transactions contemplated by this Agreement and supersede all prior
agreements or understandings among the parties.
SECTION 6.2. Descriptive Headings; Certain Interpretations. (a)
---------------------------------------------
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party will be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Exhibit or Schedule is to the Article, Section, Exhibit or
Schedule of this Agreement.
SECTION 6.3. Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and sufficient if delivered
personally or sent by telecopy (with confirmation of receipt) or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to Parent or Merger Subsidiary, to:
Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
22
<PAGE>
Attention: Peter W. Gilson
Hamilton F. Potter III
David S. Geller
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Telecopy: 212-841-1010
Attention: Scott F. Smith, Esq.
If to the Company to:
EE&C Financial Services, Inc.
60 Park Place
Newark, New Jersey 07102
Telecopy: 201-624-8240
Attention: Peter D. Cooper
with a copy to:
Tashlik, Kreutzer & Goldwyn P.C.
833 Northern Boulevard
Great Neck, New York 11021
Telecopy: 516-829-6509
Attention: Martin M. Goldwyn, Esq.
or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section or on
the fifth business day following the date on which such communication is posted,
whichever occurs first.
SECTION 6.4. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 6.5. Survival. All representations and warranties, agreements
--------
and covenants contained herein or in any document delivered pursuant hereto or
in connection herewith (unless otherwise expressly provided herein or therein)
shall survive the Closing and shall remain in full force and effect until the
first anniversary of the Closing Date (the "Expiration Date"), except the
agreement contained in Section 4.8 shall survive until the satisfaction by the
Surviving Corporation or Parent of all obligations of the Company referred to
therein.
SECTION 6.6. Benefits of Agreement. All of the terms and provisions of
---------------------
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement is for the
sole benefit of the parties hereto and not for the benefit of any third party,
except for the provisions of Article II and Section 4.8.
23
<PAGE>
SECTION 6.7. Amendments and Waivers. This Agreement may be amended by
----------------------
the parties at any time before or after any required approval of the
transactions contemplated by this Agreement by the shareholders of the Company;
provided, however, that, after any such approval, there shall not be made any
amendment that by law requires further approval by such shareholders without the
further approval of such shareholders. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
SECTION 6.8. Assignment. This Agreement and the rights and
----------
obligations hereunder shall not be assignable or transferable by any party
hereto without the prior written consent of the other parties hereto. Any
instrument purporting to make such assignment shall be void.
SECTION 6.9. Enforceability. It is the desire and intent of the
--------------
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed and delivered as of the day and year first above written.
Attest PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ Peter M. Gilson By: /s/ Hamilton F. Potter, III
----------------------------- ------------------------------
Name: Peter M. Gilson Name: Hamilton F. Potter, III
Title: President Title: Executive Vice President
Attest PSS EE&C FINANCIAL SERVICES, INC.
By: /s/ Peter M. Gilson By: /s/ Hamilton F. Potter, III
----------------------------- ------------------------------
Name: Peter M. Gilson Name: Hamilton F. Potter, III
Title: President Title: Executive Vice President
Attest EE&C FINANCIAL SERVICES, INC.
By: /s/ William Hecht By: /s/ Peter D. Cooper
----------------------------- ------------------------------
Name: William Hecht Name: Peter D. Cooper
Title: Secretary Title: President
25
<PAGE>
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT, dated as of August 30, 1996, among
PHYSICIAN SUPPORT SYSTEMS, INC., a Delaware corporation (the "Company"), Eltman
Eltman & Cooper, P.C. ("Cooper, P.C."), each of the shareholders of EE&C
Financial Services, Inc., a New York corporation ("EEC"), listed on the
signature pages hereof (together with Cooper, P.C., collectively, the
"Stockholders"), and PETER D. COOPER, as representative of the Stockholders (the
"Representative").
Introduction
------------
Pursuant to an Agreement and Plan of Merger, dated as of August 30,
1996 (the "Merger Agreement"), among the Company, PSS EE&C Financial Services,
Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary
of the Company, and EEC, certain Stockholders have the right to receive shares
of common stock, par value $.001 per share (the "Common Stock"), of the Company
upon the effective time of the merger (the "Merger") of Merger Subsidiary with
and into EEC.
Pursuant to letter agreements between each of Elaine Scialo ("Scialo")
and Cooper P.C. and the Company (the "Letter Agreements"), each of Scialo and
Cooper P.C. are surrendering certain notes in exchange for shares of Common
Stock.
As a condition to the Merger and the execution of the Letter
Agreements, the Company must enter into this Agreement.
The parties hereto agree as follows:
1. Definitions. As used herein, the following terms have the
-----------
following respective meanings:
Commission means the Securities and Exchange Commission, or any other
----------
federal agency at the time administering the Securities Act.
Distribution Period means, (a) in the case of a distribution of
-------------------
Registrable Shares in a firm commitment underwritten public offering, the period
of time as each underwriter has completed the distribution of all securities
purchased by it, but in any case not more than 30 days, and (b) in the case of
any other registration of Registrable Shares, the period ending on the earlier
of (i) the sale of all Registrable Shares covered by such registration and (ii)
21 days or, in the case of a registration pursuant to Section 3(b), 45 days
following the effective date of the registration statement utilized in
connection with such registration under the Securities Act; provided that, for
--------
the purpose of calculating the minimum number of days that the registration
statement must remain effective pursuant to clause (ii) above, any day that a
Stockholder is prohibited pursuant to Section 4(e) from selling Registrable
Shares shall not be counted.
Effective Time means the time at which the Merger becomes effective as
--------------
set forth in the Merger Agreement.
Pooling Period means the period beginning at the Effective Time of the
--------------
Merger and continuing until such time as financial results covering at least 30
days of combined operations of
<PAGE>
the Company and EEC shall have been published by the Company within the meaning
of Section 201.01 of the Commission's Codification of Financial Reporting
Policies.
Registrable Shares means the shares of Common Stock issued to certain
------------------
Stockholders pursuant to the Merger Agreement and to Scialo and Cooper P.C.
pursuant to the Letter Agreements (including any additional shares issued as a
stock dividend thereon or any shares issued as the result of a stock split
(including reverse stock split), recapitalization, reorganization, stock
exchange or other combination), which bear the legend set forth in Section 10.
Representative means Peter D. Cooper, or such other person notified in
--------------
writing to the Company by holders of a majority of the Registrable Shares, in
such person's capacity as representative of the Stockholders.
Securities Act means the Securities Act of 1933, as amended.
--------------
2. Incidental Registration. (a) If at any time after the Pooling
-----------------------
Period, the Company proposes to register any Common Stock under the Securities
Act (other than on Forms S-4, S-8 or any other form which does not permit
registration of securities by selling stockholders for sale to the public for
cash) in connection with the proposed offer and sale for cash either for its own
account or on behalf of any holder of Common Stock it will give written notice
to the Stockholders of its intention to do so. Upon a Stockholder's written
request to the Company, given within 10 business days after receipt of any such
notice, to register any of such Stockholder's Registrable Shares, the Company
will use its reasonable best efforts to cause the Registrable Shares as to which
registration shall have been so requested to be included in the shares of Common
Stock to be covered by the registration statement proposed to be filed by the
Company; provided that nothing set forth in this Agreement shall prevent the
--------
Company from, at any time, withdrawing, abandoning or delaying any registration
of such Common Stock.
(b) The Company shall have the sole right to select the managing
underwriter or underwriters. The managing underwriter for such offering shall
have the authority, in its sole discretion, to reduce the number of Registrable
Shares to be included in such registration if and to the extent that it
determines that inclusion of such Registrable Shares would adversely effect the
marketing of the other Common Stock to be sold thereunder. Any such reduction
in the shares included in any such offering shall be effected (i) first, by
excluding shares ("Piggyback Shares") of Common Stock that otherwise would be
included by virtue of incidental or piggyback registration rights (but not
demand registration rights) granted to stockholders (including the
Stockholders), which exclusion shall be effected on a pro rata basis based upon
the number of shares of Common Stock so requested to be registered in such
offering by all such stockholders proposing to sell Piggyback Shares and (ii)
second, only to the extent necessary and after the exclusion of all Piggyback
Shares, by excluding shares of Common Stock included in such registration by the
Company and any stockholder of the Company who shall have exercised a demand
registration right in connection with such offering, which exclusion shall be
effected on a pro rata basis based upon the number of shares of Common Stock
proposed to be registered on behalf of the Company and on behalf of any such
holder of demand registration rights.
(c) (i) If at any time after the Pooling Period any of the following
persons: (A) Peter W. Gilson ("PG"), (B) Hamilton F. Potter III ("HP"), (C) any
member of PG's or HP's immediate family, (D) any partnership, trust or other
entity whose beneficiaries or beneficial owners are comprised of PG, HP and/or
their immediate family members, and/or (E) any affiliate of PG or HP (other than
PSS) (collectively, the "Affiliated Persons"), causes PSS to register any shares
of Common Stock under the Securities Act (other than on Forms S-4, S-8 or any
other form which does not permit registration of securities by selling
stockholders for sale to the public for cash) in connection with the proposed
offer and sale for cash for such person's own account, the Company
2
<PAGE>
will give written notice to the Stockholders of such intended registration. Upon
a Stockholder's written request to the Company to register up to the Pro Rata
Portion (defined below) of any of such Stockholder's Registrable Shares, given
within 10 business days after receipt of any such notice, the Company will use
its reasonable best efforts to cause the Registrable Shares as to which
registration shall have been so requested to be included in the shares of Common
Stock to be covered by such registration statement; provided that nothing shall
--------
prevent the Company from, at any time, withdrawing, abandoning or delaying any
such registration, so long as the registration of the Affiliate Persons' shares
of Common Stock is similarly affected.
(ii) For the purposes of this Agreement, the term "Pro Rata Portion"
shall mean that portion of a Stockholder's Registrable Shares which shall be
equal to the product of (A) the total number of such Stockholder's Registrable
Shares and (B) the greatest of the individual quotients obtained in each case by
dividing (x) the number of shares of Common Stock proposed to be registered by
each Affiliate Person by (y) the total number of shares of Common Stock held by
such Affiliated Person.
(iii) In the event of an underwritten offering of shares referred to
in this Section 2(c), the managing underwriter for such offering shall have the
authority to reduce the number of shares of Common Stock to be included in such
registration if and to the extent that it determines that inclusion of all of
such shares would adversely affect the marketing of the shares to be sold
thereunder; provided, that any such reduction in the shares of Common Stock
--------
included in any such offering shall be effected on a pro rata basis based upon
the aggregate number of shares of Common Stock to be registered in such offering
by all such stockholders (including the Affiliated Persons and the Stockholders)
proposing to sell shares of Common Stock.
(d) If any registration pursuant to this Section 2 shall be
underwritten, in whole or in part, the Company or the managing underwriter or
underwriters may require that the Registrable Shares requested for inclusion
pursuant to this Section 2 be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters.
3. Demand Registration. (a) At any time after the Pooling Period,
-------------------
the Representative may request that the Company register any or all of the
Registrable Shares under the Securities Act for public sale (the "Demand
Rights"); provided that (i) the greater of at least 65% or 153,000 of the
--------
Registrable Shares are included in such registration, (ii) not more than 15% of
the Registrable Shares may be registered pursuant to an underwritten public
offering before August 31, 1997, (iii) not more than three Demand Rights may be
requested in the aggregate and (iv) not more than one Demand Right may be
exercised in any 9-month period. To request a Demand Right, Stockholders
wishing to include in a Demand Right a number of Registrable Shares at least
equal to the minimum number of Registrable Shares required to be included
therein shall notify the Representative of their desire to so request a Demand
Right. The Representative shall then request a Demand Right by giving the
Company written notice thereof. Prior to giving such notice to the Company, the
Representative shall provide reasonable notice to the other Stockholders of his
intention to so request a Demand Right and provide each such Stockholder with a
reasonable opportunity to sell Registrable Shares in connection with such
registration.
(b) The Stockholders exercising their Demand Rights shall have the
right, in their sole discretion, to register such Registrable Shares pursuant to
an underwritten offering or a non-underwritten offering. If such a registration
is to be pursuant to an underwritten offering, the Company shall have the right,
in its sole discretion and to the exclusion of any holder of Registrable Shares,
to select a managing underwriter or underwriters in connection with such
registration statement filed pursuant to this Section 3 and shall have the right
to include any additional shares of Common Stock in a registration statement
filed pursuant to this Section 3. The managing underwriter for such offering
shall have the authority, in its sole discretion, to reduce the number of
3
<PAGE>
shares of Common Stock to be included in a registration pursuant to this Section
3 if and to the extent that it determines that inclusion of all of such shares
of Common Stock would adversely effect the marketing of the other shares of
Common Stock to be sold thereunder. Any such reduction in the shares included in
any such offering shall be effected (i) first, by excluding Piggyback Shares,
which exclusion shall be effected on a pro rata basis based upon the number of
shares of Common Stock so requested to be registered in such offering by all
such stockholders proposing to sell Piggyback Shares, (ii) second, only to the
extent necessary and after the exclusion of all Piggyback Shares, by excluding
shares of Common Stock included in such registration by the Company and (iii)
third, only to the extent necessary and after the exclusion of all Piggyback
Shares and shares of Common Stock to be included in the Offering, by excluding
shares of Common Stock of any Stockholder who shall have exercised a Demand
Right in connection with such offering, which exclusion shall be effected on a
pro rata basis based upon the number of shares of Common Stock proposed to be
registered on behalf of any such Stockholder.
(c) Notwithstanding anything to the contrary set forth in this
Section 3, the Stockholders may on one occasion rescind a request for a Demand
Right and such rescinded request shall not be considered a request for a Demand
Right for purposes of Section 3(a), provided that: (i) a written rescission
notice signed by all of the Stockholders that had requested that Registrable
Shares be included in such Demand Right (a "Rescission Notice") shall be
received by the Company prior to the Company's filing a registration statement
relating to such Demand Right, (ii) the Company shall not have incurred
documented out-of-pocket expenses in excess of $100,000 in connection with
fulfilling its obligations hereunder relating to such Demand Right and (iii) the
Stockholders may not request another Demand Right within three months after
rescinding a Demand Right pursuant to this Section 3(c).
4. Preparation and Filing. If and whenever the Company is under an
----------------------
obligation pursuant to the provisions of Section 2 or 3 to effect the
registration of any Registrable Shares, the Company shall, as expeditiously as
practicable:
(a) prepare and diligently pursue the filing with the Commission of a
registration statement with respect to such securities and use its reasonable
efforts to cause such registration statement to become and remain effective for
the Distribution Period, but no longer;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the Distribution Period, but no longer;
(c) furnish to the holders of Registrable Shares included in such
registration statement such number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such holders of
Registrable Shares may reasonably request in order to facilitate the public sale
or other disposition of such Registrable Shares;
(d) use its reasonable efforts to register or qualify the Registrable
Shares covered by such registration statement under the securities or "blue sky"
laws of such states as each holder of such Registrable Shares shall reasonably
request (provided, that the Company shall not be required to consent to general
--------
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities;
(e) notify each Stockholder selling Registrable Shares covered by such
registration statement, at any time during the Distribution Period when a
prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act, of the happening of
4
<PAGE>
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing and at the request of such Stockholder, prepare and furnish to
such Stockholder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(f) use its reasonable efforts to furnish, at the request of any
Stockholder requesting registration of Registrable Shares pursuant to Section 2
or 3 on the date that such Registrable Shares are delivered to the underwriters
for sale in connection with a registration pursuant to Section 2 or 3, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, stating that such registration statement has become effective
under the Securities Act and that (A) to the best of such counsel's knowledge,
no stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related
prospectus, and each amendment or supplement thereof, comply as to form in all
material respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except no opinion or
statement is required regarding financial statements and other financial and
statistical data) and (C) to such other effects as may reasonably be requested
by counsel for the underwriters, if any, and (ii) a letter dated such date, from
the independent certified public accountants of the Company, stating that they
are independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included or incorporated by reference in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters with
respect to the registration in respect of which such letter is being given as
such underwriters, if any, may reasonably request.
(g) Notwithstanding anything to the contrary contained herein, the
Company shall have the right to deregister any Registrable Shares that remain
unsold at the conclusion of any Distribution Period.
5. Stockholders' Lock-Up; Cooperation. If any Registrable Shares of
----------------------------------
a Stockholder are included in an underwritten registration pursuant to Section 2
or 3 each Stockholder, as a condition to receiving the rights granted hereunder,
may be required to, and if required such Stockholder shall, enter into an
agreement (a "Lock-up Agreement"), pursuant to which such Stockholder shall
refrain from selling any Registrable Shares not included in such registration
during the period of distribution of Common Stock by such underwriters and for a
period of up to 180 days following the effective date of such registration. In
connection with each registration pursuant to Section 2 or 3 hereof, the
Stockholders selling Registrable Shares shall furnish in writing to the Company
and any underwriter participating in such offering such information with respect
to themselves and the proposed distribution by them as shall be reasonably
necessary in order to assure compliance with Federal and applicable state
securities laws.
6. Underwriting Agreement. In connection with each registration
----------------------
pursuant to Section 2 or 3 covering an underwritten public offering, the Company
and the Stockholders agree to enter into a written agreement with the managing
underwriter or underwriters in such form and containing such provisions as are
usual and customary in the securities business for such an
5
<PAGE>
arrangement between reputable underwriters and companies of the Company's size
and investment stature; provided, that such agreement shall not contain any such
--------
provision applicable to the Company or the Stockholders which is inconsistent
with the provisions of this Agreement; and provided, further, that the time and
-------- -------
place of the closing under said underwriting agreement shall be as mutually
agreed upon between the Company and such managing underwriter.
7. Expenses. All expenses incurred by the Company in complying with
--------
this Agreement, including, without limitation, all registration and filing fees,
fees and expenses of complying with securities and "blue sky" laws, printing
expenses and fees and disbursements of counsel, and of the independent certified
public accountants shall be paid by the Company; provided, that counsel to the
securityholders and all underwriting discounts and selling commissions
applicable to the Registrable Shares covered by registrations effected hereunder
shall not be borne by the Company but shall be borne by the seller or sellers.
8. Indemnification. (a) In the event of any registration of any
---------------
Registrable Shares under the Securities Act pursuant to this Agreement or
registration or qualification of any Registrable Shares under state securities
or "blue sky" laws pursuant to this Agreement, the Company shall indemnify and
hold harmless the Stockholder owning such Registrable Shares and each other
person, if any, who controls such holder, within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which any of the foregoing persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any registration
statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any document prepared or
furnished by the Company incident to the registration or qualification of any
Registrable Shares pursuant to this Agreement, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or state securities or "blue sky"
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws; and shall reimburse such Stockholder or other
person acting on behalf of such Stockholder and each such controlling person for
any legal or any other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, that the Company shall not be liable (i) in any such case to
--------
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the registration statement, the preliminary prospectus
or prospectus or the amendment or supplement or any document incident to the
registration or qualification of any Registrable Shares pursuant to this
Agreement in reliance upon and in conformity with written information furnished
to the Company by such Stockholder or such underwriter specifically for use in
the preparation thereof and (ii) to any broker or other person acting on behalf
of such Stockholder to the extent that any such loss, claim, damage or liability
arises out of or is based upon any representation or other statement of such
broker or other person that is not in conformity with the preliminary prospectus
or prospectus.
(b) Each Stockholder hereby indemnifies and holds harmless the Company,
each director of the Company, each officer of the Company who shall sign such
registration statement and any person who controls the Company within the
meaning of the Securities Act, and before Registrable Shares held by such
Stockholder shall be included in any registration pursuant to this Agreement,
any underwriter acting on such Stockholder's behalf shall agree to indemnify and
hold harmless the Company, each director of the Company, each officer of the
Company who shall sign such registration statement and any person who controls
the Company within the meaning of the
6
<PAGE>
Securities Act (in each case in the same manner and to the same extent as set
forth in (a) above) with respect to any untrue statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, if such untrue statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Stockholder or such underwriter, as the case
may be, specifically for use in the preparation of such registration statement,
preliminary prospectus, final prospectus or amendment or supplement; provided
--------
that, the maximum amount of liability in respect of such indemnification shall
be limited, in the case of each Stockholder who, at any time during the
registration or the year preceding the registration, was not an officer or
director of the Company or any of its subsidiaries, to an amount paid for such
Registrable Shares upon the sale thereof pursuant to such registration.
(c) Each party entitled to indemnification hereunder (the "indemnified
party") shall give notice to the party required to provide indemnification (the
"indemnifying party") promptly after such indemnified party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom; provided, that counsel for the indemnifying
--------
party, who shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to the indemnified party, and the indemnified party may
participate in such defense, but only at such indemnified party's expense; and
provided, further, that the omission by any indemnified party to give notice as
- -------- -------
provided herein shall not relieve the indemnifying party of its obligations
under this Section 8 except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party is
damaged as a result of the failure to give notice. It is understood that the
indemnifying party shall not, in connection with any action or related actions
in the same jurisdiction, be liable for the fees and disbursements of more than
one separate firm qualified in such jurisdiction to act as counsel for the
indemnified party; it being further understood that the Stockholders
collectively will be considered one indemnified party for purposes of this
sentence. No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. Notwithstanding anything to the contrary herein, the Representative
shall act on behalf of the Stockholders in connection with any proceeding
brought or claim made under this Section 8, including conducting the defense of
any such claim if the Stockholders are the indemnifying party, and all notices
and consents referred to in this Section 8(c) shall be sufficient if given to or
by the Representative.
9. Rule 144 Matters. For so long as any Stockholder holds Registrable
----------------
Shares that may not be sold, without restriction, under Rule 144 under the
Securities Act or any successor rule, the Company shall (a) make and keep public
information generally available, as those terms are defined in Rule 144 under
the Securities Act and (b) file with the Commission in a timely manner reports
and other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended.
10. Stock Legend. Each certificate representing Registrable Shares
------------
shall be stamped or otherwise imprinted with a legend substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES OR
BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR IN A TRANSACTION WHICH IS NOT SUBJECT TO THE REGISTRATION
REQUIREMENTS OF THE ACT OR ANY APPLICABLE STATE SECURITIES OR
7
<PAGE>
BLUE SKY LAWS AND, IN THE CASE OF A TRANSACTION NOT SUBJECT TO SUCH
REGISTRATION REQUIREMENTS, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION UNDER THE ACT."
11. Representations and Warranties. (a) The Company hereby represents
------------------------------
and warrants to each other party that:
(i) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company. The Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby and has duly executed and
delivered this Agreement. This Agreement constitutes the valid and binding
obligation of the Company, enforceable against it in accordance with its
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general equitable principles.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (A) conflict with or result in a
breach of the charter, by-laws or other constitutive documents of the Company,
(B) conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, license, franchise, permit, agreement or
other instrument or obligation to which the Company is a party, or by which the
Company or the Company's properties or assets, may be bound or affected, except
for such conflict, breach or default as to which requisite waivers or consents
shall be obtained before the Closing, or (C) violate any law, statute, rule or
regulation or order, writ, injunction or decree applicable to the Company or the
Company's properties or assets or (D) result in the creation or imposition of
any security interest, lien or other encumbrance upon any of the Company's
properties or assets of such Stockholder. No consent or approval by, or any
notification of or filing with, any person, firm, corporation, partnership,
joint venture, association or entity (governmental or private) (each, a "person"
and collectively, "persons") is required in connection with the execution,
delivery and performance by the Company of this Agreement or the consummation of
the transactions contemplated hereby, except as set forth in the Merger
Agreement.
(b) Representations and Warranties of the Stockholders. Each of the
--------------------------------------------------
Stockholders represents and warrants to each other party that:
(i) Such Stockholder has all requisite power, capacity and authority to
enter into this Agreement and to consummate the transactions contemplated hereby
and has duly executed and delivered this Agreement. This Agreement constitutes
the valid and binding obligation of such Stockholder, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general equitable principles.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor compliance by such
Stockholder with any of the provisions hereto will (A) conflict with or result
in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the provisions of any note, bond, lease, mortgage,
indenture, license, franchise, permit, agreement or other instrument or
obligation to which such Stockholder is a party, or by which such Stockholder or
such Stockholder's properties or assets may be bound or affected, except for
such conflict, breach or default as to which requisite waivers or consents shall
be obtained before the Closing (which waivers or consents are set forth in
Section 2.1(d) of the Disclosure Schedule (defined in the Merger Agreement), (B)
violate any law, statute,
8
<PAGE>
rule or regulation or order, writ, injunction or decree applicable to such
Stockholder or such Stockholder's properties or assets or (C) result in the
creation or imposition of any security interest, lien or other encumbrance upon
any property or assets of such Stockholder. No consent or approval by, or any
notification of or filing with, any person is required in connection with the
execution, delivery and performance by such Stockholder of this Agreement or the
consummation of the transactions contemplated hereby except as set forth in the
Merger Agreement.
(c) Representations and Warranties of the Representative. The
----------------------------------------------------
Representative represents and warrants to each other party that:
(i) The Representative has all requisite power, capacity and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby and has duly executed and delivered this Agreement. This Agreement
constitutes the valid and binding obligation of the Representative, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equitable principles.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby nor compliance by the
Representative with any of the provisions hereto will (A) conflict with or
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the provisions of any note, bond, lease, mortgage,
indenture, license, franchise, permit, agreement or other instrument or
obligation to which the Representative is a party, or by which the
Representative or the Representative's properties or assets may be bound or
affected, (B) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to the Representative or the Representative's
properties or assets or (C) result in the creation or imposition of any security
interest, lien or other encumbrance upon any property or assets of the
Representative. No consent or approval by, or any notification of or filing
with, any person is required in connection with the execution, delivery and
performance by the Representative of this Agreement or the consummation of the
transactions contemplated hereby except as set forth in the Merger Agreement.
12. Representative. Each of the Stockholders agrees to indemnify and
--------------
hold harmless the Representative by reason of his acting or failing to act in
connection with any of the transactions contemplated hereby and against any
loss, liability or expense the Representative may sustain or incur as a result
of serving as the Representative hereunder, except such losses, liabilities and
expenses which are determined in a final judgment of a court to have resulted
primarily from the gross negligence or willful misconduct of the Representative.
Each of the Stockholders hereby agrees to reimburse the Representative upon his
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by the Representative in the performance of his duties under
this Agreement. If the Representative dies or becomes incapacitated, the
executor, guardian or other representative of the Representative's estate shall
have the authority hereunder to act as Representative hereunder or to appoint a
successor to act as Representative hereunder, provided any such successor
Representative is reasonably acceptable to the Company.
13. Termination of Registration Rights. No Stockholder shall be
----------------------------------
entitled to execute any registration right provided for in this Agreement at any
time during which all the Registrable Shares held by such Stockholder may be
sold without restriction of any kind under Rule 144.
14. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Company and the Stockholders with respect to the
transactions contemplated hereby
9
<PAGE>
and thereby and supersede all prior agreements or understandings among the
parties with respect thereto.
(b) Headings. Descriptive headings are for convenience only and shall
--------
not control or affect the meaning or construction of any provision of this
Agreement.
(c) Notices. All notices or other communications provided for in this
-------
Agreement shall be in writing and shall be sent by confirmed telecopy (with an
undertaking to provide a hard copy) or delivered by hand or sent by overnight
courier service prepaid to the address specified below.
If to the Company:
Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 117552
Telecopy: (717) 653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
David S. Geller
If to the Representative:
Peter D. Cooper
c/o EE&C Financial Services, Inc.
60 Park Place
Newark, New Jersey 07102
Telecopy: (201) 624-8240
If to a Stockholder, to the address or telecopy number for such Stockholder set
forth on Annex A attached hereto or to such other address as the party to whom
notice is to be given may have furnished to the other party in writing in
accordance herewith.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(e) Amendments. This Agreement shall not be altered or otherwise
----------
amended except pursuant to an instrument in writing signed by each of (i) the
Company and (ii) the holders of two-thirds of the number of Registrable Shares
then outstanding. Each Stockholder acknowledges that by operation of this
subsection, the holders of two-thirds of the then outstanding Registrable Shares
will have the right and power to diminish or eliminate certain rights of the
Stockholders under this Agreement.
(f) Transferability. The registration and other rights granted to the
---------------
Stockholders hereunder are non-transferable and cannot be assigned or
transferred in any manner to any third party without the prior written consent
of the Company. Notwithstanding the foregoing, any Stockholder may assign the
registration rights granted to such Stockholder herein to such Stockholder's
spouse or children or trusts, partnerships or corporations for the sole benefit
of such persons and, upon such Stockholder's death to such Stockholder's estate
or to no more than two: (i) private or public foundations exempt from federal
income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code of
1986, as amended, to which Registrable Shares have been
10
<PAGE>
transferred in transactions that do not result in the recognition of taxable
income or capital gain for federal income tax purposes; and/or (ii) revocable or
irrevocable inter vivos trusts, partnerships or other entities to which
Registrable Shares have been transferred in transactions that do not result in
the recognition of taxable income or capital gain for federal income tax
purposes.
(g) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered as of the date first above written.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ Peter M. Gilson
----------------------------
Name: Peter M. Gilson
Title: President
REPRESENTATIVE:
/s/ Peter D. Cooper
-------------------------------
Peter D. Cooper
STOCKHOLDERS:
/s/ Elaine Scialo
-------------------------------
Elaine Scialo
/s/ Christopher Becker
-------------------------------
Christopher Becker
/s/ Robert Schwartz
-------------------------------
Robert Schwartz
/s/ William Hecht
-------------------------------
William Hecht
/s/ Randy Cooper
-------------------------------
Randy Cooper
ELTMAN ELTMAN & COOPER, P.C.
By: /s/ Peter D. Cooper
----------------------------
Name: Peter D. Cooper
Title: Partner
12
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT, dated as of August 30, 1996, between EE&C FINANCIAL
SERVICES, INC., a New York corporation ("EEC" or the "Company"), and Peter D.
Cooper ("Employee").
Physician Support Systems, Inc., a Delaware corporation ("PSS"), is
acquiring all of the issued and outstanding capital stock of the Company in a
merger transaction involving PSS, a wholly-owned subsidiary of PSS, and the
Company (the "Merger").
Employee acknowledges and agrees that this Agreement is being entered into
in connection with the sale of all of his shares of capital of the Company.
The Company desires to employ Employee, and Employee desires to be employed
by the Company, on the terms and subject to the conditions set forth herein.
As a material inducement to PSS to consummate the Merger, PSS and the
Company desire that Employee enter into the covenants set forth in Section 5
hereof, and Employee agrees to enter into such covenants. Employee's execution
of this Agreement is a condition to PSS's obligation to consummate the Merger.
Based upon the mutual covenants and consideration set forth herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
Section 1. Term. The initial term of employment of Employee by the
----
Company hereunder shall commence upon the date of this Agreement (the
"Commencement Date") and end on the third anniversary of the Commencement Date,
unless extended on terms agreed upon between Employee and the Company (such term
being hereinafter referred to as the "Employment Period"). Notwithstanding the
foregoing, the Employment Period shall automatically be extended for two
succeeding one-year periods unless Employee gives notice to the Company at least
180 days prior to the expiration of the initial Employment Period or the first
one-year extension, as the case may be, of such party's intention not to extend
the Employment Period. If such notice is given, the Employment Period shall
terminate at the end of the initial Employment Period or at the end of the first
one-year extension, as the case may be. The Employment Period may be earlier
terminated pursuant to the provisions of this Agreement.
Section 2. Duties.
------
2.1. Scope. During the Employment Period, Employee shall perform senior
-----
management services requiring substantially the same time commitment and
encompassing substantially the same responsibilities as Employee has, in good
faith and in the ordinary course of business, performed for the Company prior to
the Merger, as described on Annex 1 attached hereto and incorporated as if fully
set forth herein, and shall include such other services as Employee and the
Company may, from time to time, agree (collectively, the "Services"). During
the Employment Periods, the Employee shall hold the office of President and
Chief Executive Officer of the Company and report to the Board of Directors of
the Company.
<PAGE>
2.2. (a) Performance. During the Employment Period, Employee will render
-----------
the Services to the Company in conformity with professional standards and in a
prudent and workmanlike manner. Employee shall have complete discretion in the
performance of the Services, subject to the Company's policies, standards and
regulations, Employee's fiduciary duties to the Company and the general
authority and direction of the Boards of Directors of the Company and PSS.
Employee shall promote the interests of the Company in carrying out Employee's
duties and shall not deliberately take any action which could, or fail to take
any action which failure could, reasonably be expected to have a material
adverse effect upon the business of the Company, PSS or their respective
affiliates.
(b) The Services shall be rendered at the Company's principal offices in
Newark, New Jersey, or at a location within 25 miles of Newark. Employee shall
not be required to spend more than 10% of his time in the performance of the
Services travelling outside of the New York/New Jersey metropolitan area.
(c) Employee shall to the same extent as PSS's directors and officers be
indemnified from any and all liabilities (including reasonable attorney's fees
and costs) incurred by reason of the fact that: (i) on and after the date
hereof, Employee is an employee of the Company and (ii) Employee is a member of
PSS's Board of Directors or the Company's Board of Directors (to the extent
Employee serves as such a director); provided that such indemnity shall be
pursuant to PSS's or the Company's, as the case may be, certificate of
incorporation and bylaws. To the same extent as PSS's directors and officers,
Employee shall as a director of PSS (to the extent Employee serves as such a
director) and as a director and officer of the Company be covered by liability
insurance against liabilities as to which Employee is permitted to be
indemnified by PSS's or the Company's, as the case may be, certificate of
incorporation or bylaws.
Section 3. Compensation.
------------
3.1. Salary. As compensation for the Services, the Company shall pay to
------
the Employee an annual base salary of $230,000, payable in equal installments in
accordance with the Company's normal payroll practices, and an annual cash bonus
of $30,000, awarded by the Board of Directors of the Company based upon
Employee's performance of the Services, for each year of the Employment Period
(the "Salary"). The Salary shall be adjustable annually, based upon the
increase, if any, in the Consumer Price Index, as published by the United States
Department of Commerce.
3.2. Incentive Compensation. As additional compensation for the Services,
----------------------
the Company may pay Employee deferred incentive compensation as determined from
time to time by the Board of Directors of the Company with the concurrence of
Employee.
3.3. Employee Stock Options. Employee shall be eligible to participate in
----------------------
PSS's 1996 Stock Option Plan. Grants to Employee pursuant to the 1996 Stock
Option Plan shall be at the discretion of the Compensation Committee of PSS's
Board of Directors and shall be consistent with the objectives of the plan and
PSS's senior management compensation policies.
3.4. Reimbursement. Pursuant to the Company's standard reimbursement
-------------
policies, the Company shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by Employee directly related to the performance by Employee of
the services hereunder. Employee shall account for such expenses in accordance
with the Company's reasonable record-keeping requirements.
-2-
<PAGE>
Section 4. Employee Benefits. During the Employment Period, Employee
-----------------
shall be eligible for the employee benefits (including, without limitation,
medical coverage) generally provided by PSS to its senior management employees.
The Company reserves the right to expand, restrict, designate or eliminate the
benefits provided to Employee so long as such expansion, restriction,
designation or elimination applies generally to all of PSS's senior management
employees. Employee shall be entitled to vacations consistent with the
Company's vacation policy for senior management employees.
Section 5. Non-Competition; Non-Disclosure.
-------------------------------
5.1. Clients. Employee recognizes and acknowledges that, after the
-------
Commencement Date, (a) all clients and/or accounts serviced by the Company, any
of its affiliates, Employee or the Company's or its affiliates' other employees
during Employee's employment with the Company, including all clients and/or
accounts acquired by Employee due to such Employee's efforts during the term of
such Employee's employment with the Company, are the clients and accounts of the
Company or its affiliates, as the case may be (collectively, "Existing
Accounts"), and (b) all businesses or individuals who (i) have been contacted by
Employee or the Company or any of its affiliates with a view toward having such
business or entity retain the Company or any of its affiliates to provide
services or (ii) are known to Employee as a result of his employment with the
Company are prospective clients and accounts of the Company or its affiliates,
as the case may be (collectively, "Prospective Accounts," and, with Existing
Accounts, "Client Accounts").
5.2. Non-Disclosure. (a) Except as provided in this Section 5.2,
--------------
Employee shall not, during or after the Employment Period, disclose any
confidential or proprietary information of the Company or of its affiliates to
any person, firm, corporation, association or other entity (other than the
Company, its affiliates, officers or employees thereof) for any reason or
purpose whatsoever (other than in the normal course of business on a need to
know basis after Employee has received assurances that the confidential or
proprietary information shall be kept confidential), nor shall Employee make use
of any such confidential or proprietary information for his own purpose or for
the benefit of any person, firm, corporation or other entity, except the
Company. As used herein, the term "confidential or proprietary information"
means all information which is or becomes known to Employee and relates to
matters such as trade secrets, research and development activities, business or
financing plans, acquisition opportunities, computer software, books and
records, customer or potential customer lists (including, without limitation,
any list of Client Accounts or any part thereof), vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time; provided that the term "confidential or proprietary
information" shall not include information that is or becomes generally
available to the public (other than as a result of a disclosure in violation of
this Agreement by Employee or a person who received such information from
Employee).
(b) If Employee is requested or required by law or judicial order to
disclose any confidential or proprietary information, Employee shall provide the
Company with prompt notice of any such request for such information or
requirement so that the Company may seek an appropriate protective order or
waiver of Employee's compliance with the provisions of this clause. Employee
will not oppose action by, and will cooperate with, the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. During
the Employment Period, and for
-3-
<PAGE>
matters arising from events or circumstances occurring during the Employment
Period, the Company will provide for the defense of matters arising under this
provision.
(c) Employee agrees that Employee will promptly and fully disclose to the
Company (i) all inventions, ideas, trade secrets or know-how (whether patentable
or copyrightable or not) made or conceived by Employee (either solely or jointly
with others) during the Employment Period and which shall in any way relate to
the business conducted or contemplated to be conducted by the Company or any of
its affiliates; and (ii) all tangible work product (whether in the nature of
developed ideas, know-how, trade secrets and similar intellectual property) and
inventions (whether patentable or copyrightable or not) made or conceived by
Employee (either solely or jointly with others) during the Employment Period
which relates in any way to the business conducted or contemplated to be
conducted by the Company or any of its affiliates; and all such inventions,
ideas, trade secrets and know-how shall be and remain the sole and exclusive
property of the Company. At the request of the Company, Employee shall, during
the Employment Period, without charge to the Company, but at the expense of the
Company, assist the Company in any reasonable way to vest in it title to all
such inventions, ideas, trade secrets and know-how and to obtain any patents,
trademarks or copyrights thereon in all countries throughout the world. In this
regard, Employee shall execute and deliver any and all documents that the
Company may reasonably request, including applications for patents, copyrights
and assignments thereof.
5.3. Restrictive Covenant. Employee hereby acknowledges and recognizes
--------------------
Employee's possession of confidential or proprietary information and the highly
competitive nature of the business of the Company and its affiliates and
accordingly agrees that, in consideration of PSS causing the Merger to be
consummated, the Company's entering into this Agreement, and the premises
contained herein, Employee will not, from and after the Commencement Date and
for the period ending on the later of (a) five years after the date of this
Agreement and (b) three years after the date of termination of the Employment
Period, either individually or as an officer, director, employee, partner, agent
or principal of another business firm (i) directly or indirectly engage in the
United States, in any competitive business (including seeking or accepting
employment with a Client Account), (ii) assist others in engaging in any
competitive business in the manner described in the foregoing clause (i), (iii)
solicit, professionally contract or provide medical billing, accounts
receivable, accounting, financial or consulting services to any Client Account
or (iv) induce employees of the Company or any of its affiliates to terminate
their employment with the Company or such affiliates or hire any employees of
the Company or any of its affiliates to work with Employee or any business firm
affiliated with Employee.
5.4. Remedies. Employee acknowledges that the Company may elect to
--------
specifically enforce Section 5.3 (the "Restrictive Covenant") by injunctive or
other equitable remedies (as provided in Section 9.4) or, in the alternative,
seek damages as a result of Employee's breach of the Restrictive Covenant.
Employee recognizes that the right to service each Client Account is a valuable
asset of the Company or its affiliates and that the precise value of the loss of
such asset may be difficult to measure in monetary sums.
Section 6. Termination.
-----------
6.1. Death or Disability. If the Employee should die during the Employment
-------------------
Period, the Employment Period shall terminate as of the date of death. If the
Employee becomes unable to perform the Services reasonably satisfactorily for at
least 180
-4-
<PAGE>
consecutive days during the Employment Period due to a physical or mental
disability, the Company may elect to terminate the Employment Period at any time
thereafter, provided the Employee still suffers from such disability; and the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician reasonably acceptable to Employee
and to the Company. The Employee's failure to submit to any physical examination
by such physician after such physician has given reasonable notice of the time
and place of such examination shall be conclusive evidence of the Employee's
inability to perform his duties hereunder.
6.2. Cause. The Company, at its option, may terminate the Employment
-----
Period and all of the obligations of the Company hereunder for Cause. For the
purposes of this Agreement, the Company shall have "Cause" to terminate the
Employee's employment hereunder in the event of (i) the Employee's conviction
of, or plea of guilty or nolo contendere to (A) a felony or (B) a fraudulent or
deliberately dishonest act which results in a material adverse effect on the
Company, (ii) the Employee's material breach of this Agreement or (iii) the
Employee's gross negligence or bad faith in the performance of the Services.
6.3. Payments in the Event of Termination. If the Employment Period is
------------------------------------
terminated or expires pursuant to Section 1 or Section 6, the Company shall pay
the Employee any Salary earned to the date of such termination or expiration, as
the case may be.
6.4. Termination Obligations. In the event of termination of the
-----------------------
Employment Period in accordance with this Section 6, all obligations of the
Company shall terminate, except as specifically set forth in Section 6.3.
Section 7. PSS Change in Control. In the event that (i) (x) PSS is
---------------------
acquired by, merges with or into, or sells substantially all of its assets to,
another entity and (1) after the consummation of such transaction the former
stockholders of PSS do not own at least 50% of the voting equity of such other
entity or (2) in connection with such merger or sale, a majority of the PSS
Board of Directors is replaced or (y) as the result of a tender offer, proxy
contest or other transaction or series of transactions which result in a
majority of the PSS Board of Directors is replaced (in each case, a "PSS Change
of Control") and (ii) as a result of a PSS Change of Control, either Peter W.
Gilson or Hamilton F. Potter III terminates his employment with PSS or such
other entity, Employee shall have the right to terminate the Employment Period
by giving written notice to the Company within 30 days of the date on which
Peter W. Gilson or Hamilton F. Potter III terminates such employment, such
termination of the Employment Period to become effective 60 days after the date
on which such notice is given. The Company shall have the right to rescind such
termination within 30 days of its receipt of Employee's termination notice by
notifying Employee in writing that the Company agrees to pay Employee (i) a one-
time bonus equal to Employee's Salary for the prior year, and (ii) an annual
salary for the remainder of the Employment Period equal to two times Employee's
Salary for the prior year.
Section 8. Transition. In the event of termination of the Employment
----------
Period, Employee shall use Employee's best efforts to assist the Company in
maintaining the Company's professional relationship with all Client Accounts. To
such end, Employee shall cooperate and assist the Company, at the Company's
direction and instruction, to retain and transition each Client Account during
the transition period between the receipt of notice of the termination of
employment and the final day of employment.
-5-
<PAGE>
Section 9. Miscellaneous.
-------------
9.1. Assignment; Benefit. This Agreement is personal in its nature and the
-------------------
parties shall not, without the prior written consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that
the provisions hereof shall inure to the benefit of, and be binding upon, each
successor of the Company, whether by merger, consolidation or transfer of all or
substantially all of its assets.
9.2. Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopy (with confirmation of receipt) or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company, at:
EE&C Financial Services, Inc.
c/o Physician Support Systems, Inc.
Route 230 and Eby-Chiques Road
P.O. Box 36
Mt. Joy, Pennsylvania 17552
Telecopy: 717-653-0567
Attention: Peter W. Gilson
Hamilton F. Potter III
If to the Employee, at:
Peter D. Cooper
EE&C Financial Services, Inc.
60 Park Place
Newark, New Jersey 07102
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Each such
notice, request or communication shall be deemed to have been given when
received or, if given by mail, when delivered at the address specified in this
Section 9.2 or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
9.3. Entire Agreement; Amendments and Waivers. This Agreement represents
----------------------------------------
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all negotiations and prior agreements. No amendment,
alteration, modification, or waiver of any provision of, or consent required by,
this Agreement, nor any consent to any departure herefrom, shall be effective
unless it is in writing and signed by the parties hereto. Such amendment,
alteration, modification, waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
9.4. Specific Performance. In the event of a breach or threatened breach
--------------------
by Employee of the provisions of Section 5, the Company shall be entitled to an
injunction restraining Employee from such breach. Nothing contained herein shall
be construed as prohibiting the Company from pursuing any other remedies
available at law or equity for such breach or threatened breach of this
Agreement nor limiting the amount of damages recoverable in
-6-
<PAGE>
the event of a breach or threatened breach by Employee of the provisions of
Section 5. Without limiting the generality of the foregoing, Employee
acknowledges that, in the event of a breach or threatened breach by him of any
of the provisions of Section 5, the Company's damages may exceed the value of
the consideration received by Employee in the Merger.
9.5. Enforceability. It is the desire and intent of the parties hereto
--------------
that the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of such provision in the particular jurisdiction in which such
adjudication is made.
9.6. Acknowledgment. Employee acknowledges that Employee has read this
--------------
Agreement and has been afforded the opportunity to discuss and review this
Agreement with the Company and/or an attorney of Employee's choice. Employee
understands that execution of this Agreement and acceptance of its terms are
conditions to PSS causing the Merger to be consummated and to Employee's
employment with the Company.
9.7. Headings. Descriptive headings are for convenience only and shall not
--------
control or affect the meaning or construction of any provision of this
Agreement.
9.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9.9. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
EE&C FINANCIAL SERVICES, INC.
By: /s/ William Hecht
------------------------------
Name: William Hecht
Title: Secretary
/s/ Peter D. Cooper
------------------------------
Peter D. Cooper
-7-
<PAGE>
ANNEX 1
Services: Peter D. Cooper
. General management responsibility for Company policies, operations,
strategy, finances
. Supervision and management of all senior management personnel
. Supervise acquisitions of new clients and Company growth
. Annually determine (with the approval of the Company's Board of
Directors and the PSS Stock Option Plan Committee, respectively) the
allocation to employees (other than Employee) of the Company of cash
bonuses and stock option awards based upon Company profitability and
employee performance
. Select law firm to provide collection services to the Company
10446 v5
-8-
<PAGE>
EXHIBIT 99
[Letterhead of Physician Support Systems, Inc.]
FOR IMMEDIATE RELEASE
- ---------------------
Contact:
David S. Geller
Senior Vice President &
Chief Financial Officer
Physician Support Systems, Inc.
(717) 653-5340
Noonan/Russo Communications, Inc.
(212) 696-4455
Jessica Livingston (investors) ext. 229
Michele Helm (media) ext. 225
e-mail: [email protected]
PHYSICIAN SUPPORT SYSTEMS SUCCESSFULLY COMPLETES MERGER
WITH EE&C FINANCIAL SERVICES, INC.
Mt. Joy, PA -- September 3, 1996 -- Physician Support Systems, Inc.
(Nasdaq:PHSS) today announced it has acquired through merger EE&C Financial
Services, Inc. ("EE&C"). The Transaction will be accounted for as a pooling of
interests. Terms of the transaction were not disclosed.
EE&C, based in Newark, NJ, provides accounts receivable and business management
services to hospitals in New York and New Jersey. During 1995, EE&C had revenues
of approximately $25 million.
Separately, PHSS announced it acquired Medical Intercept Systems LLC and
affiliated companies ("MIS"), a provider of accounts receivable and practice
management services to a broad variety of physician specialties. Based in
Garland, TX, with operations in Trenton, NJ and Chicago, IL, MIS had revenues in
1995 of approximately $5 million. The MIS transaction will be accounted for as a
purchase.
"We are excited about the significant position we have gained in the hospital
market as a result of the EE&C Financial Services transaction," said Peter
Gilson, President and Chief Executive Officer of Physician Support Sytems. "We
are equally excited by the entry into the Texas and Chicago physician markets
and our further expansion in the New Jersey market resulting from our purchase
of MIS."
<PAGE>
"This transaction gives us the opportunity to further expand our hospital
business into new markets," said Peter Cooper, President of EE&C Financial
Services. "At the same time, our strong fit with PHSS will enable us to continue
to serve our existing clients in the way in which they are accustomed to being
served. We know that our clients' confidence in us will be affirmed as we move
forward."
Headquartered in Mt. Joy, Pennsylvania, PHSS is a leading provider of business
management services to hospitals and hospital-affiliated physicians, including
accounts receivable, financial, administrative, strategic and information
support services.
This press release contains forward-looking statements that involve a number of
risks and uncertainties. Actual results may differ materially as a result of
risks facing the Company. These risks include the ability to PHSS to grow
internally or by acquisitions, political and regulatory pressures or changes,
the ability of the Company to integrate acquired businesses into the PHSS group
of companies, competitive action by other companies, changing conditions in the
healthcare industry and other risks referred to in the Company's periodic
reports and registration statement filed with the Securities and Exchange
Commission.
###
Editor's Note: This release is available on the Internet over the World
Wide Web:
http://www.noonanrusso.com
