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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-22162
SIMIONE CENTRAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3209241
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6600 POWERS FERRY ROAD, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-6700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 24, 1999: $9,165,210.
There were 8,554,673 shares of Common Stock outstanding at March 24,
1999.
Documents incorporated by reference in this Form 10-K: Portions of the
definitive proxy statement relating to the 1999 Annual Meeting of Stockholders
in Part III, Items 10 (as related to Directors), 11, 12 and 13.
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PART I
ITEM 1. BUSINESS
Certain statements set forth in this Annual Report on Form 10-K
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to the safe harbor created by such sections. When used in this report,
the words "believe," "anticipate," "estimate," "expect," and similar expressions
are intended to identify forward-looking statements. Although Simione Central
Holdings, Inc. (the "Company") believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
When appropriate, certain factors that could cause results to differ materially
from those projected in the forward-looking statements are enumerated. This
Annual Report on Form 10-K should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. In addition to its software solutions and related
software support services, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
During 1998, the Company had over 2000 customers nationwide, including
hospital-based companies, free-standing home health care providers,
alternate-site care organizations, home medical equipment providers, integrated
delivery systems and government-managed organizations. The Company's customers
include Columbia/HCA Healthcare Corporation ("Columbia/HCA"), Tenet Healthcare
Corporation ("Tenet"), The Visiting Nurse Association of Texas ("VNA - Texas"),
Mercy Health Services, a Michigan not-for-profit corporation ("Mercy"), and
Advocate Health System ("Advocate").
For information regarding the Company's history and Management's Plan
to improve the Company's performance, see Notes 1 and 9 to
Notes to Consolidated Financial Statements.
Unless the context otherwise requires, references to the Company herein
include Simione Central Holdings, Inc. and its subsidiaries. The Company's
executive offices are located at 6600 Powers Ferry Road, Atlanta, Georgia 30339
and the telephone number is 770-644-6700.
INDUSTRY OVERVIEW
Home health care is an integral part of the health care industry's
continuum of care. The increasing importance of home health care has principally
been a result of significant economic pressures within the health care industry.
In recent years, U.S. health care expenditures have increased rapidly. In
response to these escalating expenditures, payors, such as Medicare and managed
care organizations, have applied increasing pressure on physicians, hospitals
and other providers to contain costs. This pressure has led to the growth of
lower cost alternate-site care, such as home health care, and to reduced
hospital admissions and lengths of stay. In addition, home health care has grown
rapidly as a result of advances in medical technology, which have facilitated
the delivery of services in alternate sites, demographic trends, such as an
aging population, and preferences among patients to receive health care in their
homes.
Home health care consists of many elements, including skilled nursing,
durable medical equipment ("DME"), intravenous and infusion therapy ("IV
Therapy") and hospice. Historically, this industry has been highly fragmented
and characterized by small, local providers offering a limited range of
services. With the advent of managed care and integrated delivery systems, home
health care providers have had to expand their geographic scope and range of
product and service offerings. In addition, the overall growth in the home
health care industry has allowed providers to grow and realize increased
operating efficiencies. As a result of these developments and legislation and
regulatory pressures, the home health care industry has been in a period of
rapid consolidation.
Medicare traditionally reimbursed a majority of home health care
services at amounts that could not exceed the costs of services provided,
resulting in a direct relationship between the number of home health care visits
and reimbursement. However, the Balanced Budget Act of 1997, enacted on August
5, 1997 (the "BBA"), contained provisions that significantly change the manner
in which home health agencies and home care services will be reimbursed in the
future by Medicare. The legislation created the interim payment system
("IPS") which lowered the cost per visit limitations and created restrictions on
the amount of
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cost reimbursement per Medicare beneficiary. In late January, 1998, the Health
Care Financing Administration ("HCFA"), the federal agency that administers
Medicare reimbursement for the home health care industry, published a notice
revising the schedule of limits on home health agency costs for cost reporting
periods beginning on or after October 1, 1997, which reduced the cost per visit
limitations. At the same time, HCFA issued a rule setting forth the surety bond
and capitalization requirements for home health agencies. As mandated by the
BBA, HCFA has also announced the implementation, effective October 1, 2000, of a
Prospective Payment System ("PPS"), which would limit reimbursement to a fixed
amount for all services rendered per episode of care. IPS has had a significant
impact on the home health industry, resulting in numerous closings of home
health agencies, consolidation of agencies and decisions by home health agencies
to no longer participate in the Medicare program or serve Medicare
beneficiaries. Further, once fully-implemented, PPS could also potentially
impact the home health industry in the same manner. In addition to the impact of
IPS and PPS, the growth in the number of Medicare members enrolling in managed
care plans, which have also begun to take measures to contain costs, will have a
significant impact on how providers may operate profitably. The uncertainty in
the home health care industry concerning these changing regulations adversely
impacted the Company's business in 1998 as many providers dissolved or delayed
purchasing decisions. The Company cannot predict how new regulations will impact
its business in the future.
As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company believes
that many existing home health care information systems are inadequate to
address the changing needs of home health care providers. Generally, these
systems were designed to generate patient billing information and cost reports
for Medicare reimbursement and, as a result, may be unable to provide the
detailed information required for meaningful business analyses.
THE SIMIONE CENTRAL SOLUTIONS
The Company offers a comprehensive set of solutions to address the
changing needs of home health care providers. These solutions include
information systems and support, consulting services and agency support
services. The Company's systems and services are designed to enable home health
care providers to generate and utilize comprehensive financial, operational and
clinical information and address organizational issues in order to make informed
decisions, more effectively operate their businesses and compete in a managed
care and/or PPS environment. These solutions can be packaged and customized to
serve the individual needs of customers.
STRATEGY
The Company's objective is to enhance its position as a leading
provider of solutions to the home health care industry. Principal elements of
the Company's strategy include:
- Leverage Existing Customer Base. The Company currently has a
base of over 2000 customers nationwide. The Company believes
that a significant opportunity exists to cross-sell its
existing systems and services as well as introduce new systems
and enhancements.
- Generate Recurring Revenue. The Company generates recurring
revenue through a combination of annually renewable
maintenance agreements and multi-year service contracts. These
sources of revenue collectively accounted for 14% of the
Company's net revenues in 1998. The Company attempts to
maximize recurring revenue opportunities through a combination
of periodic system enhancements and comprehensive customer
service.
- Capitalize on Changing Industry Dynamics. As the home health
care industry consolidates, the Company believes it is well
positioned to increase its market share by leveraging its
existing relationships with large providers such as Tenet,
Advocate and Mercy. The Company also believes its
comprehensive solutions will become increasingly important to
home health care providers as they address the challenges
presented by health care reform and as integrated delivery
systems become more prevalent.
- Expand Through Acquisitions and Strategic Alliances. Through
selective strategic acquisitions the Company intends to
continue to expand its system and service offerings, expand
its customer base and increase its market share. The Company
also intends to selectively establish strategic alliances to
expand its system and service offerings and grow its
distribution capabilities.
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SYSTEMS AND SERVICES
The Company provides a comprehensive set of solutions for home health
care providers through a broad range of systems and services, including: (i)
several comprehensive, flexible software solutions; (ii) software support
services; (iii) comprehensive agency support services; and (iv) consulting
services. These systems and services are designed to address the evolving
strategic, financial, operational and clinical needs of home health care
providers as illustrated below:
[GRAPHIC OMITTED]
FORMATION SYSTEMS
The Company offers several comprehensive and flexible software
solutions to meet various customers' needs. Each of these solutions offers a
core platform of software applications which address the complete business
requirements of home health care providers. These applications are designed to
provide real-time reporting capabilities, speed information processing, reduce
redundant data entry, improve efficiencies and assist management with making
informed decisions. In addition to the core elements, the Company offers several
specialized modules that can be integrated with the Company's core applications
based on customer demand.
Core Software Solutions. The Company's core software solutions are as follows:
STAT2. A complete, flexible and fully integrated home health care
management system. The STAT2 core platform of software applications
includes:
Client Intake Billing/Accounts Receivable
Treatment Plans General Ledger
Employee Tracking Accounts Payable
Scheduling Payroll
Electronic Transmission/Remittance
This core functionality can be enhanced with specialized modules
including hospice, IV Therapy, DME, imaging, telephony and cost
reporting. The STAT2 system allows a customer to exchange clinical and
financial information with external systems in either a real-time or
batch mode through interface engine technology or customized
interfaces. STAT2 is designed to increase staff productivity by fully
integrating the system's clinical, financial and operational
applications and thereby eliminating redundant data entry. STAT2 has
the ability to customize system features as well as the ability to
expand with the customers' business. A major feature of the system is
its real-time reporting capabilities.
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DME 6.3 A PC-based software application for home medical equipment and
medical supply businesses. The DME 6.3 core platform of software
applications includes:
Order Entry Billing
Inventory Management Accounts Receivable
General Ledger Purchase Orders
DME 6.3 features the following add-on modules: Retail Sales, Bar Coding
and IV Therapy. Versions of this software are available for any size
operation. The software provides easy to use data import/export
capabilities.
The Company discontinued marketing its NAHC IS system during 1998 and
determined to concentrate its development efforts around windows based
technology.
Specialized Software Solutions. The Company offers the following specialized
software solutions:
STAT2 Medical Records. STAT2 Medical Records is designed to help STAT2
customers improve patient care while reducing costs through improved
productivity. STAT2 Medical Records allows field staff, using handheld
point-of-care units, to enter, update and transmit patient information
from remote locations to the home office via modem connection, updating
the central STAT2 system on a real-time basis. Customers can use STAT2
Medical Records to measure outcomes, establish or import clinical
pathways and report on variances to a care plan. STAT2 Medical Records
is comprised of modules which are integrated with other clinical,
financial and operational STAT2 system software modules for
collaborative reporting and analysis.
SC STATScan. SC STATScan is a Windows-based imaging system which scans
and stores paper forms into a customer's system. Documents are scanned,
digitized, stored on optical disks, indexed according to user defined
fields and recalled for instant use. SC STATScan also provides an
automated workflow application which allows the user to define the flow
of image information to various groups within the organization.
Additionally, SC STATScan provides its customers with increased
security and control of information, faster information retrieval and
an enhanced ability to share information in a real-time environment.
TEMMS. TEMMS is an interactive voice response system which records
visit, mileage, payroll and billing data from field staff using
telephones in place of computers. This data can be automatically
exported into a customer's payroll and billing applications. TEMMS is
designed to provide users with a more cost effective way to record data
and produce records and can accelerate a customer's billing activities.
MAPPScan. The Company's initial version of its Managed Avenue of
Patient Progress ("MAPP") point-of-care products is MAPPScan. MAPPScan
uses scanning technology to input and analyze a wide array of clinical
data. MAPPScan paper documentation incorporates HCFA data elements and
utilizes pre-defined pathways which guide patient care delivery and
allows for the analysis of data associated with clinical care, outcomes
and patient satisfaction.
MAPP Plus. The Company is currently finalizing its fully-automated
version of its MAPP point-of-care product, MAPP Plus. This product is
separately licensed and offers a means of documenting the provision of
home health care services and patient outcomes. MAPP collects outcomes
data by encounter and over an entire episode of care using a consistent
methodology for data collection. MAPP incorporates HCFA data elements
and utilizes pre-defined pathways, which may be expanded by the user
and guide patient care delivery. The Company has developed a functional
level of care model and over 60 clinical pathways related to specific
medical diagnoses. MAPP will also generate cost data associated with
clinical care, tracks outcomes variances and records patient
satisfaction. MAPP's clinical functionality is based on home health
care specific clinical knowledgeware developed through years of
practical application and clinical research. MAPP Plus utilizes
fully-automated front-end data collection via a mobile, pen-based
computer and has significant data analysis capabilities.
REMM. The Company is currently finalizing REMM, a client /server,
Windows based application designed to meet the demanding task of
resource scheduling in home care. A graphical calendar user interface
and wizard style display easily guide users through the scheduling
process. Resource assignment for encounters with clients extends beyond
the personnel disciplines and users may define multiple encounters such
as deliveries, hospital admissions, meals on wheels, telephone wellness
checks, in-service lectures, and staff meetings. The user determines
the level of detail needed for attachment to each encounter. This
includes treatments, labs, supplies, medications, directions and more.
REMM also tracks and validates service area, workload, availability,
competency, skill levels and preferences for encounter matching.
Licensure and certifications are also tracked and validated. Custom
report screens allow the user to tailor the information provided on any
of the numerous system reports. REMM is available as a stand alone
application, a module of STAT2, or it may be interfaced to other back
office systems.
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PharmWorks. PharmWorks is a complete pharmacy management solution
designed to meet the needs of infusion, retail, mail order,
institutional, and hospital outpatient pharmacies. This PC-based
application is scaleable and able to meet the business requirements of
both large and small organizations. The software and hardware
components are able to accommodate virtually unlimited growth for the
pharmacy. PharmWorks has a modular architecture and is built around a
relational data base for maximum user flexibility and performance. The
core programs that comprise the application are: Pharmacy Management,
Accounts Receivables, Material Management, and DME. Additional modules
are available for Electronic Claims Submission, Manufacturing
Management, and Nursing Home Management. With over 100 reports and data
download capability, the system allows for quick access to the most
critical information.
SERVICE SOLUTIONS
Software Support Services. The Company believes that providing
comprehensive software support services to customers is critical to its success
in the home health care industry. The Company employs 83 professionals dedicated
to this effort who provide the following services:
Implementation: Implementation services include an
assessment of existing customer business
processes, project planning, system
training, business process re-engineering
and data conversion assistance.
Training: Training services are offered on a
continuing basis to existing customers
either at the customer's site or at a
Company location.
Software Support: The Company offers on-call telephone
software support seven days a week and
provides maintenance releases on a periodic
basis. Releases of software enhancements are
generally made available to customers
annually.
Technical Consulting: The Company provides software customization
and integration, technical audits of the
customer's information systems, integration
and network planning and strategic and
tactical information systems planning.
Support services represent a source of recurring revenue, as these
services are provided through annual renewable service contracts. Other services
are generally charged on a time and materials usage basis. The Company's
technical personnel also provide on-site and on-call hardware support.
Consulting Services. The Company's home health care consulting services
assist providers in addressing the challenges of a managed care and/or PPS
environment, such as reducing the cost of delivering care while maintaining or
improving quality of care, streamlining operational structures and
re-engineering organizational structures. The Company's consulting operations,
which were acquired in January 1996, have been providing consulting advice to
the home health care industry since 1963. The consulting staff is comprised of
41 professionals with home health care industry specific experience. Consulting
engagements generally focus on:
<TABLE>
<S> <C> <C>
Strategic Planning Marketing Studies Acquisition Due Diligence
Operational Reviews Business Valuations Quality Assurance Reviews
Reimbursement Consultation Organizational Reviews Operational Re-engineering
Medicare Compliance Medical Records Cost Report Preparation
</TABLE>
The Company provides consulting services on a time and materials usage
basis. The Company believes that its consulting services group effectively
complements its software and services, provides a valuable outlook on the
changing home health care industry and is a source of innovative ideas for the
Company's information systems enhancements. Furthermore, consulting services are
designed to build new customer relationships and provide opportunities for the
sale of additional information systems and services.
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Outsourcing Services. For home health care providers seeking to address
the challenges posed by changing industry dynamics, the Company provides
comprehensive support services to supplement their core competencies. The
Company's support services provide day-to-day personnel outsourcing for certain
critical customer operational functions. For new customers, the Company will
initially analyze and re-engineer, as appropriate, all aspects of a customer's
home health care operation. These services are provided by over 24 home health
care specialists. This combination of services is designed to enable customers
to create an efficient organizational structure that seeks to provide both
cost-effective results and promotes the delivery of high quality patient care.
Components of these services include:
<TABLE>
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Management Oversight Clinical Program Development Compliance & Ethics Audits
Training & Development Fiscal Intermediary Relations Community Awareness Programs
Human Resources Operations/Systems Management Accounting Support
Reimbursement Planning Billing/Collection Budget Preparation/Analysis
</TABLE>
The Company provides outsourcing services under multi-year contracts.
Fees for these services are billed monthly. The Company believes the delivery of
agency support services provides another valuable opportunity to introduce its
information systems and services to an additional customer base.
CUSTOMERS
During 1998, the Company had over 2000 customers nationwide, including
hospital-based companies, home health care providers, alternate-site care
organizations, home medical equipment providers, integrated delivery systems and
government-managed organizations. The Company's customers include Columbia/HCA,
Tenet, VNA - Texas, Mercy and Advocate. No customer is expected to account for
10% or more of the Company's consolidated net revenues during the year ending
December 31, 1999.
SALES AND MARKETING
The Company markets its systems and services through a direct sales
force which consists of one senior vice president, two vice presidents and 17
sales and telemarketing representatives located throughout the United States.
The Company also employs a marketing and sales support staff of 9 people to
assist its sales force. Recognizing the importance of maintaining good
communication and obtaining valuable input from its customers, the Company
sponsors national user group meetings. Regional user group meetings are also
held to discuss customer comments, suggestions, industry trends and related
system issues.
BACKLOG
The Company had backlog of $4.1 million and $7.1 million on December
31, 1998 and 1997, respectively. Backlog consists of the unrecognized portion of
contractually committed software license fees, hardware, estimated installation
fees and professional services. The length of time required to complete an
implementation depends on many factors outside the control of the Company,
including the state of the customer's existing information systems and the
customer's ability to commit the personnel and other resources necessary to
complete the implementation process. As a result, the Company may be unable to
predict accurately the amount of revenue it will recognize in any period and,
therefore, can make no assurances that the amounts in backlog will be recognized
in the next twelve months.
TECHNOLOGY
The STAT2 system operates on multiple operating systems, including
Windows NT, and is designed for use on microcomputers, LAN-based PCs, IBM
RS/6000 and DEC Alpha hardware. The STAT2 system can be implemented on
client/server or host/dumb terminal architecture and offers SQL-compliant
databases in both configurations. The system allows any Windows SQL report
writer to access the STAT2 system database and to merge data with other customer
SQL-compliant databases. The STAT2 system allows a customer to exchange clinical
and financial information with external systems in either a real-time or batch
mode through interface engine technology or customized interfaces.
The DME 6.3 system operates on the MS-DOS and Windows NT operating
systems and is designed for use on microcomputers or LAN-based PCs.
The Company's systems are dependent upon many third-party software and
hardware products and related services. There can be no assurance that financial
or other difficulties experienced by such third-party vendors will not have an
adverse effect on the Company's abilities to provide its systems or that the
Company will be able to replace such third-party products and services if they
become unavailable.
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RESEARCH AND DEVELOPMENT
The Company maintains a staff of approximately 67 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance the Company's systems. The Company's research and
development expenses were approximately $6.7, $6.7 and $5.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
STAT2 system current research and development plans include upgrading
key modules to a graphical user interface. The Company has additional research
and development activities underway to make certain product functionality
web-enabled. Additionally, the Company plans to develop or enhance interface
capabilities between all of its software products.
The Company recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. There can
be no assurance, however, that the Company will be able to develop products on a
timely basis or that its future products will fully address the needs of its
current or prospective customers.
COMPETITION
Competition in the market for home health care information systems and
services is intense and is expected to increase. The Company believes that the
primary factors affecting competition are system performance and reliability,
customer support, service, system flexibility and ease of use, pricing,
potential for providing enhancements, reputation and financial stability. The
Company's competitors include other providers of home health care information
systems and services, management companies and home health care consulting
firms. Furthermore, other major health care information companies not presently
offering home health care information systems, or major information system
companies not currently in the health care industry, could develop the
technology and enter the Company's markets. The Company believes its most
significant competitors are Delta Health Systems (owned by Shared Medical
Systems Corp.), HBO & Company, Patient Care Technologies, Inc. (partially owned
by Meditech), and Home Care Information Systems, Inc. (owned by Misys PLC).
Increased competition could result in price reductions, reduced gross margins
and loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. In addition,
many of the Company's competitors and potential competitors have significantly
greater financial, technical, product development, marketing and other resources
and market recognition than the Company. Many of the Company's competitors also
currently have, or may develop or acquire, substantial installed customer bases
in the home health care industry. As a result of these factors, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their systems and services than the Company.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect its business, financial
condition and results of operations.
PROPRIETARY RIGHTS AND PRODUCT PROTECTION
The Company owns the copyrights on its STAT2 system. The Company also
has pending applications to register trademarks related to its MAPP products.
The Company depends upon a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
various security measures to protect its proprietary rights. There can be no
assurance that the legal protections afforded to the Company or the precautions
taken by the Company will be adequate to prevent misappropriation of the
Company's technology. In addition, these protections do not prevent independent
third-party development of functionally equivalent or superior technologies,
systems or services, or the obtaining of a patent with respect to the Company's
technology by third parties. Any infringement or misappropriation of the
Company's proprietary software could have a material adverse effect on the
Company. As the number of home health care software information systems
increases and the functionality of these systems further overlap, health care
information systems may increasingly become subject to infringement claims.
Although there has been no litigation with respect to such claims, there can be
no assurance that the Company will not be subject to litigation in the future or
additional infringement claims. The Company believes that its current systems
and products do not infringe on the patent or trademark rights of any third
parties. There has, however, been substantial litigation and uncertainty
regarding copyright, patent and other intellectual property rights involving
computer software companies and there can be no assurance that the Company will
prevail in any infringement litigation brought against it. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of management's attention which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Adverse determinations in such claims or litigation may require the Company to
cease selling certain systems or products, obtain a license and/or pay damages,
any of which could also have a material adverse effect on the Company's
business, financial condition and results of operations.
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GOVERNMENT REGULATION AND HEALTH CARE REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The Office of Inspector General ("OIG") of the Department of Health and
Human Services has identified in its Work Plan for Fiscal Year 1999 (the "1999
Work Plan") several projects within the home health industry which will be the
focus of the OIG's scrutiny in fiscal year 1999. Each year the OIG sets forth in
its Work Plan for that year the areas that will be scrutinized. For example, the
1999 Work Plan sets forth that the OIG will focus on audits of home health base
year costs, location of service requirements, assessment of the impact of IPS on
beneficiary access, physicians case management billings, utilization patterns of
home health agencies, and claims for home health aides. Additionally, the OIG
has focused in recent years on how third party billing companies, such as this
Company, provide billing and collection services to its customers. The OIG has
also stressed the importance of compliance programs for aspects of the health
care industry. Such compliance programs, while currently implementation of such
programs is voluntary, may become a requirement in the future as a condition of
being reimbursed under any federal or state programs or by private health plan
payors. The OIG released in December 1998 a compliance program intended as
guidance to third-party medical billing companies and their agents and
subcontractors in developing internal controls promoting adherence to applicable
law and the program requirements of federal, state and private health plan
payors. Any changes resulting from the OIG's review of the home health industry
and how home health services are billed could increase the costs and time
necessary for the Company to provide its administrative services to its
customers and could affect the Company in other respects not currently
foreseeable.
The confidentiality of patient records and the circumstances under
which such records may be released for inclusion in databases maintained on the
Company's systems are subject to substantial regulation by state governments and
certain federal legislation governing specialized medical information and
records. Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to the Company's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 includes provisions directing the
Secretary of the Department of Health and Human Services to adopt standards
governing the electronic transmission of data in connection with a number of
transactions involving health information, including submission of health
claims. These standards are to cover security measures and safeguards with
respect to health information, as well as standardization of data, assignment of
identifiers and authentication of electronic signatures. In January 1999, HCFA
published an interim final rule and a final rule requiring home health agencies
to report electronically data obtained from the Outcome and Assessment
Information Set ("OASIS") as a condition of participation by such agencies in
the Medicare program. OASIS requires information regarding patients to be
submitted electronically to HCFA, and the January 1999 rules set forth
requirements for maintaining the privacy of patient identifiable information
generated by OASIS. Further, these rules require the home health agency, or an
agent acting on such agencies behalf, to maintain the confidentiality of all
patient identifiable information contained in the clinical record and neither
can release such patient identifiable OASIS information to the public. Any agent
acting on behalf of an agency in connection with the transmission of OASIS data
must be doing so pursuant to a written agreement with the home health agency.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. This legislation may
require holders of such information to implement additional security measures
which may be difficult to implement and costly to the Company. There can be no
assurance that changes to state or federal laws and regulations will not
materially restrict the ability of home health care providers to submit
information from patient records to the Company's systems or impose requirements
which are incompatible with the Company's current systems.
The United States Food and Drug Administration (the "FDA") is
responsible for assuring the safety and effectiveness of medical devices under
the Federal Food, Drug and Cosmetic Act. Computer products are subject to
regulation when they are used or are intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body.
Although the Company believes that its systems are not subject to FDA
regulation, the FDA could determine in the future that predictive applications
of the Company's systems could make them clinical decision tools subject to FDA
regulation. Compliance with FDA regulations could be burdensome, time consuming
and expensive. The Company also could become subject to future legislation and
regulations concerning the manufacture and marketing of medical devices and
health care information systems. These could increase the costs and time
necessary to market new systems and could affect the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation.
9
<PAGE> 10
EMPLOYEES
As of March 1, 1999, the Company employed approximately 285
individuals. The Company believes that its future success depends in large part
upon recruiting, motivating and retaining highly skilled and qualified employees
in all aspects of the Company's business. None of the Company's employees is
represented by a labor union. The Company believes that its employee relations
are good.
10
<PAGE> 11
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 6600 Powers
Ferry Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 56,924 square feet, of which approximately 49,162 square feet is
leased directly from the owner of the office building in which the Company's
principal executive offices are located pursuant to a lease expiring December
31, 2002 (the "Corporate Headquarters Office Building Lease"), and of which
approximately 7,762 square feet are subleased pursuant to a sublease expiring
February 28, 2001 (the "Corporate Headquarters Sublease"). Upon the expiration
of the Corporate Headquarters Sublease, the space subleased thereunder will be
leased directly from the office building owner pursuant to the Corporate
Headquarters Building Lease.
The Company also leases approximately 20,291 square feet of office
space in Pompano Beach, Florida pursuant to a lease that expires on December 31,
2000, and approximately 6,500 square feet of office space in Hamden, Connecticut
pursuant to a lease that expires on December 31, 2002. The landlord of the
Connecticut office is a company comprised of certain officers and a director of
the Company. See "Item 13. Certain Relationships and Related Transactions." In
addition, the Company leases approximately 8,540 square feet of office space in
East Brunswick, New Jersey pursuant to a lease that expires on September 30,
2000, and approximately 7,900 square feet of office space in Sugar Land, Texas
pursuant to a lease that expires on September 30, 2000. Finally, the Company
leases small offices in Westborough, Massachusetts, San Diego, California,
Irving, Texas and Jacksonville, Florida.
The Company believes that its present facilities are adequate to meet
the Company's current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently a party to
any legal proceedings which would be material to the business or financial
condition of the Company on a consolidated basis. The Company was, however,
served on July 17, 1997 with an administrative subpoena issued by the United
States Department of Health and Human Services, Office of Inspector General. In
connection with that subpoena, the Department of Justice ("DOJ") has advised the
Company that certain aspects of the Company's past relationship with affiliates
of Columbia/HCA are within the scope of an ongoing grand jury investigation.
However, the DOJ has confirmed to the Company that neither the Company, nor any
of its officers, directors or employees, is a target in this investigation and,
based upon the information known to the DOJ at this time, neither the Company,
nor any of its officers, directors or employees, is likely to become one. The
Company is cooperating fully with the government and does not currently believe
that this inquiry will have any material effect on its overall business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE MANAGEMENT OF THE REGISTRANT
<TABLE>
<S> <C> <C>
Barrett C. O'Donnell 45 Chairman of the Board,
President and Chief Executive
Officer
William J. Simione, Jr. 57 Vice Chairman of the Board
and Executive Vice President
Jack Arthur 61 Sr. Vice President of Product
Development and Product Management
Jim Hall 38 Sr. Vice President of Sales &
Marketing
Eugene Horn 57 Sr. Vice President of Acquisition Operations
Reid Horovitz 33 General Counsel and Secretary
Kathie McClellan 45 Sr. Vice President of Customer
Services and Support
Lori Nadler Siegel 35 Chief Financial Officer
and Treasurer
Bob Simione 49 Sr. Vice President of Consulting
</TABLE>
11
<PAGE> 12
BARRETT C. O'DONNELL has served as Chairman of the Board, Chief
Executive Officer and President of the Company since July of 1998 and has been a
director of the Company since October of 1996. Mr. O'Donnell served as Chairman
of the Board of InfoMed Holdings, Inc. (a predecessor entity of the Company)
("InfoMed") from October of 1992 until October of 1996 and as Chief Executive
Officer of InfoMed from November of 1994 until October of 1996. From 1978 until
the present, Mr. O'Donnell has been Chairman of the Board, President and Chief
Executive Officer of O'Donnell Davis, Inc., a consulting and investment advisory
services company.
WILLIAM J. SIMIONE, JR. is a certified public accountant who has served
as Vice Chairman of the Board and Executive Vice President of the Company since
October of 1996. From January of 1996 until October of 1996, Mr. Simione served
as the President of Simione Central, Inc., a wholly-owned subsidiary of the
Company. From January of 1975 until December of 1995, Mr. Simione was Managing
Partner of the Home Health Care Consulting Division of Simione & Simione, CPA's
("Simione & Simione"). Since September of 1995, Mr. Simione also serves as a
director and an audit and governance committee member of Personnel Group of
America, Inc., a leading provider of information technology services and
commercial staffing solutions.
JACK ARTHUR has served as Senior Vice President of Product Development
and Product Management of the Company since January of 1999. From July of 1998
until December of 1998, Mr. Arthur was a manager of product development with
Eclipsys, Inc., an information systems provider. From October of 1995 until June
of 1998, Mr. Arthur was the owner of Healthcare Consulting, Inc., a healthcare
information systems consulting company. From June of 1985 until October of 1995,
Mr. Arthur held various product development management positions with SMS, Inc.,
an information systems provider.
JIM HALL has served as Senior Vice President of Sales and Marketing of
the Company since February of 1999. From October of 1996 until October of 1998,
Mr. Hall was Senior Vice President of Sales of IMNET Systems, Inc., an
information systems provider. From September of 1995 until October of 1996, Mr.
Hall was Vice President of Sales of The Compucare Company, an information
systems provider. From February of 1987 until June of 1995, Mr. Hall held
various sales management positions with First Data Corp, an information
technology company.
EUGENE HORN has served as Senior Vice President of Acquisition
Operations of the Company since January of 1998. From December of 1991 until
July of 1997, Mr. Horn was a Vice President with National Data Corp., a
financial services company.
REID HOROVITZ has served as General Counsel and Secretary of the
Company since July of 1998. From June of 1997 until June of 1998, Mr. Horovitz
was Assistant General Counsel of Micro Warehouse, Inc., a computer reseller.
From April of 1993 until June of 1997, Mr. Horovitz was General Counsel of
InfoMed.
KATHIE MCCLELLAN has served as Senior Vice President of Customer
Services and Support of the Company since November of 1998. From June of 1996
until November of 1998, Ms. McClellan held various operational and customer
services positions with the Company. From April of 1991 until June of 1996, Ms.
McClellan was an administrator and director of Memorial Medical Center.
LORI NADLER SIEGEL is a certified public accountant who has served as
the Chief Financial Officer and Treasurer of the Company since October of 1996.
From June of 1996 until October of 1996, Ms. Siegel served as Chief Financial
Officer of Central Health Holding Company, Inc. ("CHHC"). From January of 1995
until May of 1996, Ms. Siegel served as Assistant Vice President of Finance for
Central Health Services, Inc. ("CHS") after holding various accounting and
finance positions there from July 1991 until December 1994.
BOB SIMIONE has served as Senior Vice President of Consulting of the
Company since October of 1996. From January of 1976 until September of 1996, Mr.
Simione was a principal of Simione & Simione.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company, par value $.001 per share (the "Common
Stock"), has been traded on the Nasdaq Stock Market under the symbol SCHI since
June 30, 1997. Prior to June 30, 1997, the Common Stock was traded on the OTC
Bulletin Board under the symbol SCHI from December 24, 1996 to June 29, 1997. As
of March 24, 1999, the Common Stock was held by approximately 1,933 holders of
record.
12
<PAGE> 13
The table below sets forth the reported quarterly high and low bid prices for
the Common Stock on the OTC Bulletin Board for the period January 1, 1997 to
June 29, 1997, and the reported quarterly high and low sales price for the
Common Stock on the Nasdaq Stock Market for the period June 30, 1997 to December
31, 1998. The information set forth below does not include retail mark-up,
mark-downs or commissions. In addition, over-the-counter prices reflect
inter-dealer prices, and may not necessarily represent actual transactions. The
sales prices after the second quarter of 1997 reflect the value of the Common
Stock following a 1-for-2 reverse stock split effected by the Company on June
30, 1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $11 3/8 6 5/8 $ 7 3/4 4 1/4
Second Quarter 15 1/2 6 5/8 6 3/4 5
Third Quarter 8 1 1/4 14 3/4 9 l/2
Fourth Quarter 3 1 1/4 14 1/8 7
</TABLE>
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future.
13
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company. The selected consolidated financial data in the table as of and for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 are derived from
the audited consolidated financial statements of the Company. The selected
consolidated financial data as of and for the year ended December 31, 1996
includes the operating results of Simione & Simione acquired effective January
1, 1996 and InfoMed Holdings, Inc. ("IMHI") for the period October 8, 1996 (the
effective date of the IMHI Acquisition) to December 31, 1996. The selected
consolidated financial data as of and for the year ended December 31, 1997
includes the operating results of Dezine Healthcare Solutions, Inc. ("Dezine")
for the period December 1, 1997 (the effective date of the Dezine Acquisition)
to December 31, 1997. As of and for the years ended December 31, 1994 and 1995,
the Company was a subsidiary of CHHC. See Notes 1 and 9 to Notes to Consolidated
Financial Statements for a description of the Company's history. The data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto of the Company included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 (2) 1995 (2) 1994
---- ---- -------- -------- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues:
Software and services $ 27,523 $ 27,356 $ 15,308 $ 5,387 $ 4,875
Agency support 7,686 14,680 7,324 7,835 7,235
Consulting services 6,437 4,909 3,363 -- --
------------------------------------------------------------
Total net revenues 41,646 46,945 25,995 13,222 12,110
Costs and expenses:
Costs of revenues 24,085 22,715 14,698 8,154 7,694
Selling, general and administrative 13,823 12,508 7,037 3,095 2,959
Research and development 6,741 6,670 5,677 2,929 2,165
Amortization and depreciation 2,392 1,714 785 -- --
Purchased in-process research and -- 8,127 12,574 -- --
development
Severance and other restructuring charges 7,017 -- 1,215 -- --
------------------------------------------------------------
Total costs and expenses 54,058 51,734 41,986 14,178 12,818
------------------------------------------------------------
Loss from operations (12,412) (4,789) (15,991) (956) (708)
Other income (expense):
Interest expense (183) (215) (115) -- --
Interest and other income 424 490 207 -- --
------------------------------------------------------------
Net loss $(12,171) $ (4,514) $(15,899) $ (956) $ (708)
============================================================
Net loss per share - basic and
diluted (1), (3) $ (1.42) $ (0.63) $ (3.71) $ (0.32) $ (0.24)
============================================================
Weighted average common shares - basic
and diluted (1), (3) 8,557 7,164 4,288 2,995 2,995
============================================================
<CAPTION>
December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 10,527 $ 8,267 $ 3,385 $ 323 $ 463
Working capital (deficit) 1,301 9,019 (1,203) 189 (837)
Total assets 27,857 28,919 18,776 1,828 1,340
Long-term obligations 2,671 -- 2,986 -- --
Shareholders' equity (deficit) 7,724 19,489 4,680 650 (837)
</TABLE>
(1) The number of shares used to compute the net loss per share reflects
the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1 and 12 of the Notes to Consolidated
Financial Statements of the Company.
(2) Certain amounts in the 1996 and 1995 Statements of Operations have
been reclassified to conform with the 1998 presentation.
(3) All amounts have been restated in accordance with SFAS 128.
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the consolidated financial condition
and results of operation of the Company for the three years ended December 31,
1998 and certain factors that will effect the Company's financial condition. In
these discussions, most percentages and dollar amounts have been rounded to aid
presentation; as a result, all such figures are approximations. References to
such approximations have generally been omitted.
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers several
comprehensive and flexible software solutions, each of which provide a core
platform of software applications and which incorporate selected specialized
modules based on customer demand. These software solutions are designed to
enable customers to generate and utilize comprehensive financial, operational
and clinical information. In addition to its software solutions and related
software support services, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
The Company enters into multi-year contracts (generally 3 to 5 years)
with its customers in connection with its provision of agency support services.
In general, these contracts provide for the payment of monthly fees based on the
number of billed home care visits made by the customer. Revenues derived under
these contracts are recognized monthly as the related services are rendered and
typically range from several hundred thousand dollars to several million dollars
per year. As a result, the loss of any of these contracts could have a material
adverse impact on the Company's business, financial condition and results of
operations.
The Company sells its software pursuant to non-exclusive license
agreements which provide for the payment of a one-time license fee. In
accordance with SOP 97-2, these revenues are recognized when products are
delivered and the collectibility of fees is probable, provided that no
significant obligations remain under the contract. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's software varies depending on the number of software modules licensed
and the number of users accessing the system and can range from ten thousand
dollars to a few million dollars. The Company generally requires payment of a
deposit upon the signing of a customer order as well as certain additional
payments prior to delivery. As a result, the Company's balance sheet reflects
significant customer deposits.
Third party software and computer hardware revenues are recognized when
the related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as the
related services are performed.
The Company defines recurring revenues as revenues derived under
multi-year contracts in addition to annual software support agreements. These
revenues were approximately $6.3 million, or 14% of total net revenues, for the
year ended December 31, 1998, $28.2 million, or 60% of total net revenues, for
the year ended December 31, 1997, and $7.4 million, or 29% of total net
revenues, for the year ended December 31, 1996. The Company anticipates that
recurring revenues may represent a greater portion of its total net revenues in
the foreseeable future.
For the ten months ended October 31, 1996, 63% of the Company's total
net revenues were derived from contracts with home health care agencies
wholly-owned by CHHC. These contracts were terminated October 31, 1996, in
connection with the sale of CHHC to Columbia/HCA. Revenues derived from these
contracts were recorded in an amount equal to the costs of the services
provided, and, as a result, the Company recognized no operating profit under
these contracts. Subsequent to the sale of CHHC to Columbia/HCA, affiliates of
Columbia/HCA entered into multi-year contracts with the Company to provide its
information systems and agency support services to certain of the home health
care agencies formerly owned by CHHC. The Company believes that the contracts
with the Columbia/HCA affiliates were negotiated on an arms-length basis. The
historical results of operations attributable to the terminated CHHC contracts
may not therefore be indicative of future results of operations. For the years
ended December 31, 1998 and 1997 and the three months ended December 31, 1996,
the Company derived 35%, 48% and 39%, respectively, of its total net revenues
from contracts with affiliates of Columbia/HCA.
<PAGE> 16
The contracts with Columbia/HCA were terminated on December 1, 1998 and
a settlement of $7.0 million was agreed to by both parties for the early
termination of the contracts and for specific wind down of activities to be
performed by the Company through March 31, 1999.
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will decrease, but should
decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. During 1998,
the Company wrote-off approximately $2.0 million of capitalized software to
reflect the abandonment of certain development projects. As of December 31,
1998, 1997 and 1996, the Company had $0, $616,000 and $0 respectively, of
capitalized computer software development costs.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
from the consolidated statements of operations expressed as a percentage of
total net revenues. The Company's historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Percentage of Net Revenues:
Net revenues:
Software and services 66.1 % 58.3 % 58.9 %
Agency support 18.4 31.3 28.2
Consulting services 15.5 10.4 12.9
-------------------------------------
Total net revenues 100.0 100.0 100.0
Costs and expenses:
Costs of revenues 57.8 48.4 56.5
Selling, general and administrative 33.2 26.6 27.1
Research and development 16.2 14.2 21.8
Amortization and depreciation 5.8 3.6 3.0
Purchased in-process research and development -- 17.3 48.4
Severance and other restructuring charges 16.8 -- 4.7
-------------------------------------
Total costs and expenses 129.8 110.1 161.5
-------------------------------------
Loss from operations (29.8) (10.1) (61.5)
Other income (expense):
Interest expense (0.4) (0.5) (0.5)
Interest and other income 1.0 1.0 .8
-------------------------------------
Net loss (29.2)% (9.6)% (61.2)%
=====================================
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Revenues. Total net revenues decreased $5.3 million, or 11.3%, to
$41.6 million in 1998 from $46.9 million in 1997. This decrease in total net
revenues includes a $6.2 million increase attributable to the business acquired
in the Dezine acquisition which was completed in December of 1997, a $1.5
million increase in consulting revenues, a $9.7 million decrease attributable to
the declining number of visits and ultimate termination of the Columbia/HCA
contracts, and a $3.5 million decrease in new software sales and related
services.
Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
decreased $167,000, or 0.4%, to $27.5 million in 1998 from $27.4 million in
1997. This decrease includes a $6.2 million increase attributable to the
business acquired in the Dezine acquisition which was offset by a $3.5 million
decrease in new software sales and related services, and a $2.7 million decrease
attributable to the declining revenue associated with the Columbia/HCA
contracts.
<PAGE> 17
Net revenues from Agency Support decreased $7.0 million, or 47.6%, to
$7.7 million in 1998 from $14.7 million in 1997. This decrease was attributable
to the declining number of visits and ultimate termination of the Columbia/HCA
contracts.
Net revenues from Consulting Services increased $1.5 million, or 31.0%,
to $6.4 million in 1998 from $4.9 million in 1997 and was attributable to
revenues from new customers.
Cost of Revenues. Cost of revenues increased $1.4 million, or 6.2%, to
$24.1 million in 1998 from $22.7 million in 1997. As a percentage of total net
revenues, cost of revenues increased to 57.8% in 1998 from 48.4% in 1997. This
dollar increase includes $2.5 million in costs attributable to the business
acquired in the Dezine acquisition offset by a $1.4 decrease in costs
attributable to the terminated Columbia/HCA contracts. The increase as a
percentage of total net revenues is principally due to the decrease in new
software sales and related services.
Selling, General and Administrative. Selling, general and
administrative expenses increased $1.3 million, or 10.4%, to $13.8 million in
1998 from $12.5 million in 1997. As a percentage of total net revenues, selling,
general and administrative expenses were 33.2% in 1998 and 26.6% in 1997. This
dollar increase was attributable to approximately $2.1 million in costs related
to the business acquired in the Dezine acquisition offset by approximately $1.0
million in restructuring charges.
Research and Development. Research and development expenses remained
constant at $6.7 million in 1998 and 1997. As a percentage of total net
revenues, research and development expenses increased to 16.2% in 1998 from
14.2% in 1997. This percentage increase reflects the decrease in total net
revenues compared to a relatively constant level of dollar expenditures.
Amortization and Depreciation. Amortization and depreciation increased
by $700,000 to $2.4 million in 1998 from $1.7 million in 1997. This increase
includes approximately $300,000 of amortization expenses attributable to the
Dezine acquisition and approximately $400,000 associated with the depreciation
and amortization of purchased software, furniture, and equipment acquired in
1998.
Purchased In-Process Research and Development. In connection with the
Dezine acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third party valuation firm, $8.1
million related to the Dezine acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Additionally, the Company has a two year plan for the expansion of the DME
product line, to include a Windows-based graphical user interface/open system.
It is anticipated that the Company will incur approximately $1.0 million to $1.5
million of direct research and development expenses in connection with the
completion of its DME development plans.
Severance and Other Restructuring Charges. The Company recorded a
restructuring charge totaling $7.0 million as a result of the change in the home
care business environment resulting from IPS, and the termination of the
Columbia/HCA contracts, coupled with the decision to eliminate certain legacy
development projects including the AS400 effort. Total charges were $11.5
million and included a $2.0 million write-off of capitalized software , $2.1
million in severance from a reduction in force, $3.7 million in costs to
terminate contracts with third party vendors, and $3.7 million in costs related
to excess capacity and other charges. These charges were offset by $4.0 million
of the $7.0 million settlement fee resulting from the termination of the
Columbia/HCA contracts.
Other Income (Expense). Interest expense relates to the borrowings
under the Company's line of credit agreements and capital lease obligations and
has remained constant at approximately $200,000. Interest and other income
consists principally of interest income related to the Company's short term cash
investments and has remained constant at approximately $450,000.
Income Taxes. The Company has not incurred or paid any income taxes
since its inception. At December 31, 1998, the Company had net operating loss
("NOL") carryforwards for federal and state income tax purposes of $10.6
million, such losses expire in years 2010 through 2013, if not utilized. The
Company also has research and development and alternative minimum tax credits
("tax credits") of approximately $90,000 available to reduce future income tax
liabilities. The Tax Reform Act of 1986, as amended, contains provisions that
limit the NOL and tax credit carryforwards available to be used in any given
year when certain events occur, including additional sales of equity securities
and other changes in ownership. As a result, certain of the NOL and tax credit
carryforwards may be limited as to their utilization in any year. The Company
has concluded that it is more likely than not that these NOL and tax credit
carryforwards will not be realized based on a weighing of available evidence at
December 31, 1998, and as a result a 100% deferred tax valuation allowance has
been recorded against these assets.
<PAGE> 18
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Revenues. Total net revenues increased $20.9 million, or 80.4%, to
$46.9 million in 1997 from $26.0 million in 1996. This increase in total net
revenues includes $11.7 million attributable to the business acquired in the
IMHI acquisition which was completed in October of 1996, $16.4 million in
additional revenues from contracts with affiliates of Columbia/HCA and a
decrease of $12.0 million resulting from the termination of contracts with home
health care agencies wholly-owned by CHHC. The remaining increase was
principally attributable to revenues from new customers.
Net revenues from Software and Services include revenues from software
licenses, service fees, computer hardware sales, software support,
implementation, training and technical consulting services. These revenues
increased $12.1 million, or 79.1%, to $27.4 million in 1997 from $15.3 million
in 1996. This increase is primarily attributable to the business acquired in the
IMHI acquisition.
Net revenues from Agency Support increased $7.4 million, or 101.4%, to
$14.7 million in 1997 from $7.3 million in 1996. This increase includes $10.0
million in additional revenues from contracts with affiliates of Columbia/HCA
and a decrease of $1.3 million resulting from the termination of contracts with
home health care agencies wholly-owned by CHHC.
Net revenues from Consulting Services increased $1.5 million, or 44.1%,
to $4.9 million in 1997 from $3.4 million in 1996 and was attributable to
revenues from new customers.
Cost of Revenues. Cost of revenues increased $8.0 million, or 54.4%, to
$22.7 million in 1997 from $14.7 million in 1996. As a percentage of total net
revenues, cost of revenues decreased to 48.4% in 1997 from 56.5% in 1996. This
dollar increase includes $3.3 million in costs attributable to the business
acquired in the IMHI acquisition and the remaining increase primarily results
from the increased cost of personnel and the cost of computer and communication
technology. The reduction as a percentage of total net revenues is principally
due to the higher margins related to the business acquired in the IMHI
acquisition, and increased margins derived from new customers.
Selling, General and Administrative. Selling, general and
administrative expenses increased $5.5 million to $12.5 million in 1997 from
$7.0 million in 1996. As a percentage of total net revenues, selling, general
and administrative expenses were 26.6% in 1997 and 27.1% in 1996. This dollar
increase was attributable to approximately $3.8 million in costs related to the
business acquired in the IMHI Acquisition and the remainder principally relates
to increased administrative personnel to support growth.
Research and Development. Research and development expenses increased
$1.0 million to $6.7 million in 1997 from $5.7 million in 1996. As a percentage
of total net revenues, research and development expenses decreased to 14.2% in
1997 from 21.8% in 1996. This dollar increase was attributable principally to
the business acquired in the IMHI acquisition. During 1997, the Company
capitalized $600,000 in software development costs.
Amortization and Depreciation. Amortization and depreciation increased
by approximately $900,000 to $1.7 million in 1997 from $800,000 in 1996. This
increase includes approximately $600,000 of amortization expenses attributable
to the IMHI acquisition in October of 1996 and approximately $300,000 associated
with the depreciation and amortization of purchased software, furniture, and
equipment acquired in 1997.
Purchased In-Process Research and Development. In connection with the
Dezine acquisition in 1997, the purchase price of $9.4 million was allocated
based on relative fair value of the assets acquired and liabilities assumed.
Pursuant to a study conducted by an independent third party valuation firm, $8.1
million related to the Dezine acquisition purchase price was allocated to
purchased in-process research and development and, in accordance with generally
accepted accounting principles, was charged to operations as it was not deemed
to have reached technological feasibility and had no alternative future use.
Additionally, the Company has a two year plan for the expansion of the DME
product line, to include a Windows-based graphical user interface/open system.
It is anticipated that the Company will incur approximately $1.5 to $2.5 million
of direct research and development expenses in connection with the completion of
its DME development plans.
In connection with the IMHI acquisition in 1996, the purchase price of
$16.8 million was allocated based on relative fair value of the assets acquired
and liabilities assumed. Pursuant to a study conducted by an independent third
party valuation firm, $12.6 million related to the IMI acquisition purchase
price was allocated to purchased in-process research and development and, in
accordance with generally accepted accounting principles, was charged to
operations as it was not deemed to have reached technological feasibility and
had no alternative future use. Subsequent to the IMHI acquisition, the Company
completed the development of certain in-process versions of software products,
SC STATScan and TEMMS, and has scheduled further enhancements to each of these
products.
<PAGE> 19
Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totaling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.
Other Income (Expense). Interest expense relates to the borrowings
under the Company's line of credit agreements and capital lease obligations and
increased by $100,000 to $200,000 in 1997 from $100,000 in 1996. This increase
is principally attributable to the increased borrowings under the line of credit
agreements. Interest and other income consists principally of interest income
related to the Company's short term cash and restricted cash investments and
increased by $300,000 to $500,000 in 1997 from $200,000 in 1996. This increase
is principally attributable to the interest received on the $17.7 million in net
proceeds from the issuance of 2,000,000 shares of common stock at $10.00 per
share in July 1997 in conjunction with a Registration Statement filed with the
Securities and Exchange Commission.
Income Taxes. The Company has not incurred or paid any income taxes
since its inception. At December 31, 1997, the Company had NOL carryforwards for
federal and state income tax purposes of $4.6 million, such losses expire
$1,824,000 in 2010 and $2,816,000 in 2011, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $96,000 available to reduce future income tax liabilities. The Tax
Reform Act of 1986, as amended, contains provisions that limit the NOL and tax
credit carryforwards available to be used in any given year when certain events
occur, including additional sales of equity securities and other changes in
ownership. As a result, certain of the NOL and tax credit carryforwards may be
limited as to their utilization in any year. The Company concluded that it is
more likely than not that these NOL and tax credit carryforwards will not be
realized based on a weighing of available evidence at December 31, 1997, and as
a result a 100% deferred tax valuation allowance was recorded against these
assets. Of the $4.4 million deferred tax asset at December 31, 1997,
approximately $500,000 relates to the IMHI acquisition and, if and when
realized, will result in a credit to intangible assets recorded in the
acquisition.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the timing of strategic acquisitions may cause fluctuations in its operating
results. Revenues can be expected to vary significantly as a result of the
acceleration or delay of system implementations due to customer requirements or
other factors beyond the Company's control, fluctuations in demand for existing
systems and services and the Company's ability to manage successfully any future
growth. The sales cycles related to its systems offerings and agency support
contracts can be long and difficult to predict, resulting in variability of
revenues. In addition, the implementation period related to the Company's
information systems can range from three months to one year. The
unpredictability of revenues could in any quarter result in a shortfall relative
to quarterly expectations. Many other factors may contribute to fluctuations in
the Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as any indication of future
performance.
<PAGE> 20
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1998. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles. These quarter results of
operations are not necessarily indicative of future operating results.
<TABLE>
<CAPTION>
Fiscal Year 1998 (1) Fiscal Year 1997(1)
---------------------------------------- ------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1997 1997 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues:
Software and services $ 9,165 $ 9,951 $ 6,447 $ 1,960 $ 5,682 $ 6,480 $ 7,467 $ 7,727
Agency support 2,808 1,859 1,219 1,800 4,552 3,615 3,435 3,078
Consulting services 1,447 1,764 1,814 1,412 1,194 1,145 1,207 1,363
------------------------------------------------------------------------------------
Total net revenues 13,420 13,574 9,480 5,172 11,428 11,240 12,109 12,168
Costs and expenses:
Costs of revenues 6,325 6,658 6,103 4,999 5,473 5,142 5,516 6,584
Selling, general and
administrative 4,129 3,803 3,179 2,712 3,083 3,381 3,320 2,725
Research and development 1,816 1,588 1,936 1,401 1,756 1,686 1,731 1,496
Amortization and depreciation 558 601 618 615 424 403 411 476
Purchased in-process research
and development -- -- -- -- -- -- -- 8,127
Severance and other
restructuring charges -- -- 9,578 (2,561) -- -- -- --
------------------------------------------------------------------------------------
Total costs and expenses 12,828 12,650 21,414 7,166 10,736 10,612 10,978 19,408
------------------------------------------------------------------------------------
Income (loss) from operations 592 924 (11,934) (1,994) 692 628 1,131 (7,240)
Other income (expense):
Interest expense (16) (9) (50) (108) (77) (68) (41) (29)
Interest and other income 111 96 97 120 28 17 202 243
------------------------------------------------------------------------------------
Net income (loss) $ 687 $ 1,011 $(11,887) $(1,982) $ 643 $ 577 $ 1,292 $ (7,026)
====================================================================================
Net income (loss) per share - basic (2) $ 0.08 $ 0.12 $ (1.39) $ (0.23) $ 0.11 $ 0.10 $ 0.16 $ (0.83)
====================================================================================
Weighted average common shares - basic (2) 8,523 8,536 8,571 8,596 5,977 6,027 8,216 8,515
====================================================================================
Net income (loss) per share - diluted (2) $ 0.07 $ 0.11 $ (1.39) $ (0.23) $ 0.09 $ 0.08 $ 0.14 $ (0.83)
====================================================================================
Weighted average common shares and
common equivalent shares - diluted (2) 9,222 9,573 8,571 8,596 7,364 7,234 9,052 8,515
====================================================================================
</TABLE>
(1) Certain amounts in both 1998 and 1997 quarterly income statements have been
reclassified to conform with the presentation of the 1998 audited financial
statements.
(2) All amounts have been restated in accordance with SFAS 128.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had working capital of $1.3
million and cash and cash equivalents of $10.5 million. The Company's current
liabilities as of December 31, 1998 include customer deposits of $1.1 million
and unearned revenues of $1.9 million.
Net cash used in operating activities for the years ended December 31,
1998, 1997, and 1996 was $1.1 million, $1.4 million, and $1.8 million,
respectively. The changes were principally due to increases in working capital
requirements for research and development and changes in accrued liabilities.
Net cash used in investing activities for the years ended December 31,
1998, 1997 and 1996 was $1.0 million, $10.3 million and $2.9 million,
respectively. The Company made capital expenditures (including capital leases)
totaling approximately $600,000, $1.2 million and $1.3 million during 1998, 1997
and 1996, respectively. In January 1996, the Company completed the acquisition
of Simione & Simione for $2.0 million in cash. In October 1996, the Company
completed the IMHI acquisition resulting in an increased cash balance of
approximately $700,000. In December of 1997, the Company completed the Dezine
acquisition for a purchase price of $9.4 million.
Net cash provided by financing activities for the years ended December
31, 1998, 1997, and 1996 was $4.3 million, $16.6 million and $7.8 million,
respectively. In January of 1996, CHHC made a cash capital contribution of $4.0
million to the Company. Additionally, in March of 1996, the Company issued
common stock that netted $3.1 million, $2.2 million of which was collected in
1996 and $900,000 of which was collected in 1997. In July of 1997, the Company
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission and sold 2,000,000 shares of its Common Stock for $10.00 per share
and received approximately $17.7 million in net cash proceeds from this offering
for general corporate purposes and working capital, including potential
strategic acquisitions.
In January of 1996, the Company established line of credit agreements
which provided for aggregate borrowing of $2.5 million which had been fully
drawn as of December 31, 1996. During 1997, the Company repaid these lines of
credit and terminated them.
In June of 1997, the Company established a revolving credit facility
pursuant to which the maximum principal amount at any time outstanding could not
exceed the lesser of $5 million or the "Borrowing Base" (as defined in the
revolving credit facility agreement). During 1998, the Company repaid this line
of credit and terminated it.
In May of 1998, the Company entered into a new Loan and Security
Agreement with a bank. Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lesser of $25 million or the
"margin requirement" then in effect. Interest will accrue at a variable rate
per annum equal to the prime rate for prime borrowings or the LIBOR Rate plus
1.5%-3.0% per annum (depending on the leverage ratio measured quarterly) for the
LIBOR borrowings. Under the terms of the agreement, the Company granted to the
bank a security interest in all accounts, inventory, equipment, and general
intangibles. Additionally, the Company's subsidiaries also guaranteed the
Company's obligations to the bank under the Agreement. As of December 31, 1998,
there was a balance of $5 million outstanding. The Company terminated this
credit facility and currently has no line of credit facility available for use.
The Company repaid all obligations to the bank in 1999. The Company is in the
process of negotiating a new credit facility.
The Company believes that its available cash, cash equivalents, cash
settlements and cash to be generated from its future results of operations will
be sufficient to meet the Company's operating requirements, assuming no change
in the operation of the Company's business, for at least the next twelve months.
See discussion of Management's Plan to improve the Company's performance in Note
1 of the Financial Statements.
<PAGE> 21
IMPACT OF NEW ACCOUNTING STANDARDS
In June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997 and was adopted by the Company in 1998. For the Company,
there is no difference between comprehensive income (loss) and net income
(loss).
In June of 1997. the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires reporting segment profit or loss,
certain specific revenue and expense items, and segment assets. It requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
<PAGE> 22
amounts in the enterprise's general-purpose financial statements. It requires
that all public business enterprises report information about the revenues
derived from the enterprise's products or services (or groups of similar
products and services), about the countries in which the enterprise earns
revenues and holds assets, and about major customers regardless of whether that
information is used in making operating decisions. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997 and was
adopted by the Company in 1998. See Note 13 for detailed segment information.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for the Company's fiscal year ending
December 31, 2000. The Company's management does not believe that the adoption
of SFAS No. 133 will have a material impact on the Company's position or
results of operations.
In October of 1997, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), which supersedes SOP 91-1 and is effective for
transactions entered into for fiscal years beginning after December 15, 1997.
While some principles remain the same, there are several key differences between
the two pronouncements, including accounting for multiple element arrangements.
SOP 97-2 addresses revenue recognition from a conceptual level and does not
specifically provide implementation guidance. The Company's adoption of SOP 97-2
had no material impact on the financial statements of the Company.
YEAR 2000 ISSUES
Introduction. Year 2000 issues arise because many computer software and
hardware systems use only two digits to represent the year. As a result, these
systems may not process dates beyond 1999, which may cause errors in information
or system failures. Therefore, some computer software and hardware will need to
be modified prior to the Year 2000 in order to remain functional.
State of Readiness. The Company is assessing both the readiness of its
internal computer systems and the compliance of its software and computer
products licensed and sold to customers for handling Year 2000 issues. The
Company has appointed a Year 2000 Project Manager and has established a Task
Force to evaluate the Company's products and services, business operations, and
relationships with customers and business partners. The mission of the Task
Force is to actively prepare the Company's systems and assist the Company's
customers for Year 2000 issues, as well as prepare contingency plans for the
potential compromise in the performance of critical systems and services. The
Company expects to implement successfully the systems and programming changes
necessary to address the Year 2000 issues of its major software products. The
majority of STAT 2 is Year 2000 compliant and should be fully compliant by the
end of the second quarter of 1999 and DME 6.3 is currently Year 2000 compliant.
The Company is also assessing and addressing the possible effects on the
Company's operations of the Year 2000 readiness of key vendors and 3rd party
software providers. The Company's reliance on vendors and 3rd party software
providers, and therefore, on the proper functioning of their information systems
and software, means that their failure to address Year 2000 issues could have a
material impact on the Company's operations and financial results. The Company
is contacting such vendors and suppliers and while it has not discovered any
material Year 2000 issues yet, the Company can not guarantee the performance or
representations of such entities.
Costs. The Company has incurred costs of approximately $500,000 in
addressing Year 2000 issues, consisting primarily of programming expenses and
replacing technology which was not Year 2000 compliant. The Company does not
believe that the remaining costs of achieving Year 2000 readiness will have a
material effect on the Company's results of operations or financial condition.
Risks. The Company has not currently identified any critical assets
under its control that present a material risk of not being Year 2000 compliant
in a timely manner, or for which an acceptable alternative cannot be
implemented. As testing continues, however, it is possible that certain assets
could be identified that present a material risk of Year 2000 interruption and
it is possible that key supplies or vendors could suffer such interruptions. Any
of such interruptions or the failure of the Company to make its software
products Year 2000 compliant could have a material adverse effect on the
Company's results of operations or financial condition.
Contingency Plans. The Year 2000 Task Force is currently developing
contingency plans for Year 2000 failures. These contingency plans are in the
early stages of development and will be modified as the risk of potential Year
2000 issues continue to be addressed.
<PAGE> 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective February 8, 1999, the Company decided to appoint Arthur
Andersen LLP as the Company's independent accountants for the fiscal year ended
December 31, 1998 and dismissed Ernst & Young LLP. The decision to change
accountants was approved by the Audit Committee of the Board of Directors of the
Company acting pursuant to authority delegated by the Board of Directors of the
Company.
Ernst & Young LLP's reports on the Company's consolidated financial
statements during the last two most recent years contained no adverse opinion or
a disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the last two fiscal years and in the subsequent interim period
to February 8, 1999, there were no disagreements between the Company and Ernst &
Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Ernst & Young LLP, would have caused it to
make a reference to the subject matter of the disagreements in connection with
its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to the Company during the last two fiscal
years or in the subsequent interim period to February 8, 1999.
During the last two fiscal years and subsequent interim period to
February 8, 1999, the Company did not consult with Arthur Andersen LLP regarding
any of the matters or events set forth in Item (304)(a)(2)(i) and (ii) of
Regulation S-K.
PART III
With the exception of information relating to the executive officers of
the Company which is provided in Part I hereof, all information required by Part
III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's
definitive proxy statement relating to the 1999 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated
Financial Statements on Page F-1 hereof.
2. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
CERTAIN FINANCIAL STATEMENT SCHEDULES HAVE BEEN OMITTED
BECAUSE THEY ARE NOT APPLICABLE.
3. Exhibits Incorporated by Reference or Filed with this
Report.
The following exhibits are filed as part of this Report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such statement or report is identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as filed
with the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 -- Certificate of Amendment of the Certificate of Incorporation
of Simione Central Holdings, Inc., filed June 30, 1997 with
the Secretary of State of the State of Delaware (Incorporated
by reference to Exhibit 3.3 of the Company's Current Report on
Form 8-K dated July 9, 1997 as filed with the Securities and
Exchange Commission).
3.4 -- Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.3 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
3.5 -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
4.1 -- Specimen Stock Certificate of the Company (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration Number 333-25551) as filed
with the Securities and Exchange Commission).
4.2 -- See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
Company's Certificate of Incorporation and Bylaws governing
the rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those stockholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those stockholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
9.1 -- Form of Simione Central Holding, Inc. Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A. Curtis
Eade, James A. Tramonte, John Isett, Cindy Lumpkin, Douglas E.
Caddell, Robert J. Simione, Kenneth L. Wall, Allen K. Seibert,
III, Jerry Sevy, Larry Clark, Lori N. Siegel, Gary M. Bremer,
Richard A. Parlontieri, and James R. Henderson (Incorporated
by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated October
8, 1996 as filed with the Securities and Exchange Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as of
September 5, 1996 by and among InfoMed Holdings, Inc., Simione
Central Holding, Inc. and InfoSub, Inc. (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated September 5, 1996 as filed with the Securities
and Exchange Commission).
10.2 -- InfoMed Holdings, Inc. Amended and Restated Share Warrant for
the Purchase of Common Stock of InfoMed Holdings, Inc. dated
October 5, 1996 between InfoMed Holdings, Inc. and each of
O'Donnell Davis, Inc., Rowan Nominees Ltd., David O. Ellis,
Richard V. Lawry, Salvatore A. Massaro, Murali Anantharaman,
Kathleen E.J. Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis,
Thomas M. Rogers, Jr., and Arnold Schumacher (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated October 8, 1996 as filed with the Securities
and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock of
Simione Central Holding, Inc., dated April 12, 1996 between
Simione Central Holding, Inc. and Home Health First, a Texas
not-for-profit corporation (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996 as filed with the Securities and Exchange
Commission).
10.5+ -- Form of Simione Central Holding, Inc. 1996 Incentive Stock
Option Agreement dated September 4, 1996 by and between
Simione Central Holding, Inc. and each of James R. Henderson,
William J. Simione, Jr., Robert Simione, Katherine Wetherbee,
Sheldon Berman, Betty Gordon, William J. Simione, III, J.
Blake Bremer, Craig Luigart, Kenneth L. Wald, Marty Cavaiani,
Lori Ferrero, Douglas E. Caddell, Andy Anello and A. Curtis
Eade (Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.6+ -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994 as filed
with the Securities and Exchange Commission).
10.7+ -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.8+ -- Simione Central Holdings, Inc. Section 125 Plan effective date
January 1, 1997 sponsored by the Company (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.9 -- Headquarters at Gateway Lake Lease Agreement dated January 1,
1996 by and between Gateway LLC and InfoMed Holdings, Inc.
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 as filed
with the Securities and Exchange Commission).
10.10 -- Sublease dated November 22, 1996 between Environmental Design
International, Ltd. and Simione Central, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.11 -- Lease Amendment dated August 7, 1992 by and between Sugar Land
Plaza Building Corporation and Medical Solutions, Inc.
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 as filed
with the Securities and Exchange Commission).
10.12 -- Lease dated August 13, 1992 between Unum Life Insurance
Company of America and Dezine Associates, Inc. (Incorporated
by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 as filed with the
Securities and Exchange Commission).
10.13 -- Indenture of Lease dated January 1, 1998 by and between S&S
Realty and Simione Central Consulting, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the
Securities and Exchange Commission).
10.14 -- Lease dated December 18, 1996 by and between Resurgens Plaza
South Associates, L.P. and Simione Central, Inc. (Incorporated
by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 as filed with the
Securities and Exchange Commission).
10.15*+ -- Severance Agreement dated July 22, 1998 between Simione
Central Holdings, Inc. and Gary M. Bremer.
10.16+ -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 as filed
with the Securities and Exchange Commission).
10.17 -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc. and EGL Holdings, Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.18 -- Information Systems Management Agreement dated January 4, 1996
between Integrated Systems Solutions Corporation and Central
Health Management Services, Inc. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.19 -- Master Software License Agreement Number 96-2283 dated October
31, 1996 by and between Software 2000, Inc. and Simione
Central Holding, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.20 -- Guaranty Agreement dated October 31, 1996 by Simione Central,
Inc. in favor of HCA, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.21 -- Lease Agreement dated March 18, 1996 between National Leasing,
Inc. and Simione Central, Inc. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.22 -- Amendment 2 to Agreement for Information Technology Services
between SC Holding, Inc. and Integrated Systems Solutions
Corporation dated July 31, 1997 (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
dated August 13, 1997 as filed with the Securities and
Exchange Commission).
10.23 -- Loan and Security Agreement by and between National Bank of
Canada and Simione Central Holdings, Inc., dated as of June 6,
1997 (Incorporated by reference to Exhibit 10.34 of the
Company's Current Report on Form 8-K dated June 21, 1997 as
filed with the Securities and Exchange Commission).
10.24* -- Loan and Security Agreement by and between Wachovia Bank, NA
and the Company dated as of May 11, 1998.
10.25* -- Remarketing Agreement dated April 17, 1998 between Simione
Central National, Inc. and Eclipsys Corporation.
10.26* -- Stock Purchase Agreement dated April 17, 1998 between Simione
Central Holdings, Inc., Eclipsys Corporation, and certain
stockholders of the Company.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated February 8, 1999 as filed with the Securities
and Exchange Commission).
21.1* -- Subsidiaries of the Company
23.1* -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Ernst & Young LLP.
27.1* -- Financial Data Schedule (for SEC use only).
</TABLE>
* Filed herewith
+ Identifies each exhibit that is a "management contract of compensatory plan
or arrangement" required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14 of Form 10-k
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the fourth quarter of 1998.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIMIONE CENTRAL HOLDINGS, INC.
Dated: March 30, 1999 /s/ Barrett C. O'Donnell
-------------------------------------
By: Barrett C. O'Donnell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ BARRETT C. O'DONNELL Chairman of the Board,
- ------------------------------ President and Chief Executive
Barrett C. O'Donnell Officer (Principal Executive March 30, 1999
Officer)
/s/ LORI NADLER SIEGEL Chief Financial Officer and Treasurer March 30, 1999
- ------------------------------ (Principal Financial and Accounting
Lori Nadler Siegel Officer)
/s/ WILLIAM J. SIMIONE, JR. Vice Chairman of the Board and March 30, 1999
- ------------------------------ Executive Vice President
William J. Simione, Jr.
/s/ MURALI ANANTHARAMAN Director March 30, 1999
- ------------------------------
Murali Anantharaman
/s/ GARY M. BREMER Director March 30, 1999
- ------------------------------
Gary M. Bremer
/s/ JAMES A. GILBERT Director March 30, 1999
- ------------------------------
James A. Gilbert
/s/ GREG WILSON Director March 30, 1999
- -------------------------------
Greg Wilson
</TABLE>
<PAGE> 28
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Financial Statements
Consolidated Balance Sheets--December 31, 1998 and 1997 F-4
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F1
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of SIMIONE CENTRAL
HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of December 31, 1998
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the year then ended. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simione Central Holdings, Inc.
and subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statement schedules is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Atlanta, Georgia
March 12, 1999
F2
<PAGE> 30
Report of Independent Auditors
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Simione
Central Holdings, Inc. as of December 31, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. Our audits also include the
information related to the years ended December 31, 1997 and 1996 included in
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simione Central Holdings, Inc. as of December 31, 1997 and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information related to the years
ended December 31, 1997 and 1996 set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
February 23, 1998
F3
<PAGE> 31
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,526,816 $ 8,266,860
Accounts receivable, net of allowance for doubtful
accounts of $1,674,404 and $1,915,120, respectively 7,679,524 9,025,666
Prepaid expenses and other current assets 555,770 1,157,168
----------- -----------
Total current assets 18,762,110 18,449,694
Purchased software, furniture and equipment, net 1,852,405 2,365,508
Intangible assets, net 7,137,857 7,448,911
Other assets 104,232 655,377
----------- -----------
Total assets $27,856,604 $28,919,490
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 5,000,000 $ 773,599
Accounts payable 1,627,328 1,876,688
Accrued compensation expense 577,964 560,334
Accrued liabilities 7,231,417 3,174,762
Customer deposits 1,144,557 1,460,653
Unearned revenues 1,870,538 1,527,173
Current portion of capital lease obligations 9,141 57,622
----------- -----------
Total current liabilities 17,460,945 9,430,831
----------- -----------
Other liabilities, less current portion 2,671,477 --
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized; none
issued or outstanding -- --
Common stock,
$.001 par value; 20,000,000 shares authorized;
8,597,729 and 8,597,729 and 8,522,978 shares
issued and outstanding at December 31, 1998
and 1997, respectively 8,598 8,523
Additional paid-in capital 42,093,040 41,686,109
Accumulated deficit (34,377,456) (22,205,973)
----------- -----------
Total shareholders' equity 7,724,182 19,488,659
----------- -----------
Total liabilities and shareholders' equity $27,856,604 $28,919,490
=========== ===========
</TABLE>
See notes to consolidated financial statements
F4
<PAGE> 32
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Software and services $ 27,522,926 $ 27,355,995 $ 15,307,906
Agency support 7,686,363 14,680,310 7,323,540
Consulting services 6,436,846 4,908,965 3,363,195
------------ ------------ ------------
Total net revenues 41,646,135 46,945,270 25,994,641
------------ ------------ ------------
Costs and expenses:
Cost of revenues 24,085,509 22,715,095 14,698,177
Selling, general and administrative 13,822,674 12,508,512 7,037,446
Research and development 6,740,829 6,669,500 5,676,898
Amortization and depreciation 2,392,321 1,714,207 784,502
Purchased in-process research and
development -- 8,126,947 12,573,931
Severance and other restructuring
charges 7,016,766 -- 1,214,669
------------ ------------ ------------
Total costs and expenses 54,058,099 51,734,261 41,985,623
------------ ------------ ------------
Loss from operations (12,411,964) (4,788,991) (15,990,982)
Other income (expense):
Interest expense (183,495) (214,508) (114,817)
Interest and other income 423,976 489,830 206,902
------------ ------------ ------------
Net loss $(12,171,483) $ (4,513,669) $(15,898,897)
============ ============ ============
Net loss per share-
basic and diluted $ (1.42) $ (0.63) $ (3.71)
============ ============ ============
Weighted average common shares-
basic and diluted 8,556,990 7,164,398 4,287,956
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F5
<PAGE> 33
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN SUBSCRIPTION ACCUMULATED TOTAL
SHARES STOCK CAPITAL RECEIVABLE DEFICIT EQUITY
------ ----- ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 11 $ 2,443,013 $ -- $ -- $ (1,793,407) $ 649,606
Capital contribution from
former parent company -- 4,000,000 -- -- -- 4,000,000
Distribution of 2,994,856
shares of no par common
stock and cancellation of
11 shares of common stock
held by CHHC 2,994,845 -- -- -- -- --
Issuance of no par Class A common stock 964,418 3,051,369 -- (850,000) -- 2,201,369
Purchase and cancellation of
no par Class A common stock not
exchanged in reverse acquisition (918) (9,866) -- -- -- (9,866)
Exchange of 3,958,356 shares
of no par Class A and B
common stock for 3,958,356
shares of IMHI $.001 par
value common stock -- (9,480,558) 9,480,558 -- -- --
Issuance of 1shares
of IMHI $.001 par value
common stock for purchase
of IMHI in reverse
acquisition 1,949,269 1,949 13,514,288 -- -- 13,516,237
Issuance of $.001 par value common
stock as compensation and
from exercise of stock
options and warrants 44,541 45 221,204 -- -- 221,249
Net loss -- -- -- -- (15,898,897) (15,898,897)
---------- ----------- ------------ --------- ------------ ------------
Balance at December 31, 1996 5,952,166 5,952 23,216,050 (850,000) (17,692,304) 4,679,698
Issuance of $.001 par value common
stock from exercise of stock
options and warrants 555,259 555 548,403 -- -- 548,958
Issuance of $.001 par value
common stock for purchase
Benchmark Consulting, Inc. 15,553 16 199,984 -- -- 200,000
Issuance of $.001 par value common
stock, net of offering costs 2,000,000 2,000 17,721,672 -- -- 17,723,672
Payment of stock subscription -- -- -- 850,000 -- 850,000
Net loss -- -- -- -- (4,513,669) (4,513,669)
---------- ----------- ------------ --------- ----------- -----------
Balance at December 31, 1997 8,522,978 8,523 41,686,109 -- (22,205,973) 19,488,659
Issuance of $.001 par value common
stock from exercise of stock
options 32,432 33 110,948 -- -- 110,981
Issuance of $.001 par value
common stock for purchase
Benchmark Consulting, Inc. 42,319 42 295,983 -- -- 296,025
Net loss -- -- -- -- (12,171,483) (12,171,483)
---------- ----------- ------------ --------- ------------ ------------
Balance at December 31, 1998 8,597,729 $ 8,598 $ 42,093,040 $ -- $(34,377,456) $ 7,724,182
========== =========== ============ ========= ============ ============
</TABLE>
See notes to consolidated financial statements
F6
<PAGE> 34
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,171,483) $ (4,513,669) $(15,898,897)
Adjustments to reconcile net loss to net
cash used in operating activities:
Purchased in-process research and
development -- 8,126,947 12,573,931
Provision for doubtful accounts 791,335 1,329,563 395,046
Amortization and depreciation 2,392,321 1,714,207 784,502
Write-off of capitalized R&D 2,005,790 -- --
Write-off of excess furniture & fixtures 64,279 -- --
Value assigned to stock purchase warrant -- -- 100,000
Stock compensation expense -- -- 58,500
Loss on sale of assets -- 25,887 3,636
Changes in assets and liabilities:
Accounts receivable 590,645 (3,919,939) (3,305,003)
Prepaid expenses and other current assets 582,210 (29,355) (553,630)
Other assets (1,478,984) (577,322) (26,925)
Accounts payable (249,359) (1,598,616) 2,264,539
Accrued compensation expense 17,630 (106,316) 142,867
Accrued liabilities 3,701,494 (525,519) 768,284
Customer deposit (317,096) (218,912) 272,724
Unearned revenues 343,365 (1,150,135) 616,518
Long term liabilities 2,671,477 -- --
------------ ------------ ------------
Net cash used in operating
activities (1,056,376) (1,443,179) (1,803,908)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired companies, net of cash acquired (476,238) (9,807,587) (1,249,798)
Purchase of software, furniture and
equipment (495,352) (915,581) (635,997)
(Increase) decrease in restricted cash -- 1,000,000 (1,000,000)
Increase in other intangible assets -- (585,000) (64,123)
------------ ------------ ------------
Net cash used in investing
activities (971,590) (10,308,168) (2,949,918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former
parent company -- -- 4,000,000
Proceeds from repayment of stock subscription -- 850,000 --
Proceeds from (payment on) notes payable 4,226,401 (1,726,201) 2,499,800
Issuance of common stock, net of cash expenses -- 17,723,672 2,191,503
Advances from (payments to) former
parent company -- -- (1,076,855)
Repayment (issuance) of note receivable
from officer -- -- 252,075
Payments on capital lease obligations (48,480) (732,778) (45,741)
Payments of related party notes (980) (30,172) (68,000)
Proceeds from exercise of stock options and warrants 110,981 548,958 62,749
------------ ------------ ------------
Net cash provided by
financing activities 4,287,922 16,633,479 7,815,531
------------ ------------ ------------
Net increase in cash
and cash equivalents 2,259,956 4,882,132 3,061,705
Cash and cash equivalents, beginning of year 8,266,860 3,384,728 323,023
------------ ------------ ------------
Cash and cash equivalents, end of year $ 10,526,816 $ 8,266,860 $ 3,384,728
============ ============ ============
Supplemental disclosure of non-cash
investing and financing activities:
Software, furniture and equipment
obtained through capital lease $ -- $ -- $ 690,490
</TABLE>
See notes to consolidated financial statements
F7
<PAGE> 35
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Background: Incorporated in September 1991, as a wholly-owned
subsidiary of Central Health Holding Company, Inc. ("CHHC"), Central Health
Management Services, Inc. ("CHMS") provided information and management support
services to home health care providers. Central Health Services, Inc. ("CHS"),
also a wholly-owned subsidiary of CHHC, provided similar services to home health
care agencies owned by CHHC. On January 1, 1996, CHHC transferred at book value
the assets and employees related to CHS's information services and certain
clinical and financial support services to CHMS. On January 17, 1996, CHHC
completed a pro-rata distribution of the outstanding common stock of CHMS to its
shareholders.
On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in
a transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 3,958,356 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1996, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").
Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers several comprehensive and flexible software solutions, each of which
provide a core platform of software applications and which incorporate selected
specialized modules based on customer demand. These software solutions are
designed to enable customers to generate and utilize comprehensive financial,
operational and clinical information. In addition to its software solutions and
related software support services, the Company's home health care consulting
services assist providers in addressing the challenges of reducing costs,
maintaining quality, streamlining operations and re-engineering organizational
structures. The Company also provides comprehensive agency support services
which include administrative, billing and collection, training, reimbursement
and financial management services, among others.
MANAGEMENT'S PLAN
The Company has incurred significant losses in each fiscal year since
1994 and declining revenues in 1998. The Company has been challenged by the
changes in the healthcare industry. During fiscal 1998, the Company experienced
operating losses of $13,412,000. The fiscal 1998 loss is attributable to a
number of factors:
- cancellation of customer contract with Columbia/HCA which had
generated 35%, 48%, and 22% of the Company's total revenues for the
years ended 1998, 1997, and 1996, respectively.
- decision to eliminate certain legacy development projects
- changes to the government's reimbursement methodology from cost
reimbursement to set prospective payments which affected the
Company's customers.
In response to these losses, the Company has taken the following steps:
- significant change in senior management
- reduce fixed and variable expenditures, including restructuring
charges
- improve operating efficiencies
- continue leveraging existing customer base
- continue generating recurring revenue
- capitalize on changing industry dynamics
- expand through acquisitions and strategic alliances.
Some steps taken to improve the Company's performance will not provide
immediate results; however, Management believes that the steps taken in fiscal
1998 will yield long term benefits, creating an organization that is well
suited to take advantage of market opportunities. Management plans to continue
to aggressively market the Company's services, monitor costs, and fund
development to ensure that the Company's products continue to incorporate
state-of-the-art technologies and provide customers with value added solutions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
In 1998, the Company adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," ("SOP 97-2"), which supersedes SOP 91-1 and is effective for
transactions entered into for fiscal years beginning after December 31, 1997.
While some principles remain the same, there are several key differences between
the two pronouncements, including accounting for multiple element arrangements.
The adoption of SOP 97-2 did not have a material impact on the Company's
financial statements.
Revenues are derived from the licensing and sub-licensing of software,
the sale of computer hardware, professional and technical consulting services,
implementation and training services, software maintenance and support services,
outsourcing services, as well as home health care management consulting
services. Outsourcing services are provided under contractual arrangements with
terms typically ranging from three to five years.
To the extent that software and services revenues result from shared
resource information management, software support, implementation, training and
technical consulting services, such revenues are recognized monthly as the
related services are rendered or, for software support revenues, over the term
of the related agreement. To the extent that software and services revenues
result from software licenses, computer hardware and third-party software
revenues, such revenues are recognized when the related products are delivered
and collectibility of fees is determined to be probable, provided that no
significant obligation remains under the contract. Revenues derived from the
sale of software licenses requiring significant modification or customization
are recorded based upon percentage of completion using labor hours or contract
milestones. Agency support and consulting services revenues are recognized
monthly as the related services are performed.
F8
<PAGE> 36
CONCENTRATIONS AND MAJOR CUSTOMERS
The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.
Through October 1996, the Company derived the majority of its revenue
from services provided to its former parent company, see Note 14. See Note 2 for
discussion of the Company's major customer.
The Company is dependent upon certain third party software arrangements
as well as certain contractual arrangements for provision of certain of its
services, see Note 16.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment is stated at cost.
Depreciation is calculated for financial reporting purposes using the
straight-line method over the estimated useful lives (ranging from 1 to 10
years) of the assets or lease term, whichever is shorter.
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. During 1998, the Company wrote-off approximately $2 million of
capitalized software to reflect the abandonment of certain development projects
(see Note 2). The Company capitalized $616,000 of software development costs for
the year ended December 31, 1997 and $1.4 million in 1998 prior to the decision
to abandon the development project.
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The adoption of SFAS No. 121 did not have an impact on the Company's
financial statements.
Intangible assets, arising principally from the accounting for acquired
businesses, are amortized using the straight-line method over the estimated
useful lives of the related assets which range from 4 to 11 years. The Company
reviews its long-lived and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flow from the use of the asset is
less than the carrying amount of the asset. As of December 31, 1998, in the
opinion of management, there has been no such impairment.
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities.
F9
<PAGE> 37
NET LOSS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Per share amounts for all
periods have been presented in conformity with SFAS No. 128 requirements.
Net loss per share is computed on the basis of the weighted average
number of common shares outstanding during the period. The 2,994,856 shares of
Class A common stock issued in the reorganization of the Company on January 17,
1996 (see Note 12) have been treated as outstanding since January 1, 1996. Due
to the net loss incurred by the Company in each year, basic and diluted loss per
share do not differ. Common stock equivalents relate to shares potentially
issuable under outstanding options and warrant agreements and are included in
the diluted loss per share calculation if dilutive.
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net loss $(12,171,483) $(4,513,669) $(15,898,897)
Denominator:
Denominator for basic and
diluted earnings per share --
weighted-average shares 8,556,990 7,164,398 4,287,956
Net loss per share -
basic and diluted $ (1.42) $ (0.63) $ (3.71)
</TABLE>
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. The Company has included in these consolidated financial
statements the pro forma equivalent disclosure information required by SFAS No.
123 "Accounting for Stock-Based Compensation", see Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximate their fair value.
RECENTLY ADOPTED ACCOUNTING STANDARDS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") which is effective for the fiscal year ended December
31, 1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. For the Company, there is no difference between
comprehensive income (loss) and net income (loss).
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131") for the fiscal year ended
December 31, 1998. SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available and used regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. See Note 13 for detailed segment information.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for the Company's fiscal year ending
December 31, 2000. The Company's management does not believe that the adoption
of SFAS No. 133 will have a material impact on the Company's position or results
of operations.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the
1998 financial statement presentation.
F10
<PAGE> 38
2. SEVERANCE AND OTHER RESTRUCTURING CHARGES
As a result of the change in focus of the Company's business from
providing services to affiliates of CHHC, the Company incurred severance and
certain other restructuring costs totaling $1,215,000 in the fourth quarter of
1996. These costs primarily relate to severance of seven terminated key
employees and costs to buyout a lease of equipment no longer useful to the
Company. As of December 31, 1997 and 1996, payments of $855,000 and $347,000,
respectively had been made against the accrued severance and other restructuring
charges.
As a result of the change in the home care business environment
resulting from the interim payment system ("IPS") which lowered the cost per
visit limitations and created restrictions on the amount of cost reimbursement
per Medicare beneficiary, the termination of the Columbia/HCA contracts
(which accounted for 35%, 48%, and 22% of the Company's total revenue for
the years ended December 31, 1998, 1997, and 1996, respectively) and the
decision to eliminate certain legacy development projects including the AS400
effort, the Company incurred severance and certain other restructuring costs
totaling $11.6 million in 1998.
In December of 1998, Columbia/HCA terminated its contracts with the
Company and paid a settlement fee of $7.0 million of which $750,000 was for
services provided in December 1998, $2.3 million for services to be provided in
the first quarter of 1999 and $4.0 million was considered an early termination
fee and reduced the restructuring charges incurred in 1998. The following table
presents a roll forward of the one time charges incurred by the Company in 1998.
<TABLE>
<CAPTION>
Balance Balance
December 31, December 31,
------------ ------------
1997 Additions Reductions Usage 1998
----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Excess capacity -- $ 7,470,073 $(550,000) $(1,717,024) $5,203,049
Severance -- 2,090,903 -- (758,307) 1,332,596
Product related -- 2,005,790 -- (2,005,790) --
Columbia/HCA termination fee -- (4,000,000) -- 4,000,000 --
----------- ----------- --------- ----------- ----------
Total restructuring costs -- $ 7,566,766 $(550,000) $ (481,121) $6,535,645
=========== ========= =========== ==========
Accrued liability less current portion -- (3,864,168)
----------- ----------
Accrued liability, long term $ -- $2,671,477
=========== ==========
</TABLE>
F11
<PAGE> 39
3. LEASE RECEIVABLES
The Company provides lease financing to certain customers related to
sales of software licenses and computer hardware. Lease terms are generally five
years. Future minimum lease payments under these sales-type leases as of
December 31, 1998, of which the 1999 portion is classified in accounts
receivable, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999 $ 13,248
2000 5,760
Thereafter 480
----------
Future minimum lease payments 19,488
Interest portion (2,273)
----------
Present value of future minimum lease payments $ 17,215
==========
</TABLE>
4. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Equipment $ 2,043,108 $ 1,736,907
Purchased software 1,114,306 949,203
Furniture 510,185 664,901
Leasehold improvements 166,378 152,472
----------- -----------
3,833,977 3,503,483
Accumulated depreciation (1,981,572) (1,137,975)
----------- -----------
$ 1,852,405 $ 2,365,508
=========== ===========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ AMORTIZATION
1998 1997 PERIOD
---- ---- ------------
<S> <C> <C> <C>
Developed technology $ 2,881,041 $ 2,809,995 4-5 years
Goodwill 4,239,200 3,204,179 9-10 years
Trade name 1,142,000 1,142,000 11 years
Other 1,695,021 1,695,021 6-10 years
-------------- -----------
9,957,262 8,851,195
Accumulated amortization (2,819,405) (1,402,284)
-------------- -----------
$ 7,137,857 $ 7,448,911
============== ===========
</TABLE>
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
On June 6, 1997, the Company entered into a Loan and Security
Agreement with a bank. Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lessor of $5 million or the
"borrowing base" then in effect. Interest accrues at a variable rate per annum
equal to the prime rate plus 0.25% (8.75% as of December 31, 1997). Under the
terms of the Agreement, the Company granted to the bank a security interest in
all accounts receivables, inventory, equipment, and general intangibles.
Additionally, borrowings under this agreement are secured by the outstanding
capital stock of the Company's subsidiaries. The Company's subsidiaries have
also guaranteed the Company's obligations to the bank under the Agreement. As of
December 31, 1997, $774,000 was outstanding and $4,226,000 was available under
this agreement.
On May 11, 1998, the Company entered into a new Loan and Security
Agreement with a bank. Pursuant to the Agreement, the bank agreed to make
available to the Company a revolving credit facility, the maximum principal
amount of which at any time must be equal to the lesser of $25 million or the
"margin requirement" then in effect. Interest will accrue at a variable rate per
annum equal to the prime rate for prime borrowings (7.75% as of December 31,
1998) or the LIBOR Rate plus 1.5%-3.0% per annum (depending on the leverage
ratio measured quarterly) for the LIBOR borrowings (5.54% as of December 31,
1998). Under the terms of the agreement, the Company granted to the bank a
security interest in all accounts, inventory, equipment, and general
intangibles. Additionally, the Company's subsidiaries have also guaranteed the
Company's obligations to the bank under the Agreement. As of December 31, 1998
there was a balance of $5 million outstanding. The Company terminated this
credit facility and has no line of credit facility available for use.
The Company repaid all obligations to the bank in 1999.
F12
<PAGE> 40
The Company has entered into lease agreements with a related party (see
Note 15) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1996. In December 1997, the Company opted for
early termination of these leases and purchased the equipment from the lessor
for $579,000. Additionally, the Company has other equipment under capital leases
with third party lessors with approximate aggregate cost of $29,000 and $139,000
and net book value of $7,000 and $52,000, at December 31, 1998 and 1997,
respectively. Amortization of capital leased assets is included in the Company's
depreciation expense and amounted to approximately $45,000, $283,000 and $84,000
for 1998, 1997 and 1996, respectively.
7. OPERATING LEASES
The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 15). These leases require the Company to pay taxes,
insurance and maintenance expenses, and provide for renewal options at the then
fair market rental value of the property. Amounts expensed under operating
leases were approximately $3,048,000, $2,847,000, and $3,699,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.
Aggregate annual rental payments for operating leases with
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999 $ 2,562,495
2000 2,215,818
2001 1,625,536
2002 180,986
Thereafter 8,226
-------------
Total $ 6,593,061
=============
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, Simione Central, Inc. ("SCI"), a wholly-owned
subsidiary of the Company, entered into a series of five year contracts to
provide shared resource information management and agency support services to
several affiliates of Columbia/HCA Health Care Corporation ("Columbia/HCA"). As
part of the negotiation of these contracts with SCI, Columbia/HCA required that
this subsidiary, formerly a subsidiary of CHHC, guarantee certain
indemnification obligations of the former shareholders of CHHC, as such
indemnification obligations relate to the administration and potential
liabilities to the Central Health Holding Company, Inc. Employee Stock Ownership
Plan ( the "Plan") or its participants. Columbia/HCA became indirectly
responsible for these Plan obligations as a result of its acquisition of the
CHHC stock. As a result of the fact that all former CHHC shareholders are also
shareholders of the Company by virtue of the January 1996 spin-off of the
Company, SCI agreed to undertake this contingent obligation. Under the terms of
this guaranty agreement (the "Guaranty"), SCI agreed to guarantee Columbia/HCA
against losses arising from the following: (i) liabilities relating to the Plan
for losses resulting from a fiduciary breach, prohibited transaction or other
violation of law relating to the Plan and (ii) liabilities relating to the Plan
which are not paid by the former stockholders of CHHC other than the Plan, but
only to the extent such losses are not recovered by Columbia/HCA through other
indemnity provisions of its agreement with the former shareholders of CHHC.
These indemnity provisions include any potential recovery from CHHC's insurance
policies as well as recoveries from escrow accounts established for the benefit
of Columbia/HCA by CHHC's former shareholders. This subsidiary's maximum
liability under the Guaranty is $17,500,000 for claims arising before November
1, 1998, and $15,000,000 for claims arising before November 1, 2000. There is no
liability for any claims arising after November 1, 2000. Further, the aggregate
maximum liability under the Guaranty is $20,000,000. Pursuant to the Guaranty,
the subsidiary agreed that on each date that a guaranteed obligation is required
to be paid to Columbia/HCA, the subsidiary shall grant to Columbia/HCA a
security interest equal to the amount of the guaranteed obligation in all the
subsidiary's accounts receivable. This subsidiary also granted to Columbia/HCA
the right to offset any liability arising under the Guaranty against any
obligation of Columbia/HCA or its affiliates to the subsidiary. At December 31,
1998, no claims had been made under the Guaranty and the Company does not
currently anticipate incurring any loss associated with the Guaranty.
Columbia/HCA sold the home care agencies under contract with the Company during
1998 and opted for an early termination of the contracts, due to expire in 2001,
with the Company. See Note 2 for settlement details.
The Company is engaged in various legal and regulatory proceedings
arising in the normal course of business which management believes will not have
a material adverse effect on its financial position or results of operations.
The Company was however, served on July 17, 1997 with an administrative subpoena
issued by the United States Department of Health and Human Services, Office of
Inspector General. In connection with that subpoena, the Department of Justice
("DOJ") had advised the
F13
<PAGE> 41
Company that certain aspects of the Company's past relationship with affiliates
of Columbia/HCA are within the scope of an ongoing grand jury investigation.
However, the DOJ has confirmed to the Company that neither the Company, nor any
of its officers, directors or employees, is a target in this investigation and,
based upon the information known to the DOJ at this time, neither the Company,
nor any of its officers, directors or employees, is likely to become one. The
Company is cooperating fully and does not currently believe that this inquiry
will have any material effect on its overall business or financial condition.
9. ACQUISITIONS
Effective January 1, 1996, the Company purchased certain assets of
Simione & Simione, CPA's--Consulting Division (a division of Simione & Simione,
CPAs, a Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione &
Simione provided a wide range of home health care consulting services. This
acquisition was accounted for using the purchase method. The entire purchase
price was allocated to goodwill and is being amortized over 10 years.
On October 8, 1996, IMHI merged with CHMS. IMHI provided a
comprehensive package of software applications for home health care providers
marketed under the name STAT 2. In connection with the acquisition, each issued
and outstanding share of CHMS common stock was converted into and exchanged for
the right to receive .22021 shares of IMHI common stock as of the effective
date. As a result, IMHI issued 3,958,356 shares of common stock to CHMS's
shareholders. In addition, each of the outstanding shares of IMHI Class A
Convertible Preferred Stock was converted into and exchanged for shares of IMHI
common stock and all outstanding options and warrants to purchase CHMS common
stock as of the effective date were converted into the right to purchase shares
of IMHI common stock, provided that the number of shares to be so purchased and
the respective exercise prices thereof have been adjusted by the exchange ratio.
The merger was accounted for as a reverse acquisition under the purchase method
of accounting. As a result, for accounting purposes CHMS was considered as
having acquired IMHI. The historical financial statements of CHMS became the
historical financial statements of IMHI and include the results of operations of
both companies from the effective date. All share amounts have been
retroactively restated giving effect to the .22021 exchange ratio of CHMS shares
for IMHI shares. CHMS had been on a December 31 fiscal year end, and, therefore,
the fiscal year end of IMHI was changed to December 31. Effective December 19,
1996, IMHI changed its name to Simione Central Holdings, Inc. (the "Company").
The purchase price of approximately $16,797,000 (including $760,000 of
acquisition costs and net liabilities assumed of $2,521,000) was allocated based
on the relative fair values of the assets acquired and liabilities assumed.
Approximately $12,574,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$4,223,000 of the purchase price was allocated to certain identifiable
intangible assets and is being amortized over the related assets estimated
useful life. The purchase price was determined based on the estimated value of
the outstanding 1,949,269 shares of IMHI common stock and options and warrants
to purchase IMHI common stock outstanding at the merger date.
Effective December 1, 1997, the Company purchased substantially all the
assets of Dezine Healthcare Solutions, Inc. ("Dezine"). Dezine provided a
comprehensive package of software applications for home medical equipment
providers. This acquisition was accounted for using the purchase method. The
purchase price of approximately $9,379,000 (including $200,000 of acquisition
costs and net liabilities assumed of $71,000) was allocated based on the
relative fair values of the assets acquired and liabilities assumed.
Approximately $8,127,000 of the purchase price was allocated to purchased
in-process research and development. This in-process research and development
had not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$1,323,000 of the purchase price was allocated to certain identifiable
intangible assets and will be amortized over the related assets estimated useful
life, see Note 5. The Company's consolidated statement of operations for the
period ended December 31, 1997 includes the operating results of Dezine for the
period December 1, 1997 (the effective date of the Dezine acquisition) to
December 31, 1997.
Pro forma information (unaudited) giving effect to the acquisitions as
if they took place on January 1, of each year, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Net revenues $53,397,919 $ 42,239,681
Net income (loss) 3,657,552 (23,829,188)
Net income (loss) per share - basic $ 0.51 $ (4.15)
Net income (loss) per share - diluted $ 0.44 $ (4.15)
</TABLE>
The 1996 pro forma net loss includes the $8,127,000 charged to
operations for the in-process research and development purchased in the Dezine
transaction. This pro forma information does not purport to be indicative of the
results that actually would have occurred if the acquisitions had been effective
on January 1, 1997 and 1996 or which may be obtained in the future.
10. INCOME TAXES
The Company has not incurred or paid any income taxes since its
inception.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 4,040,000 $ 1,760,000
Purchased intangible assets 2,880,000 3,090,000
Severance and other restructuring charges 2,690,000 --
Allowance for doubtful accounts 630,000 620,000
Other 370,000 520,000
------------ -----------
Total deferred tax assets 10,610,000 5,990,000
Deferred tax liabilities:
Purchased intangible assets (1,480,000) (1,480,000)
Depreciation (330,000) (150,000)
------------ -----------
Total deferred tax liabilities (1,810,000 (1,630,000)
------------ -----------
Net deferred tax assets 8,800,000 4,360,000
Valuation allowance (8,800,000) (4,360,000)
------------ -----------
$ -- $ --
============ ===========
</TABLE>
The Company has approximately $10.6 million of net operating losses for
income tax purposes available to offset future taxable income. Such losses
expire beginning in 2010 and may be subject to certain limitations for
prior changes in ownership. A valuation allowance reducing the net
deferred tax assets to zero has been
F-14
<PAGE> 42
recorded based on management's assessment that it is "more likely than not"
that this net asset is not realizable as of December 31, 1998.
Actual income tax expense differs from the "expected" amount (computed
by applying the U.S. Federal corporate income tax rate of 34% to the loss before
income taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal tax benefit computed at statutory rates $(4,140,000) $(1,530,000) $(5,400,000)
State income taxes, net of Federal effect (490,000) (180,000) (640,000)
Other, net 190,000 (650,000) 4,800,000
Change in valuation allowance 4,440,000 2,360,000 1,240,000
----------- ----------- -----------
Income tax expense $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Prior to 1996, the Company's taxable loss was included in the
consolidated tax return of its former parent company. The former parent company
utilized net operating losses generated by the Company and did not allocate any
benefit from use of the net operating losses to the Company.
11. EMPLOYEE BENEFIT PLANS
CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly-owned subsidiaries and was funded by cash contributions
from CHHC and its wholly-owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company. All expenses
are funded by the plan.
The Company has adopted 401(k) plans that cover substantially all
employees. The Company contributes to the plans based upon the dollar amount of
each participant's contribution. The Company made contributions to these plans
of approximately $171,000 $94,000 and $54,000 in 1998, 1997 and 1996,
respectively.
12. SHAREHOLDERS' EQUITY
CHMS was a separate legal entity and a wholly-owned subsidiary of CHHC
as of December 31, 1995. On January 6, 1996, CHMS formed CHMS Transitory Corp.
("Transitory Corp."). Transitory Corp. issued 2,994,856 shares of Class A Common
Stock and one share of Class B Common Stock, all of which were held by CHMS. On
January 16, 1996, CHMS and Transitory Corp. merged with Transitory Corp. as the
survivor. The 11 shares of CHMS Common Stock held by CHHC were canceled and CHHC
received the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended it articles of incorporation
and changed its name to Central Health Management Services, Inc. On January 17,
1996, CHHC completed a pro-rata distribution to its shareholders of all the
outstanding capital stock of CHMS. The distribution was accomplished through the
issuance of 3.411 Class A shares of CHMS common stock for each share of CHHC's
common stock held by the respective shareholder.
On January 17, 1996, CHHC made a $4,000,000 cash capital contribution
to CHMS. On March 5 and 22, 1996, employees of CHMS purchased 964,418 shares of
Class A Common Stock for aggregate consideration of $3,051,369. These shares
were purchased under the terms of a stock subscription agreement whereby 10% was
due at the date of purchase and the remainder was due on December 5, 1996. Stock
subscription receivable of $850,000 reported as a reduction to common stock
represents the amount not yet collected as of December 31, 1996. During 1997,
this amount was paid in full by the major shareholder and executive officer of
the Company.
Holders of approximately 4.2 million shares of common stock and
warrants and options to purchase 1.4 million shares of common stock have certain
demand or piggyback registration rights, subject to certain conditions and
limitations, which entitle the holders to require the Company to register all or
part of their shares for public resale.
On July 1, 1997, a Registration Statement, filed by the Company with
the Securities and Exchange Commission on Form S-1, became effective. In
conjunction with the effectiveness of the Registration Statement, the Company
effected a one-for-two reverse stock split of the Company's outstanding common
stock. The Company sold 2,000,000 (post-reverse split) shares of its common
stock for $10.00 per share and received approximately $17.7 million in net
proceeds. A shareholder also sold 1,220,000(post-reverse split) shares for
$10.00 per share. The Company did not receive any of the proceeds from the sale
of shares by the selling shareholder.
F-15
<PAGE> 43
All share and per share amounts included in these consolidated
financial statements have been restated to reflect the reverse stock split.
As of December 31, 1998, the Company has reserved 2,839,000 shares of
common stock for future issuance upon the exercise of warrants and options to
purchase common stock.
STOCK OPTIONS
The Company has established several stock option plans, under which the
Company is authorized to grant options to purchase an aggregate of 1,903,504
shares of common stock. Options granted under these plans must have an exercise
price not less than the fair market value at the date of grant. In addition to
options granted under these plans, the Company has granted non-plan options to
certain related parties. Such non-plan options were granted with exercise prices
equal to fair market value on the date of grant.
The Company had no stock option activity prior to 1996. A summary of
the Company's stock option activity for 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- ------
<S> <C> <C>
Granted in 1996 751,260 $ 6.08
Assumed in IMHI purchase 722,174 $ 2.90
Exercised (26,748) $ 1.04
Forfeited (40,049) $ 5.00
---------
Outstanding at December 31, 1996 1,406,637 $ 4.58
Granted 339,300 $10.88
Exercised (179,266) $ 1.21
Forfeited (408) $ 2.20
---------
Outstanding at December 31, 1997 1,566,263 $ 6.36
Granted 742,000 $ 5.91
Exercised (32,432) $ 3.69
Forfeited (391,204) $ 8.46
---------
Outstanding at December 31, 1998 1,884,627 $ 5.77
=========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
-------------- ----------- -------------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.74--$ 2.26 409,219 6.5 $ 1.73 249,219 $ 1.68
$3.00--$ 5.26 470,322 6.6 $ 3.72 444,449 $ 3.65
$6.25--$10.50 895,582 8.1 $ 8.02 349,835 $ 8.48
$11.13--$14.00 109,504 7.8 $ 11.27 45,278 $11.42
--------- ---------
1,884,627 7.4 $ 5.77 1,088,781 $ 5.06
========= =========
</TABLE>
For the purposes of pro forma disclosures, the estimated fair value of
the stock options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss and net loss per share (basic and diluted) are
$14,117,771 and $1.65, respectively for 1998, $5,268,821 and $0.74, respectively
for 1997 and $17,492,350 and $4.08, respectively for 1996.
F16
<PAGE> 44
STOCK PURCHASE WARRANTS
At December 31, 1998, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
-------- -------- -----------------
<S> <C> <C>
125,000 $ 1.00 February 24, 2005
51,679 $ 6.22 October 8, 1999
10,000 $11.26 May 27, 2000
-------
186,679
=======
</TABLE>
All outstanding warrants are exercisable.
During 1996, the Company issued, and the holder exercised, a warrant
for the purchase of 11,010 shares of common stock at $3.16 per share. During
1997, warrants were exercised for 375,000 shares of common stock at $1.00 per
share.
13. SEGMENT RESULTS
The Company has two reportable segments: product related and
consulting. The Company's product related segment sells comprehensive and
flexible software solutions and services to enable home health care providers to
more effectively operate their businesses and compete in the managed care
environment. The consulting segment assists home health care providers in
addressing the challenges of a reducing costs, maintaining quality, streamlining
operations and re-engineering organizational structures.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, not including gains and losses on the
Company's investment portfolio. The accounting policies of the reportable
segments are the same as those describe in the summary of significant accounting
policies (Note 1). The revenues, operating losses and assets of the Company by
business segment are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Product related $ 35,209,000 $ 42,036,000 $ 22,632,000
Consulting 6,437,000 4,909,000 3,363,000
------------ ------------ ------------
Total $ 41,646,000 $ 46,945,000 $ 25,995,000
============ ============ ============
Cost of sales
Product related $ 18,640,000 $ 18,184,000 $ 11,371,000
Consulting 5,445,000 4,531,000 3,327,000
------------ ------------ ------------
Total $ 24,085,000 $ 22,715,000 $ 14,698,000
============ ============ ============
Research and development
Product related $ 6,741,000 $ 6,670,000 $ 5,677,000
============ ============ ============
Depreciation and amortization
Product related 1,914,000 $ 1,174,000 $ 635,000
Consulting 394,000 430,000 150,000
Unallocated amounts
Corporate overhead 84,000 110,000 --
------------ ------------ ------------
Total $ 2,392,000 $ 1,714,000 $ 785,000
============ ============ ============
Purchased R&D
Product related -- $ 8,127,000 $ 12,574,000
Consulting -- -- --
Unallocated amounts
Corporate overhead -- -- --
------------ ------------ ------------
Total $ -- $ 8,127,000 $ 12,574,000
============ ============ ============
Restructure expenses
Product related $ 7,017,000 -- $ 1,215,000
Consulting -- -- --
Unallocated amounts
Corporate overhead -- -- --
------------ ------------ ------------
Total $ 7,017,000 $ -- $ 1,215,000
============ ============ ============
Operating loss
Product related $ (8,537,000) $ (460,000) $(16,027,000)
Consulting 484,000 (126,000) 36,000
Unallocated amounts
Corporate overhead (4,358,000) (4,203,000) --
</TABLE>
F17
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
Interest income/
expense - net 240,000 275,000 92,000
------------ ------------ ------------
Total $(12,171,000) $ (4,514,000) $(15,899,000)
============ ============ ============
Assets
Product related $ 11,894,000 $ 17,188,000 $ 16,118,000
Consulting 4,713,000 3,874,000 2,658,000
Unallocated corporate
assets net of
eliminations 11,250,000 7,857,000 --
------------ ------------ ------------
Total $ 27,857,000 $ 28,919,000 $ 18,776,000
============ ============ ============
</TABLE>
14. TRANSACTIONS WITH FORMER PARENT COMPANY
The Company derived revenue from charges for the services provided to
the home health care agencies owned by CHHC. The charges were recorded, for
purposes of these consolidated financial statements, in an amount equal to the
cost of the services being provided and therefore generated no operating profit.
Revenues of $12,051,000 were recognized in 1996. In addition, CHHC charged the
Company a management fee for the services provided related to legal and
executive. CHHC's charges included direct costs identified and allocations of
shared costs based on statistical and operational data such as square footage,
hours, and direct operating costs. In the opinion of management, the method of
allocation is reasonable. A management fee in the amount of $432,000 was
incurred in 1996. These arrangements terminated effective October 31, 1996.
15. RELATED PARTY TRANSACTIONS
Gateway LLC, a company owned in part by the Chief Executive Officer and
another officer of the Company, leases an office facility to the Company under
the terms of an agreement, which expires December 31, 2001. Rent expense and
related operating expenses paid to Gateway LLC by the Company were $266,000,
$356,000 and $82,000 in 1998, 1997 and 1996, respectively. Gateway LLC sold the
lease to a third party in August of 1998.
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1997 and 1996, the Company entered into various three-year
capital leases with National. In December 1997, the Company opted for early
termination of all the outstanding capital leases with National and purchased
the equipment under lease for approximately $579,000. Payments, excluding the
purchase, to National under these lease agreements totaled $260,000 and $70,000
in 1997 and 1996, respectively.
A shareholder of the Company owns a Company which leased computer
equipment to the Company during 1996 under an operating lease which expired in
December 1996. Total payments in 1996 related to this lease were approximately
$497,000.
A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company under an operating lease
that expires in December, 2002. Rent expense and related operating expenses paid
to this entity were $130,000, $130,000 and $112,000 in 1998, 1997 and 1996,
respectively. Future annual rental payments under this lease are approximately
$136,000 per year for 1999 through 2002.
The Company has consulting agreements with two entities in which
certain directors of the Company have ownership interests. Aggregate monthly
consulting fees paid to these two entities approximate $20,000 through July,
1998 and $5,000 thereafter. The fees totaled $149,000, $205,000 and $59,000 in
1998, 1997 and 1996, respectively.
16. LICENSE AGREEMENTS
Certain software applications of the Company's NAHC IS software
solution incorporates software licensed from a third party. Under this license
agreement, the Company is obligated to pay royalties based on the volume of
transactions processed by the Company. Royalty rates per transaction vary based
on the volume of transactions processed and totaled $77,000, $255,000 and
$117,000 in 1998, 1997 and 1996, respectively.
Another license agreement obligates the Company to pay royalties based
on a percentage of net collected revenues from sales of certain covered systems.
Royalty expense under this agreement totaled $113,000, $161,000 and $500,000 in
1998, 1997 and 1996, respectively.
The Company obtains data processing and network communication services
under an agreement with IBM Global Services ("IBM"). The agreement with IBM
expires December 31, 2005, and requires the Company to pay fees based on the
volume of transactions processed. This agreement was canceled during 1998
effective January 31, 1999. Termination and wind down costs are included in the
restructuring charges for 1998. (see Note 2)
F18
<PAGE> 46
SIMIONE CENTRAL HOLDINGS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO ADDITIONS BALANCE AT
BEGINNING COSTS AND DUE TO END OF
OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS(1) PERIOD
---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for Doubtful Accounts $1,915,120 $ 791,235 $ -- $1,031,951 $1,674,404
========== ========== ======== ========== ==========
Year ended December 31, 1997
Allowance for Doubtful Accounts $1,063,014 $1,329,563 $253,593 $ 731,050 $1,915,120
========== ========== ======== ========== ==========
Year ended December 31, 1996
Allowance for Doubtful Accounts $ 13,600 $ 395,046 $780,701 $ 126,333 $1,063,014
========== ========== ======== ========== ==========
</TABLE>
(1) Write-offs of uncollectible accounts.
F19
<PAGE> 1
EXHIBIT 10.15
SEVERANCE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 22nd
day of July, 1998 by and between Simione Central Holdings, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), and Gary M. Bremer
(hereinafter referred to as the "Executive").
WHEREAS, the Company and Executive have determined that it is in the
best interests of both parties to enter into the arrangement contemplated by
this Agreement regarding the termination of Executive's employment with the
Company as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. TERMINATION OF EMPLOYMENT.
The Company and the Executive hereby agree that the Executive shall
resign and terminate his employment and offices held with the Company and all
employment and offices held with all subsidiaries and affiliates of the Company
effective as of June 30, 1998 (the "Termination"); provided, however, Executive
will continue to serve as a director of the Company for his remaining term as
director, and for such additional terms as he may be reelected as a director
through December 10, 2000, all for no additional compensation beyond that
required under this Agreement. As of the Termination, the Employment Agreement
between Simione Central Holdings, Inc. (Successor by name change to InfoMed
Holdings, Inc.) and the Executive dated December 10, 1996 (the "Employment
Agreement") is terminated; provided, however that the provisions of Sections 5
through 10 of the Employment Agreement will survive the termination of the
Employment Agreement and the "Applicable Period" as used in such Sections is
hereby redefined to mean "the period of Executive's employment and thereafter
through December 10, 2001."
2. CONSIDERATION.
(a) The Company shall provide Executive, in consideration
of his termination of employment and in full
satisfaction and discharge of any and all obligations
of the Company to Executive, the following,
(i) Through the period of employment ending June
30, 1998, Executive's unpaid base salary,
car allowance, membership reimbursements,
and insurance premiums reimbursements
pursuant to Sections 3(a), (c), (d), and (e)
of the Employment Agreement, in each case
prorated through the period ending June 30,
1998 (but no further unpaid, prorated or any
further bonus payments pursuant to Paragraph
3(b) of the Employment Agreement shall be
paid);
<PAGE> 2
(ii) For the period from July 1, 1998 through
December 10, 2000, severance at an annual
rate of $400,000, payable in periodic
substantially equal installments in
accordance with the normal practices of the
Company for its payroll; and
(iii) A $50,000, total sum (not per annum), which
shall be paid in substantially equal
installments over the same period described
in Section 2(a)(ii) above.
(b) Notwithstanding the foregoing, if the payments and
benefits hereunder when combined with all other
"payments in the nature of compensation" (within the
meaning of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code")) would result in a
"parachute payment" within the meaning of Code
Section 280G as determined by the Company, then the
aggregate payments and benefits hereunder shall not
exceed the largest amount (when combined with all
other "payments in the nature of compensation") as
determined by the Company that can be paid to the
Executive without resulting in a "parachute payment."
(c) Notwithstanding the foregoing, in the event Executive
fails to comply with any of the material terms of
this Agreement (which includes the provisions of the
Employment Agreement which survive its termination,
as amended hereby), the Company shall provide
Executive with written notice of such default.
Executive shall thereafter have thirty (30) days to
cure any such default. If Executive is unable or
otherwise fails to so cure within said thirty (30)
days then Executive shall, in addition to being
liable for any actual damages that may be incurred by
the Company, forfeit all payments that may thereafter
become payable pursuant to this Agreement (including
the payment by the Company of group health plan
premiums as set forth in Section 3 hereof.)
(d) Except as expressly provided herein, and except for
Executive's rights under any plan described in
Section 401(a) of the Internal Revenue Code,
Executive shall have no other entitlement to any
other compensation or severance of any nature
whatsoever relating to Executive's employment with,
or termination of employment from, the Company, or
any of its subsidiaries, affiliates or predecessors.
The Company may withhold from any amounts payable
under this Agreement all federal, state, city and
other taxes or amounts as shall be required pursuant
to any applicable statute, regulation, order or
ruling.
3. COBRA.
Executive will be permitted to continue group health plan coverage
pursuant to the requirements of the Company's group health plan(s) and the
continuation coverage requirements of the Employee Retirement Income Security
Act of 1974, as amended ("COBRA"). The Company shall pay as additional severance
to Executive an amount equal to Executive's premiums for COBRA coverage for him
and his eligible dependents with respect to such group health plan(s) until the
earlier of the termination of COBRA coverage or the first day of his coverage
under any other health plan. Executive shall be
2
<PAGE> 3
required to pay the full amount of the applicable COBRA premiums to the Company
as a condition to coverage under the Company's group health plan(s).
4. STOCK OPTIONS.
All of Executive's options to purchase common stock of the Company
which are fully vested as of the Termination shall be exercisable in accordance
with the terms of the applicable stock option agreement(s) and shall remain
subject to all the terms and conditions thereof. All of Executive's options to
purchase common stock of the Company which are not vested as of the Termination
are hereby terminated.
5. RETURN OF ALL COMPANY PROPERTY.
Executive shall within three (3) days of the Termination turn over, and
provide the Company with a written inventory of, all files (which files shall
contain all memoranda and records in Executive's possession), credit cards,
access cards, facsimile machine(s), cellular phone(s), portable computer(s) and
computer hardware (i.e. printer), and other documents or property (including
documents on computer diskettes and documents contained in the memory of any
computer and not saved on diskette) which were received from the Company, or any
of its subsidiaries, affiliates or predecessors. The Company shall have the
right to conduct an audit on the hard drive of any of Executive's personal
computers. The Company stipulates and agrees that to the best of its knowledge
Executive has fulfilled his obligations under this Section 5. Should Executive
subsequently uncover any additional Company materials or property, he shall
promptly return same to the Company.
6. CONFIDENTIALITY OF AGREEMENT.
Executive represents and agrees that he will keep the terms, amount and
fact of this Agreement completely and strictly confidential, and that he will
not hereafter disclose any information concerning this Agreement to anyone
other than his professional representatives or immediate family (who will be
informed of and bound by this confidentiality clause), except as is necessary in
any legal proceedings based upon the provisions and terms of this Agreement, or
to prepare and file income tax returns, or in response to a valid court order or
subpoena. Any breach by Executive of this promise of confidentiality shall be a
material breach, and such breach shall entitle the Company to damages, in
addition to the relief described in Section 2 hereof. Notwithstanding the
foregoing, Executive shall be permitted to disclose the portion of Section I
hereof relating to Sections 5 through 10 of the Employment Agreement to
prospective employers to the extent disclosure is required by such prospective
employers.
7. RELEASE AND COVENANT NOT TO SUE.
Excepting only (a) Executive's rights and the Company's obligations
under this Agreement, (b) any stock options and rights Executive may have as a
stockholder of the Company, (c) any claims related to any obligations of the
Company or its subsidiaries which Executive has guaranteed, and (d) any
indemnification rights Executive may have as a director of the Company,
Executive hereby releases and discharges the Company and each of its current or
former respective officers, directors, affiliates, agents, employees,
stockholders, successors and assigns (collectively, "Released Parties") from any
and all
3
<PAGE> 4
actions, causes of action, claims, demands, damages, costs and expenses
(including attorneys' fees and costs actually incurred) which may have arisen or
which may hereafter arise on account of or in connection with Executive's
employment with the Company through the date hereof, including, without
limitation, any claim of discrimination on any basis whatsoever (including any
claim under the Age Discrimination in Employment Act), any matter relating to
Executive's employment with the Company from the beginning of his employment
until the date hereof, and further agrees that he will indemnify and hold
harmless each of the Released Parties from and against any and all costs,
expenses, losses or damages, including, without limitation, costs of defense and
legal fees, incurred as a result of any such claims, charges, complaints,
actions or causes of action made or brought by or on behalf of Executive based
upon any claim released herein. Executive represents that he has not filed, nor
assigned to others the right to file, nor are there pending, any complaints,
charges or lawsuits by Executive against the Released Parties with any federal,
state or local governmental agency or any court. In addition, Executive is
expressly prohibited from and agrees not to initiate actions designed to
persuade or convince others to raise claims against the Released Parties. For
purposes of this paragraph and the definition of "Released Parties" set forth
above, references to "Company" shall be deemed to include its subsidiaries,
affiliates and predecessors.
8. COOPERATION AFTER TERMINATION; NON-DISPARAGEMENT.
(a) Executive agrees to cooperate in assisting the
Company and its designees on any and all matters that
in any way relate to matters he was responsible for,
familiar with, or otherwise arising out of or in
connection with any facts or circumstances occurring
during the term of Executive's employment with the
Company, or any of its subsidiaries, affiliates or
predecessors, in which the Company determines that
Executive's cooperation is necessary or appropriate.
In addition, if requested in writing, Executive
agrees to provide the Company within three (3) days
of the request with a written detailed summary of all
open items with respect to the Company's, and all of
its subsidiaries', affiliates' and predecessors',
affairs.
(b) For a period of three (3) years commencing on the
date of Termination, Executive agrees that he will
refrain from making or issuing any disparaging
comments relating to the management, performance or
business activities of the Released Parties or
procuring any person, firm or entity to make or issue
such disparaging comments. For purposes of this
Section, the term "disparaging comments" shall be
defined as any written or oral statement which, on
its face and regardless of context, could reasonably
be expected to cause embarrassment or humiliation. In
addition, Executive will not issue any public
announcement or public statement relating to the
Company, or any of its subsidiaries, affiliates or
predecessors, without the prior written consent of
the Company.
(c) Executive agrees that, unless required by law or by
the Company, Executive will not testify, give
evidence or otherwise participate in any form
concerning, his, any person's, or any entity's claims
against the Released Parties. Unless prohibited by
applicable law, if Executive is subpoenaed, required
to testify in any proceeding, requested to provide
any evidence in connection with any
4
<PAGE> 5
proceeding or otherwise requested to participant in
any proceeding, Executive shall notify the Company's
General Counsel (and if there is no General Counsel,
the Company's President or Chief Executive Officer)
of the subpoena, the demand that the Executive
testify, or such other request to provide evidence or
participate in the proceeding, by telephone and in
writing, within seventy-two (72) hours of receiving
the subpoena/demand/request or before the date of the
proposed testimony, provision of evidence or
participation in the proceeding, whichever is
earlier. Further, unless prohibited by applicable
law, Executive agrees to meet with and reasonably
cooperate with the Company's attorneys in preparation
for any testimony or the provision of such evidence
or participation in the proceeding.
(d) Executive will identify to any prospective employer
the Company's Chief Executive Officer as the
representative of the Company to be contacted for
inquiries by any prospective employer of Executive.
The Company shall refrain from making or issuing any
disparaging comments about the Executive in response
to any inquiry seeking a reference with respect to
the Executive, and the Company's response shall be
limited to confirming that Executive resigned and
verifying compensation, job title and dates of
employment.
9. NON-ADMISSION OF LIABILITY.
This Agreement shall not in any way be construed as an admission,
evidence or suggestion of wrongdoing by the Company, or any of its subsidiaries,
affiliates or predecessors, that they have acted wrongfully with respect to
Executive, or that Executive has any rights whatsoever against the Released
Parties. The Company and its subsidiaries, affiliates and predecessors
specifically disclaim and deny any liability to, or wrongful acts against,
Executive or any other person, on the part of themselves, or their respective
employees or agents, related to this or any other matter, whether currently
existing or brought in the future.
10. CONSULTATION WITH AN ATTORNEY; TWENTY-ONE (21) DAYS
CONSIDERATION PERIOD.
In regard to Executive's rights under the Older Workers' Benefit
Protection Act, Executive understands that he has a period of twenty-one (21)
days within which to consider this Agreement, which includes a waiver of claims
under the Age Discrimination in Employment Act. Executive and the Company also
agree that Executive has been encouraged to seek the advice of counsel regarding
whether to enter into this Agreement. Executive fully understands that all costs
or fees arising out of any legal representation sought with respect to this
Agreement are to be paid by Executive. To the degree that Executive chooses not
to wait twenty-one (21) days to execute this Agreement, it is because he freely
and unilaterally chose to execute this document before that time.
11. RIGHT TO REVOKE.
Executive and the Company agree that either Executive or the Company
shall have seven (7) days from the date of execution of this Agreement to revoke
and cancel this Agreement, by providing notice of revocation to the other party.
As a result of any revocation, no consideration hereunder shall be provided and
this Agreement will be null
5
<PAGE> 6
and void. Because of this seven-day revocation period, this Agreement will not
be effective until the eighth day after it is signed by Executive.
12. SEVERABILITY.
If any portion of this Agreement or the application thereof for any
reason or to any extent shall be determined to be invalid or unenforceable, such
invalidity or enforceability shall not in any manner affect or render invalid or
unenforceable the remainder of this Agreement.
13. INJUNCTIVE RELIEF.
Each of the parties hereto recognizes and acknowledges that a breach by
it of any covenants or agreements contained in this Agreement will cause the
other party to sustain damages for which it will not have an adequate remedy at
law for money damages, and therefore, in the event of any such breach, the
aggrieved party shall be entitled to the remedy of specific performance Of Such
covenants and agreements and injunctive and other equitable relief in addition
to any other remedy to which it may be entitled at law or in equity or pursuant
to the forfeiture provisions hereof.
14. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the
laws of the State of Georgia.
15. NO ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of each party hereto. This Agreement may not be assigned
by Executive. The Company may assign this Agreement to any subsidiary or
affiliate (provided the Company guarantees the performance of this Agreement by
such subsidiary or affiliate) or to any purchaser of a majority of its assets or
business.
16. SURVIVAL.
The provisions of this Agreement shall survive the termination of
Executive's employment with the Company.
17. ENTIRE AGREEMENT.
This Agreement constitutes the entire Agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements or understandings between the parties, whether written or oral, with
respect thereto.
18. CONSENT TO JURISDICTION AND VENUE AND SELECTION OF FORUM.
This Agreement has been negotiated, executed, and delivered in the
State of Georgia. In regard to any action to enforce or interpret this
Agreement, or otherwise arising out of or relating to this Agreement, each party
(i) consents and submits to personal jurisdiction and venue in the Superior
Court of Fulton County, State of Georgia (referred to
6
<PAGE> 7
as the "Court"), (ii) waives any and all objections to jurisdiction and venue in
the Court, and (iii) waives any objection that the Court is an inconvenient
forum. Each party further agrees that jurisdiction and venue concerning any
legal or equitable action to enforce or interpret this Agreement, or otherwise
arising out of this Agreement, shall rest exclusively in the Superior Court of
Fulton County, State of Georgia, so that any such action shall be brought and
defended in the Court.
19. NOTICE.
All notices, requests, demands and other communications required
hereunder shall be in writing and shall be deemed to have been duly given if to
the party to which the same is directed at the following addresses (or at such
other addresses as shall be given in writing, by the parties to one another):
If to the Company: Simione Central Holdings, Inc.
6600 Powers Ferry Road
Atlanta, GA 30339
Attn: General Counsel
If to the Executive: Gary M. Bremer
3212 Arden Road
Atlanta, GA 30305
20. MISCELLANEOUS.
All references to "predecessors" of the Company shall be deemed to
include, but not limited to, Central Health Holding Company, Inc., Central
Health Management Services, Inc., Central Health Services, Inc. and Simione &
Simione, CPAs, and any of their current or prior subsidiaries and affiliates.
The Company agrees that Executive is permitted under this Agreement to perform
certain consulting services for the National Association of Home Care and its
affiliated organizations provided such association and each of its affiliated
organizations is not a Competing Business as defined in the Employment
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
SIMIONE CENTRAL HOLDINGS, INC.
By: /s/ Barrett C. O'Donnell
-----------------------------------------
Barrett C. O'Donnell,
Chief Executive Officer
[signatures continue next page]
7
<PAGE> 8
EXECUTIVE
/s/ Gary M. Bremer
--------------------------------------------
Gary M. Bremer
Date: 7/19, 1998
By signing this Agreement, you state you
have carefully read this Agreement, which
includes a full and final release of all
claims, know and understand the contents of
this document, and execute the same
voluntarily and on your free will.
8
<PAGE> 1
EXHIBIT 10.24
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
AMONG
SIMIONE CENTRAL HOLDINGS, INC.,
EACH OF THOSE SUBSIDIARIES OF
SIMIONE CENTRAL HOLDINGS, INC. IDENTIFIED
AS "SUBSIDIARY GUARANTORS" ON THE SIGNATURE PAGES HERETO
AND
WACHOVIA BANK, NATIONAL ASSOCIATION
CLOSING DATE: MAY 11, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS, TERMS AND REFERENCES...............................................................1
---------------------------------
1.1. CERTAIN DEFINITIONS...........................................................1
-------------------
1.2. USE OF DEFINED TERMS.........................................................11
--------------------
1.3. ACCOUNTING TERMS. ..........................................................11
----------------
1.4. UCC TERMS....................................................................11
---------
2. THE FINANCING..................................................................................11
-------------
2.1. EXTENSIONS OF CREDIT.........................................................11
--------------------
2.2. INTEREST AND OTHER CHARGES...................................................12
--------------------------
2.3. GENERAL PROVISIONS AS TO PAYMENTS............................................16
---------------------------------
2.4. GUARANTY.....................................................................17
--------
3. SECURITY INTEREST..............................................................................20
-----------------
4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO COLLATERAL.............................20
------------------------------------------------------------------
4.1. GOOD TITLE...................................................................20
----------
4.2. RIGHT TO GRANT LIEN..........................................................20
-------------------
4.3. SALE OR OTHER DISPOSITION OF COLLATERAL......................................20
---------------------------------------
4.4. INSURANCE....................................................................20
---------
4.5. LOCATION OF COLLATERAL.......................................................21
----------------------
5. GENERAL REPRESENTATIONS AND WARRANTIES.........................................................21
--------------------------------------
5.1. EXISTENCE AND QUALIFICATION..................................................21
---------------------------
5.2. AUTHORITY; AND VALIDITY AND BINDING EFFECT...................................21
------------------------------------------
5.3. INCUMBENCY AND AUTHORITY OF SIGNING OFFICERS.................................21
--------------------------------------------
5.4. NO MATERIAL LITIGATION.......................................................21
----------------------
5.5. TAXES........................................................................22
-----
5.6. CAPITAL......................................................................22
-------
5.7. ORGANIZATION.................................................................22
------------
5.8. INSOLVENCY...................................................................22
----------
5.9. TITLE........................................................................22
-----
5.10. MARGIN STOCK.................................................................22
------------
5.11. NO VIOLATIONS................................................................22
-------------
5.12. FINANCIAL STATEMENTS.........................................................23
--------------------
5.13. POLLUTION AND ENVIRONMENTAL CONTROL..........................................23
-----------------------------------
5.14. POSSESSION OF PERMITS........................................................23
---------------------
5.15. SUBSIDIARIES.................................................................23
------------
5.16. FEDERAL TAXPAYER IDENTIFICATION NUMBER.......................................23
--------------------------------------
5.17. EMPLOYEE BENEFIT PLANS.......................................................24
----------------------
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
6. AFFIRMATIVE COVENANTS..........................................................................24
---------------------
6.1. RECORDS RESPECTING COLLATERAL................................................24
-----------------------------
6.2. FURTHER ASSURANCES...........................................................24
------------------
6.3. RIGHT TO INSPECT AND CONDUCT AUDITS..........................................24
-----------------------------------
6.4. PERIODIC FINANCIAL STATEMENTS................................................24
-----------------------------
6.5. ANNUAL FINANCIAL STATEMENTS..................................................25
----------------------------
6.6. COMPLIANCE CERTIFICATE.......................................................25
----------------------
6.7. PROJECTIONS..................................................................25
-----------
6.8. PAYMENT OF TAXES.............................................................25
----------------
6.9. MAINTENANCE OF INSURANCE.....................................................25
------------------------
6.10. MAINTENANCE OF PROPERTY......................................................26
-----------------------
6.11. CHANGE OF PRINCIPAL PLACE OF BUSINESS, ETC...................................26
-------------------------------------------
6.12. WAIVERS......................................................................26
-------
6.13. PRESERVATION OF EXISTENCE....................................................26
-------------------------
6.14. COMPLIANCE WITH LAWS.........................................................26
--------------------
6.15. .............................................................................26
CERTAIN REQUIRED NOTICES................................................................................26
------------------------
6.16. YEAR 2000 COMPATIBILITY......................................................26
-----------------------
6.17. SEC REPORTS..................................................................27
-----------
7. NEGATIVE COVENANTS.............................................................................27
------------------
7.1. ENCUMBRANCES.................................................................27
------------
7.2. DEBT.........................................................................27
----
7.3. CONTINGENT LIABILITIES.......................................................27
----------------------
7.4. DIVIDENDS....................................................................28
---------
STOCK REDEMPTIONS.......................................................................................28
-----------------
7.6. INVESTMENTS..................................................................28
-----------
7.7. MERGERS......................................................................28
-------
7.8. BUSINESS LOCATIONS...........................................................28
------------------
7.9. AFFILIATE TRANSACTIONS.......................................................28
----------------------
7.10. FISCAL YEAR..................................................................28
-----------
7.11. DISPOSITION OF ASSETS........................................................28
---------------------
7.12. FEDERAL TAXPAYER IDENTIFICATION NUMBER.......................................29
--------------------------------------
7.13. EMPLOYEE BENEFIT PLANS.......................................................29
----------------------
7.14. SUBSIDIARIES.................................................................29
------------
8. FINANCIAL COVENANTS............................................................................29
-------------------
8.1. NET WORTH....................................................................29
---------
8.2. LEVERAGE RATIO...............................................................29
--------------
8.3. LIQUIDITY....................................................................29
---------
9. EVENTS OF DEFAULT..............................................................................29
-----------------
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
9.1. OBLIGATIONS..................................................................29
-----------
9.2. MISREPRESENTATIONS...........................................................29
------------------
9.3. CERTAIN COVENANTS............................................................30
-----------------
9.4. OTHER COVENANTS..............................................................30
---------------
9.5. OTHER DEBTS..................................................................30
-----------
9.6. VOLUNTARY BANKRUPTCY.........................................................30
--------------------
9.7. INVOLUNTARY BANKRUPTCY.......................................................30
----------------------
9.8. DAMAGE, LOSS, THEFT OR DESTRUCTION OF COLLATERAL.............................31
------------------------------------------------
9.9. JUDGMENTS....................................................................31
---------
9.11. CHANGE OF CONTROL, ETC.......................................................31
-----------------------
10. REMEDIES.......................................................................................31
--------
10.1. ACCELERATION OF THE OBLIGATIONS..............................................31
-------------------------------
10.2. DEFAULT......................................................................32
-------
10.3. REMEDIES OF A SECURED PARTY..................................................32
---------------------------
10.4. REPOSSESSION OF THE COLLATERAL...............................................32
------------------------------
10.5. DIRECT NOTIFICATION..........................................................32
-------------------
10.6. SET OFF......................................................................33
-------
10.7. OTHER REMEDIES...............................................................33
--------------
11. MISCELLANEOUS..................................................................................33
-------------
11.1. WAIVER.......................................................................33
------
11.2. GOVERNING LAW................................................................33
-------------
11.3. SURVIVAL.....................................................................33
--------
11.4. ASSIGNMENTS..................................................................33
-----------
11.5. COUNTERPARTS.................................................................34
------------
11.6. REIMBURSEMENT................................................................34
-------------
11.7. SUCCESSORS AND ASSIGNS.......................................................34
----------------------
11.8. SEVERABILITY.................................................................34
------------
11.9. NOTICES......................................................................34
-------
11.10. ENTIRE AGREEMENT: AMENDMENTS.................................................35
----------------------------
11.11. TIME OF ESSENCE..............................................................35
---------------
11.12. INTERPRETATION...............................................................35
--------------
11.13. LENDER NOT A JOINT VENTURER..................................................35
---------------------------
11.14. JURISDICTION.................................................................35
------------
11.15. ACCEPTANCE...................................................................35
----------
11.16. PAYMENT ON NON-BUSINESS DAYS.................................................36
----------------------------
11.17. CURE OF DEFAULTS BY LENDER...................................................36
--------------------------
11.18. RECITALS.....................................................................36
--------
11.19. ATTORNEY-IN-FACT.............................................................36
----------------
11.20. SOLE BENEFIT.................................................................36
------------
11.21. INDEMNIFICATION..............................................................36
---------------
11.22. JURY TRIAL WAIVER............................................................37
-----------------
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
11.23. TERMINOLOGY..................................................................37
-----------
11.24. EXHIBITS.....................................................................37
--------
12. CONDITIONS PRECEDENT...........................................................................37
--------------------
12.1. SECRETARY'S CERTIFICATE......................................................38
-----------------------
12.2. GOOD STANDING CERTIFICATES...................................................38
--------------------------
12.3. LOAN DOCUMENTS...............................................................38
--------------
12.4. INSURANCE....................................................................38
---------
12.5. FINANCING STATEMENTS.........................................................38
--------------------
12.6. OPINION OF COUNSEL...........................................................38
------------------
12.7. LANDLORD AGREEMENTS..........................................................38
-------------------
12.8. NO DEFAULT...................................................................38
----------
12.9. NO MATERIAL ADVERSE CHANGE...................................................38
--------------------------
12.10. SECURITIES PLEDGE AGREEMENT..................................................39
---------------------------
12.11. OTHER........................................................................39
-----
</TABLE>
-iv-
<PAGE> 6
LOAN AND SECURITY AGREEMENT
PREAMBLE. THIS AGREEMENT, made, entered into and effective as of May 11, 1998,
by and between SIMIONE CENTRAL HOLDINGS, INC., a Delaware corporation
("Borrower"); each of those Subsidiaries of Borrower identified as "Subsidiary
Guarantors" on the signature pages to this Agreement (the "Subsidiary
Guarantors"); and WACHOVIA BANK, NATIONAL ASSOCIATION, a national bank
("Lender").
W I T N E S S E T H :
WHEREAS, Borrower has applied to Lender for certain financing, as more
particularly described hereinbelow, consisting, initially, of a $25,000,000
revolving line of credit; and
WHEREAS, the Subsidiary Guarantors will receive direct and material
economic benefit from the financing being extended to Borrower pursuant hereto
and have agreed to join with Borrower in the execution of this Agreement to
evidence their issuance of a secured Guaranty in favor of Lender in respect of
the Obligations, and for related purposes; and
WHEREAS, Lender is willing to extend such financing to Borrower in
accordance with the terms hereof upon the execution of this Agreement by
Borrower and the Subsidiary Guarantors (Borrower and all such Subsidiary
Guarantors herein sometimes called, collectively, the "Obligors" or,
individually, an "Obligor"), compliance by Obligors with all of the terms and
provisions of this Agreement and fulfillment of all conditions precedent to
Lender's obligations herein contained;
NOW, THEREFORE, to induce Lender to extend the financing provided for
herein, and for other good and valuable consideration, the sufficiency and
receipt of all of which are acknowledged by Obligors, Lender agrees with
Obligors as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. CERTAIN DEFINITIONS. In addition to such other terms as
elsewhere defined herein, as used in this Agreement and in any Exhibit or
Schedule attached hereto, the following terms shall have the following meanings:
"Accounts Receivable Collateral" shall mean and include all accounts,
accounts receivable, contract rights, instruments, chattel paper and general
intangibles in the nature of payment obligations owing to each Obligor,
including, without limitation, all rights of each Obligor to payment for goods
sold or leased, or to be sold or to be leased, or for services rendered or to be
rendered, howsoever evidenced or incurred, together with all returned or
repossessed goods and all books, records, computer tapes, programs and ledger
books arising therefrom or relating thereto, all whether now owned or hereafter
acquired and howsoever arising.
"Account Debtor" shall mean any Person who is obligated on any of the
Accounts Receivable Collateral or otherwise is obligated as a purchaser or
lessee of any of the Inventory Collateral.
<PAGE> 7
"Advance" shall mean an advance of borrowed funds made by Lender to or
on behalf of Borrower pursuant to this Agreement.
"Affiliate" shall mean, with respect to any Person, any Person
Controlling, Controlled by or under common Control with such Person, and any
Subsidiary, shareholder, partner, member, director, manager or officer of such
Person.
"Agreement" shall mean this Loan and Security Agreement, as it may be
modified, amended or supplemented from time to time; together with any and all
Schedules or Exhibits attached hereto.
"Applicable Rate" shall mean the interest rate per annum payable on the
Advances, as is defined and more particularly described in Section 2.2.1.
"Balances Collateral" shall mean all property of each Obligor left
with Lender or in Lender's possession, custody or control now or hereafter, all
deposit accounts of each Obligor now or hereafter opened with Lender, all
certificates of deposit now or hereafter issued by Lender to each Obligor, and
all drafts, checks and other items deposited in or with Lender by each Obligor
for collection now or hereafter.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as it
may be amended from time to time.
"Borrower" shall have the meaning given to such term in the preamble to
this Agreement.
"Borrower Information Schedule" shall mean an information schedule, to
be completed by Borrower in respect of each Obligor, in substantially the form
of Exhibit "A" attached hereto.
"Borrowings" shall mean Advances of borrowed funds made hereunder to or
on behalf of Borrower pursuant to this Agreement.
"Business Day" shall mean a day on which Lender is open for the conduct
of banking business at its principal office in Atlanta, Georgia; provided,
however, that, for purposes of determining the timing of requests for, and
establishing the Applicable Rate on, LIBOR Borrowings, "Business Day" shall
mean, additionally, any day on which dealings in United States Dollar deposits
are also being carried out by Lender in the London interbank eurodollar market.
"Cash Equivalents" shall mean (i) investments in direct obligations of
the United States of America, or any agency thereof or obligations guaranteed by
the United States of America, provided that such obligations mature within one
(1) year from the date of acquisition thereof; (ii) investments in time
deposits, demand deposits and certificates of deposit maturing within one (1)
year from the date of acquisition issued by a bank or trust company organized
under the laws of the United States or any state thereof having capital surplus
and undivided profits aggregating at least $500,000,000;
-2-
<PAGE> 8
and (iii) investments in commercial paper given the highest rating by a national
credit rating agency and maturing not more than two hundred seventy (270) days
from the date of creation thereof.
"Closing Date" shall mean the date set forth on the cover page as the
"Closing Date."
"Collateral" shall mean the property, or interests in property, of each
Obligor described as such in Article 3 plus any other property, or interests in
property, of each Obligor in which Lender has, or hereafter obtains or claims, a
Lien as security for the payment of the Obligations.
"Collateral Locations" shall mean the Executive Office and those
additional locations, if any, set forth and described on the Borrower
Information Schedule, as they may be modified from time to time pursuant to
Section 7.8.
"Columbia/HCA Guaranty" shall mean the guaranty, dated on or about
October 31, 1996, given by Simione Central, Inc. to Columbia/HCA and/or certain
of its Affiliates in respect of certain indemnity obligations of the former
stockholders of CHHC, formerly an Affiliate of Borrower.
"Compliance Certificate" shall mean a certificate to be signed by a
duly authorized officer of Borrower pursuant to Section 6.6, in substantially
the form of Exhibit "B" attached hereto (unless otherwise required or approved
by Lender).
"Commitment" shall mean the maximum amount which is available for
borrowing under the Line of Credit (considered without regard to the Margin)
which, as of the Closing Date, is Twenty-Five Million Dollars ($25,000,000).
"Consolidated Subsidiaries" shall mean those Subsidiaries of Borrower
(if any) existing from time to time which, for purposes of GAAP, are required to
be consolidated for financial reporting purposes.
"Control," "Controlled" or "Controlling" shall mean, with respect to
any Person, the power to direct the management and policies of such Person,
directly, indirectly, whether through the ownership of voting securities or
otherwise; provided, however, that, in any event, any Person which owns directly
or indirectly twenty percent (20%) or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation shall be deemed to "Control" such corporation for purposes of this
Agreement.
"Debt" means all liabilities, obligations and indebtedness of a Person,
of any kind or nature, whether now or hereafter owing, arising, due or payable,
howsoever evidenced, created, incurred, acquired or owing, and whether primary,
secondary, direct, contingent, fixed or otherwise, including, without in any way
limiting the generality of the foregoing: (i) the Obligations; (ii) Purchase
Money Debt; (iii) all obligations, liabilities and indebtedness secured by any
Lien on a Person's Property, even though such Person shall not have assumed or
become liable for the payment thereof; (iv) all obligations or liabilities
created or arising under any capital lease, synthetic lease, conditional sale
-3-
<PAGE> 9
or other title retention agreement; (v) all accrued pension fund and other
employee benefit plan obligations and liabilities; (vi) all Guaranteed
Obligations; (vii) any liabilities under, or associated with, interest rate
protection agreements and derivative products; and (viii) any net deferred tax
liabilities.
"Default Condition" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"Default Rate" shall mean that interest rate per annum equal to two
percent (2%) per annum in excess of the otherwise Applicable Rate payable on any
Obligation.
"Dollars" or "$" shall mean United States Dollars.
"EBITDA" shall mean, for Borrower and its Consolidated Subsidiaries,
determined in accordance with GAAP, for the fiscal period in question, earnings
before interest expense, income tax expense, depreciation and amortization
expense, less dividends, less extraordinary gains, plus any non-recurring,
non-cash write-offs associated with Permitted Acquisitions.
"Employee Benefit Plan" shall mean any employee welfare benefit plan,
as that term is defined in Section 3(1) of ERISA, any employee pension benefit
plan, as that term is defined in Section 3(2) of ERISA, or any other plan which
is subject to the provisions of Title IV of ERISA which is for the benefit of
any employees of Borrower and any employees of any Subsidiary or any other
entity which is a member of a "controlled group" or under "common control" with
Borrower or any Subsidiary, as such quoted terms are defined in Section
4001(a)(14) of ERISA.
"Environmental Laws" shall mean all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, whether now or
hereafter existing, including, but not limited to state and federal superlien
and environmental cleanup laws and U.S. Department of Transportation regulations
and any other state or local law or regulation relating to pollution,
reclamation, or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into air, water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling or pollutants, contaminants
or hazardous or toxic materials or wastes.
"Equipment Collateral" shall mean all equipment and fixtures of each
Obligor, whether now owned or hereafter acquired, wherever located, including,
without limitation, all machinery, furniture, furnishings, leasehold
improvements, computer hardware, motor vehicles, forklifts, rolling stock, dies
and tools used or useful in each Obligor's business operations.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as may be amended from time to time.
-4-
<PAGE> 10
"Event of Default" shall mean any of the events or conditions described
in Article 13, provided that any requirement for the giving of notice or the
lapse of time, or both, has been satisfied.
"Executive Office" shall mean the address of each Obligor's chief
executive office and principal place of business, as designated on the Borrower
Information Schedule.
"Fiscal Year", in respect of a Person, shall mean the fiscal year of
such Person, as employed by such Person as of the Closing Date, and designated
as such on the Borrower Information Schedule, as to Borrower. The terms "Fiscal
Quarter" and "Fiscal Month" shall correspond accordingly thereto.
"Funded Debt" shall mean, for Borrower and its Consolidated
Subsidiaries, as of the end of any fiscal period in question, all Debt which is
interest bearing (including, for this purpose, any Debt, with an implicit
interest component, such as capital leases and Purchase Money Debt, in which
interest is expressed as part of a "time price differential"), whether
short-term or long-term (excluding, for this purpose, Debt under the
Columbia/HCA Guaranty unless and until a payment becomes due and owing
thereunder, and, then, the Debt to be included shall be limited to the payment
amount then due).
"GAAP" shall mean generally accepted accounting principles consistently
applied for the fiscal period(s) in question.
"Guaranteed Obligations" shall mean, with respect to any Person, all
obligations of such Person which in any manner directly or indirectly guarantee
or assure, or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligation of any other Person or to assure or
in effect assure the holder of any such obligations against loss in respect
thereof.
"Guarantor" shall mean, individually and collectively, any and all
accommodation makers, endorsers, guarantors or sureties from whom Lender may
require, either on or after the Closing Date, the endorsement of any Note or the
execution of any contract of guaranty or suretyship guaranteeing payment of any
of the Obligations. Initially, the Subsidiary Guarantors shall be the only
Guarantors.
"Guaranty" shall mean any agreement or other writing executed by a
Guarantor guaranteeing payment of any of the Obligations, in form and substance
satisfactory to Lender.
"Intangibles Collateral" shall mean all general intangibles of each
Obligor, whether now existing or hereafter acquired or arising, including,
without limitation, all intellectual property, copyrights, royalties, tax
refunds, rights to tax refunds, trademarks, trade names, service marks, patent
and proprietary rights, blueprints, drawings, designs, trade secrets, plans,
diagrams, schematics and assembly and display materials relating thereto, all
customer lists, all books and
-5-
<PAGE> 11
records, all computer software and programs, and all rights of each Obligor as
purchaser, lessee, licensee or indemnitee under any contract.
"Interest Period" shall mean, in respect of LIBOR Borrowings, a period
commencing on the date of such borrowing and ending on the numerically
corresponding date in the first (1st), second (2nd), third (3rd), or sixth (6th)
month thereafter, as Borrower may elect in the applicable notice of such
borrowing to be given pursuant to Section 2.2.1; provided, however, that any
Interest Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day unless such Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding Business Day, and any Interest Period which begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
"Interest Rate Determination Date" shall mean, in respect of LIBOR
Borrowings, three (3) Business Days prior to the first day of each Interest
Period.
"Inventory Collateral" shall mean all inventory of each Obligor,
whether now owned or hereafter acquired, wherever located, including, without
limitation, all goods of each Obligor held for sale or lease or furnished or to
be furnished under contracts of service, all goods held for display or
demonstration, goods on lease or consignment, spare parts, repair parts,
returned and repossessed goods, all raw materials, work-in-process, finished
goods, catalysts and supplies used or consumed in each Obligor's business,
together with all documents, documents of title, dock warrants, dock receipts,
warehouse receipts, bills of lading or orders for the delivery of all, or any
portion, of the foregoing.
"Landlord's Agreement" shall mean an agreement from the landlord of any
Collateral Location pursuant to which such landlord has waived, released or
subordinated in favor of Lender any rights it has in respect of the Collateral,
to be substantially in the form of Exhibit "C" attached hereto (unless otherwise
required or approved by Lender).
"Lender" shall have the meaning given to such term in the preamble to
this Agreement.
"Letter of Credit" shall have the meaning given to such term in Section
2.1.2.
"Letter of Credit Obligations" shall mean all Obligations of Borrower
arising in respect of Letters of Credit, including, without limitation, (i) all
contingent liabilities arising in respect of Letters of Credit issued, but not
drawn upon, and (ii) all reimbursement liabilities arising in respect of
drawings made under Letters of Credit.
"Leverage Ratio" shall mean the ratio which: (i) Funded Debt, bears to
(ii) EBITDA, as of the end of each Fiscal Quarter, measured on a rolling four
(4) Fiscal Quarters' basis.
-6-
<PAGE> 12
"LIBOR Borrowings" shall mean those Borrowings which Borrower elects,
pursuant to Section 2.2.1, to bear interest at a rate per annum determined by
reference to the LIBOR Rate plus any applicable margin described therein.
"LIBOR Rate" shall mean, with respect to any Interest Period, an
interest rate per annum computed by dividing: (x) the rate per annum determined
by Lender from time to time on the basis of the offered rate for deposits in
dollars in the London interbank borrowing market of amounts equal to or
comparable to the amount of a requested borrowing under the Line of Credit to
which such Interest Period relates offered for a term comparable to such
Interest Period, which rate appears on the display designated as page "3750" of
the Telerate Service (or such other page as may replace page "3750" of that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits) as of 11:00 a.m., London time, on the Interest
Rate Determination Date pertaining to such Interest Period (which rate shall be
rounded upward, if necessary, to the next higher 1/10,000 of 1%); provided,
however, that if more than one such offered rate appears on such service on such
date, the offered rate shall be deemed to be the arithmetic average (rounded
upward, if necessary, to the next higher of 1/100 of 1%) of such offered rates;
by (y) the number 1 minus any then applicable percentage (expressed as a
decimal) which is in effect on such day, as prescribed by the Board of Governors
of the Federal Reserve System (or its successor) for determining the maximum
reserve requirement for a member of the Federal Reserve System in respect of
"Eurocurrency liabilities" (or any other category of liabilities which includes
deposits by reference to which the interest rate on such borrowings is
determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of Lender to United States
residents). The LIBOR Rate shall be adjusted automatically on and as of the
effective date of any change in the percentage described in the foregoing clause
(y).
"Lien" shall mean any deed to secure debt, deed of trust, mortgage or
similar instrument, and any lien, security interest, preferential arrangement
which has the practical effect of constituting a security interest, security
title, pledge, charge, encumbrance or servitude of any kind, whether by
consensual agreement or by operation of statute or other law, and whether
voluntary or involuntary, including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof.
"Line of Credit" shall refer to the line of credit in the maximum
principal amount of Twenty-Five Million Dollars ($25,000,000) opened by Lender
in favor of Borrower pursuant to the provisions of Section 2.1.
"Loan Documents" shall mean this Agreement, the Notes, any financing
statements covering portions of the Collateral, and any and all other documents,
instruments, certificates and agreements executed and/or delivered by any
Obligor in connection herewith, or any one, more, or all of the foregoing, as
the context shall require.
-7-
<PAGE> 13
"Margin" shall mean, initially, the sum of Twenty-Two Million Six
Hundred Thirty-Six Thousand Dollars ($22,636,000), as adjusted by Lender from
and after the Closing Date, based on Borrower's consolidated financial
statements delivered pursuant to Section 6.4 for each Fiscal Quarter and Section
6.5 for each Fiscal Year, commencing with the Fiscal Quarter ended June 30,
1998, to an amount equal to the product of: (i) EBITDA, determined on a rolling
four (4) Fiscal Quarters' basis as of the end of such Fiscal Quarter, multiplied
by (ii) four (4). Each such adjustment shall become effective as of the first
day of the calendar month succeeding the date on which Lender receives
Borrower's quarterly financial statements pursuant to Section 6.4, except that
any such adjustment based on Borrower's financial statements for the fourth
(4th) Fiscal Quarter of each Fiscal Year shall itself be subject to further
adjustment based on Borrower's annual financial statements for the same said
period delivered pursuant to Section 6.5, effective as of the first day of the
calendar month succeeding their delivery to Lender.
"Margin Requirement" shall have the meaning ascribed to such term in
Section 2.1.1.
"Master Note" shall mean the master promissory note, dated of even date
herewith, as amended or supplemented from time to time, in a principal amount
equal to the maximum amount of the Line of Credit, evidencing Advances to be
obtained by Borrower under the Line of Credit, together with any renewals or
extensions thereof in whole or in part. The Master Note shall be substantially
in the form of Exhibit "C".
"Material Adverse Change" shall mean with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business or properties of Borrower and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the
Lender under any of the Loan Documents (or any documents, instruments or
agreements executed and/or delivered by any Person other than an Obligor in
conjunction with the Loan Documents), or the ability of any Obligor to perform
its obligations under any of the Loan Documents, or (c) the legality, validity
or enforceability of any of the Loan Documents (or any documents, instruments or
agreements executed and/or delivered by any Person other than an Obligor in
conjunction with the Loan Documents).
"Net Worth" shall mean, for Borrower and its Consolidated Subsidiaries,
determined in accordance with GAAP, as of the end of any fiscal period in
question, total shareholders' equity.
"Note" shall mean any instrument at any time evidencing all or any
portion of any Obligations.
"Obligations" shall mean any and all Debts of each Obligor to Lender,
including without limiting the generality of the foregoing, any Debt of any
Obligor to Lender under any loan made to Borrower by Lender prior to the date
hereof and any and all extensions or renewals thereof in whole
-8-
<PAGE> 14
or in part; any Debt of Borrower to Lender arising hereunder or as a result
hereof, whether evidenced by any Note, or constituting Advances, Letter of
Credit Obligations or otherwise, and any and all extensions or renewals thereof
in whole or in part; all Debts of each Subsidiary Guarantor under its Guaranty
issued pursuant to Section 2.4; any Debt of any Obligor to Lender under any
later or future advances or loans made by Lender to such Obligor, and any and
all extensions or renewals thereof in whole or in part; and any and all future
or additional Debts of each Obligor to Lender whatsoever and in any event,
whether existing as of the date hereof or hereafter arising, whether arising
under a loan, lease, credit card arrangement, line of credit, letter of credit
or other type of financing, and whether direct, indirect, absolute or
contingent, as maker, endorser, guarantor, surety or otherwise, and whether
evidenced by, arising out of, or relating to, a promissory note, bill of
exchange, check, draft, bond, letter of credit, guaranty agreement, bankers'
acceptance, foreign exchange contract, interest rate protection agreement,
commitment fee, service charge or otherwise.
"Permitted Acquisition" shall mean the acquisition by Borrower or any
Consolidated Subsidiary of Borrower of all or substantially all of the equity
interests of any Person or all or substantially all of the operating assets of
any Person, or assets which constitute all or substantially all of the assets of
a division or a separate or separable line of business of any Person, provided
that: (i) Borrower or such Subsidiary is the acquiring entity; (ii) the
acquisition is not a "hostile" acquisition; (iii) the Person, operating assets
or line of business acquired is in a substantially similar or related line of
business as Borrower or such Subsidiary; (iv) no Event of Default or Default
Condition shall exist at the time of such acquisition, and (v) contemporaneously
with the closing of such acquisition Lender shall have received (A) such
documents and instruments as may be necessary to grant or confirm to the Lender
a Lien on or security interest in the operating assets or line of business so
acquired and (B) if the Person is acquired by, and not merged into, Borrower or
such Subsidiary, the inclusion of such Person as a Subsidiary Guarantor pursuant
to Section 7.14 hereof.
"Permitted Encumbrances" shall mean: (i) Liens for taxes not yet due
and payable or being actively contested as permitted by this Agreement, but only
if such Liens do not adversely affect Lender's rights or the priority of
Lender's security interest in the Collateral; (ii) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business, payment for which is not yet due or which are being
actively contested in good faith and by appropriate, lawful proceedings, but
only if such liens are and remain junior to liens granted in favor of Lender;
(iii) pledges or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (iv) deposits to secure the
performance of utilities, leases, statutory obligations and surety and appeal
bonds and other obligations of a like nature arising by statute or under
customary terms regarding depository relationships on deposits held by financial
institutions with whom the Obligor in question has a banker-customer
relationship; (vi) typical restrictions imposed by licenses and leases of
software (including location and transfer restrictions); (vii) Liens in favor of
Lender; (viii) rights of setoff arising under the Columbia/HCA Guaranty in
respect of Debts owing by Simione Central, Inc.; (ix) any "springing" Lien
hereafter arising under, or in respect of, the Columbia/HCA Guaranty upon any
payment coming due thereunder, provided that such Lien is released not later
than thirty (30) days
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<PAGE> 15
after its having arisen; and (x) Liens granted by any Obligor to vendors or
financiers of capital assets to secure the payment of Purchase Money Debt so
long as (A) such Debt is permitted to be incurred hereunder, (B) such Liens
extend only to the specific assets so purchased, secure only such deferred
payment obligation and related interest, fees and charges and no other Debt, and
(C) such Liens are promptly released upon the payment in full of such Debt.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, joint stock company, trust, governmental unit
or other entity.
"Prime Borrowings" shall mean those Borrowings which Borrower elects,
pursuant to Section 2.2.1, to bear interest at a rate per annum determined by
reference to the Prime Rate.
"Prime Rate" refers to that interest rate so denominated and set by
Lender from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Lender. Lender extends
credit at interest rates equal to, above and below the Prime Rate.
"Purchase Money Debt" shall mean Debt incurred by Borrower or any
Subsidiary in connection with the acquisition of capital assets for the cost
thereof (including any for the deferred payment of any purchase price),
including pursuant to any capital lease.
"Subordinated Debt" shall mean any unsecured Debt for borrowed funds or
for the deferred payment of any purchase price of Borrower or any Subsidiary to
any Person which, by written agreement in form and substance satisfactory to
Lender, has been subordinated in right of payment and claim, to the rights and
claims of Lender in respect of the Obligations, on terms and conditions
acceptable to and approved by Lender.
"Subsidiary" shall mean any corporation, partnership, business
association or other entity (including any Subsidiary of any of the foregoing)
of which Borrower owns, directly or indirectly, through one or more
Subsidiaries, more than fifty percent (50%) of the capital stock or other equity
interest having ordinary power for the election of directors or others
performing similar functions.
"Subsidiary Guarantors" shall mean (i) each of those Subsidiaries of
Borrower identified as "Subsidiary Guarantors" on the signature pages to this
Agreement; and (ii) all Subsidiaries added as "Subsidiary Guarantors" hereafter
pursuant to the operation and effect of Section 7.14.
"Telephone Instruction Letter" shall mean a letter from Borrower to
Lender, dated the Closing Date, in substantially the form of Exhibit "I"
attached hereto.
"Termination Date" shall mean the earliest to occur of the following
dates: (i) that date on which, pursuant to Section 14, Lender terminates the
Line of Credit (or the Line of Credit is deemed automatically terminated)
subsequent to the occurrence of an Event of Default; (ii) that date which is
three (3) years after the Closing Date; (iii) such later date as to which Lender
may agree in writing from time to time hereafter; or (iv) any earlier date on
which Borrower elects, by giving at least ten
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<PAGE> 16
(10) days advance written notice to Lender to such effect, to terminate its
Borrowings under the Line of Credit and pay, in full, all Obligations.
"UCC" shall mean the Uniform Commercial Code- Secured Transactions of
Georgia (OCGA Art. 11-9), as in effect on the Closing Date.
1.2. USE OF DEFINED TERMS. All terms defined in this Agreement and the
Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
1.3. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4. UCC TERMS. The terms "accounts", "chattel paper", "instruments",
"general intangibles", "inventory," "equipment" and "fixtures", as and when used
in the Loan Documents, shall have the same meanings given to such terms under
the UCC.
2. THE FINANCING.
2.1. EXTENSIONS OF CREDIT.
2.1.1. LINE OF CREDIT. On the Closing Date, subject to
fulfillment of all conditions precedent set forth in Section 16, Lender agrees
to open the Line of Credit in favor of Borrower so that, during the period from
the Closing Date to, but not including, the Termination Date, so long as there
is not in existence any Default Condition or Event of Default and the requested
Borrowing, if made, will not cause a Default Condition or Event of Default to
exist, Borrower may borrow and repay and reborrow Advances in up to a maximum
aggregate principal amount outstanding at any one time equal to the amount of
the Line of Credit; subject, however, to the requirement that at no time shall
the aggregate principal amount of (i) outstanding Advances under the Line of
Credit, plus (ii) the aggregate amount of all Letter of Credit Obligations,
exceed the lesser of: (A) the Commitment or (B) the Margin (such requirement
being referred to herein as the "Margin Requirement"); and subject, further, to
the requirement that if, at any time hereafter, the Margin Requirement is not
satisfied, Borrower will immediately repay the then principal balance of the
Master Note by that amount necessary to satisfy the Margin Requirement. All
proceeds so obtained under the Line of Credit may be used by Borrower for
working capital in such manner as Borrower may elect in the ordinary course of
its and its Subsidiaries' business operations, to finance Permitted Acquisitions
and for other, general corporate purposes not in conflict with the terms of this
Agreement. The Debts arising from Advances made to or on behalf of Borrower
under the Line of Credit shall be evidenced by the Master Note, which shall be
executed by Borrower and delivered to Lender on the Closing Date. The
outstanding principal amount of the Master Note may fluctuate from time to time,
but shall be due and payable in full on the Termination Date, and shall bear
interest from the date of each disbursement of principal until paid in full at
the Applicable Rate, payable in the manner described in Section 2.2.1. Subject
to any contrary provisions of Section 2.2.1
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<PAGE> 17
in respect of LIBOR Borrowings, Borrower shall have the option to request
Advances under the Line of Credit by telephone or in a writing delivered to
Lender not later than 11:00 a.m. (Atlanta, Georgia time) on the date of the
requested Advance; provided, however, that any telephone requests shall be made
in accordance with the Telephone Instructions Letter and, unless otherwise
approved by Lender, confirmed in writing not later than the Business Day
following the disbursement of the requested Advance.
2.1.2. LETTERS OF CREDIT. In addition to the foregoing, so
long as the Line of Credit remains open, Borrower shall have the further right
to apply for and obtain, and Lender agrees to issue, commercial or standby
letters of credit ("Letters of Credit") for the account of Borrower or any
Subsidiary for use by Borrower or such Subsidiary in the ordinary course of its
business operations pursuant to a separate application and agreement (one per
each Letter of Credit) to be executed at time of issuance between Lender and
Borrower, which shall set forth, among other things, the purpose, beneficiary,
the expiry date and credit limit, together with the fees and charges imposed by
Lender for the issuance and administration thereof. All outstanding Letter of
Credit Obligations shall be reserved by Lender against borrowing availability
under the Line of Credit and be included as outstanding Debt for purposes of
determining the Margin Requirement. Lender shall have the continuing right to
charge as Advances any outstanding Letter of Credit Obligations, and any fees
and charges associated therewith, which have become due and payable. Lender
shall have the further right from time to time to impose sublimits on the
aggregate amounts of Letters of Credit and Letter of Credit Obligations which at
any one time may be outstanding.
2.2. INTEREST AND OTHER CHARGES.
2.2.1. INTEREST AT APPLICABLE RATE. Lender and Borrower
agree that the interest rate payable on the Borrowings (herein called the
"Applicable Rate") shall be determined as follows:
(a) LINE OF CREDIT. Outstanding Advances under the Line of
Credit shall bear interest at either (i) the Prime Rate, in the case of Advances
constituting Prime Borrowings, or (ii) subject to the conditions and limitations
set forth in subsection (c) below, the LIBOR Rate plus one and one-half of one
percent (1 2%) per annum, in the case of Advances constituting LIBOR Borrowings,
subject, however, to subsequent adjustment as provided in subsection (b) below.
(b) SUBSEQUENT ADJUSTMENTS. The Applicable Rate described in
subsection (a)(ii) above for LIBOR Rate Borrowings shall be subject to
subsequent adjustment, up or down, based on Borrower's financial performance,
determined by reference to the Leverage Ratio, measured quarterly; that is, if
the Leverage Ratio, measured as of the end of each Fiscal Quarter of Borrower,
commencing with the Fiscal Quarter ending closest to, but occurring after, the
Closing Date, is as described below, the Applicable Rate for LIBOR Rate
Borrowings shall be the interest rate appearing opposite said Leverage Ratio:
Leverage Ratio Applicable Rate
-------------- ---------------
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<PAGE> 18
< 4.00:1, > 3.00:1 LIBOR Rate + 3.00%
-
< 3.00:1, > 2.50:1 LIBOR Rate + 2.50%
-
< 2.50:1, > 2.00:1 LIBOR Rate + 2.00%
-
< 2.00:1 LIBOR Rate + 1.50%
-
Lender shall determine whether any adjustment to the Applicable Rate is to be
made quarterly, based on Borrower's financial statements as of and for each
Fiscal Quarter end delivered to Lender pursuant to Section 6.4, provided,
however, that if such financial statements are not timely delivered to Lender,
then an adjustment to the Applicable Rate shall be made based on an assumed
delivery of said financial statements reflecting a Leverage Ratio of 4.00:1;
and, provided, further, that no downward adjustment shall be made if an Event of
Default or Default Condition then exists. Each such adjustment to the Applicable
Rate shall become effective as of the first day of the calendar month following
the date on which such financial statements are delivered (or deemed delivered)
to Lender, and shall remain effective unless and until any subsequent adjustment
becomes effective in accordance with the terms of this subsection (b). Each such
adjustment shall apply only to LIBOR Borrowings made (including conversions and
continuations) within such period (but not to any then existing). In the event
that the annual audit report of Borrower for any Fiscal Year shall require
restatement of financial statements of Borrower and such restatement shall
affect the Leverage Ratio and would have required a different Applicable Rate to
be in effect for prior periods, then Lender at its option, may require Borrower
to make additional payments of interest or rebate interest for such prior
periods.
(c) SPECIAL CONDITIONS AND LIMITATIONS ON LIBOR BORROWINGS.
All Borrowings obtained on the Closing Date and for a period of three (3)
Business Days thereafter shall be Prime Borrowings. Thereafter, Borrower shall
have the continuing right, provided that no Event Default or Default Condition
exists, to obtain LIBOR Borrowings or to convert Prime Borrowings to LIBOR
Borrowings; subject, however, to the following conditions and limitations: (i)
Borrower must request a LIBOR Borrowing, specifying the amount thereof and the
applicable Interest Period, at least three (3) Business Days in advance of the
intended Borrowing date; (ii) no more than four (4) LIBOR Borrowings under the
Line of Credit may be obtained at any time; (iii) LIBOR Borrowings must be in
minimum amounts of One Million Dollars ($1,000,000), or integral multiples of
Two Hundred Fifty Thousand Dollars ($250,000) in excess thereof; (iv) the
Interest Period for LIBOR Borrowings in respect of the Line of Credit shall not
exceed the Termination Date; (v) if on or prior to the first day of any Interest
Period, Lender determines that deposits in United States Dollars (in the
applicable amounts) are not being offered in the relevant market for such
Interest Period or that the LIBOR Rate will not adequately and fairly reflect
the cost to Lender of funding any relevant borrowings for such Interest Period,
then, Lender shall forthwith give notice thereof to Borrower, whereupon, until
Lender notifies Borrower that the circumstances giving rise to such suspension
no longer exist, the obligation of Lender to make LIBOR Borrowings available to
Borrower shall be suspended; (vi) if at any time, a change of law, or compliance
by Lender with any request or directive (whether or not having the force of law)
of any governmental authority shall make it unlawful or impracticable for Lender
to make available, maintain or fund any LIBOR Borrowings, Lender shall forthwith
give notice to such effect to Borrower, whereupon, until Lender
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<PAGE> 19
notifies Borrower that the circumstances giving rise to such suspension no
longer exist, the obligation of Lender to make such borrowings available to
Borrower shall be suspended and if Lender shall determine that it may not
lawfully continue to maintain and fund any then outstanding borrowings to
maturity and shall so specify in such notice, each Borrowing so affected shall
be converted into a Prime Borrowing, effective immediately; (vii) unless
Borrower has timely given Lender a notice of LIBOR Borrowing required
hereinabove, a LIBOR Borrowing shall automatically convert to a Prime Borrowing
at the expiration of the Interest Period corresponding thereto; and (viii) upon
the request of Lender, delivered to Borrower, Borrower shall pay to Lender such
amount or amounts as shall be determined by Lender in connection with the
relevant Interest Period as a result of: (A) any payment or prepayment of any
LIBOR Borrowing by Borrower being made on a date other than the last day of an
Interest Period for such borrowing, whether as a result of permitted voluntary
prepayment, involuntary acceleration or otherwise; or (B) any failure by the
Borrower to undertake any such LIBOR Borrowing on the date for which notice of
such borrowing is specified by Borrower. In the case of clause (viii) above,
such amount shall include an amount determined by Lender, in its good faith
discretion, to be equal to the excess, if any, of the amount of interest which
would have accrued on the amount so paid or prepaid or not prepaid or borrowed
for the period from the date of such payment, prepayment or failure to prepay or
borrow to the last day of the then current Interest Period for such borrowing
(or, in the case of a failure to prepay or borrow, the Interest Period for such
borrowing which would have commenced on the date of such failure to prepay or
borrow) at the applicable rate of interest for such borrowing provided for
herein (determined without regard to the Applicable Margin) over the amount of
interest (as determined by Lender in the exercise of its good faith discretion)
Lender would have paid on deposits in Dollars of comparable amounts having terms
comparable to such period placed with it by leading banks in the London
interbank market.
(d) PAYMENT OF INTEREST. Accrued interest on any Prime
Borrowings at the Applicable Rate shall be due and payable monthly in arrears,
on the first day of each calendar month, for the preceding calendar month (or
portion thereof), commencing on the first day of the first calendar month
following the Closing Date, and at maturity. Accrued interest on any LIBOR
Borrowings shall be due and payable at the Applicable Rate on the same dates as
are prescribed for the payment of accrued interest on Prime Borrowings and,
additionally, at the expiration of each Interest Period corresponding to such
Borrowings, and at maturity.
(e) CALCULATION OF INTEREST AND FEES. Interest on Borrowings
at the Applicable Rate (and any fees described in Section 2.2.2 computed on a
per annum basis) shall be calculated on the basis of a 360-day year and actual
days elapsed. The Applicable Rate on Prime Borrowings shall change with each
change in the Prime Rate, effective as of the opening of business on the
Business Day of such change.
(f) CHARGING OF INTEREST AND FEES. Accrued and unpaid
interest on any Borrowings (and any outstanding fees described in Section 2.2.2)
may, if not paid when due and payable, be paid, at Lender's option (without any
obligation to do so), either (i) by Lender's charging the Line of Credit for an
Advance in the amount thereof; or (ii) by Lender's debiting any deposit
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<PAGE> 20
account constituting Balances Collateral for the amount thereof; but,
notwithstanding the foregoing, Borrower shall be and remain responsible for the
payment of such sums.
(g) RATE ON OTHER OBLIGATIONS. To the extent that, at any
time, there are other Obligations besides Advances which are outstanding and
unpaid, such Obligations shall, unless and except to the extent that this
Agreement, any Note or any other Loan Document evidencing such Obligations
provides otherwise, bear interest at the same rate per annum as is then and
thereafter payable on Prime Borrowings under the Line of Credit.
2.2.2. FEES. In addition to the payment of interest at the
Applicable Rate, Borrower shall also be obligated to pay Lender the following
fees and charges:
(a) LOAN ORIGINATION FEE. On the Closing Date, a fully
earned, non-refundable loan origination fee of Sixty-Two Thousand Five Hundred
Dollars ($62,500).
(b) NON-USAGE FEE. Quarterly, on the first day of each
calendar quarter, commencing on the first of such dates following the Closing
Date, Borrower shall pay to Lender a fee equal to (x) one-fifth of one percent
(.20%) per annum, times (y) the difference between (A) the lesser of (i) the
Commitment, and (ii) the Margin, determined on a daily average basis for the
immediately preceding calendar quarter (or portion thereof, as the case may be),
and (B) the sum, without duplication, of the following, determined on a daily
average basis for the immediately preceding calendar quarter (or portion
thereof, as the case may be): (i) all Advances under the Line of Credit plus
(ii) all outstanding Letter of Credit Obligations.
(c) AUDIT FEES. For Collateral audits performed by Lender
pursuant to Section 10.3, Lender's standard audit fee for each audit performed
by Lender (or its designee), which, as of the Closing Date, equals Two Thousand
Five Hundred Dollars ($2,500) plus expenses; provided, however, that Borrower
shall not have to pay for more than four (4) such audits in any one Fiscal Year
so long as no Event of Default exists.
2.2.3. CAPITAL ADEQUACY. If, after the Closing Date, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the administration thereof, or compliance by Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency does or shall have the
effect of reducing the rate or return on Lender's capital as a consequence of
its obligations hereunder to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into consideration Lender's
policies with respect to capital adequacy) by an amount deemed by Lender to be
material, then from time to time within ten (10) days after submission by lender
to Borrower of a written request therefor, together with a certificate (which
shall be conclusive absent manifest error), setting forth the calculations
evidencing such requested additional amount and the law or regulation with
respect thereto and certifying that such request is generally consistent with
Lender's treatment of
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<PAGE> 21
other similar customers having similar provisions in their agreements with
Lender, and that such request is being made on the basis of a reasonable
allocation of the additional amount or amounts as will compensate Lender for
such reduction. Notwithstanding the foregoing, Borrower shall only be obligated
to compensate Lender for any amount under this subsection arising or occurring
during (i) in the case of each such request for compensation, any time or period
commencing not more than sixty (60) days prior to the date on which Lender
submits such request and (ii) any other time or period during which, because of
the unannounced retroactive application of such law, regulation, interpretation,
request or directive, Lender could not have known that the resulting reduction
in return might arise. Lender will notify Borrower that it is entitled to
compensation pursuant to this subsection as promptly as practicable after it
determines to request such compensation; provided, however, that the failure to
provide such notice shall not restrict the ability of Lender to be reimbursed
under this Section except as provided in clause (i) above.
2.2.4. USURY SAVINGS PROVISIONS. Lender and Borrower hereby
further agree that the only charge imposed by Lender upon Borrower for the use
of money in connection herewith is and shall be interest at the Applicable Rate,
and that all other charges imposed by Lender upon Borrower in connection
herewith, are and shall be deemed to be charges made to compensate Lender for
underwriting and administrative services and costs, and other services and costs
performed and incurred, and to be performed and incurred, by Lender in
connection with making credit available to Borrower hereunder, and shall under
no circumstances be deemed to be charges for the use of money. In no contingency
or event whatsoever shall the aggregate of all amounts deemed interest hereunder
or under the Notes and charged or collected pursuant to the terms of this
Agreement or pursuant to the Notes exceed the highest rate permissible under any
law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that such a court determines that Lender
has charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by applicable law and Lender shall promptly refund to Borrower
any interest received by Lender in excess of the maximum lawful rate or, if so
requested by Borrower, shall apply such excess to the principal balance of the
Obligations. It is the intent hereof that Borrower not pay or contract to pay,
and that Lender not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by Borrower
under applicable law.
2.3. GENERAL PROVISIONS AS TO PAYMENTS.
2.3.1. METHOD OF PAYMENT. All payments of interest, fees and
principal pursuant to this Agreement must be received by Lender no later than
2:00 p.m. (Atlanta, Georgia time) on the date when due, in federal or other
funds immediately available to Lender in Atlanta, Georgia.
2.3.2. APPLICATION OF PAYMENT. Except as otherwise expressly
set forth herein, all payments received by Lender hereunder shall be applied, in
accordance with the then current billing statement applicable to the Borrowing,
first to accrued interest, then to fees, then to principal due and then to late
charges. Any remaining funds shall be applied to the further reduction
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<PAGE> 22
of principal. In the event more than one Borrowing shall be outstanding
hereunder, and no designation is made by Borrower, Lender, in its discretion,
may determine to which Borrowing(s) each payment shall be applied.
Notwithstanding the foregoing, upon the occurrence of a Default Condition or
Event of Default, payments shall be applied to the Obligations in such order as
Lender, in its sole discretion, may elect.
2.4. GUARANTY. Each Subsidiary Guarantor, for value received,
hereby agrees with Lender as follows:
2.4.1. Each Subsidiary Guarantor hereby unconditionally
guarantees to Lender, irrespective of the validity and enforceability of this
Agreement, the Notes, or the other Loan Documents or the Obligations hereunder
of Borrower the value or sufficiency of any Collateral or any other circumstance
that might otherwise affect the liability of a Subsidiary Guarantor, that all
Obligations shall be promptly paid in full when due, whether at stated maturity,
by acceleration or otherwise, in accordance with the terms hereof and of the
other Loan Documents. Failing payment by Borrower when due of any amount so
guaranteed for whatever reason, such Subsidiary Guarantor will be obligated to
pay the same immediately.
2.4.2. Each Subsidiary Guarantor hereby waives presentment,
protest, demand of payment, notice of dishonor and all other notices and demands
whatsoever. Each Subsidiary Guarantor further agrees that, as between such
Subsidiary Guarantor, on the one hand, and Lender, on the other hand, (i) the
maturity of the Obligations guaranteed hereby may be accelerated as provided
herein for the purposes of this Guaranty, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (ii) in the event of any declaration of acceleration of
such Obligations as provided herein, such Obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
purposes of this Guaranty. The obligations of each Subsidiary Guarantor under
this Section shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Borrower or any other Subsidiary Guarantor
is rescinded or must otherwise be restored by any holder of any of the
Obligations guaranteed hereunder, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and each Subsidiary Guarantor agrees
that it will indemnify Lenders on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by Lenders in connection with such rescission or restoration.
2.4.3. The guaranty of each Subsidiary Guarantor set forth
herein shall remain in full force and effect until all Obligations are
indefeasibly paid in full and this Agreement has been terminated in writing. No
payment or payments made by Borrower or any other Person or received or
collected by an Lender from Borrower or any other Person by virtue of any action
or proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Subsidiary
Guarantor pursuant to this Section, which liability shall, notwithstanding any
such payment or payments, other than payments made by Borrower in
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<PAGE> 23
respect of the Obligations, remain for the Obligations until all Obligations are
paid in full. Anything herein, or in any other Loan Document, to the contrary
notwithstanding, the maximum liability of each Subsidiary Guarantor under this
Section shall in no event exceed the amount which can be guaranteed by such
Subsidiary Guarantor under applicable federal or state laws relating to the
insolvency of debtors.
2.4.4. Without in any manner limiting the generality of the
foregoing, each Subsidiary Guarantor agrees that Lender may, in accordance with
the terms of this Agreement, from time to time, consent to any action or
non-action of Borrower or any other Subsidiary Guarantor which, in the absence
of such consent, violates or may violate this Agreement, with or without
consideration, on such terms and conditions as may be acceptable to Lender,
without in any manner affecting or impairing the liability of any Subsidiary
Guarantor hereunder. Each Subsidiary Guarantor waives any defense arising by
reason of any inability to pay or any defense based on bankruptcy or insolvency
or other similar limitations on creditors' remedies. Each Subsidiary Guarantor
authorizes Lender, without notice or demand and without affecting such
Subsidiary Guarantor's liability hereunder or under any of the other Loan
Documents, from time to time to: (i) accelerate (or, in accordance with the
terms of this Agreement, renew, extend, or otherwise change the time or place
for payment of, or otherwise change the terms of) the Notes or the Obligations
or any part thereof including, without limitation, increase or decrease of the
rate of interest thereon; (ii) take and hold security, and exchange, enforce,
waive and release any collateral or security or any part thereof or any such
other security or surrender, modify, impair, change, alter, renew, continue,
compromise or release in whole or in part of any such security, or fail to
perfect its interest in any such security or to establish its priority with
respect thereof; (iii) apply such security and direct the order or manner or
sale thereof as Lender in its sole discretion may determine; (iv) release or
substitute Borrower or any other Subsidiary Guarantor, in whole or in part or
any of the endorsers or guarantors of the Obligations or any part thereof; (v)
settle or compromise any or all of the Obligations with Borrower or any other
Subsidiary Guarantor or any endorser or guarantor of the Obligations; and (vi)
subordinate any or all of the Obligations to any other obligations of or claim
against Borrower or any other Subsidiary Guarantor, whether owing to or existing
in favor of Lender or any other party.
2.4.5. Lender may, at its election, exercise any right or
remedy that it may have against Borrower or any Subsidiary Guarantor or any
security now or hereafter held by or for the benefit of Lender, including,
without limitation, the right to foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability of
Borrower or any Subsidiary Guarantor, except to the extent the Obligations may
thereby be paid. Each Subsidiary Guarantor waives any defense arising out of the
absence, impairment or loss of any right of reimbursement or other right or
remedy against Borrower or any other Subsidiary Guarantor or any such security,
whether resulting from the election by any Lender to exercise any right or
remedy they may have against Borrower or any other Subsidiary Guarantor, any
defect in, failure of, or loss or absence of priority with respect to the
interest of any Lender in such security, or otherwise. In the event that any
foreclosure sale is deemed to be not commercially reasonable, each Subsidiary
Guarantor waives any right that it may have to have any portion of the
Obligations discharged except
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to the extent of the amount actually bid and received by Lender at any such
sale. Lender shall not be required to institute or prosecute proceedings to
recover any deficiency as a condition of payment hereunder or enforcement
hereof.
2.4.6. Each Subsidiary Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Any part performance of the Obligations
by Borrower, or any other event or circumstances, which operate to toll any
statute of limitations as to Borrower, shall not operate to toll the statute of
limitations as to Borrower or any other Subsidiary Guarantor. Each Subsidiary
Guarantor waives any defense arising by reason of any disability or other
defense of Borrower or any other Subsidiary Guarantor or by reason of the
cessation from any cause whatsoever of the liability of Borrower or any other
Subsidiary Guarantor. Each Subsidiary Guarantor waives any setoff, defense or
counterclaim which Borrower may have or claim to have against Lender.
2.4.7. Each Subsidiary Guarantor expressly represents and
acknowledges that any financial accommodations by Lender to Borrower hereunder
and under the other Loan Documents are and will be of direct interest, benefit
and advantage to such Subsidiary Guarantor. Each Subsidiary Guarantor
acknowledges that any notice given by Lender to Borrower shall be effective with
respect to such Subsidiary Guarantor as well. Each Subsidiary Guarantor shall be
entitled to subrogation and contribution rights from and against any other
Subsidiary Guarantor to the extent such Subsidiary Guarantor is required to pay
to Lender any amount in excess of the Advances made directly to Borrower or as
otherwise available under applicable law, subject, however, to Section 2.4.8.
The provisions of this subsection shall in no way limit the obligations and
liabilities of any Subsidiary Guarantor to the Lender and each Subsidiary
Guarantor shall remain liable to the Lender for the full amount of the
Obligations.
2.4.8. No Subsidiary Guarantor will exercise any rights
which it may acquire by way of subrogation hereunder or under any other Loan
Document or at law by any payment made hereunder or otherwise, nor shall any
Subsidiary Guarantor seek or be entitled to seek any contribution or
reimbursement from any other Subsidiary Guarantor in respect of payments made by
such Subsidiary Guarantor hereunder or under any other Loan Document, until all
Obligations are paid in full and the Commitment is terminated. If any amounts
shall be paid to any Subsidiary Guarantor on account of such subrogation or
contribution rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by such Subsidiary Guarantor in trust
for Lender, segregated from other funds of such Subsidiary Guarantor, and shall,
forthwith upon receipt by such Subsidiary Guarantor, be turned over to Lender in
the exact form received by such Subsidiary Guarantor (duly endorsed by such
Subsidiary Guarantor to Lender, if required), to be applied against the
Obligations, whether mature or unmatured, as provided for herein.
2.4.9. Notwithstanding any provision to the contrary
contained hereinabove, to the extent the obligations of any Subsidiary Guarantor
hereunder shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of such
Subsidiary
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Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
3. SECURITY INTEREST. As security for the payment of all
Obligations, each Obligor hereby grants to Lender a continuing, general Lien
upon and security interest and security title in and to the following described
property, or interests in property, of each Obligor, wherever located, whether
now existing or hereafter acquired or arising (herein collectively called the
"Collateral"), namely: (a) the Accounts Receivable Collateral; (b) the Inventory
Collateral; (c) the Equipment Collateral; (d) the Intangibles Collateral; (e)
the Balances Collateral; and (f) all products and/or proceeds of any and all of
the foregoing, including, without limitation, insurance proceeds.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
COLLATERAL. With respect to the Collateral owned by it at any time, each
Obligor, hereby represents, warrants and covenants to Lender as set forth below.
4.1. GOOD TITLE. Such Obligor has good title to such Collateral
free and clear of all Liens other than any Permitted Encumbrances, and no
financing statement covering such Collateral is on file in any public office
other than any evidencing Permitted Encumbrances.
4.2. RIGHT TO GRANT LIEN. Such Obligor has full right, power and
authority to grant a Lien on the Collateral owned by it in favor of Lender as
security for payment of the Obligations pursuant hereto.
4.3. SALE OR OTHER DISPOSITION OF COLLATERAL. Such Obligor will
not sell, lease, exchange, or otherwise dispose of any of its Inventory
Collateral without the prior written consent of Lender, except (i) for sales of
its Inventory Collateral in the ordinary course of business for cash or on open
account or on terms of payment ordinarily extended to its customers; (ii) sales
of its Equipment Collateral which is obsolete, worn-out or unsuitable for
continued use if such Equipment Collateral is replaced promptly upon its
disposition with equipment constituting Equipment Collateral having a market
value equal to or greater than the Equipment Collateral sold and in which Lender
shall obtain and have a first priority security interest pursuant hereto; and
(iii) to the extent otherwise expressly permitted pursuant to Section 7.11. Upon
the sale, exchange or other disposition of any Collateral authorized hereunder,
the security interest and Lien created and provided for herein, without break in
continuity and without further formality or act, shall continue in and attach to
any proceeds thereof, including, without limitation, accounts, contract rights,
shipping documents, documents of title, bills of lading, warehouse receipts,
dock warrants, dock receipts and cash or noncash proceeds, and in the event of
any unauthorized sale, exchange or other disposition, shall continue in the
Collateral itself.
4.4. INSURANCE. Such Obligor will obtain and maintain insurance
on its Collateral with such companies, in such amounts and against such risks as
Lender may request, with loss payable to Lender as its interests may appear.
Such insurance shall not be cancellable by such Obligor, unless with the prior
written consent of Lender, or by its insurer, unless with at least thirty
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(30) days (or any lesser number of days otherwise approved by Lender) advance
written notice to Lender. In addition, such Obligor shall cause insurer to
provide Lender with at least thirty (30) days advance written notice prior to
insurer's nonrenewal of such insurance; and such Obligor shall provide to Lender
a copy of each such policy.
4.5. LOCATION OF COLLATERAL. Such Obligor will keep and maintain
its Collateral only at one or more of the Collateral Locations.
5. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce
Lender to enter into this Agreement, Borrower hereby represents and warrants to
Lender (which representations and warranties, together with any other
representations and warranties of Borrower contained elsewhere in this
Agreement, shall be deemed to be renewed as of the date of each Advance and the
issuance of each Letter of Credit (to the extent not applicable to a specific
date or point in time) on behalf of itself and each Subsidiary Guarantor as
follows:
5.1. EXISTENCE AND QUALIFICATION. Each Obligor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of its incorporation, as designated on the Borrower Information Schedule,
with its principal place of business, chief executive office and office where it
keeps all, or substantially all, of its books and records being located at the
Executive Office and is duly qualified as a foreign corporation in good standing
in each other state in which a Collateral Location is situated or wherein the
conduct of its business or the ownership of its property requires such
qualification (except where the failure to be or remain so qualified would not
result in a Material Adverse Change). Each Obligor has as its corporate name, as
registered with the secretary of state of the state of its incorporation, the
words first inscribed hereinabove as its name, and, except as may be described
on the Borrower Information Schedule, has not done business under any other
name.
5.2. AUTHORITY; AND VALIDITY AND BINDING EFFECT. Each Obligor has
the corporate power to make, deliver and perform under the Loan Documents, and
has taken all necessary and appropriate corporate action to authorize the
execution, delivery and performance of the Loan Documents. This Agreement
constitutes, and the remainder of the Loan Documents, as and when executed and
delivered for value received, will constitute, the valid obligations of each
Obligor, legally binding upon it and enforceable against it in accordance with
their respective terms.
5.3. INCUMBENCY AND AUTHORITY OF SIGNING OFFICERS. The
undersigned officers of each Obligor hold the offices set forth on the signature
page(s) hereof and, in such capacities, are duly authorized and empowered to
execute, attest and deliver this Agreement and the remainder of the Loan
Documents for and on behalf of such Obligor, and to bind such Obligor
accordingly thereby.
5.4. NO MATERIAL LITIGATION. Except as may be set forth on the
Borrower Information Schedule, there are no legal proceedings pending, before
any court or administrative
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agency which, if adversely determined, could reasonably be expected to result in
a Material Adverse Change.
5.5. TAXES. Each Obligor has filed or caused to be filed all
material tax returns required to be filed by it and has paid all taxes shown to
be due and payable by it on said returns or on any assessments made against it.
5.6. CAPITAL. All capital stock, debentures, bonds, notes and all
other securities of each Obligor presently issued and outstanding are validly
and properly issued in accordance with all applicable laws, including, but not
limited to, the "blue sky" laws of all applicable states and the federal
securities laws.
5.7. ORGANIZATION. The articles of incorporation of and bylaws of
each Obligor are in full force and effect under the law of the state of its
incorporation and all material amendments to said articles of incorporation and
bylaws have been duly and properly made under and in accordance with all
applicable laws.
5.8. INSOLVENCY. After giving effect to the execution and
delivery of the Loan Documents and the extension of any credit or other
financial accommodations hereunder, no Obligor will not be "insolvent", within
the meaning of such term as used in O.C.G.A. Sec. 18-2-22 or as defined in Sec.
101(32) of the Bankruptcy Code; or be unable to pay its debts generally as such
debts become due; or have an unreasonably small capital.
5.9. TITLE. Each Obligor has good and marketable title to all of
its properties subject to no Lien of any kind except for Permitted Encumbrances.
5.10. MARGIN STOCK. No Obligor is engaged principally, or as one
of its important activities, in the business of purchasing or carrying any
"margin stock", as that term is defined in Section 221.2(h) of Regulation U of
the Board of Governors of the Federal Reserve System, and no part of the
proceeds of any borrowing made pursuant hereto will be used to purchase or carry
any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock, or be used for any purpose which
violates, or which is inconsistent with, the provisions of Regulation X of said
Board of Governors. In connection herewith, if requested by Lender, Borrower
will furnish to Lender a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said Regulation U to the foregoing
effect.
5.11. NO VIOLATIONS. The execution, delivery and performance by
each Obligor of this Agreement and any other Loan Documents to which it is party
have been duly authorized by all necessary corporate action and do not and will
not require any consent or approval of the shareholders of such Obligor, violate
any provision of any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to such Obligor or of the articles of incorporation or
bylaws of such Obligor, or result in a breach of or
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constitute a default under any material indenture or loan or credit agreement or
any other material agreement, lease or instrument to which such Obligor is a
party or by which it or its properties may be bound or affected; and no Obligor
is in default under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, agreement,
lease or instrument.
5.12. FINANCIAL STATEMENTS. The financial statements of Borrower and
its Consolidated Subsidiaries for its most recently completed Fiscal Year and
for that portion of its current Fiscal Year ended with that Fiscal Quarter ended
closest to the Closing Date for which financial statements have been prepared,
including balance sheet, income statement and, if available, statement of
changes in cash flow, copies of which heretofore have been furnished to Lender,
are complete and accurately and fairly represent the financial condition of
Borrower and its Consolidated Subsidiaries (if any), the results of its
operations and the transactions in its equity accounts as of the dates and for
the periods referred to therein, and have been prepared in accordance with GAAP.
There are no material liabilities, direct or indirect, fixed or contingent, of
Borrower or any such Consolidated Subsidiaries as of the date of such financial
statements which are not reflected therein or in the notes thereto. No Material
Adverse Change has occurred since the date of the balance sheet contained in the
annual financial statement described hereinabove.
5.13. POLLUTION AND ENVIRONMENTAL CONTROL. Borrower and each
Subsidiary have obtained all permits, licenses and other authorizations which
are required under, and is in material compliance with, all Environmental Laws.
5.14. POSSESSION OF PERMITS. Borrower and each Subsidiary possess all
franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities, and all material
patents, trademarks, service marks, trade names, copyrights, licenses and other,
similar rights, free from burdensome restrictions, that are necessary for the
ownership, maintenance and operation of any of its properties and assets, and
neither Borrower nor any Subsidiary is in violation of any thereof. A complete
and accurate list of all such patents, trademarks, service marks, trade names,
copyrights, licenses and other, similar rights owned by Borrower in existence on
the Closing Date is set forth on the Borrower Information Schedule attached
hereto.
5.15. SUBSIDIARIES. As of the Closing Date, (i) Borrower has no
Subsidiaries except as may be described on the Borrower Information Schedule;
(ii) all Subsidiaries of Borrower are Consolidated Subsidiaries; and (iii) all
Subsidiaries are listed as Subsidiary Guarantors on the signature pages to this
Agreement, except for Script Systems, Inc. (which has ceased to be actively
involved in any day-to-day operations or business).
5.16. FEDERAL TAXPAYER IDENTIFICATION NUMBER. Each Obligor's federal
taxpayer identification number is as indicated on the Borrower Information
Schedule.
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5.17. EMPLOYEE BENEFIT PLANS. As of the Closing Date, no Obligor has
any Employee Benefit Plans, except as may be described on the Borrower
Information Schedule.
6. AFFIRMATIVE COVENANTS. Borrower covenants to Lender that from and
after the date hereof, and so long as any amounts remain unpaid on account of
any of the Obligations or this Agreement remains effective (whichever is the
last to occur), Borrower will comply (and cause each Subsidiary, including each
Subsidiary Guarantor, to comply) with the affirmative covenants set forth below:
6.1. RECORDS RESPECTING COLLATERAL. All records of each Obligor with
respect to the Collateral will be kept at its Executive Office and will not be
removed from such address without the prior written consent of Lender.
6.2. FURTHER ASSURANCES. Each Obligor shall duly execute and/or
deliver (or cause to be duly executed and/or delivered) to Lender any
instrument, invoice, document, document of title, dock warrant, dock receipt,
warehouse receipt, bill of lading, order, financing statement, assignment,
waiver, consent or other writing which may be reasonably necessary to Lender to
carry out the terms of this Agreement and any of the other Loan Documents and to
perfect its security interest in and facilitate the collection of the
Collateral, the proceeds thereof, and any other property at any time
constituting security to Lender. Each Obligor shall perform or cause to be
performed such acts as Lender may request to establish and maintain for Lender a
valid and perfected security interest in and security title to the Collateral,
free and clear of any liens, encumbrances or security interests other than
Permitted Encumbrances.
6.3. RIGHT TO INSPECT AND CONDUCT AUDITS. Lender (or any Person or
Persons designated by it) shall have the continuing right to call at the
Executive Office or any Collateral Location at any reasonable time, upon
reasonable advance notice, and without hindrance or delay, inspect, audit, check
and make extracts from each Obligor's books, records, journals, orders, receipts
and any correspondence and other data relating to the Collateral, to each
Obligor's business or to any other transactions between the parties hereto.
6.4. PERIODIC FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within fifty (50) days after the end of each
Fiscal Quarter, furnish to Lender unaudited financial statements of Borrower and
each Consolidated Subsidiary, including balance sheets, income statements and
statements of cash flow, for the Fiscal Quarter ended, and for the Fiscal Year
to date, on a consolidated and, if requested by Lender, consolidating basis.
Such financial statements shall also be prepared on an unaudited consolidating
basis for such Subsidiaries of Borrower which accounted for more than ten
percent (10%) of the gross revenues of Borrower for that year. All such
financial statements shall be certified by a duly authorized officer of Borrower
to present fairly the financial position and results of operations of Borrower
and its Consolidated Subsidiaries for the period involved in accordance with
GAAP (but for the omission of footnotes and subject to year-end audit
adjustments).
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6.5. ANNUAL FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within ninety-five (95) days after the end of each
Fiscal Year, furnish to Lender the annual audit report of Borrower and its
Consolidated Subsidiaries, certified without material qualification by
independent certified public accountants selected by Borrower and acceptable to
Lender, and prepared in accordance with GAAP, together with relevant financial
statements of Borrower and such Subsidiaries for the Fiscal Year then ended, on
a consolidating and a consolidated basis, if applicable. Borrower shall cause
said accountants to furnish Lender with a statement that in making their
examination of such financial statements, they obtained no knowledge of any
Event of Default or Default Condition which pertains to accounting matters
relating to this Agreement or the Notes, or, in lieu thereof, a statement
specifying the nature and period of existence of any such Event of Default or
Default Condition disclosed by their examination.
6.6. COMPLIANCE CERTIFICATE. Borrower shall, on a quarterly basis not
later than fifty (50) days after the close of each of its first three (3) Fiscal
Quarters and not later than ninety-five (95) days after the close of its Fiscal
Year, cause to be issued to Lender a Compliance Certificate.
6.7. PROJECTIONS. Borrower shall, on a quarterly basis not later than
fifty (50) days after the close of each of its Fiscal Quarters, cause to be
issued to Lender proforma projections of its financial statements for the
immediately succeeding four (4) Fiscal Quarters, on a rolling basis, to include
balance sheets and income statements.
6.8. PAYMENT OF TAXES. Borrower shall (and shall cause each Subsidiary
to) pay and discharge all material taxes, assessments and governmental charges
upon it, its income and its properties prior to the date on which penalties
attach thereto, unless and to the extent only that (x) such taxes, assessments
and governmental charges are being contested in good faith and by appropriate
proceedings by Borrower or such Subsidiary, (y) Borrower or such Subsidiary
maintains reasonable reserves on its books therefor and (z) the payment of such
taxes does not result in a Lien upon any of the Collateral other than a
Permitted Encumbrance.
6.9. MAINTENANCE OF INSURANCE. In addition to and cumulative with any
other requirements herein imposed on any Obligor with respect to insurance,
Borrower shall (and shall cause each Subsidiary to) maintain insurance with
responsible insurance companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses operating
in the same vicinity, but in any event to include loss, damage, flood,
windstorm, fire, theft, extended coverage, business interruption, freight
insurance and product liability insurance in amounts satisfactory to Lender,
which insurance shall not be cancellable by Borrower or such Subsidiary, unless
with the prior written consent of Lender, or by Borrower's or such Subsidiary's
insurer, unless with at least ten (10) days advance written notice to Lender
thereof (or such lesser or greater time period as shall be accepted or
reasonably required by Lender from time to time). Borrower shall file with
Lender upon its request a detailed list of such insurance then in effect stating
the names of the insurance companies, the amounts and rates of insurance, the
date of expiration thereof, the properties and risks covered thereby and the
insured with respect thereto, together with
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a copy of each such policy and, within thirty (30) days after notice in writing
from Lender, obtain such additional insurance as Lender may reasonably request.
6.10. MAINTENANCE OF PROPERTY. Borrower shall (and shall cause each
Subsidiary to) maintain its property in good working condition.
6.11. CHANGE OF PRINCIPAL PLACE OF BUSINESS, ETC. If, at time
hereafter, any Obligor elects to move its Executive Office, or elects to change
its name, identity or its organization structure to other than a corporate
structure, Borrower will notify Lender in writing at least thirty (30) days
prior thereto.
6.12. WAIVERS. With respect to each of the Collateral Locations at
which, at any time, One Hundred Thousand Dollars ($100,000) or more, in
Collateral is situated, Borrower will obtain (or cause a Subsidiary Guarantor,
as appropriate to obtain) such Landlord Agreements as Lender may reasonably
require to insure the priority of its security interest in that portion of the
Collateral situated at such locations.
6.13. PRESERVATION OF EXISTENCE. Borrower shall (and shall cause each
Subsidiary to) preserve and maintain its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership of its properties (except where failure so to qualify or remain
qualified would not result in a Material Adverse Change).
6.14. COMPLIANCE WITH LAWS. Borrower shall (and shall cause each
Subsidiary to) comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
would or could materially adversely affect their respective financial condition
or the ownership, maintenance or operation of any material portion of any of
their respective properties. Without limiting the foregoing, each of Borrower
and its Subsidiaries shall obtain and maintain all permits, licenses and other
authorizations which are required under, and otherwise comply with, all federal,
state, and local laws and regulations (except where failure to do so would not
result in a Material Adverse Change).
6.15. CERTAIN REQUIRED NOTICES. Promptly, but not later than ten (10)
days after, its receipt of notice or knowledge thereof, Borrower will report to
Lender: (i) any lawsuit or administrative proceeding in which Borrower or any
Subsidiary is a defendant which, if decided adversely to Borrower or such
Subsidiary, could reasonably be expected to result in a Material Adverse Change;
or (ii) the existence and nature of any Default Condition or Event of Default.
6.16. YEAR 2000 COMPATIBILITY. Promptly, but in no event later than
December 31, 1998: (a) Borrower shall take (and shall cause its Subsidiaries to
take) all action necessary to ensure that all computer based systems of the
Borrower and its Subsidiaries are capable of the following: (i) handling date
information involving all and any dates before, during and/or after January 1,
2000,
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including accepting input, providing output and performing date calculations in
whole or in part; (ii) operating, accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000 and
without any change in performance; (iii) responding to and processing two digit
year input without creating any ambiguity as to the century; and (iv) storing
and providing date input information without creating any ambiguity as to the
century; and (b) Borrower and its Subsidiaries shall take all action necessary
to ensure that all computer based systems of their vendors, suppliers and
customers are capable of all of the foregoing, where noncompliance could
reasonably be expected to result in a Material Adverse Change. In addition, at
the request of Lender, Borrower shall provide Lender assurances in form and
substance satisfactory to Lender of Borrower's and its Subsidiaries' ongoing
compliance with the foregoing requirements.
6.17. SEC REPORTS. Promptly, but not later than ten (10) days after,
its delivery thereof to the U.S. Securities Exchange Commission (the "SEC"),
Borrower will provide Lender with copies of its 10-Q, 10-K and any other,
similar reports delivered to the SEC or its shareholders generally.
7. NEGATIVE COVENANTS. Borrower covenants to Lender that from and
after the date hereof and so long as any amount remains unpaid on account of any
of the Obligations or this Agreement remains effective (whichever is the last to
occur), Borrower will not do (and will not permit any Subsidiary to do), without
the prior written consent of Lender, any of the things or acts set forth below:
7.1. ENCUMBRANCES. Create, assume, or suffer to exist any Lien, except
for Permitted Encumbrances.
7.2. DEBT. Incur, assume, or suffer to exist any Debt, except for: (i)
Debt to Lender or any Affiliate of Lender; (ii) Debt to Persons other than
Lender existing on the date of this Agreement; (iii) Subordinated Debt; (iv)
trade payables and contractual obligations to suppliers and customers incurred
in the ordinary course of business; (v) accrued pension fund and other employee
benefit plan obligations and liabilities (provided, however, that such Debt does
not result in the existence of any Event of Default or Default Condition under
any other provision of this Agreement); (vi) net deferred tax liabilities; (vii)
Debt resulting from endorsements of negotiable instruments received in the
ordinary course of its business; and (viii) Purchase Money Debt and Capital
Leases, not to exceed One Million Dollars ($1,000,000), in the aggregate, at any
one time outstanding.
7.3. CONTINGENT LIABILITIES. Guarantee, endorse, become surety with
respect to or otherwise become directly or contingently liable for or in
connection with the obligations of any other person, firm, or corporation,
except for (i) endorsements of negotiable instruments for collection in the
ordinary course of business, (ii) guaranties by Borrower or any Subsidiary of
any Debt permitted in Section 7.2, and (iii) the Columbia/HCA Guaranty.
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7.4. DIVIDENDS. Declare or pay any dividends on, or make any
distribution with respect to, its shares of any class of capital stock.
7.5. STOCK REDEMPTIONS. Purchase, redeem, or otherwise acquire for
value any shares of any class of its capital stock.
7.6. INVESTMENTS. Make any investment in cash or by delivery of
property to any Person, whether by acquisition of stock, indebtedness or other
obligation or security, or by loan, advance or capital contribution, or
otherwise, in any Person or property of a Person, except for: (i) fixed assets
acquired from time to time in the ordinary course of its business; (ii) current
assets arising from the sale of goods or the provision of services in the
ordinary course of business; (iii) loans or advances to employees for salary,
commissions, travel or the like, made in the ordinary course of business; (iv)
Cash Equivalents; and (v) Permitted Acquisitions.
7.7. MERGERS. Dissolve or otherwise terminate its corporate status or
enter into any merger, reorganization or consolidation or make any substantial
change in the basic type of business conducted by Borrower and its Subsidiaries,
as of the Closing Date.
7.8. BUSINESS LOCATIONS. In the case of each Obligor, transfer its
principal place of business or Executive Office, or open new store locations or
warehouses, or transfer existing store locations or warehouses or maintain
records with respect to Collateral, to or at any locations other than those at
which the same are presently kept or maintained as set forth on the Borrower
Information Schedule, except upon at least twenty-one (21) days prior written
notice to Lender and after the delivery to Lender of financing statements, if
required by Lender, in form satisfactory to Lender, to perfect or continue the
perfection of Lender's Lien.
7.9. AFFILIATE TRANSACTIONS. Enter into, or be a party to, or permit
any Subsidiary to enter into or be a party to, any transaction with any
Affiliate, except: (i) in the ordinary course of and pursuant to the reasonable
requirements of Borrower's or such Subsidiary's business and upon fair and
reasonable terms which are fully disclosed to Lender and are no less favorable
to Borrower than would be obtained in a comparable arm's length transaction with
a Person not an Affiliate or (ii) as disclosed in Borrower's Form 10-K filed
with the SEC for the fiscal period ended December 31, 1997.
7.10. FISCAL YEAR. Change its Fiscal Year, or permit any Subsidiary to
have a fiscal year different from the Fiscal Year of Borrower.
7.11. DISPOSITION OF ASSETS. Sell, lease or otherwise dispose of any
of its properties, including any disposition of property as part of a sale and
leaseback transaction, to or in favor of any person, except sales or other
dispositions of assets, in addition to those set forth in Section 4.3, not to
exceed, in aggregate fair market sale (based on net sales price received), the
sum of Two Hundred Fifty Thousand Dollars ($250,000), as to Borrower and its
Subsidiaries, collectively.
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7.12. FEDERAL TAXPAYER IDENTIFICATION NUMBER. Change or permit any
Subsidiary to change its federal taxpayer identification number without prior
written notice to Lender.
7.13. EMPLOYEE BENEFIT PLANS. Permit an Employee Benefit Plan to
become materially underfunded or create any Employee Benefit Plan without prior
written notice to Lender and upon such notification this Agreement shall be
amended as determined necessary by Lender in its discretion as a result of the
creation of such Plan.
7.14. SUBSIDIARIES. Create or acquire any Subsidiary subsequent to the
Closing Date unless such Subsidiary is made party to this Agreement pursuant to
an Agreement of Joinder, in substantially the form of Exhibit "H" attached
hereto, and such Subsidiary executes and delivers such other documents as Lender
may require pursuant thereto.
8. FINANCIAL COVENANTS. Borrower covenants to Lender that, from and
after the date hereof and so long as any amount remains on account of any of the
Obligations or this Agreement remains effective (whichever is the last to
occur), it will comply with the financial covenants set forth below:
8.1. NET WORTH. Borrower shall maintain a minimum Net Worth at all
times of at least Seven Million Five Hundred Thousand Dollars ($7,500,000),
measured quarterly at the end of each Fiscal Quarter.
8.2. LEVERAGE RATIO. Borrower shall not permit the Leverage Ratio to
exceed 4.0:1 at any time, measured quarterly at the end of each Fiscal Quarter
on a rolling four (4) Fiscal Quarters' basis.
8.3. LIQUIDITY. Borrower shall maintain cash and Cash Equivalents at
all times of an amount of at least Two Million Dollars ($2,000,000), measured
quarterly at the end of each Fiscal Quarter.
9. EVENTS OF DEFAULT. The occurrence of any events or conditions set
forth below shall constitute an Event of Default hereunder, provided that any
requirement for the giving of notice or the lapse of time, or both, has been
satisfied:
9.1. OBLIGATIONS. Borrower shall fail to make (i) any payment of
principal on any of its Obligations, when due; or (ii) any payment of accrued
interest, fees or charges constituting any of its Obligations, within five (5)
days after the date when due.
9.2. MISREPRESENTATIONS. Any Obligor shall make any representations or
warranties in any of the Loan Documents or in any Guaranty or in any certificate
or statement
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furnished at any time hereunder or in connection with any of the Loan Documents
which proves to have been untrue or misleading in any material respect when made
or furnished.
9.3. CERTAIN COVENANTS. Any Obligor shall default in the observance or
performance of any covenant or agreement contained in Sections 6.3 through 6.8,
6.10 and 6.14 through 6.16 of Article 6, in any Section of Article 7 or in any
Section of Article 8.
9.4. OTHER COVENANTS. Any Obligor shall default in the observance or
performance of any covenant or agreement contained herein, in any of the other
Loan Documents (other than a default the performance or observance of which is
dealt with specifically elsewhere in this Section) unless (i) with respect to
this Agreement, such default is cured to Lender's satisfaction within ten (10)
days after the sooner to occur of receipt of notice of such default from Lender
or the date on which such default first becomes known to such Obligor and (ii)
with respect to any other Loan Document, such default is cured within any
applicable grace, cure or notice and cure period contained therein.
9.5. OTHER DEBTS. Borrower, any Subsidiary or any Guarantor shall
default in connection with any agreement for Debt with any creditor, exceeding
Two Hundred Fifty Thousand Dollars ($250,000), including Lender, which entitles
said creditor to accelerate the maturity thereof, including, without limitation,
any such Debt owing at any time under the Columbia/HCA Guaranty.
9.6. VOLUNTARY BANKRUPTCY. Borrower, any Subsidiary or any Guarantor
shall file a voluntary petition in bankruptcy or a voluntary petition or answer
seeking liquidation, reorganization, arrangement, readjustment of its debts, or
for any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, Federal, or foreign,
now or hereafter existing; Borrower, any Subsidiary or any Guarantor shall enter
into any agreement indicating its consent to, approval of, or acquiescence in,
any such petition or proceeding; Borrower, any Subsidiary or any Guarantor shall
apply for or permit the appointment by consent or acquiescence of a receiver,
custodian or trustee of Borrower, any Subsidiary or any Guarantor for all or a
substantial part of its property; Borrower, any Subsidiary or any Guarantor
shall make an assignment for the benefit of creditors; or Borrower, any
Subsidiary or any Guarantor shall be unable or shall fail to pay its debts
generally as such debts become due, or Borrower, any Subsidiary or any Guarantor
shall admit, in writing, its inability or failure to pay its debts generally as
such debts become due.
9.7. INVOLUNTARY BANKRUPTCY. There shall have been filed against
Borrower, any Subsidiary or any Guarantor an involuntary petition in bankruptcy
or seeking liquidation, reorganization, arrangement, readjustment of its debts
or for any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign,
now or hereafter existing; Borrower, any Subsidiary or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, custodian or trustee
of Borrower, any Subsidiary or any Guarantor or for all or a substantial part of
its property; or Borrower, any Subsidiary or any Guarantor shall suffer or
permit the issuance of a warrant of attachment, execution or similar process
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against all or any substantial part of the property of Borrower, any Subsidiary
or any Guarantor; or any motion, complaint or other pleading is filed in any
bankruptcy case of any person or entity other than Borrower and such motion,
complaint or pleading seeks the consolidation of Borrower's assets and
liabilities with the assets and liabilities of such person or entity; and in
each such instance, such proceeding shall contain undismissed for a period of
sixty (60) consecutive days.
9.8. DAMAGE, LOSS, THEFT OR DESTRUCTION OF COLLATERAL. There shall
have occurred material uninsured damage to, or loss, theft or destruction of,
any Collateral having a value, based on the lower of its depreciated cost or
market value, exceeding Two Hundred Fifty Thousand Dollars ($250,000).
9.9. JUDGMENTS. A final judgment or order for the payment of money is
rendered against Borrower, any Subsidiary or any Guarantor in the amount of Two
Hundred Fifty Thousand Dollars ($250,000) or more (exclusive of amounts covered
by insurance) and either (x) enforcement proceedings shall have been commenced
by any creditor upon such judgment or order, or (y) a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect for any period of thirty (30) consecutive days.
9.10. DISAVOWAL OF CERTAIN OBLIGATIONS. Any Person (other than Lender)
party to a Guaranty or Subordination Agreement shall disavow its obligations
thereunder; or any such Guaranty is alleged to be, or determined by any
governmental authority to be, invalid, unenforceable or otherwise not binding on
any Person party thereto (other than Lender), in whole or in part.
9.11. CHANGE OF CONTROL, ETC. A change in Control shall occur in
respect of Borrower subsequent to the Closing Date.
10. REMEDIES. Upon the occurrence or existence of any Event of
Default, or at any time thereafter, without prejudice to the rights of Lender to
enforce its claims against Borrower for damages for failure by Borrower to
fulfill any of its obligations hereunder, subject only to prior receipt by
Lender of payment in full of all Obligations then outstanding in a form
acceptable to Lender, Lender shall have all of the rights and remedies set forth
below, and it may exercise any one, more, or all of such remedies, in its sole
discretion, without thereby waiving any of the others; provided, however, that,
in addition to the foregoing, if the Event of Default is in respect of Section
9.6 or 9.7, then, automatically, immediately upon such Event of Default
occurring, without necessity of any further action on Lender's part, all
commitments of Lender hereunder and under all other Loan Documents shall
terminate, and all Obligations shall be immediately due and payable.
10.1. ACCELERATION OF THE OBLIGATIONS. Lender, at its option, may
terminate all commitments of Lender hereunder and under all other Loan
Documents, and declare all of the Obligations to be immediately due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest, notice of nonpayment or any other notice required by law
relative thereto, all of which are hereby expressly waived by Borrower, anything
contained herein to the contrary notwithstanding. If any note of Borrower to
Lender constituting
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Obligations, including, without limitation, any of the Notes, shall be a demand
instrument, however, the recitation of the right of Lender to declare any and
all Obligations to be immediately due and payable, whether such recitation is
contained in such note or in this Agreement, as well as the recitation of the
above events permitting Lender to declare all Obligations due and payable, shall
not constitute an election by Lender to waive its right to demand payment under
a demand at any time and in any event, as Lender in its discretion may deem
appropriate. Thereafter, Lender, at its option, may, but shall not be obligated
to, accept less than the entire amount of Obligations due, if tendered,
provided, however, that unless then agreed to in writing by Lender, no such
acceptance shall or shall be deemed to constitute a waiver of any Event of
Default or a reinstatement of any commitments of Lender hereunder or under all
other Loan Documents.
10.2. DEFAULT. If Lender so elects, by further written notice to
Borrower, Lender may increase the rate of interest charged on the Notes then
outstanding for so long thereafter as Lender further shall elect by an amount
not to exceed the Default Rate.
10.3. REMEDIES OF A SECURED PARTY. Lender shall thereupon have the
rights and remedies of a secured party under the UCC in effect on the date
thereof (regardless whether the same has been enacted in the jurisdiction where
the rights or remedies are asserted), including, without limitation, the right
to take possession of any of the Collateral or the proceeds thereof, to sell or
otherwise dispose of the same, to apply the proceeds therefrom to any of the
Obligations in such order as Lender, in its sole discretion, may elect. Lender
shall give Obligors c/o Borrower written notice of the time and place of any
public sale of the Collateral or the time after which any other intended
disposition thereof is to be made. The requirement of sending reasonable notice
shall be met if such notice is given to Borrower at least ten (10) days before
such disposition. Expenses of retaking, holding, insuring, preserving,
protecting, preparing for sale or selling or the like with respect to the
Collateral shall include, in any event, reasonable attorneys' fees and other
legally recoverable collection expenses, all of which shall constitute
Obligations.
10.4. REPOSSESSION OF THE COLLATERAL. Lender may take the Collateral
or any portion thereof into its possession, by such means (without breach of the
peace) and through agents or otherwise as it may elect (and, in connection
therewith, demand that Obligors assemble the Collateral at a place or places and
in such manner as Lender shall prescribe), and sell, lease or otherwise dispose
of the Collateral or any portion thereof in its then condition or following any
commercially reasonable preparation or processing, which disposition may be by
public or private proceedings, by one or more contracts, as a unit or in
parcels, at any time and place and on any terms, so long as the same are
commercially reasonable and Borrower hereby waives all rights which any Obligor
has or may have under and by virtue of OCGA Ch. 44-14, including, without
limitation, the right of any Obligor to notice and to a judicial hearing prior
to seizure of any Collateral by Lender.
10.5. DIRECT NOTIFICATION. Lender may, additionally, in its sole
discretion, at any time that an Event of Default exists, direct Account Debtors
to make payments on the Accounts Receivable Collateral, or portions thereof,
directly to Lender, and the Account Debtors are hereby
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authorized and directed to do so by Borrower upon Lender's direction, and the
funds so received shall be also deposited in the Collateral Reserve Account, or,
at the election of Lender, upon its receipt thereof, be applied directly to
repayment of the Obligations in such order as Lender, in its sole discretion,
shall determine.
10.6. SET OFF. Lender may set off any or all of the Balances
Collateral against the Obligations.
10.7. OTHER REMEDIES. Unless and except to the extent expressly
provided for to the contrary herein, the rights of Lender specified herein shall
be in addition to, and not in limitation of, Lender's rights under the UCC, as
amended from time to time, or any other statute or rule of law or equity, or
under any other provision of any of the Loan Documents, or under the provisions
of any other document, instrument or other writing executed by any Obligor or
any third party in favor of Lender, all of which may be exercised successively
or concurrently.
11. MISCELLANEOUS.
11.1. WAIVER. Each and every right granted to Lender under this
Agreement, or any of the other Loan Documents, or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Lender to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. No waiver by Lender of any Default Condition or Event of Default shall
constitute a waiver of any subsequent Default Condition or Event of Default.
11.2. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA.
11.3. SURVIVAL. All representations, warranties and covenants made
herein and in the Loan Documents shall survive the execution and delivery hereof
and thereof. The terms and provisions of this Agreement shall continue in full
force and effect, notwithstanding the payment of one or more of the Notes or the
termination of the Line of Credit, until all of the Obligations have been paid
in full and Lender has terminated this Agreement in writing.
11.4. ASSIGNMENTS. No assignment hereof or of any Loan Document shall
be made by any Obligor without the prior written consent of Lender. Lender may
assign, or sell participations in, its right, title and interest herein and in
the Loan Documents at any time hereafter without notice to or consent of any
Obligor.
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11.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
agreement.
11.6. REIMBURSEMENT. Borrower shall pay to Lender on demand all
out-of-pocket costs and expenses that Lender pays or actually incurs in
connection with the negotiation, preparation, consummation, enforcement and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) attorneys' fees and paralegals' fees and disbursements of
outside counsel; (b) costs and expenses (including outside attorneys' and
paralegals' fees and disbursements) for any amendment, supplement, waiver,
consent or subsequent closing in connection with the Loan Documents and the
transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) actual taxes, fees and other charges for
recording any deeds to secure debt, deeds of trust, mortgages, filing financing
statements and continuations, and other actions to perfect, protect and continue
the Lien of Lender in the Collateral; (e) sums paid or incurred to pay for any
amount or to take any action required of Borrower under the Loan Documents that
Borrower fails to pay or take; (f) costs of appraisals, inspections, field
audits and verifications of the Collateral, including, without limitation, costs
of travel, for inspections of the Collateral and Borrower's operations by
Lender; (g) costs and expenses of preserving and protecting the Collateral; and
(h) after an Event of Default, costs and expenses (including attorneys' and
paralegals' fees and disbursements) paid or incurred to obtain payment of the
Obligations, enforce the Lien in the Collateral, sell or otherwise realize upon
the Collateral, and otherwise enforce the provisions of the Loan Documents or to
defend any claim made or threatened against Lender arising out of the
transactions contemplated hereby (including, without limitation, preparations
for and consultations concerning any such matters). The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid to Borrower. All of the foregoing costs and expenses
may, in the discretion of Lender, be charged to the Master Note. Borrower will
pay all expenses incurred by it in the transaction. In the event that any
Obligor becomes a debtor under the Bankruptcy Code, Lender's secured claim in
such case shall include interest on the Obligations and all fees, costs and
charges provided for herein (including, without limitation, reasonable
attorneys' fees actually incurred) all for the extent allowed by the Bankruptcy
Code.
11.7. SUCCESSORS AND ASSIGNS. This Agreement and Loan Documents shall
be binding upon and inure to the benefit of the successors and permitted assigns
of the parties hereto and thereto.
11.8. SEVERABILITY. If any provision this Agreement or of any of the
Loan Documents or the application thereof to any party thereto or circumstances
shall be invalid or unenforceable to any extent, the remainder of such Loan
Documents and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the greatest
extent permitted by law.
11.9. NOTICES. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made when personally
delivered or deposited in the
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mail, registered or certified mail, postage prepaid, addressed as follows: (i)
for Lender, care of the address of Lender inscribed beneath its signature
hereinbelow and (ii) for any Obligor, care of the address set forth as its
Executive Office on the Borrower Information Schedule (or to such other address
as may be designated hereafter in writing by the respective parties hereto)
except in cases where it is expressly provided herein or by applicable law that
such notice, demand or request is not effective until received by the party to
whom it is addressed.
11.10. ENTIRE AGREEMENT: AMENDMENTS. This Agreement, together with the
remaining Loan Documents, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof. Neither this Agreement nor any
Loan Document may be changed, waived, discharged, modified or terminated orally,
but only by an instrument in writing signed by the party against whom
enforcement is sought.
11.11. TIME OF ESSENCE. Time is of the essence in this Agreement and
the other Loan Documents.
11.12. INTERPRETATION. No provision of this Agreement or any Loan
Document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or dictated such
provision.
11.13. LENDER NOT A JOINT VENTURER. Neither this Agreement nor any
Loan Document shall in any respect be interpreted, deemed or construed as making
Lender a partner or joint venturer with Borrower or as creating any similar
relationship or entity, and Borrower agrees that it will not make any contrary
assertion, contention, claim or counterclaim in any action, suit or other legal
proceeding involving Lender and Borrower.
11.14. JURISDICTION. EACH OBLIGOR AGREES THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY LOAN DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF GEORGIA OR THE UNITED STATES OF AMERICA FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, ALL AS LENDER MAY ELECT. BY
EXECUTION OF THIS AGREEMENT, EACH OBLIGOR HEREBY SUBMITS TO EACH SUCH
JURISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY
REASON OF ITS PRESENT OR FUTURE DOMICILE. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN
ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED
BY LAW.
11.15. ACCEPTANCE. This Agreement, together with the other Loan
Documents, shall not become effective unless and until delivered to Lender at
its principal office in Atlanta, Fulton County, Georgia and accepted in writing
by Lender at such office as evidenced by its execution hereof (notice of which
delivery and acceptance are hereby waived by each Obligor).
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11.16. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or
any other day in which national banks within the State of Georgia are legally
authorized to close, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest hereunder or under the Notes.
11.17. CURE OF DEFAULTS BY LENDER. If, hereafter, any Obligor defaults
in the performance of any duty or obligation to Lender hereunder or under any
Loan Document, Lender may, at its option, but without obligation, cure such
default and any costs, fees and expenses incurred by Lender in connection
therewith including, without limitation, for the purchase of insurance, the
payment of taxes and the removal or settlement of liens and claims, shall be
deemed to be advances against the Master Note, whether or not this creates an
overadvance thereunder, and shall be payable in accordance with its terms.
11.18. RECITALS. All recitals contained herein are hereby incorporated
by reference into this Agreement and made part thereof.
11.19. ATTORNEY-IN-FACT. Each Obligor hereby designates, appoints and
empowers Lender irrevocably as its attorney-in-fact, effective during any time
that an Event of Default exists, either in the name of such Obligor or the name
of Lender, at such Obligor's cost and expense, (i) to do any and all actions
which Lender may deem necessary or advisable to carry out the terms of this
Agreement or any other Loan Document upon the failure, refusal or inability of
such Obligor to do so and (ii) to ask for, demand, sue for, collect, compromise,
compound, receive, receipt for and give acquittances for any and all sums owing
or which may become due upon any of the Collateral and, in connection therewith,
to take any and all actions as Lender may deem necessary or desirable to realize
upon any Collateral; and such Obligor hereby agrees to indemnify and hold Lender
harmless from any costs, damages, expenses or liabilities arising against or
incurred by Lender in connection therewith.
11.20. SOLE BENEFIT. The rights and benefits set forth in this
Agreement and the other Loan Documents are for the sole and exclusive benefit of
the parties hereto and thereto and may be relied upon only by them.
11.21. INDEMNIFICATION. Each Obligor will hold Lender, its respective
directors, officers, employees, agents, Affiliates, successors and assigns
harmless from and indemnify Lender, its respective directors, officers,
employees, agents, Affiliates, successors and assigns against, all loss,
damages, costs and expenses (including, without limitation, reasonable
attorney's fees, costs and expenses) actually incurred by any of the foregoing,
whether direct, indirect or consequential, as a result of or arising from or
relating to any "Proceedings" (as defined below) by any Person, whether
threatened or initiated, asserting a claim for any legal or equitable remedy
against any Person under any statute, case or regulation, including, without
limitation, any federal or state securities laws or under any common law or
equitable case or otherwise, arising from or in
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connection with this Agreement, and any other of the transactions contemplated
by this Agreement, except to the extent such losses, damages, costs or expenses
are due to the wilful misconduct or gross negligence of Lender. As used herein,
"Proceedings" shall mean actions, suits or proceedings before any court,
governmental or regulatory authority and shall include, particularly, but
without limitation, any actions concerning Environmental Laws. At the request of
Lender, each Obligor will indemnify any Person to whom Lender transfers or sells
all or any portion of its interest in the Obligations or participations therein
on terms substantially similar to the terms set forth above. Lender shall not be
responsible or liable to any Person for consequential damages which may be
alleged as a result of this Agreement or any of the transactions contemplated
hereby. The obligations of Borrower under this Section shall survive the
termination of this Agreement and payment of the Obligations.
11.22. JURY TRIAL WAIVER. EACH OBLIGOR AND LENDER HEREBY WAIVE , TO
THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO ANY OF THE LOAN DOCUMENTS, ANY OBLIGATIONS OR ANY COLLATERAL.
11.23. TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions divisions of or Exhibit to, another
document or instrument. Wherever in this Agreement reference is made to any
instrument, agreement or other document, including, without limitation, any of
the Loan Documents, such reference shall be understood to mean and include any
and all amendments thereto or modifications, restatements, renewals or
extensions thereof. Wherever in this Agreement reference is made to any statute,
such reference shall be understood to mean and include any and all amendments
thereof and all regulations promulgated pursuant thereto. Whenever any matter
set forth herein or in any Loan Document is to be consented to or be
satisfactory to Lender, or is to be determined, calculated or approved by
Lender, then, unless otherwise expressly set forth herein or in any such Loan
Document, such consent, satisfaction, determination, calculation or approval
shall be in Lender's sole discretion, exercised in good faith and, where
required by law, in a commercially reasonable manner, and shall be conclusive
absent manifest error.
11.24. EXHIBITS. All Exhibits attached hereto are by reference made a
part hereof.
12. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or prior
to the execution and delivery of this Agreement, the conditions set forth below
shall constitute express conditions precedent to any obligation of Lender
hereunder.
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12.1. SECRETARY'S CERTIFICATE. Receipt by Lender of a certificate from
the Secretary (or Assistant Secretary) of each Obligor, to be in form and
substance substantially similar to the secretary's certificate set forth on
Exhibit "E", certifying to Lender (i) that appropriate resolutions have been
entered into by the Board of Directors of such Obligor incident hereto and that
the officers of such Obligor whose signatures appear hereinbelow, on the other
Loan Documents, and on any and all other documents, instruments and agreements
executed in connection herewith, are duly authorized by the Board of Directors
of such Obligor for and on behalf of such Obligor to execute and deliver this
Agreement, the other Loan Documents and such other documents, instruments and
agreements, and to bind such Obligor accordingly thereby, and (ii) as to the
existence and status of such Obligor's articles of incorporation and by-laws.
12.2. GOOD STANDING CERTIFICATES. Receipt by Lender of a certificate
of good standing with respect to such Obligor from the secretaries of state of
the state of incorporation of such Obligor and of any state in which a
Collateral Location is situated, dated within thirty (30) days of the Closing
Date.
12.3. LOAN DOCUMENTS. Receipt by Lender of all the other Loan
Documents, each duly executed in form and substance acceptable to Lender.
12.4. INSURANCE. Receipt by Lender of a certificate respecting all
insurance required to be maintained hereunder, together with appropriate loss
payee and additional insured endorsements thereto, favoring Lender, all in form
acceptable to Lender.
12.5. FINANCING STATEMENTS. Receipt by Lender of Uniform Commercial
Code financing statements respecting the Collateral, duly executed by each
Obligor in form and substance acceptable to Lender.
12.6. OPINION OF COUNSEL. Receipt by Lender of an opinion of counsel
from independent legal counsel to the Obligors in substantially the form of
Exhibit "F".
12.7. LANDLORD AGREEMENTS. Receipt by Lender of Landlord Agreements
with respect to each Collateral Location leased by an Obligor as of the Closing
Date.
12.8. NO DEFAULT. No Default Condition or Event of Default shall exist
and Borrower shall in all respects be in compliance with all of the terms of the
Loan Documents, as evidenced by its delivery of a Compliance Certificate to such
effect.
12.9. NO MATERIAL ADVERSE CHANGE. Lender shall have determined that no
Material Adverse Change shall have occurred.
-38-
<PAGE> 44
12.10. SECURITIES PLEDGE AGREEMENT. Receipt by Lender of a Stock
Pledge Agreement from Borrower in respect of the capital stock of each
Subsidiary Guarantor, to be substantially in the form of Exhibit "G" attached
hereto.
12.11. OTHER. Receipt by Lender of such other documents, certificates,
instruments and agreements as shall be required hereunder or provided for herein
or as Lender or Lender's counsel may require in connection herewith.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and Borrower has caused its seal to be affixed hereto, as of the day
and year first above written.
"LENDER"
WACHOVIA BANK, NATIONAL
ASSOCIATION
By: /S/ Robert S. Massenburg
-----------------------------------------------
Name: Robert S. Massenburg
------------------------------------------
Title: Vice President
------------------------------------------
Address for Notices:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Central Region Corporate
-39-
<PAGE> 45
"BORROWER"
SIMIONE CENTRAL HOLDINGS, INC. (SEAL)
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
"SUBSIDIARY GUARANTORS"
SC HOLDING, INC. (SEAL)
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
SIMIONE CENTRAL, INC. (SEAL)
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
-40-
<PAGE> 46
SIMIONE CENTRAL NATIONAL, L.L.C.. (SEAL)
By: SC HOLDING, INC., as its sole Member
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
SIMIONE CENTRAL CONSULTING, INC. (SEAL)
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
BENCHMARK HEALTHCARE CONSULTING, INC. (SEAL)
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
-41-
<PAGE> 47
DEZINE HEALTHCARE SOLUTIONS, L.L.C. (SEAL)
By: SC HOLDING, INC., as its sole Member
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
KSI ACQUISITION, L.L.C. (SEAL)
By: SC HOLDING, INC., as its sole Member
By: /S/ James R. Henderson
-----------------------------------------------
Name: James R. Henderson
------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
Attrest: /S/ M. Henry Day, Jr.
------------------------------------------
Name: M. Henry Day, Jr.
-------------------------------------
Title: Secretary
------------------------------------
-42-
<PAGE> 48
EXHIBITS
Exhibit A Borrower Information Schedule
Exhibit B Compliance Certificate
Exhibit C Landlord's Agreement
Exhibit D Master Note
Exhibit E Secretary's Certificate
Exhibit F Opinion of Counsel
Exhibit G Securities Pledge Agreement
Exhibit H Joinder Agreement
<PAGE> 49
EXHIBIT "A"
BORROWER INFORMATION SCHEDULE
CORPORATE NAME: SIMIONE CENTRAL HOLDINGS, INC.
STATE OF INCORPORATION: Delaware
TAXPAYER ID (FEIN) NO.: 22-3209241
FISCAL YEAR ENDS: December 31
"DOING BUSINESS" OR TRADE NAME(S): N/A
TRADE STYLE(S) FOR INVOICING: N/A
EXECUTIVE OFFICE: 6600 Powers Ferry Road
Atlanta, Georgia 30339
EXECUTIVE OFFICERS: James R. Henderson President/CEO
Lori N. Siegle Treasurer
M. Henry Day, Jr. Secretary
Others:
Gary W. Rasmussen Chief Operating Officer
William J. Simione, Jr. Executive Vice President
<TABLE>
<S> <C> <C> <C>
LOCATION(S) OF Owned Leased
COLLATERAL (OUTSIDE
EXECUTIVE OFFICE):
See Attachment A
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
(or attach schedule)
</TABLE>
1
<PAGE> 50
EXISTING LITIGATION: As of 4/15/98 - none except for what's disclosed in the
---------------------------------------------------------
Company's SEC filings.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(or attach schedule)
SUBSIDIARIES: See attachment C
------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(or attach schedule)
EMPLOYEE BENEFIT
PLAN(S: See attachment D
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(or attach schedule)
PATENTS, TRADEMARKS, SERVICE MARKS OWNED BY BORROWER: See attachment E
-------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(or attach schedule)
2
<PAGE> 51
Attachment A
SIMIONE CENTRAL HOLDINGS, INC.
Office Summary
<TABLE>
<CAPTION>
COMPANY OFFICE LOCATION LANDLORD
- ------- ------ -------- --------
<S> <C> <C> <C>
Simione Central Holdings, Inc. Corporate Office
6600 Powers Ferry Road Powers Ferry Landing West
Atlanta, GA 30039 6590 Powers Ferry Road
Realty Holding Company
Insignia Commerce Group, Inc.
Atlanta, GA 30339
Simione Central National, L.L.C.
Atlanta Office Same as Simione Central Holding, Inc. Same as Simione Central Holding, Inc.
Florida Office 1180 SW 36th Avenue O'Donnell Davis, Inc.
Pompano Beach, FL 33069 attn: Donna Aleckna
244 Cranbury Road
Cranbury, NJ 08512
Simione Central Consulting, Inc.
Connecticut Office 4130 Whitney Avenue S&S Realty
Hamden, CT 06518 555 Long Wharf Drive
12th Floor
New Haven, CT 06511
Massachusetts 1700 West Park Dr. W9/TIB Real Estate Ltd. Partnership
Suite 300 C/O Trammell Crow Company, Inc.
Westborough, MA 01581 1700 West Park Drive
Westborough, MA 01581
Atlanta Office Same as Simione Central Holding, Inc. Same as Simione Central Holding, Inc.
</TABLE>
<PAGE> 52
SIMIONE CENTRAL HOLDINGS, INC.
Office Summary
<TABLE>
<CAPTION>
COMPANY OFFICE LOCATION LANDLORD
- ------- ------ -------- --------
<S> <C> <C> <C>
Benchmark Healthcare Consulting, Inc.
Dallas Office 102 Decker Drive, Suite 240 Big Golf L.P.
Irving, TX 76062 200 East Sizth Ave.
Suite 220
Austin, TX 78701
Florida Office 4040 Woodcock Dr. Koger Equity Inc
Suite 249 P.O. Box D860498
Jacksonville, FL 32207 Orlando, FL 32886-0498
Patick & Associates
4040 Woodcock Drive
Suite 230
Jacksonville, FL 32207-2719
Dezine Healthcare Solutions, L.L.C. New Jersey Office 758 State Hwy. 18 FNJ/E Brunswick Wood Associates
Suite 110 First NJ Real Property Mgmt
East Brunswick, NJ 08816 30 Main Street
South River, NJ 08882
Houston Office 1 Sugar Creek Center Blvd Parkway Portfolio I LLC
Suite 850 C/O Comerica Bank Building
Sugarland, TX 77478 P.O. Box 39271
Jackson, MS 39271
California Office 3200 4th Avenue 3200 Fourth Ave. A Partnership
Suite 201 1901 First Ave. 2nd Floor
San Diego, CA 92103 San Diego, CA 92101
California Office 666 Baker St. DFB Associates
KSI Acquisition, L.L.C. Suite 357
Costa Mesa, CA 92626
</TABLE>
<PAGE> 53
Attachment C
Simione Central Holdings, Inc.
Subsidiaries
SC Holding, Inc.
Simione Central, Inc.
Simione Central National, L.L.C.
Simione Central Consulting, Inc.
Benchmark Healthcare Consulting, Inc.
Dezine Healthcare Solutions, L.L.C.
KSI Acquisition, L.L.C.
Script Systems, Inc.
<PAGE> 54
Attachment D
Simione Central Benefit Plans
Prudential health insurance
Prudential dental insurance
Prudential life insurance
Vision Service Plan
401K plan
Long & short term disability
Guardian life insurance (optional)
<PAGE> 55
Attachment E
SIMIONE CENTRAL PROJECTS
<TABLE>
<CAPTION>
PROJECT ACTION TO DO INFORMATION COST C. BRIGHT
NEEDED ESTIMATE PRIORITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. TRADEMARKS Existing & Applied For
- -----------------------------------------------------------------------------------------------------------------------------
2. SIMIONE Register $ 550 H
CENTRAL
3. SC LOGO Register 550 H
4. SYNERGY TM search and, if clear, register description of 400 search H
goods/services 550 appln.
245 filing fee
5. SYNERGY + LOGO Register (if SYNERGY search is 400 search H
clear) 550 appln.
245 filing fee
6. INFOMED B&A docket renewal date Need copy of 100
registration certificate
JB will get if CB does
not have copy
7. INFOMED Review POGO TM search, do web 300
search and advise re: potential
infringers currently existing (appears
to be several)
8. INFOMED'S Get POGO TM search CB to provide search 400 search
TELTIME report 550 appln.
245 filing fee
9. STAT2 Register (search done for 400 search
STATSCAN, but does not appear to 550 appln.
have been registered) 245 filing fee
10. STATSCAN Register 550 appln.
245 filing fee
11. MAPPSCAN Review POGO search and register 400 search
550 appln.
245 filing fee
12. MAPPLUS Do TM search, register, if clear 400 search
550 appln.
245 filing fee
13. MAPPLINK Do TM search, register, if clear 400 search
550 appln.
245 filing fee
14. MAPP Refile application to register 550 appln.
245 filing fee
15. MANAGED Refile application to register 550 appln.
AVENUES OF 245 filing fee
PATIENT
PROGRESS
</TABLE>
<PAGE> 56
EXHIBIT B
COMPLIANCE CERTIFICATE
The undersigned, being an authorized officer having the title
inscribed below of SIMIONE CENTRAL HOLDINGS, INC. ("Borrower"), and, in such
capacity, being familiar with the matters set forth herein and duly authorized
and empowered to issue this Certificate for and on behalf of Borrower, does
hereby certify to WACHOVIA BANK, NATIONAL ASSOCIATION ("Lender"), in connection
with and pursuant to that certain Loan and Security Agreement, dated as of May
11, 1998, among Borrower, Lender and the "Subsidiary Guarantors" named therein
(herein, as it may be amended to date, called the "Loan Agreement"; capitalized
terms used herein, without definition, having the meanings given to such terms
in the Loan Agreement) that, as of the date of this Certificate, there exists no
Event of Default or Default Condition.
Without limiting the generality of the foregoing, Borrower is in
compliance with all financial covenants specified in Section 8 to the Loan
Agreement, as demonstrated by the computations set forth on Exhibit "A" attached
hereto.
WITNESS my hand as of May 11, 1998.
---------------------------------
Name:
----------------------------
Title:
---------------------------
1
<PAGE> 57
EXHIBIT C
LANDLORD'S AGREEMENT
Tenant:
----------------------
THIS LANDLORD'S AGREEMENT ("Agreement"), made and entered into by the
undersigned landlord (the "Landlord") in favor of WACHOVIA BANK, NATIONAL
ASSOCIATION ("Lender") in respect of the subject Tenant.
WITNESSETH:
RECITALS:
1.1 Landlord is the landlord under the Lease described on Exhibit
"A" attached hereto (the "Lease"), covering the business premises likewise
described on said Exhibit "A" (the "Premises").
1.2 Tenant is the tenant of Landlord under the Lease and, in such
capacity, is operating its business on, or keeps property on, the Premises.
1.3 Tenant has notified Landlord that it has entered, or intends to
enter, into a certain financing arrangement (the "Financing, Arrangement") with
Lender, pursuant to which Lender will make certain loans, advances and other
financial accommodations to or for the benefit of Tenant.
1.4 Tenant intends to secure the payment and performance of its
obligations to Lender under the Financing Arrangement by granting to Lender a
security interest in, among other property of Tenant, all of its inventory,
books and records, equipment and trade fixtures, whether now owned or hereafter
acquired or existing (the "Collateral"), portions of which are or hereafter may
be located on the Premises.
1.5 In connection therewith, pursuant to Lender's request, Tenant has
requested that Landlord execute this Agreement in favor of Lender.
1.6 Landlord has agreed, at Tenant's request and as an accommodation
to it, to execute this Agreement.
IN CONSIDERATION of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by
Landlord, Landlord acknowledges and agrees as follows in favor of Lender:
1.1 Lien Subordination. Landlord acknowledges and agrees that: (a) the
security interest of Lender in the Collateral shall be superior to any lien,
right, title, claim or interest which Landlord may now or hereafter have
therein; (b) Landlord shall not assert as against Lender's security interest
1
<PAGE> 58
therein any statutory, contractual or possessory lien, right, title, claim or
interest in the Collateral, including without limitation, rights of levy or
distraint for rent, all of which Landlord hereby subordinates to Lender for the
term of this Agreement; (c) Lender shall have access to the Collateral and the
Premises at all times hereafter during regular business hours to remove the
Collateral therefrom should Lender elect to enforce the security interest
granted in their favor in the Collateral, without hindrance or delay by
Landlord; and (d) all Collateral which is now located or hereafter may be
located oil the Premises shall remain the property of Tenant.
1.2 Termination of the Lease or Sublease. If, after the date hereof,
Landlord intends to terminate the Lease or otherwise exercise any right it may
have to require Tenant to surrender the Premises or to remove any property of
Tenant (including the Collateral) from the Premises, Landlord use its best
efforts to notify, Lender in writing at Wachovia Bank, National Association, 191
Peachtree Street, Atlanta, Georgia 30303, Attn: Central Region Corporate, of its
intent to take such action and to permit Lender to enter onto the Premises
within such thirty (30) day period in order to remove the Collateral therefrom,
without charge, that Lender shall promptly repair any damage to the Premises
caused by such removal; and in either such event, Landlord agrees to cooperate
with Lender and not to lender its actions in protecting or realizing upon the
Collateral.
1.3 Term. This Agreement shall remain in full force and effect until
the Financing Arrangement has been terminated, and all obligations and
liabilities of Tenant to Lender arising therefrom have been paid and satisfied
in full.
1.4 No Oral Modification; Successors and Assigns. The provisions of
this Agreement may not be modified or terminated orally, and shall be binding
upon the successors, assigns and personal representatives of Landlord, and upon
any successor owner or transferee of the Premises, and shall inure to the
benefit of the successors and assigns of Lender.
2
<PAGE> 59
IN WITNESS WHEREOF, Landlord has caused this Agreement to be executed,
by its duly authorized officer, agent or other representative is of the date
first above written.
Signed and delivered LANDLORD:
in the presence of:
---------------------------------
- ---------------------------------
Witness
By:
------------------------------
Name:
- --------------------------------- --------------------------
Notary Public Title:
------------------------
My Commission Expires:
- --------------------------------
(NOTARY SEAL)
EXHIBIT "A"
Description of Lease:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description of Premises:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(or add Exhibit)
3
<PAGE> 60
EXHIBIT D
MASTER NOTE
1. FOR VALUE RECEIVED, the undersigned (Borrower"), promises to pay to
the order of WACHOVIA BANK, NATIONAL ASSOCIATION ("Lender"), at the principal
office of Lender in Atlanta, Georgia, or at such other place as Lender
hereafter may direct in writing, in legal tender of the United States of
America, the principal sum of Twenty-Five Million Dollars ($25,000,000), or so
much thereof as may be disbursed and remain outstanding from time to time
hereafter under that certain "Line of Credit" opened by Lender in favor of
Borrower pursuant to the terms of that certain Loan and Security Agreement,
dated as of May 11, 1998, among Lender, Borrower and the "Subsidiary Guarantors"
named therein (hereinafter, as it may be amended or supplemented from time to
time, called the "Loan Agreement"; all capitalized terms used herein, but not
expressly defined herein, shall have the meanings given to such terms in the
Loan Agreement), the terms and provisions of which are hereby incorporated
herein by reference and made a part hereof, on the Termination Date, with
interest thereon (computed on the daily outstanding principal balance, for the
actual number of days outstanding, on the basis of a 360 day year) on each
advance made hereunder from date of advance until paid in full at a rate per
annum equal to the Applicable Rate. Unless and except to the extent otherwise
expressly provided in the Loan Agreement, accrued interest on the unpaid
principal balance hereof from time to time outstanding shall be due and payable
monthly, commencing on the first day of the calendar month succeeding the date
hereof and continuing on the same day of each succeeding calendar month
thereafter and on demand for payment in full of the principal balance hereof.
2. Borrower agrees, in the event that this Master Note or any portion
hereof is collected by law or through an attorney at law, to pay all costs of
collection, including, without limitation, reasonable attorneys' fees.
3. This Note evidences borrowing under, is subject to and secured by,
and shall be paid and enforced in accordance with, the terms of the Loan
Agreement, and is the "Master Note" defined in Section 1.1 thereof.
4. Nothing herein shall limit any night granted to Lender by any other
instrument or by law or equity.
5. Borrower hereby waives presentment, demand, protest, notice of
presentment, demand, protest and nonpayment and any other notice required by law
relative hereto, except to the extent as otherwise may be provided for in the
Loan Agreement.
1
<PAGE> 61
IN WITNESS WHEREOF, Borrower has caused this Note to be signed and
sealed as of May 11, 1998.
"BORROWER"
SIMIONE CENTRAL HOLDINGS, INC.
(SEAL)
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
Attest:
---------------------------
Name:
--------------------------
Title:
-------------------------
2
<PAGE> 62
EXHIBIT "E"
SECRETARY'S CERTIFICATE
I hereby certify that I am the duly elected, qualified and serving
Secretary of_______________("Obligor"); that Obligor is a corporation organized
and existing under the laws of the State of its incorporation, having its
registered office and registered agent in such state; that attached hereto as
Exhibits "A" and "B", respectively, are true, correct and complete copies of the
Board of Directors of Borrower as in effect on the date of this Certificate;
that the following copy is a true and correct copy of resolutions duly adopted
at a meeting of the Board of Directors of Obligor, held on or prior to the date
of this Certificate, at which a quorum was present and acting throughout; that
said meeting was duly authorized by the By-Laws of Borrower; that the actions
taken at such meeting and reflected in said resolutions are authorized by the
By-Laws of Obligor; that said resolutions are now in full force and effect and
have not been modified or amended; that on the date hereof the office of
[President] of Obligor is held by the PERSON NAMED as such below and the office
of Secretary of Obligor is held by the Person named as such below; and that the
following are the genuine signatures of said officers:
[President]
-------------------
Secretary
-------------------
"RESOLVED that this corporation enter into a certain loan and security
agreement with Wachovia Bank, National Association ("Lender"), providing
generally for the extension of a line of credit in favor of [this corporation]
[the parent company of this corporation] in the principal amount of Twenty-Five
Million Dollars ($25,000,000), [guaranteed by this corporation], secured by the
grant of a security interest in all, or substantially all assets of this
corporation;
"RESOLVED FURTHER, that the [President] or any other officer of this
corporation be and he is hereby authorized to execute and deliver said agreement
and any notes, guaranties and other certificates, instruments and agreements
which Lender may require, and to consent and agree to any and all terms to each
and every one thereof;
"RESOLVED, FURTHER, that the execution and delivery of any writings or
the taking of any other actions in connection with the foregoing by the
[President] or any other officer of this corporation be and the same is hereby
ratified as the act and deed of this corporation;
1
<PAGE> 63
"RESOLVED, FURTHER, that the Secretary of this corporation be and he is
hereby authorized to affix the seat of said corporation to any writings executed
by the President or any other officer of this corporation in connection with
the foregoing, and to attest the same, but such attestation is not required to
evidence the same as the act and deed of this corporation."
So certified to as of May 11, 1998.
(CORPORATE SEAL)
---------------------------------
Name:
----------------------------
Title: Secretary
ACKNOWLEDGMENT
The undersigned, being the or any other officer having the
title inscribed below of , do certify that the person whose signature is
inscribed above is the duly elected and qualified Secretary of said corporation
as of the date hereof, and the keeper of the records and minutes of the meetings
of the Board of Directors of said corporation.
---------------------------------
Name:
----------------------------
Title:
---------------------------
2
<PAGE> 64
EXHIBIT "F"
OPINION OF COUNSEL
(LAW FIRM STATIONERY)
May 11, 1998
Wachovia Bank, N.A.
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Central Region Corporate
Re: SIMIONE CENTRAL HOLDINGS, INC. ("Borrower"); Loan and Security
Agreement, dated as of May 11, 1998 ("Agreement"), among Borrower, the
"Subsidiary Guarantors" named therein, and Wachovia Bank, N.A.
("Lender")
Ladies and Gentlemen:
Terms which are defined in the Agreement and which are used herein
shall have the same meanings herein as ascribed thereto in the Agreement.
We are legal counsel to each Obligor and, in such capacity, we have
reviewed the Agreement and the remaining Loan Documents as well as the Articles
of Incorporation, By-Laws and minute book of each Obligor and such other
documents, instruments, certificates and agreements as we have deemed necessary
or advisable to review in order to render the opinions set forth below.
Accordingly, it is our opinion that.
1. Each Obligor is a corporation duly organized, validly existing and
in good standing under the laws of the State of its incorporation.
2. Each Obligor has the requisite corporate power to make, deliver and
perform under the Loan Documents and has taken all necessary and appropriate
corporate action to authorize the execution, delivery and performance of the
Loan Documents.
1
<PAGE> 65
3. The Loan Documents constitute the valid obligations of each Obligor,
legally binding upon it and enforceable against it in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditor's rights generally. The
enforceability of each Obligor's obligations under the Loan Document is subject
to general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4. No consent or approval of any other party, including, but not
limited to, any shareholders or directors of each Obligor, and no consent,
license, approval or authorization of any governmental authority, commission,
bureau or agency is required in connection with the execution, delivery,
performance, validity and enforceability of the Loan Documents which has not
been obtained by each Borrower on or prior to the date hereof.
5. The officers of each Borrower who executed, attested and delivered
the Loan Agreement and the other Loan Documents were authorized and empowered to
do so for and on behalf of such Obligor, and to bind such Obligor accordingly
thereby.
6. The execution, delivery of and performance by each Obligor under
the Loan Documents have been duly authorized by all necessary corporate action
and do not and will not violate the provisions of the Articles of Incorporation,
By-Laws, or of any shareholder agreement of such Obligor, or of any mortgage,
indenture, security agreement, contract, undertaking or other agreement to which
such Obligor is a party or which purports to be binding upon such Obligor or any
of its property or assets, or of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award known to us, after
reasonable investigation, to be presently effective having applicability to
Borrower.
7. To our knowledge there are no proceedings pending or before any
court or administrative agency against any Obligor.
This opinion of counsel is rendered for your benefit only and may be
relied upon only by you.
Sincerely,
(Partner)
2
<PAGE> 66
EXHIBIT G
SECURITIES PLEDGE AGREEMENT
THIS SECURITIES PLEDGE AGREEMENT (this "Agreement"), made by SIMIONE CENTRAL
HOLDINGS, INC. ("Borrower"), SIMIONE CENTRAL CONSULTING, INC. ("Simione
Consulting") and SC HOLDING, INC. ("Holding,") (Borrower, Simione Consulting and
Holding individually and collectively, "Pledgor") to and in favor of WACHOVIA
BANK, N.A., a national bank ("Lender"), pursuant to that certain Loan and
Security Agreement, dated of even date herewith, among Borrower, as borrower,
Simione Consulting and Holding, as "Subsidiary Guarantors", the other
"Subsidiary Guarantor" named therein, and Lender (hereinafter, together with any
amendments or supplements thereto, called the "Loan Agreement"; all capitalized
terms used herein, but not expressly defined herein, to have the meanings given
to such terms in the Loan Agreement) in order to provide for the pledge by
Pledgor of all capital stock or membership interests of each Subsidiary
Guarantor owned by Pledgor.
1. PLEDGE
For value received and in consideration of any extension of credit as
may from time to time be made by Lender to Borrower pursuant to the Loan
Agreement, Pledgor hereby assigns, pledges and conveys to Lender a continuing
general primary lien upon and security interest in and to the following
property: (i) all that capital stock of, or membership interest of Pledgor in,
each Subsidiary of Pledgor, as more particularly described on Exhibit "A"
attached hereto and by reference incorporated herein, together with all
replacements, substitutions, renewals or extensions thereof, and all cash,
additional securities, subscription rights, interest, dividends, options,
warrants, instruments or other property or rights at any time and from time to
time receivable or otherwise distributed in respect of or in exchange for any
or all of the foregoing (hereinafter collectively referred to as the "Pledged
Securities"), and (ii) all proceeds of the foregoing (hereinafter, the property
described in (i) and (ii) above, shall sometimes be collectively referred to as
the "Collateral").
2. OBLIGATIONS SECURED.
This Agreement is made to secure all Obligations of Pledgor to Lender
whatsoever, whether existing as of the date hereof or hereafter arising.
3. REPRESENTATIONS AND WARRANTIES OF PLEDGOR.
Pledgor represents and warrants to Lender (which representations and
warranties shall be deemed to be renewed as of the date of each renewal or
extension of credit in respect of any of the Obligations) that:
(a) Pledgor is the sole legal and equitable owner of the Collateral and
holds the same free and clear of all liens, charges, options, restrictions on
sale, transfer or disposition, encumbrances and security interests of every
kind and nature whatsoever (except those in favor of Lender).
1
<PAGE> 67
(b) Pledgor has full power and authority to make the collateral
assignment of the Collateral evidenced hereby and, when, executed this Agreement
will constitute the valid obligations of Pledgor, legally binding on Pledgor and
enforceable in accordance with the terms hereof. The undersigned is duly
authorized and empowered to execute this Agreement for and on behalf of
Pledgor.
(c) No consent or approval of any other person or entity (including,
without limitation, any shareholders or directors of Pledgor) and no consent,
license, approval or authorization of any governmental authority, bureau or
agency is required in connection with the execution, delivery, performance,
validity and enforceability of this Agreement.
4. COVENANTS WITH RESPECT TO COLLATERAL.
Pledgor agrees with Lender with respect to the Collateral as follows:
(a) Unless an Event of Default (as hereinafter defined) shall have
occurred, Pledgor shall be entitled to (i) vote any Pledged Securities and give
any consents, waivers and ratifications in respect thereof, provided no vote
shall be cast or consent, waiver or ratification given or action taken by
Pledgor which, in the sole judgment of Lender would impair the value or
marketability of the Pledged Securities and (ii) receive all interest and/or
cash dividends or distributions paid with respect to the Pledged Securities, if
and to the extent then permitted to be paid to Pledgor under the Loan Agreement
(or otherwise expressly approved in writing by Lender).
(b) Pledgor will cause any additional securities or property issued to
or received by Pledgor with respect to any of the Collateral, whether or not for
value paid by Pledgor, to be promptly deposited with and pledged to Lender
pursuant hereto. Upon delivery thereof, such additional securities or property
shall constitute Collateral hereunder.
(c) Pledgor agrees that all Collateral now or hereafter so deposited
and pledged or substituted by Pledgor will be accompanied by proper instruments
of assignment duly executed in blank by Pledgor, all as Lender may require.
(d) If an Event of Default has occurred, Pledgor shall cooperate with
and assist Lender in its efforts to dispose of all or any portion of the Pledged
Securities.
5. DEFAULT REMEDIES.
Upon the occurrence or existence of any Event of Default, or at any
time thereafter (such default not having been previously cured), Lender, at its
option, may declare all of the Obligations to be immediately due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest, notice of non-payment or any other notice required by law
relative thereto, all of which are hereby expressly waived by Pledgor, anything
contained herein to the contrary notwithstanding. If any note constituting
Obligations shall be a demand instrument,
2
<PAGE> 68
however, the recitation of the right of Lender to declare any and all
Obligations to be immediately due and payable, which is contained in this
Agreement, as well as the recitation of the above events permitting Lender to
declare all Obligations due and payable, shall not constitute an election by
Lender to waive its right to demand payment under a demand at anytime and in
any event, as Lender in its discretion may deem appropriate.
In addition, upon the occurrence of any of the above Events of Default
and at any time thereafter (such default not having previously been cured) or on
or after demand for payment of any of the Obligations, Lender, without notice or
demand, (i) shall be entitled to collect and receive all payments in respect of
the Collateral, (ii) may exercise all rights of Pledgor with respect thereto and
(iii) may sell the Collateral, or any part thereof, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon credit or
for future delivery, all as Lender shall deem appropriate, in its sole
discretion. Upon consummation of any such sale Lender shall have the right to
assign, transfer and delivery to the purchase or purchasers thereof the
Collateral so sold. Each such purchaser at any sale shall hold the property
sold absolutely free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by law) all rights of redemption, stay
and/or appraisal which Pledgor now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. Any sale of
the Collateral, or a portion thereof, may be sold in one lot as an entirety or
in separate lots, as Lender may (in its sole and absolute discretion) determine.
Lender shall not be obligated to sell the Collateral if it shall determine not
to do so. In case sale of all or any part of the Collateral is made on credit or
for future delivery, the Collateral so sold may be retained by Lender until the
sale price is paid by the purchaser or purchasers thereof, but Lender shall not
incur any liability if any such purchaser or purchasers shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again. As an alternative to exercising the power of the
sale herein conferred upon it, Lender may proceed by a suit or suits at law or
in equity to foreclose this agreement and to sell the Collateral, or any portion
thereof, pursuant to a judgment or decree of a court of courts of competent
jurisdiction. The rights of Lender specified herein shall be in addition to,
and not in limitation of, its rights under the Uniform Commercial Code of
Georgia, as amended from time to time (the "Code") (regardless of whether the
Code has been enacted in the jurisdiction where the rights or remedies are
asserted) or under any other statute or rule of law conferring rights similar to
those conferred by the Code, and under the provisions of any other instrument or
agreement executed by Pledgor in favor of Lender. Lender shall give Pledgor
written notice of the time and place of any public sale of the Collateral or
the time after which any other intended disposition thereof is to be made,
except when the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market. The requirement
of sending reasonable notice shall be met if such notice is given to Pledgor at
the last address shown on Lender's records at least five (5) days before such
disposition.
The proceeds of the sale of the Collateral sold pursuant to this
section hereof shall be applied by Lender as follows: First, to the payment of
all costs and expenses incurred by Lender in connection with such sale,
including, but not limited to, all court costs and reasonable attorneys' fees
and to the payment of all costs and expenses paid or incurred by Lender in the
exercise of any right
3
<PAGE> 69
or remedy granted to Lender hereunder; Second, to the payment in full of the
Obligations, to the extent not previously paid; and Third, to Pledgor (or as
otherwise may be required by law), any remainder of such proceeds.
6. LENDER APPOINTED ATTORNEY-IN-FACT.
Pledgor hereby irrevocably appoints Lender as Pledgor's
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any instrument which Lender may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, Lender shall have the right and power (i) to receive, endorse
and collect all checks and other orders for the payment of money made payable to
Pledgor representing any interest or dividend or other distribution payable in
respect of the Collateral or any part thereof and to give full discharge for the
same and (ii) to execute and delivery, either in Pledgor's or Lender's name,
stock powers, bond powers or other instruments of assignment necessary in the
premises.
7. MISCELLANEOUS.
(a) Entire Agreement; Amendment. This Agreement constitutes and
contains the entire understanding of the parties and supersedes and cancels any
pre-existing agreements or understandings between the parties relating to the
subject matter hereof. This Agreement may not be amended or modified, nor may
any Collateral be released, except by a writing signed by Lender.
(b) Waiver. Each and every right granted to Lender under this
Agreement, or any other document delivered hereunder or in connection herewith
or allowed by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of Lender to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single or
partial exercise by Lender of any right preclude any other or future exercise
thereof or the exercise of any other right. No waiver by Lender of any default
hereunder shall constitute a waiver of any subsequent default.
(c) Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by, construed and interpreted in
accordance with the laws of the State of Georgia.
(d) Further Assurances. Pledgor agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as Lender may at any time request in connection with
the administration and enforcement of this Agreement or relative to the
Collateral or any part thereof or in order better to assure and confirm unto
Lender its rights and remedies hereunder.
(e) Timeliness of Performance. Time is of the essence in this
Agreement.
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<PAGE> 70
(f) Survival. All representations, warranties, and covenants made
herein shall survive the execution and delivery of the Obligations and any other
agreement hereunder.
(g) Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of each party hereto and their respective heirs,
successors and assigns.
(h) Headings. Section headings used herein are for convenience only and
are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
(i) Use of Terms. The terms used in this Agreement which are defined in
the Code shall have the meanings given such terms in the Code. Whenever used,
the singular shall be deemed to include the plural and the plural the singular.
As used herein the term "Pledgor" shall mean each of the undersigned jointly and
severally, if more than one.
(j) Termination. This Agreement shall be in full force and effect until
the Obligations have been indefeasibly paid in full and such payments are no
longer subject to rescission, recovery or repayment upon any bankruptcy,
insolvency, reorganization, moratorium, receivership or similar proceeding
affecting Borrower or Obligor, and Lender shall not be obligated to extend any
further Obligations and has terminated this Agreement in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal as of the day and year first above written.
"PLEDGOR"
SIMIONE CENTRAL HOLDINGS, INC. (SEAL)
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Attest:
--------------------------------
Name:
------------------------------
Title:
------------------------------
5
<PAGE> 71
SIMIONE CENTRAL CONSULTING, INC. (SEAL)
By:
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Attest:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
SC HOLDING, INC. (SEAL)
By:
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Attest:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
6
<PAGE> 72
Accepted:
"LENDER"
"WACHOVIA BANK, N.A.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
7
<PAGE> 73
SECURITIES PLEDGE AGREEMENT
EXHIBIT A
<TABLE>
<CAPTION>
Capital Stock or
Membership
Interests Certificate Nos.
Subsidiary Name Being Pledged (if applicable) Owner
- --------------- ------------- --------------- -----
<S> <C> <C> <C>
SC Holding, Inc. 100 38 Simione Central
Holdings, Inc.
Simione Central, Inc. 100 001 SC Holding, Inc.
Simione Central National, L.L.C. 100 1 SC Holding, Inc.
Simione Central Consulting, Inc. 100 1 SC Holding, Inc.
Benchmark Healthcare Consulting, Inc. -- -- Simione Central
Consulting, Inc.
Dezine Healthcare Solutions, LLC -- -- SC Holding, Inc.
KSI Acquisitions, L.L.C. -- -- SC Holding, Inc.
InfoMed, Inc. -- -- SC Holding, Inc.
</TABLE>
8
<PAGE> 74
EXHIBIT "H"
AGREEMENT OF JOINDER
THIS AGREEMENT OF JOINDER (this "Agreement") is made as of
_____________ 19_, by [NEW SUBSIDIARY GUARANTOR], a [State] corporation ("New
Subsidiary Guarantor"), to and in favor of Wachovia Bank, National Association
("Lender"), in connection with, and in furtherance of, the terms of that certain
Loan and Security Agreement, dated as of May 11, 1998, as may be modified or
amended to date, among the parties identified therein as the "Borrower," the
"Subsidiary Guarantors" identified as such therein, and Lender (the "Loan
Agreement"). Capitalized terms used in this Agreement, but not expressly defined
herein, shall have the meanings given to such terms in the Loan Agreement.
Preamble. New Subsidiary Guarantor is a direct or indirect Subsidiary of
Borrower. New Subsidiary Guarantor has received and reviewed copies, as signed,
of the Loan Agreement, and each other Loan Document, and has satisfied itself in
regard thereto. It is the desire and intent of New Subsidiary Guarantor that New
Subsidiary Guarantor be added as a Subsidiary Guarantor under the Loan
Agreement, thereafter to be bound thereby. Accordingly, for value received, the
receipt and sufficiency of which are hereby acknowledged, New Subsidiary
Guarantor covenants and agrees as follows:
1. Assumption. New Subsidiary Guarantor hereby accepts, assumes,
affirms and agrees to be bound by all the terms, covenants and conditions of the
Loan Agreement as a "Subsidiary Guarantor" thereunder as fully and completely as
if New Subsidiary Guarantor were an original party thereto. Subject to New
Subsidiary Guarantor's compliance with Section 2 below, Agent consents to and
approves the addition of New Subsidiary Guarantor as a New Subsidiary Guarantor.
2. Further Assurances. Concurrently herewith, New Guarantor shall cause
to be delivered to Lender such documents, instruments, certificates and
agreements as Lender may reasonably request to give effect hereto, including,
without limitation, those documents (or substantially the same variations
thereof) described in Section 6.2 of the Loan Agreement, as, and to the extent,
they relate to New Subsidiary Guarantor.
3. Miscellaneous. This Agreement shall itself constitute a Loan
Document and be governed accordingly as provided in the Loan Agreement.
4. Effectiveness. This Agreement shall become effective upon its
acceptance by the Agent, as prescribed herein below.
1
<PAGE> 75
WITNESS the hand and seal of New Subsidiary Guarantor, effective as of
the date first above written.
"NEW SUBSIDIARY GUARANTOR"
[NEW SUBSIDIARY GUARANTOR]
By
--------------------------------------
Title:
--------------------------------
Attest:
Title:
--------------------------------
Accepted:
WACHOVIA BANK, N.A.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
2
<PAGE> 76
EXHIBIT "I"
TELEPHONE INSTRUCTION LETTER
May 11, 1998
Wachovia Bank,
National Association
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Central Region Corporate
Ladies and Gentlemen:
Please refer to that certain Loan and Security Agreement, dated of even
date herewith, among you, us and the "Subsidiary Guarantors" identified as such
therein ("Loan Agreement").
From the proceeds of any Advances which you make to us under the Loan
Agreement, we hereby authorize and direct you to make disbursements from time to
time for our account to our bank account number ______________ maintained with
____________________ ____________ of _______________, _______________ upon
receipt of telephone instructions from any of the following persons or their
respective designees, which Persons shall also be authorized and empowered to
obtain Letters of Credit for our account from you:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
- ---------------------------- -----------------------------
- ---------------------------- -----------------------------
- ---------------------------- -----------------------------
</TABLE>
You shall have no liability to us whatsoever for acting upon any such
telephone instruction which you, in good faith, believe was given by any of the
above designated persons or their respective designees and you shall have no
duty to inquire as to the propriety of any disbursement.
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<PAGE> 77
You shall have the right to accept the telephone instructions of any of
the above designated persons or their respective designees unless and until
actual receipt by you from us of written notice of termination of the authority
of any such designated persons. We may change persons designated to give you
telephone instructions only by delivering to you written notice of such change.
Unless and until you advise us to the contrary, each telephone
instruction from the above-named persons or their respective designees shall be
followed by a written confirmation of the request for disbursement in such form
as you make available from time to time to use for such purpose.
Very truly yours,
SIMIONE CENTRAL HOLDINGS, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
2
<PAGE> 78
MASTER NOTE
1. FOR VALUE RECEIVED, the undersigned ("Borrower"), promises to pay to
the order of WACHOVIA BANK, NATIONAL ASSOCIATION ("Lender"), at the principal
office of Lender in Atlanta, Georgia, or at such other place as Lender hereafter
may direct in writing, in legal tender of the United States of America, the
principal sum of Twenty-Five Million Dollars ($25,000,000), or so much thereof
as may be disbursed and remain outstanding from time to time hereafter under
that certain "Line of Credit" opened by Lender in favor of Borrower pursuant to
the terms of that certain Loan and Security Agreement, dated as of May 11, 1998,
among Lender, Borrower and the "Subsidiary Guarantors" named therein
(hereinafter, as it may be amended or supplemented from time to time, called the
"Loan Agreement"; all capitalized terms used herein, but not expressly defined
herein, shall have the meanings given to such terms in the Loan Agreement), the
terms and provisions of which are hereby incorporated herein by reference and
made a part hereof, on the Termination Date, with interest thereon (computed on
the daily outstanding principal balance, for the actual number of days
outstanding, on the basis of a 360 day year) on each advance made hereunder from
date of advance until paid in full at a rate per annum equal to the Applicable
Rate. Unless and except to the extent otherwise expressly provided in the Loan
Agreement, accrued interest on the unpaid principal balance hereof from time to
time outstanding shall be due and payable monthly, commencing on the first day
of the calendar month succeeding the date hereof and continuing on the same day
of each succeeding calendar month thereafter and on demand for payment in full
of the principal balance hereof.
2. Borrower agrees, in the event that this Master Note or any portion
hereof is collected by law or through an attorney at law, to pay all costs of
collection, including, without limitation, reasonable attorneys' fees.
3. This Note evidences borrowing under, is subject to and secured by,
and shall be paid and enforced in accordance with, the terms of the Loan
Agreement, and is the "Master Note" defined in Section 1.1 thereof.
4. Nothing herein shall limit any right granted to Lender by any
other instrument or by law or equity.
5. Borrower hereby waives presentment, demand, protest, notice of
presentment, demand, protest and nonpayment and any other notice required by law
relative hereto, except to the extent as otherwise may be provided for in the
Loan Agreement.
1
<PAGE> 79
IN WITNESS WHEREOF, Borrower has caused this Note to be signed and
sealed as of May 11, 1998.
"BORROWER"
SIMIONE CENTRAL HOLDINGS, INC.
(SEAL)
By: /s/ James R. Henderson
----------------------------------
Name: James R. Henderson
-----------------------------
Title: Chief Executive Officer
----------------------------
By: /s/ M. Henry Day, Jr.
----------------------------------
Name: M. Henry Day, Jr.
-----------------------------
Title: Secretary
----------------------------
2
<PAGE> 1
EXHIBIT 10.25
REMARKETING AGREEMENT
This Marketing Agreement (Agreement) is binding on this 17th day of April, 1998,
(Effective Date) between Eclipsys Corporation, having its principal place of
business is at Suite 401, 777 East Atlantic Avenue, Delray Beach, Florida 33483
(Eclipsys) and Simione Central National Inc. located at 6600 Powers Ferry Road,
Atlanta, Georgia 30339 (VENDOR).
FACTUAL BACKGROUND
Eclipsys develops and licenses proprietary healthcare information systems to
provide information solutions to healthcare providers. VENDOR is in the business
of developing and licensing proprietary information systems for home healthcare
providers.
Eclipsys desires to sub-license with VENDOR for implementation of the
techniques, routines and software needed to support the use of VENDOR's software
with Eclipsys' software and other solutions provided to Eclipsys' customers.
Eclipsys and VENDOR desire (1) for Eclipsys to market and sub-license VENDOR's
Software to Eclipsys' current and potential customers and (2) for VENDOR to
provide services to Eclipsys' Customers who sub-license VENDOR's Software.
TERMS AND CONDITIONS
For valuable and adequate consideration, the parties agree as follows:
1. DEFINITIONS. The following terms shall mean:
1.1. VENDOR'S SOFTWARE: The object code form of the programs
identified in Schedule A and all associated documentation
normally provided to a customer, as well as improvements or
other object code and associated documentation that may be
developed and provided to Eclipsys' customers from time to
time as part of an executed Software Maintenance Agreement
attached hereto.
1.2. ECLIPSYS' PROPRIETARY INFORMATION: This Agreement and any and
all software and documentation owned or provided by Eclipsys
and all other Eclipsys methods, procedures, ideas, concepts,
techniques, expertise and documentation relating to such
software and all other materials, data or information of
Eclipsys which are not generally available to the public.
1.3. VENDOR'S PROPRIETARY INFORMATION: Any and all software and
documentation owned or provided by VENDOR and all other
VENDOR's methods, procedures, ideas, concepts, techniques,
expertise and documentation relating to such software and all
other materials, data or information of VENDOR which are not
generally available to the public.
1.4. PROSPECTS: A current Eclipsys customer or a hospital-based,
home health agency whose associated hospital has expressed an
interest in purchasing one or more of Eclipsys' software
products in addition to VENDOR's Software provided that
Eclipsys contacts or is contacted by the potential customer
prior any contact directly by the potential customer with
VENDOR.
1.5. First Level Support: Eclipsys' obligation to provide telephone
support to its customers for VENDOR's Software. Such First
Level Support shall include taking customer calls and
resolving any problems that are hardware or network related,
or related to customer use or operation of vendor's software,
as well as problem logging, tracking, and reporting. Eclipsys
agrees to handle 100% of these non-technical support calls for
Eclipsys customers.
<PAGE> 2
1.6. VENDOR's List Price: VENDOR's standard list price specified in
Schedule B, which price may be changed by VENDOR upon thirty
(30) days written notice to Eclipsys.
1.7. License Agreement: The agreement entered into between VENDOR
and Eclipsys which allows Eclipsys to sub-license VENDOR's
software and which is attached hereto.
1.8. Software Maintenance Agreement: The agreement entered into
between VENDOR and Eclipsys which defines VENDOR's obligation
to provide maintenance for VENDOR's Software to Eclipsys and
Eclipsys' customers.
1.9. Services Agreement: The agreement entered into between VENDOR
and Eclipsys which defines VENDOR's obligation to provide
implementation and training services for VENDOR's Software to
Eclipsys and Eclipsys' Customers.
1.10. Eclipsys Software License: The agreement entered into between
Eclipsys and an Eclipsys customer which allows an Eclipsys
Customer to sub-license the use of VENDOR's Software.
2. SOFTWARE LICENSE GRANT.
2.1. Eclipsys Internal Use: For and during the term of this
Agreement VENDOR grants to Eclipsys a non-transferable,
non-exclusive License to VENDOR's Software (including those
new releases, enhancements or modifications provided
hereunder) for use solely on any computer system operated by
Eclipsys for testing and development purposes only. Eclipsys
may not use VENDOR's Software in an outsourcing or
time-sharing environment or otherwise use VENDOR's Software
licensed in this Section to directly generate revenue.
2.2. Marketing License: VENDOR grants to Eclipsys an exclusive,
non-transferable, right to sub-license VENDOR's Software to
Eclipsys' prospects in the United States and solely for use by
Eclipsys' Customers subject to the term of the License
Agreement.
2.3. Limited Purpose: Eclipsys understands, acknowledges, and
agrees that this Marketing License is solely for the purpose
of sub-licensing such VENDOR's Software to Eclipsys Customers
in accordance with this Agreement and the related License
Agreement; and that Eclipsys may not market, license, or
otherwise distribute or copy VENDOR's Software for resale,
redistribution or further licensing by an Eclipsys customer.
3. ECLIPSYS' RESPONSIBILITIES.
3.1. Requests for Proposals Responses: Eclipsys is responsible for
incorporation of VENDOR's standard contractual language into
all appropriate Eclipsys responses to Requests for Proposals.
Eclipsys is responsible for production and distribution of all
such proposals.
3.2. VENDOR's Software Demos: Eclipsys is responsible for the
performance of Eclipsys demos and presentations to Eclipsys
customers and prospects of VENDOR's Software. However,
Eclipsys and its employees shall not have any authority to and
shall not make any representation or warranty on behalf of
VENDOR other than the warranties contained in VENDOR's License
Agreement and Software Maintenance Agreement attached hereto.
Eclipsys and its employees shall not in any manner assume or
create any obligation or responsibility, express or implied,
on behalf of or in the name of VENDOR, or act for or bind
VENDOR in any respect, except as expressly permitted by this
Agreement. Eclipsys shall indemnify VENDOR from and against
any liability, loss, damage, or expense, including attorney's
fees, arising out of any breach of this paragraph by Eclipsys.
No advertising, publicity or promotional material covering
VENDOR's software shall be undertaken or distributed by
Eclipsys without the prior approval of VENDOR.
<PAGE> 3
3.3. Presentations and Collateral: Eclipsys is responsible for the
production of all VENDOR's Software presentation materials for
Eclipsys use as well as for the production of Eclipsys
collateral which incorporates or references VENDOR's Software.
All such information is subject to the prior approval of
VENDOR.
3.4. Contracting: Eclipsys shall act as the primary contractor for
VENDOR's Software. Eclipsys shall sub-license VENDOR's
Software utilizing the standard Eclipsys contract forms. All
warranties provided by VENDOR to Eclipsys in the License
Agreement, Software Maintenance Agreement, and Services
Agreement attached hereto shall be transferred to Eclipsys
customers. Commitments of VENDOR's resources will be mutually
agreed upon. Notwithstanding anything to the contrary
contained herein, any contract through which Eclipsys
sub-licenses VENDOR's Software shall have terms and conditions
substantially similar to those contained in the License
Agreement, Software Maintenance Agreement and Services
Agreement attached hereto. Eclipsys shall indemnify and hold
VENDOR harmless from any damage, loss, or liability suffered
by VENDOR, including, but not limited to attorneys fees, on
account of Eclipsys' failure to comply with the terms and
conditions of this paragraph.
3.5. Invoicing: Eclipsys shall be responsible for the invoicing to
Eclipsys customers for all software, maintenance and services
contracted for by Eclipsys. Eclipsys shall provide payment
terms to its customers no greater than industry standards.
3.6. Business VENDORs Liaison: Eclipsys shall assign to VENDOR a
business liaison to manage the day-to-day performance of
Eclipsys' responsibilities under this Agreement. As
appropriate, Eclipsys shall also assign liaisons to VENDOR in
the areas of development implementation and training, support
sales support, education and connect technology.
3.7. Endorsement: Eclipsys shall market VENDOR's Software to
Eclipsys Customers and Prospects and endorse VENDOR's Software
as a product of choice for Eclipsys Customers and Prospects.
3.8. Installation and Implementation and Training for Eclipsys'
Customers: Eclipsys shall contract with Eclipsys' Customers
for installation, implementation, and training of VENDOR's
Software unless otherwise agreed to by VENDOR, or Eclipsys'
Customer. Eclipsys shall sub-contract with VENDOR for the
provision of VENDOR's Software installation, implementation,
and training services at the prices, specified in Schedule C
with up to a 30% discount, which prices may be changed by
VENDOR upon thirty (30) days written notice to Eclipsys.
4. VENDOR'S RESPONSIBILITIES:
4.1. Requests for Proposals Responses: VENDOR shall supply Eclipsys
with boilerplate information to enable Eclipsys to respond to
requests for information. VENDOR shall use its best efforts to
keep all such boilerplate information updated with the most
current information. VENDOR shall also provide phone support
to answer questions related to the responses. However,
Eclipsys shall indemnify and hold VENDOR harmless from any
damage, loss or liability suffered by VENDOR, including, but
not limited to, attorney's fees, arising out of Eclipsys'
alteration or misrepresentation of the boilerplate information
provided by VENDOR pursuant to this Section 4.1.
<PAGE> 4
4.2. VENDOR Software Demos: VENDOR agrees to provide support for
sales demos to Eclipsys Prospects upon reasonable request.
Scheduling of VENDOR's Software demos will be mutually agreed
upon between Eclipsys and VENDOR.
4.3. Presentation Material and Collateral: VENDOR shall provide
VENDOR's sales collateral to Eclipsys upon request and shall
provide information to Eclipsys for inclusion of VENDOR's
Software information in Eclipsys presentation and sales
collateral.
4.4. Business VENDOR Liaison: VENDOR shall assign to Eclipsys a
business liaison to manage the day-to-day performance of
VENDOR's responsibilities under this Agreement. As appropriate
VENDOR shall also assign liaisons to Eclipsys in the areas of
development, implementation and training, support, sales
support, education and connect technology.
4.5. Delivery/Software Releases: Upon notification by Eclipsys,
VENDOR shall deliver to Eclipsys customers the licensed
VENDOR's Software and documentation as mutually agreed upon.
VENDOR shall deliver all VENDOR's Software releases, updates,
enhancements, and error corrections for any other VENDOR
customer, to those Eclipsys Customers contracting with
Eclipsys for such software maintenance services with respect
to VENDOR's Software.
4.6. Maintenance and Support: VENDOR shall be responsible for
providing maintenance and support to all Eclipsys customers
who have contracted with Eclipsys for such maintenance and
support, however, Eclipsys will provide First Level Support.
VENDOR's maintenance and support ("Software Maintenance")
shall be provided through Eclipsys by VENDOR under the terms
and conditions of the Software Maintenance Agreement attached
hereto. Maintenance will include for the then current release
of the VENDOR's Software: corrections to VENDOR's Software
problems determined by VENDOR to release and not separately
priced or marketed by VENDOR; and telephone support to
Eclipsys' support staff and to Eclipsys' Customers directly on
the use and operation of the VENDOR's Software during normal
business hours (8:00 a.m. to 5:00 p.m. - EST) related to
application assistance and operations support via VENDOR's
maintenance phone number. Eclipsys' Customers must agree to
comply with VENDOR's written maintenance procedures for
correcting defects.
4.7. Eclipsys/VENDOR Software Interface: VENDOR shall develop and
maintain mutually agreed upon product interfaces. Eclipsys
shall reasonably cooperate with VENDOR and provide VENDOR with
all information necessary to allow VENDOR to develop and
maintain such interfaces. Such interfaces, once released,
shall be considered VENDOR's Software for purposes of this
Agreement. Additionally, such interfaces shall be marketed to
Eclipsys' customers based on mutually agreeable terms and
conditions.
4.8. Installation, Implementation and Training: VENDOR shall
provide to Eclipsys employees, at no tuition charge, up to
five (5) days of training per year, during the term of this
Agreement, training at Eclipsys offices for VENDOR's Software.
Eclipsys shall be responsible for all travel and related
out-of-pocket expenses. VENDOR shall implement VENDOR's
Software at Eclipsys' customer sites as described in the
applicable Service Agreement.
4.9. Personnel. VENDOR agrees to maintain the level of expertise
and personnel required to support Eclipsys Customers in a high
quality manner consistent with relevant industry standards.
5. PAYMENT.
<PAGE> 5
5.1. ROYALTY: For each sub-license of VENDOR's Software sold by
Eclipsys to an Eclipsys Prospect, Eclipsys shall pay VENDOR a
royalty of 50% of the sales price, which will not be lower
than VENDOR's List Prices less a 25% discount.
5.2. REFUNDS: In the event Eclipsys must replace VENDOR's software
after successful installation to make it fully operational,
there shall be no additional royalty paid to VENDOR for such
replacement copy so long as such replacement copy is of the
same version and kind as VENDOR's Software. In the event
VENDOR's Software is inoperative or does not perform in
accordance with VENDOR's specifications and the Eclipsys
Customer terminates the Eclipsys Software License for VENDOR's
Software and Eclipsys refunds to such Customer the license
fees paid by such Customer for VENDOR's Software, VENDOR will
refund to Eclipsys the applicable royalty fees and maintenance
fees paid by Eclipsys to VENDOR within ninety (90) days of
written demand. However, VENDOR shall only be required to
refund that percentage of the fees paid to VENDOR by Eclipsys
which is equal to the percentage of the license fees and
maintenance fees refunded by Eclipsys to such customer for
VENDOR's Software.
5.3. ENHANCEMENTS: Enhancements provided to VENDOR's client base
under the Software Maintenance Agreement will also be provided
to Eclipsys Customers for support fees paid and to Eclipsys
for its own internal use pursuant to this Agreement at no
charge.
5.4. MINIMUM ROYALTY: Eclipsys shall guarantee a minimum of $2.5
million in royalty payments to VENDOR to reflect sales through
June 30, 1998. This minimum royalty will be offset by
royalties otherwise due under this agreement for sales by
Eclipsys through June 30, 1998. Eclipsys will also receive
credit against this minimum royalty for VENDOR's software
ordered and shipped directly to Eclipsys by June 30, 1998.
This software shall remain available for sub-licensing by
Eclipsys to its customers until ultimately sold. Any VENDOR's
software ordered and shipped directly to Eclipsys for credit
towards this minimum royalty obligation is nonrefundable and
nonreturnable.
5.5. MAINTENANCE. For each Eclipsys Customer contracting for
Maintenance for VENDOR's Software, Eclipsys shall pay to
VENDOR an annual maintenance fee (the "Maintenance Fee") equal
to eighteen percent (18%) of the sales price, which sales
price will not be lower than VENDOR's List Price less a 25%
discount, for such VENDOR's Software. Eclipsys will provide
First Level Support in exchange for twenty percent (20%) of
any such Maintenance Fees for the first 10 licenses sold and
thirty percent (30%) of such Maintenance Fees for any such
license sold thereafter.
5.6. INSTALLATION, IMPLEMENTATION AND TRAINING: Eclipsys shall pay
to VENDOR the fees for installation, implementation, and
training services performed in accordance with signed Services
Agreements.
5.7. COSTS: Except as stated in this Agreement, each party shall
pay its own expenses related to this Agreement.
5.8. PAYMENT TERMS: All royalties, maintenance fees, and fees for
installation, implementation, and training services due under
this Agreement are payable to VENDOR by the fifteenth day of
the month following the month Eclipsys receives payment from
the Eclipsys customer except with respect to royalties due
under this Agreement which in any event must be paid in full
within twelve (12) months of the date of the applicable
Eclipsys Software License. With each monthly payment to
VENDOR, Eclipsys will provide VENDOR with sufficient detail to
determine the Eclipsys customer, nature of payments received
and other appropriate accounting information as mutually
agreed.
<PAGE> 6
6. TERM & TERMINATION
6.1. TERMINATION FOR CONVENIENCE: The term of this Agreement shall
be for a period of two (2) years to be automatically renewable
bi-annually after the initial term unless either party
notifies the other party in writing of their desire to
terminate at least sixty (60) days prior to the end of the
then-current term.
6.2. CAUSE FOR EARLY TERMINATION: If VENDOR is acquired by a third
party, Eclipsys shall have the immediate right to terminate
this Agreement.
6.3. RIGHTS UPON TERMINATION: For a period of two (2) years,
commencing with the date of termination of this Agreement,
VENDOR shall have the sole right and responsibility to provide
Software Maintenance Services to Eclipsys' Customers using
VENDOR's Software, and VENDOR and Eclipsys shall be entitled
to continue to collect the Maintenance Fees associated with
such services as delineated under this Agreement. At the
expiration of such two (2) year period, the source code
version of VENDOR's Software shall be released to Eclipsys.
VENDOR agrees to put into escrow (1) copy of the source code
for VENDOR's Software and all necessary instructions and
materials which Eclipsys may access and use solely to support
Eclipsys" Customers using VENDOR" Software after the
aforementioned two (2) year period.
7. PROPRIETARY INFORMATION/CONFIDENTIALITY
7.1. CONFIDENTIALITY OF VENDOR'S SOFTWARE: Eclipsys agrees that it
has no interest in or right to use VENDOR's Software except in
accordance with the terms of this Agreement, Eclipsys agrees
that during the term of this Agreement and thereafter, it will
hold VENDOR's Software in strict confidence, it will not
disclose or otherwise make available VENDOR's Software or any
part thereof, except to the extent permitted by the terms of
this Agreement, and that it will take all reasonable steps
necessary to maintain the confidentiality of VENDOR's
Software. Eclipsys further agrees it will not remove or permit
to be removed from any item included in VENDOR's Software, any
proprietary, confidential or copyright notices markings or
legends placed thereon by VENDOR.
7.2. CONFIDENTIALITY OF VENDOR'S PROPRIETARY INFORMATION: Eclipsys
agrees that, during the term of this Agreement and thereafter,
it will hold the VENDOR's Proprietary Information in strict
confidence; it will not disclose or otherwise permit any third
person or entity to disclose, use or receive VENDOR's
Proprietary Information without VENDOR's prior written consent
except to such employees or agents of Eclipsys who need access
to such information in order to develop or assist in the
development of schemata or interfaces between Eclipsys and
VENDOR's Software for the benefit of Eclipsys' Customers.
7.3. CONFIDENTIALITY OF ECLIPSYS' PROPRIETARY INFORMATION: VENDOR
agrees that during the term of this Agreement and thereafter,
it will hold the Eclipsys Proprietary Information in strict
confidence; it will not disclose or use or otherwise permit
any third person or entity to disclose, use or receive the
Eclipsys Proprietary Information without Eclipsys' prior
written consent except to such employees or agents of VENDOR
who need access to in order to develop or assist in the
development of schemas or interfaces between Eclipsys and
VENDOR's Software for the benefit of Eclipsys Customers.
7.4. USE OF VENDOR's TRADEMARKS: No license is granted to Eclipsys
to use, and Eclipsys shall not use, any VENDOR trademark, or
service mark, except as necessary for Eclipsys to perform its
duties hereunder. Eclipsys may reference VENDOR's Software in
marketing
<PAGE> 7
and selling VENDOR's Software, however, in all cases where
Eclipsys uses VENDOR's trademarks in the performance of its
duties hereunder, Eclipsys shall identify VENDOR's trademarks
as being owned by, and as being the property of VENDOR.
7.5. PRIVATE LABELING: Eclipsys shall have the right to private
label VENDOR's software under the Eclipsys Sunrise product
line. Eclipsys shall be responsible for all costs associated
with section 7.5.
8. VENDOR'S WARRANTY: VENDOR warrants that VENDOR's Software, when
delivered and so long as Maintenance is to be provided pursuant to THIS
Agreement or any Software Maintenance Agreement with an Eclipsys
Customer is in effect will substantially perform in accordance with its
then current user documentation and any mutually agreed upon
specifications in all material respects. In the event that VENDOR's
software fails to conform to such warranty, VENDOR's sole obligation
shall be to provide Software Maintenance at no additional charge to
Eclipsys or to an Eclipsys customer.
8.1. Subject to the previous sentences, Eclipsys understands that
VENDOR makes no other warranty to Eclipsys regarding the
capabilities of VENDOR's Software, or its (or their)
compatibility with any particular computer, applications, or
operating system, or other warranty of any kind. VENDOR
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS, OR IMPLIED,
INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
USE OF A PARTICULAR PURPOSE.
9. LIMITATION OF LIABILITY: IN NO EVENT SHALL VENDOR BE LIABLE TO ECLIPSYS
FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO
LOST PROFITS OR LOST BUSINESS OPPORTUNITIES.
10. INDEMNIFICATION BY VENDOR. VENDOR agrees to indemnify, defend and hold
harmless Eclipsys from any claim asserted or suit or proceeding that
VENDOR's Software infringes a U.S. patent, trademark, copyright or
trade secret of a third party, provided VENDOR is given prompt written
notice of, and full and complete authority, information and assistance
in the defense of, such claim, suit or proceeding. VENDOR shall pay all
damages and costs awarded against Eclipsys in such suit or proceeding,
but VENDOR shall not be responsible for the cost of any settlement or
any such claim, suit or proceeding made without the written consent of
VENDOR. In addition, and at the option and expense of VENDOR, VENDOR
may, at any time after such claim has been asserted, and shall in the
event VENDOR's Software is in any such suit or proceeding held to
constitute infringement and the use of that VENDOR's Software is
enjoined, either procure for Eclipsys customers who have sub-licensed
VENDOR's Software the right to continue using that VENDOR's Software or
replace or modify that VENDOR's Software so that it becomes
non-infringing, provided that such replacement or modified VENDOR's
Software has the same functional characteristics as the infringing
VENDOR's Software. VENDOR shall not be liable to Eclipsys under the
terms of this paragraph or otherwise if any infringement or claim is
based upon the use of any VENDOR's Software in violation of the License
Agreement attached hereto. Eclipsys may engage its own counsel at its
own expense to advise Eclipsys in connection with any such claim, suit
or proceeding, but VENDOR shall at all times retain the full right and
authority to control the defense of any such claim suit or proceeding.
The provisions of this Section shall survive the termination or
expiration of this Agreement. Notwithstanding any provision of this
Agreement to the contrary, this indemnification paragraph of this
Agreement states the entire liability of VENDOR for the infringement of
any patent, copyright, trademark or trade secret rights.
10.1. In addition, VENDOR agrees to defend, indemnify and hold
Eclipsys harmless from and with respect to any and all damages
liability whatsoever (including attorney fees and cost)
associated with any Eclipsys customers use of VENDOR's
Software. This indemnification
<PAGE> 8
includes all VENDOR's Software licensed by Eclipsys to an
Eclipsys customers using Eclipsys Software License prior to
the date of this Agreement.
11. INDEMNIFICATION BY ECLIPSYS: Eclipsys agrees to defend, indemnify and
hold VENDOR harmless from and with respect to any and all damages,
claims, or liability whatsoever, including but not limited to attorneys
fees and costs of litigation, associated with any claim made by an
Eclipsys customer, which claim is caused by or arises out of Eclipsys'
breach of any contract between Eclipsys and an Eclipsys customer, or
which arises out of Eclipsys' breach of any contract between VENDOR and
Eclipsys.
12. MISCELLANEOUS PROVISIONS.
12.1. ENTIRE AGREEMENT/AMENDMENTS: This Agreement including all
schedules attached hereto, contains the entire agreement
between the parties and all prior proposals, discussions, and
writings by and between the parties and relating to the
subject matter hereof we superseded hereby. None of the terms
of this Agreement shall be deemed to be waived by either party
or amended or supplemented unless such waiver, amendment or
supplement is written and signed by both parties. The
invalidity or unenforceability of any particular provision of
this Agreement, as determined by any court of competent
jurisdiction or any appropriate legislature, shall not effect
the other provisions hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable
provision has been omitted.
12.2. SURVIVAL: All representations and warranties, subject to the
terms and conditions made or undertaken by Eclipsys or VENDOR
in this Agreement or in any document or instrument executed
and delivered pursuant hereto are material, have been relied
upon by the parties hereto, and shall survive the date hereof.
12.3. ASSIGNMENT: This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective
successors and assigns. This Agreement may be assigned
provided that written notice of such assignment is provided to
the non-assigning party and the assignee acknowledges that it
will be liable to the non-assigning party for all
representations, covenants, agreements, obligations, and
liabilities of the assigning party under this Agreement.
VENDOR shall have the right of final approval or rejection of
assignment.
12.4. GOVERNING LAW: The validity and construction of this Agreement
shall be governed by, subject to, and construed in accordance
with the law of the state of Florida.
12.5. PUBLIC ANNOUNCEMENT: Both Eclipsys and VENDOR shall allow the
other to issue a public announcement of this Agreement subject
to review and approval of both parties. However, such
announcement shall not include specific terms, financial
arrangements or any other information of a confidential
nature.
12.6. NOTICES: All notices, requests, demands and other
communications hereunder shall be in writing and shall be
delivered by hand, telex, telegraph, facsimile or like method
of transmission or mailed by registered or certified mail,
return receipt requested, first class postage prepaid,
addressed as follows:
If to Eclipsys: Eclipsys Corporation
East Atlantic Avenue
Suite 200
Delray Beach, FL 33483
Attn: Jack Risenhoover, General Counsel
<PAGE> 9
If to VENDOR: Simione Central National, Inc.
6600 Powers Ferry Road, Suite 300
Atlanta GA 30339
Attn: Jim Henderson, Chief Executive Officer
Eclipsys Corporation Simione Central National, Inc.
Signature Signature
--------------------------- ---------------------
By Greg Wilson By
--------------------------- ---------------------
Title Vice President Title
--------------------------- ---------------------
Date Date
--------------------------- ---------------------
<PAGE> 10
REMARKETING AGREEMENT
SCHEDULE A
VENDOR'S SOFTWARE
The following VENDOR software products, subject to amendment by VENDOR upon
thirty (30) day written notice, are available for sub-licensing under the terms
of this Remarketing Agreement
<TABLE>
<S> <C>
PRODUCT NAME INCLUDED APPLICATIONS
- ------------ ---------------------
SCSYNERGY Intake, Verification, Authorization, Admissions,
Order Entry, Resource and Encounter
Management, Activity Entry, Occurrence
Tracking, Contracts, Billing and Accounts
Receivable/Collections
MAPP(TM) - Managed Avenues of Patient Progress
MAPP Scan Paper version with Variance and Outcome
Tracking Module
MAPP Plus Automated version with Variance and Outcome
Tracking Module
STAT2 Basic Client Intake, Plan of Care, Employee
Registration, Multi-Company Access, Billing/
Accounts Receivable, Medicare Electronic Billing
Options Scheduling, Hospice, Non-Medicare Electronic
Billing, Electronic Remittance Advice
SC Teltime Navigator and Interactive Voice Response (IVR)
Pharmworks Order Entry, Billing, Accounts Receivable
Pharmacy Management and Materials
Management
Options Electronic Billing
DNM 7.0 Enterprize Order Entry, Billing, Accounts Receivable/
Collections, Inventory Control
Options Purchase Order with EDI and Retail
</TABLE>
<PAGE> 11
REMARKETING AGREEMENT
SCHEDULE B
VENDOR'S LIST PRICE
The following prices reflect VENDOR'S standard List Price for each of VENDOR'S
software products available for sub-licensing under this Agreement. VENDOR'S
List Price is subject to change by VENDOR upon thirty (30) days written notice
to Eclipsys. The quoted VENDOR'S List Price excludes hardware and third-party
software charges.
<TABLE>
<CAPTION>
PRODUCT NAME VENDOR'S LIST PRICE
- ------------ -------------------
<S> <C>
SC SYNERGY $6,000 per user (minimum purchase of 10 user; 5
user increments thereafter]
MAPP(TM)
MAPP Scan $15,000 per server copy
NMPP Plus $25,000 per server copy plus
$ 1,850 per device copy
STAT2 Basic $20,000 plus $3,000 per user [must be purchased
in 8 user increments]
Options
Hospice $9,900 per server copy
Scheduling $ 1,000 per user
Non-Medicare Electronic Billing $4,500 per provider
Electronic Remittance Advice $3,500 per server copy
SC TELTIME 1-100 identification numbers - $21,000
101-300 - $45 000
over 300 - $70,000
Pharmworks $18,000 plus $1,000 per user [must be purchased
in 5 user increments]
Options
Electronic Billing $1,500 per server copy
DME 7.0 Enterprize $30,000 plus $700 per user [must be purchased in
5 user increments]
Options
Purchase Order with EDI $ 1,700 per server copy
Retail 10,500 per server copy
</TABLE>
<PAGE> 12
REMARKETING AGREEMENT
SCHEDULE C
INSTALLATION, IMPLEMENTATION AND TRAINING FEES
Installation, Implementation and Training (including project management) will be
provided at a rate of $150 per hour worked, plus all applicable out-of-product
expenses.
<PAGE> 1
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of the 17th day
of April, 1998 by and between SIMIONE CENTRAL HOLDINGS, INC., a Delaware
Corporation (the "Company"), ECLIPSYS CORPORATION, a Delaware corporation (the
"Purchaser"), and the Stockholders listed on Schedule I attached hereto
(individually, a "Stockholder" and collectively, the "Stockholders").
Preliminary Statement
A. The Stockholders own the shares (collectively, the "Shares") of the
common stock, $.00 1 par value per share (the "Common Stock"), of the Company
set forth opposite their respective names on Schedule I attached hereto.
B. The Purchaser desires to purchase, and the Stockholders desire to
sell, the Shares for the consideration set forth below, subject to the terms and
conditions of this Agreement.
C. It is in the interests of the Company to join in this Agreement in
connection with the execution of a reseller agreement and the grant of a right
in favor of the purchaser to acquire additional shares of Common Stock under
certain circumstances, each as provided herein.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of Shares from the Stockholders. Subject
to and upon the terms and conditions of this Agreement, each Stockholder shall
concurrently sell, and deliver to the Purchaser, and the Purchaser shall
purchase and accept from each Stockholder, the Shares set forth opposite such
Stockholder's name on Schedule I attached hereto at a price of $13.25 per share
for an aggregate purchase price of $5,565,000.
2. Closing Delivery.
(a) The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held at the
offices of the Purchaser, on the date hereof or at
such other time and place upon which the Company and
the Purchaser shall agree.
(b) At the Closing, each Stockholder will deliver to the
Purchaser a certificate representing the Shares duly
endorsed in blank or with stock powers duty executed
by such Stockholder, and the Purchaser shall deliver
to the shareholders, the purchase price therefor due
to each Stockholder in cash, by cashier's or
certified check, or by wire transfer immediately
available funds to an account designated by the
Stockholder.
<PAGE> 2
(c) At the Closing, the Company and the Purchasers shall
also enter into a Remarketing Agreement in the form
of Exhibit A attached hereto.
3. Representations and Warranties of the Company Regarding the
Company. The Company represents and warrants to the Purchaser as follows:
(a) The Company is a corporation duty organized, validly existing
and in good standing, under the laws of the jurisdiction of
its incorporation. No proceedings have been taken or
authorized by the Company or, to the best of the Company's
knowledge, by any other party, with respect to the bankruptcy,
insolvency, liquidation, dissolution or winding-up of the
Company.
(b)(i) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock, $.001 par value per share ("Preferred
Stock"). As of March 31, 1998: (i) 8,524,478 shares of Common
Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) no shares of
Preferred Stock were issued or outstanding; (iii) no shares of
Common Stock or Preferred Stock were held in the treasury of
the Company or by subsidiaries of the Company; (iv) 186,079
shares were reserved for issuance under outstanding warrants
("Warrants"); (v) 1,683,356 shares of Common Stock were
reserved for issuance pursuant to stock options granted and
outstanding as of March 31, 1998 and the plans or other
arrangements under which such options were granted (the
"Company Stock Plans"). The Shares, and all shares of Common
Stock subject to issuance as specified above, upon issuance on
the terms and conditions specified herein and in the
instruments pursuant to which they are issuable, shall be duly
authorized, validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Common Stock.
(ii) Except as reserved for grants of options or rights of
issuances of stock after March 31, 1998 under the Warrants
and Company Stock Plans and as disclosed on Schedule II, there
are no equity securities of any class of the Company or any of
its subsidiaries, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for
issuance or outstanding. Except pursuant to the Warrants and
the Company's Stock Plans and as otherwise disclosed on
Schedule II, there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any
character to which the Company or any of its subsidiaries is
a party or by which it is bound obligating the Company or any
of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock
of the Company or any of its subsidiaries or obligating, the
Company or any of its subsidiaries to grant, extend or
accelerate the vesting of or enter into any such option,
warrant, equity security, call, right, commitment or
agreement, and, to the best knowledge of the Company, as of
the date of the Agreement, there are no
2
<PAGE> 3
voting trust, proxies or other agreements or understandings
with respect to the shares of capital stock of the Company
except with respect to the Simione Central Holding, Inc.
Profit-Sharing Plan Trust and except as disclosed in the
Company's 1997 definitive proxy statement.
(c) The Company has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by the
Company and the performance of this Agreement and the
consummation of the transactions contemplated hereby by the
Company have been duly and validly authorized by all necessary
corporate action on the part of the Company. This Agreement
has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms.
(d) Neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the
transactions contemplated hereby, will (i) conflict with or
violate any provision of the charter or By-laws of the
Company, (ii) require on the part of the Company any filing
with, or permit, authorization, consent or approval of, and
governmental entity, (iii) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or
both) a default under, result in the acceleration of, create
in any party any right to accelerate, terminate, modify or
cancel, or require any notice, consent or waiver under, any
contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest or other
arrangement to which the Company is a party or by which either
is bound or to which any of their assets are subject, or (iv)
violate any order, writ, injunction, decree, status, rule or
regulation applicable to the Company or any of its properties
or assets.
(e) The Company has previously furnished to the Purchaser complete
and accurate copies, as amended or supplemented, of its (i)
Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as filed with the Securities and Exchange Commission
("SEC"), and (ii) all other reports filled by the Company
under Section 13 of the Exchange Act with the SEC since
December 11, 1997 (collectively, the "Company Reports"). As of
their respective dates, the Company Reports did not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited
financial statements and unaudited interim financial
statements of the Company included in the Company Reports (i)
comply as to form in all material respects with applicable
accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q
under the Exchange Act) and (iii) fairly
3
<PAGE> 4
present the consolidated financial condition, results of
operations and cash flows of the Company as of the respective
dates thereof and for the periods referred to therein
(subject, in the case of unaudited statements, to normal
recurring year-end adjustments).
(f) Since December 31, 1997, to the Company's knowledge, there has
not been any material adverse change in the assets, business,
financial condition or results of operations or future
prospects of the Company.
(g) The Company has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
(h) Except as disclosed in the Company Reports, there is no (i)
unsatisfied judgment, order, decree, stipulation or injunction
or (ii) claim, complaint action, suit, proceeding, hearing or
investigation of or in any governmental entity before any
arbitrator to which the Company is a party or, to the
Company's knowledge, threatened to be made a party, that could
reasonably be expected to have a material adverse effect on
the assets, business, financial condition, results of
operations or future prospects of the Company.
4. Representations of the Stockholders Regarding the Shares. Each
Stockholder represents and warrants to the Purchaser as follows:
(a) Such Stockholder has good and marketable title to the Shares
which are to be transferred to the Purchaser by such
Stockholder pursuant here, to, free and clear of any and all
covenants, conditions, restrictions (other than under the
Securities Act, as hereinafter defined), voting, trust
arrangements, liens, charges, encumbrances, options and
adverse claims or rights whatsoever.
(b) Such Stockholder has the full right, power and authority to
enter into this Agreement and to transfer, convey and sell to
the Purchaser at the Closing the Shares to be sold by such
Stockholder hereunder and, upon consummation of the purchase
contemplated hereby, the Purchaser will acquire from such
Stockholder good and marketable title to such Shares, free and
clear of all covenants, conditions, restrictions (other than
under the Securities Act, as hereinafter defined, or
hereunder), voting, trust arrangements, liens, charges,
encumbrances, options and adverse claims or rights whatsoever.
(c) Such Stockholder is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition,
injunction or decree of any court or other governmental body
which would prevent the execution or delivery of this
Agreement by such Stockholder or the transfer, conveyance and
sale of the Shares to be sold by such Stockholder to the
Purchaser pursuant to the terms hereof.
4
<PAGE> 5
(d) No broker or finder has acted for such Stockholder in
connection with this Agreement or the transactions
contemplated hereby, and no broker or finder is entitled to
any brokerage or finder's fee or other commissions in respect
of such transactions based upon agreements, arrangements or
understandings made by or on behalf of such Stockholder.
5. Company Board of Directors. So long as this Agreement
continues in effect:
(a) The Purchaser shall have the right to designate a
representative reasonably acceptable to the Company's Board of
Directors for election as a Director. Pursuant to such right,
at the next regularly scheduled meeting, of the Company's
Board of Directors after receiving notice from the Purchaser
that it has elected to designate a representative to serve on
the Board, the Company shall expand its Board of Directors by
one Director and shall appoint such nominee representative to
fill the vacant directorship created by such expansion. The
Company represents to the Purchaser that pursuant to its
By-laws, as currently in effect, its Board of Directors has
the authority, without further action by its shareholders, to
effect such expansion in the number of the Company's Directors
and to fill the vacancy created by such expansion.
(b) Such representative shall excuse himself or herself from
voting in any portion of any meeting relating to the
consideration of any matter in which Purchaser has a material
interest, other than solely as a stockholder.
(c) Prior to the next regular meeting of the Company's
shareholders after appointment of any such Purchaser
representative to the Board and thereafter prior to all
meetings of the Company's shareholders at which Directors will
be elected, the Company shall nominate and recommend the
Purchaser representative (or a successor reasonably acceptable
to the Company's Board of Directors) for election to a seat
on the Company's Board of Directors, and shall use its best
efforts to cause such Purchaser representative to be elected
as such Director. In the event that this Agreement shall
terminate as provided in Section 8 below, no such termination
shall preclude the Purchaser from thereafter voting those
shares that then have the right to vote on Directors of the
Company for election of a Purchaser representative to the
Company's Board. At any time upon written request of the
Company following the termination of this Agreement,
Purchaser shall cause the Purchaser's representative to resign
from the Company's Board of Directors.
(d) Purchaser shall take such action as may be required so that
all Shares are voted for nominees to the Board of Directors of
the Company, and unless the Company otherwise consents in
writing, on all other matters to be voted on by holders of the
Common Stock, in favor of all such matters recommended by the
Company's Board of Directors.
5
<PAGE> 6
(e) Notwithstanding the provisions of this Section 5, the Company
shall not be obligated to nominate or appoint any person to
the Company's Board of Directors who (i) in the written
opinion of outside counsel, would not be qualified under
applicable law, rule or regulation to serve as a director of
the Company, or (ii) has been involved in any of the events
enumerated in Item 2(d) or (c) of Schedule 13D promulgated
under the Securities Exchange Act of 1934, or who is the
target of an investigation by any governmental authority or
agency relating to felonious criminal activity, or subject to
any order, decree or judgment of any court or agency
prohibiting service as a director of any public company or
providing investment or financial advisory services.
6. Covenants.
(a) Purchaser agrees that neither the Purchaser nor any of its
affiliates, alone or with others, will in any mariner acquire,
agree to acquire, make any proposal (or request permission to
make any proposal) to acquire any securities (or direct or
indirect rights, warrants or options to acquire any
securities) of the Company (other than securities constituting
less than 1% of the outstanding Common Stock of the Company
or securities issued as a dividend or distribution upon the
Shares), unless such acquisition, agreement or making of a
proposal shall have been first approved (or in the case of a
proposal, first invited) by the Company's Board of Directors.
(b)(i) In the event that at any time on or before 180 days of the
date of this Agreement, the Company proposes to enter into any
agreement for merger or consolidation of the Company, a sale
or disposition of 50% or more of its assets or earning power,
or issuance of additional equity securities, as a result of
which the other party or parties to such agreement would
thereafter own, directly or indirectly, a substantial portion
of the Company's business or a majority of the outstanding
Voting Stock of the Company (any of the foregoing, an
"Acquisition Event"), the Company shall provide the Purchaser
written notice of such Acquisition Event at least 20 days
prior to entering into a definitive agreement for any such
Acquisition Event, which notice shall contain a description of
the general nature of the proposed transaction.
(ii) The Company shall also provide the Purchaser prompt written
notice:
(A) of all bona fide offers it receives to purchase more
than 5% of its outstanding Voting Stock or acquire a
substantial portion of its assets or business;
(B) if the Company receives notice that a third party
has purchased or made an offer to purchase 5% or more
of its outstanding Voting Stock or reasonably believes
there is a substantial possibility that a third party
intends to purchase, or to make an offer to purchase
more than 5% of its outstanding Voting Stock; and
6
<PAGE> 7
(C) if the Company intends to enter into a definitive
agreement to sell additional shares of its Voting
Stock comprising more than 5% of its outstanding
Voting Stock.
(iii) Upon the receipt by Purchaser of written notice pursuant to
clause (b)(1) above, the Purchaser shall have the right,
exercisable by written notice delivered within twenty (20)
days to the Company, to acquire, on the closing date of the
Acquisition Event ("Notified Closing Date") up to that number
of shares of Common Stock equal to 4.9% of the outstanding
Common Stock of the Company on the Notified Closing Date at a
purchase price of $13.25 a share, which acquisition shall be
effected on the Notified Closing Date in accordance with the
procedures of Section 2(b) above.
7. Investment Representation. The Purchaser represents, warrants
and covenants as follows:
(a) It is purchasing the shares for investment only, and not with
a view to, or for sale in connection with, any distribution of
the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the
Securities Act.
(b) It has had such opportunities as it deems adequate to obtain
from representatives of the Company such information as is
necessary to permit it to evaluate the merits and risks of
investment in the Company.
(c) It can afford a complete loss of the value of the Shares and
is able to bear the economic risk of holding such Shares for
an indefinite period.
(d) It understands that (i) the Shares have not been registered
under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act, (ii)
the Shares cannot be sold, transferred or otherwise disposed
of unless they are subsequently registered under the
Securities Act or an exemption from registration is then
available; (iii) in any event, the exemption from registration
under Rule 144 or otherwise may not be available for at least
one year and even then will not be available unless a public
market then exists for the Common Stock, adequate information
concerning the Company is then available to the public, and
other terms and conditions of Rule 144 are complied with; and
(iv) there is now no registration statement on file with the
securities and Exchange Commission with respect to any stock
of the Company and the Company has no obligation or current
intention to registered the Shares under the Securities Act.
(e) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold, transferred or
7
<PAGE> 8
otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion
of counsel satisfactory to the corporation to the
effect that such registration is not required."
(f) In the event of any purchase of Common Stock pursuant to
Section 6(b)(iii) above, the Purchaser shall make the
foregoing representations with respect to the Common Stock
purchased on the Notified Closing Date.
8. Term. This Agreement shall continue in effect until the
earlier of (i) April 17, 2001, or (ii) the date on which the
Remarketing Agreement terminates.
9. Miscellaneous.
(a) The parties agree to execute such further instruments and to
take such further action as may reasonably be necessary to
carry out the intent of this agreement.
(b) For purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective
parties are as follows:
If to Purchaser:
Eclipsys Corporation
777 East Atlantic Avenue, Suit 200
Delray Beach, FL 33483
Attention: Harvey Wilson, Chief Executive Officer
With a copy to:
John A. Burgess, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
If to Company:
Simione Central Holdings, Inc.
6600 Powers Ferry Road
Atlanta, GA 30339
Attention: James R. Henderson, President and CEO
With a copy to:
Simione Central Holdings, Inc.
8
<PAGE> 9
6600 Powers Ferry Road
Atlanta, GA 30339
Attention: General Counsel
If to the Stockholders:
Gary M. Bremer
Gary B. Bremer
William T. Simione, Jr.
c/o Simione Central Holdings, Inc.
6600 Powers Ferry Road
Atlanta, GA 30339
Rod D. Windley
c/o Heathfield, Inc.
6666 Power Ferry Road, 3rd Floor
Atlanta, GA 30339
No change of address shall be binding upon the other party
hereto until written notice thereof is received by such party
at the address shown herein. All notices shall be in English
and shall be effective upon receipt if delivered personally,
two days after shipment by overnight delivery services and
seven (7) days after mailing if sent by mail.
(c) This Agreement shall be governed by the taws of the State of
Delaware and interpreted and determined in accordance with the
laws of the State of Delaware courts to contracts made and to
be performed entirely in Delaware by residents of that state.
(d) This Agreement shall inure to the benefit of the successors
and assigns of the Company and the Purchaser.
(e) In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision.
(f) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be
amended except in a writing signed by each party hereto.
(g) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which shall constitute
the same instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ATTEST: PURCHASER:
Eclipsys Corporation
By: /s/
- -------------------------------- ------------------------------------
Vice President
ATTEST: THE COMPANY:
Simione Central Holdings, Inc.
By: /s/
- -------------------------------- ------------------------------------
COO
STOCKHOLDERS:
Gary M. Bremer
----------------------------------------
Gary B. Bremer
----------------------------------------
William J. Simione, Jr.
----------------------------------------
Rod D. Windley
/s/ R.D. Windley
----------------------------------------
11
<PAGE> 11
SCHEDULE I
Stockholders Shares To Be Sold
Gary M. Bremer 187,500
Gary B. Bremer 20,000
William J. Simione, Jr. 25,000
Rod D. Windley 187,500
12
<PAGE> 12
SCHEDULE II
(1) Offer to issue shares of its Common Stock for $8,000,000 of the
proposed purchase price in an acquisition transaction. The purchase
price to be based upon the value of the Company's Common Stock at the
execution of a definitive agreement in connection with such proposed
acquisition.
(2) Effective April 15, 1998, the Company merged InfoMed, Inc. into its
wholly-owned subsidiary Simione Central National, Inc. and in
connection with this merger, the Company issued 6,844 shares of its
Common Stock to the remaining minority shareholders of InfoMed, Inc.
(3) The Board of Directors has approved, subject to shareholder approval,
an increase in the number of shares available for grant of stock
options of 1,000,000 shares under the Company's 1997 Stock Plan.
Options for 344,725 shares have been granted by the Compensation
Committee subject to shareholder approval to total share increase.
13
<PAGE> 1
EXHIBIT 21.1
Simione Central Holdings, Inc.'s Subsidiaries
<TABLE>
<CAPTION>
Subsidiaries Jurisdiction
- ------------ ------------
<C> <S>
S C Holding, Inc. Georgia
Simione Central National, LLC Georgia
Simione Central Inc. Georgia
Simione Central Consulting, Inc. Georgia
Script Systems, Inc. New Jersey
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 12, 1999 included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8 (File No. 33-97772, File
No. 333-51869, and File No. 333-70811).
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 26, 1999
<PAGE> 1
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-97772) pertaining to the 1994 Incentive Stock Option and
Non-Qualified Stock Option Plan of InfoMed Holdings, Inc., Registration
Statement (Form S-8 No. 333-51869) pertaining to the Simione Central Holdings,
Inc. 1997 Non-Qualified Formula Stock Option Plan, Omnibus Equity-Based
Incentive Plan, and the 1996 Stock Option Plan, and Registration Statement (Form
S-8 No. 333-70811) pertaining to the Simione Central Holdings, Inc. Omnibus
Equity-Based Incentive Plan of our report dated February 23, 1998, with respect
to the financial statements and schedule of Simione Central Holdings, Inc. as
of December 31, 1997 and for each of the two years in the period then ended,
included in the Annual Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,526,816
<SECURITIES> 0
<RECEIVABLES> 9,353,928
<ALLOWANCES> 1,674,404
<INVENTORY> 0
<CURRENT-ASSETS> 18,762,110
<PP&E> 1,852,405
<DEPRECIATION> 1,981,573
<TOTAL-ASSETS> 27,856,604
<CURRENT-LIABILITIES> 17,460,945
<BONDS> 0
0
0
<COMMON> 8,598
<OTHER-SE> 7,715,584
<TOTAL-LIABILITY-AND-EQUITY> 27,856,604
<SALES> 41,646,135
<TOTAL-REVENUES> 41,646,135
<CGS> 0
<TOTAL-COSTS> 24,085,509
<OTHER-EXPENSES> 29,972,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (183,495)
<INCOME-PRETAX> (12,171,483)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,171,483)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> (1.42)
</TABLE>
