U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
__X__ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the year ended December 31, 1997
_____ Transition report under section 13 or 15(d) of the Securities Act of
1934 for the transition period from _____ to _____.
Commission File Number: 0-27554
PACE HEALTH MANAGEMENT SYSTEMS, INC.
------------------------------------
(Name of small business issuer as specified in its charter)
Iowa 42-1297992
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1025 Ashworth Road
West Des Moines, IA 50265
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(Address and zip code of principal executive offices)
(515) 222-1717
------------------------------------------
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par
--------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject of the filing requirements for at least the past 90
days. YES _X_ NO ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's net revenues for its most recent fiscal year: $2,958,160
The aggregate market value of the voting and non-voting common stock held by
non-affiliates, based upon the average bid and asked price of the common stock
on July 1, 1998 as reported by Bloomberg L.P., was approximately $199,763.
Shares of common stock held by each officer and director and by each person who
owns 5% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates.
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Number of Shares Outstanding
Class July 24, 1998
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Common Stock, no par 5,321,784
Transitional Small Business Disclosure Format (Check one): YES ____ NO __X__
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
1997 FORM 10-KSB/A ANNUAL REPORT
TABLE OF CONTENTS
PART III.
Page
----
ITEM 9. Directors, Executive Officers, Promoters and Control Person,
Compliance With Section 16(a) of the Exchange Act...................1
ITEM 10. Executive Compensation..............................................3
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management......................................................5
ITEM 12. Certain Relationships and Related Transactions......................8
ITEM 13. Exhibits and Reports on Form 8-K....................................9
<PAGE>
Registrant's Form 10-KSB, filed with the Commission on March 31, 1998, indicated
that the information in Items 9 through 12 of Part III was incorporated by
reference from Registrant's definitive proxy materials to be filed within 120
days following the end of Registrant's fiscal year. In lieu of such
incorporation by reference, Registrant hereby amends its Form 10-KSB for fiscal
year 1997 by adding the following Items 9 through 12 of Part III of such report:
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS OF THE COMPANY
The Company's Articles of Incorporation provide that the Board of Directors will
consist of no less than three and no more than seven members and that the Board
is divided into three classes, each class to be as nearly equal in number as
possible. Presently, the Company has six Directors, divided into three classes
of two Directors each.
The terms of Directors John Pappajohn and Gordon M. Derzon will expire at the
1998 annual meeting, the terms of Directors Mark J. Emkjer and Carl S. Witonsky
will expire at the 1999 annual meeting of shareholders and the terms of
Directors Bill W. Childs and R. David Spreng expire at the 2000 annual meeting
of shareholders.
The following paragraphs set forth information concerning each of the current
Directors of the Company:
Mark J. Emkjer, age 42, joined the Company in March 1996 as President, Chief
Executive Officer and Director. From 1991 through February 1996 Mr. Emkjer
worked for Hospital Cost Consultants Inc. (HCC), an international provider of
managed care solutions, where he initially served as Vice President of Sales and
was then promoted to President and Chief Executive Officer in 1992. Prior to
joining HCC, Mr. Emkjer held positions with Tecxel Hospital Service Corporation
as an Executive Vice President from September 1988 through December 1990 and as
Vice President and General Manager with Foster Medical from June 1984 through
August 1988, most recently as Corporate Vice President.
Carl S. Witonsky, age 60, has been a Director of the Company since April 1994,
and Chairman of the Board of Directors since March 15, 1995. He is an
independent consultant to investment bankers and health care organizations on
health care information matters and a venture partner for St. Paul Venture
Capital. From 1989 to 1992, was the Chairman and Chief Executive Officer of
Gabrieli Medical Information Systems (GMIS). Prior to GMIS, he served as Vice
President of Systems & Operations of Shared Medical Systems from 1975 to 1988.
He is a director of International Medical Management, a Mahren,
Pennsylvania-based health care informatics company.
Bill W. Childs, age 58, has been a director of the Company since February 1990.
He is the Chief Executive Officer of MC Informatics, an outsourcing and
facilities management company based in Fountain Valley, California. From April
1995 to September 1996, Mr. Childs was a Senior Vice President of CyCare, an
information systems company providing physicians' office software. Prior to
that, he was the President and CEO of Health Data Analysis, Inc. from 1984 until
May 1995. Mr. Childs was the founder and Editor-in-Chief of HEALTHCARE
INFORMATICS, a leading hospital information systems magazine published by Health
Data Analysis, Inc. He also is the founder or co-founder of several other
magazines, including COMPUTERS IN HEALTHCARE, HEALTHCARE COMPUTING &
COMMUNICATIONS CANADA, and R.F. DESIGN. He was also one of the founders of
Continental Healthcare Systems and TDS Healthcare Systems Corp.
<PAGE>
John Pappajohn, age 70, has been a Director of the Company since January 1994.
Since 1969, Mr. Pappajohn has been the sole owner of Pappajohn Capital
Resources, a venture capital fund, and President of Equity Dynamics, Inc., a
financial consulting firm, both located in Des Moines, Iowa. Mr. Pappajohn also
serves as a director of the following public companies: The Care Group, Inc.;
CORE, Inc.; OncorMed, Inc.; American Physician Partners, Inc.; Health Desk
Corporation; and Patient Infosystems, Inc.
R. David Spreng, age 36, has been a director of the Company since January 1994.
He is the Managing General Partner of IAI Ventures, Inc., the venture capital
arm of Investment Advisers, Inc. ("IAI"), a $16 billion asset management firm
based in Minneapolis, Minnesota. Prior to joining IAI in 1989, Mr. Spreng was a
member of the Corporate Finance Departments of Salomon Brothers Inc., New York
and Dain Bosworth Incorporated, Minneapolis. Mr. Spreng also serves as a
director of GalaGen, Inc. and a number of privately held companies.
Gordon M. Derzon, age 63, has been a Director of the Company since July 1995.
Since 1974, Mr. Derzon has been a faculty member at the University of Wisconsin
and Chief Executive Officer of the University of Wisconsin Hospital and Clinics.
Prior to that time he had served in several hospital Executive Director
positions, including seven years at Kings County Hospital in Brooklyn, New York.
Mr. Derzon serves on various committees for the University Hospital Consortium.
He has also served as past Chairman of both the Governing Council of the
Public-General Hospital Section and past Chairman of the University Hospital
Consortium Service Board.
EXECUTIVE OFFICERS
The current executive officers of the Company, in addition to Mr. Emkjer, are as
follows:
Roger D. Huseman, age 45, joined the Company as Chief Financial Officer in July
1994 and was appointed Secretary and Treasurer of the Company on January 31,
1995. From 1990 through June 1994, Mr. Huseman operated a financial consulting
firm specializing in assisting businesses with financial restructuring and
financing needs. For four years prior to that he served initially as Vice
President and CFO, then as President and a Director of NonInvasive Monitoring
Systems, Inc., a public company located in Sarasota, Florida. He is licensed as
a certified public accountant in Iowa.
Gary Feierstein, age 46, joined the Company in June 1996 Director of New
Development and was promoted to Vice President of Technology in August of 1997.
From 1989 to 1995, Mr. Feierstein worked for First Data Corporation Health
Systems Group, a healthcare information system company located in Charlotte,
North Carolina, where he served most recently as Director of New Development.
For the 10 years prior to that time he was employed by McDonnell Douglas Health
Systems Company in St. Louis, which acquired First Data Corporation in 1989.
Josh E. Wisham, age 39, joined the Company in July 1996 as Vice President of
Client Services. From 1993 to 1996, Mr. Wisham directed the Client Services
Organization at CliniCom, Inc., now a part of HBO & Company. Prior to that time,
he worked for Intermountain Health Care in Salt Lake City, Utah as Client
Services Director. Mr. Wisham has over 22 years of experience in the information
systems industry, which include 16 years experience specifically working with
healthcare information systems.
Alan C. Wittmer, age 40, serves as the Company's Vice President of Marketing. He
joined the Company in November 1989 and prior to that held various sales and
marketing management positions with other companies. Prior to joining the
Company, Mr. Wittmer worked for Digital Equipment Corporation from May 1987 to
November 1989, and for AT&T from September 1985 to May 1987.
2
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's common stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than ten percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 1997 through December 31, 1997, all filing requirements applicable to
its officers, directors, and greater than ten percent beneficial owners were
complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
persons who served as Chief Executive Officer of the Company at any time during
the year ended December 31, 1997 and all other persons who served as executive
officers of the Company at December 31, 1997 and whose total annual salary and
bonus for the year exceeded $100,000 for services in all capacities to the
Company during such fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------------------------ -----------------------------
Securities
Underlying All Other
Name and Position Year Salary(1) Bonus Options(3) Compensation
- ----------------- ---- --------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Mark J. Emkjer, President 1997 $ 175,000 $ 25,000 195,500 $ 86,000(4)
and Chief Executive Officer(2) 1996 $ 130,625 $ 0 260,000 $ 135,147(5)
1995 -- -- -- -- (2)
Alan C. Wittmer 1997 $ 104,645 $ 0 45,270 $ 33,318(6)
Vice President, Sales and 1996 $ 129,206 $ 0 2,000 $ 0
Marketing 1995 $ 93,337 $ 0 0 $ 0
</TABLE>
- ------------------
(1) Excludes certain perquisites and other benefits which did not exceed
the lesser of $50,000 or 10% of salary and bonus for any named
executive in any of the years shown.
(2) Mr. Emkjer became President and Chief Executive Officer of the Company
in March 1996 and was not employed by the Company prior to that time.
Therefore, no compensation is shown for prior years.
(3) For additional information, see "Stock Options/SARs/LTIPs."
(4) Consists of moving expense reimbursements.
3
<PAGE>
(5) Consists of the signing bonus and moving expense reimbursements
required by Mr. Emkjer's employment agreement. See "Employment
Agreement."
(6) Consists of moving expense reimbursements.
STOCK OPTIONS/SARs/LTIPs
The following table provides certain information concerning stock options
granted during the year ended December 31, 1997 to the persons named in the
Summary Compensation Table set forth above.
Option Grants in Fiscal 1997
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of Total
Options Granted Exercise or
Number of to Employees Base Price Expiration
Name Options Granted in Fiscal 1997 ($/Share) Date
- ---------------- --------------- --------------- --------- ----------
<S> <C> <C> <C> <C>
Mark J. Emkjer 195,000(1) 43.8% $0.50 August 17, 2007
Alan C. Wittmer 45,270(1) 10.2% $0.50 August 17, 2007
</TABLE>
- ---------------
(1) Nonqualified stock options.
No stock appreciation rights (SARs) were granted to any named executive officer
during the fiscal year ended December 31, 1997. No stock options or SARs were
exercised during 1997 by any named executive officer. No long term incentive
plan awards (LTIPs) were made during 1997 to any named executive officer.
COMPENSATION OF DIRECTORS
Directors receive no compensation for serving on the Board of Directors other
than reimbursement of reasonable expenses incurred in attending meetings.
Nonemployee directors who are not affiliated with principal shareholders and who
began service as directors prior to February 1995 (only Mr. Childs and Mr.
Witonsky) have received nonqualified warrants to purchase Common Stock. Mr.
Childs and Mr. Witonsky were each granted warrants to purchase 27,274 shares of
Common Stock of the Company as consideration for serving on the Board of
Directors. The warrants have an exercise price of at least 85% of the fair
market value of the Common Stock, as determined by the Board of Directors, on
the date of grant.
Subsequent to February 10, 1995, under the 1995 Stock Compensation Plan, new
non-employee directors receive a nondiscretionary grant of nonqualified stock
options for 21,820 shares upon their election or appointment to the Board. The
Plan provides for automatic grants of nonqualified stock options to new
non-employee directors at an exercise price equal to 100% of the fair market
value of the shares on the date of grant. One-fifth of such options vest over
each of five years from the date of election or appointment of the new
non-employee director. The non-employee director options are exercisable for ten
years from the date of grant. The Compensation Committee has no discretion
regarding the grant or terms of non-employee director options. Mr. Derzon
received a nonqualified option to purchase 21,820 shares under the Plan upon his
appointment as a director in 1995.
4
<PAGE>
During 1997, Mr. Emkjer, Mr. Witonsky, Mr. Childs and Mr. Derzon were granted
195,500, 37,000, 10,200 and 10,200 nonqualified stock options, respectively,
exercisable at $0.50 per share. One-fifth of such options vest over each of five
years from the date of grant and are exercisable for ten years from the date of
grant.
EMPLOYMENT AGREEMENT
Effective as of March 15, 1996, Mark J. Emkjer was appointed President and Chief
Executive Officer and was appointed to the Board of Directors of the Company.
The employment agreement between the Company and Mr. Emkjer provides for base
compensation of $165,000 per year, a signing bonus of $10,000, and an annual
bonus of up to 50% of base compensation based on attainment of goals determined
by the Board of Directors with respect to financial performance, stock price
appreciation and operating objectives. Pursuant to the agreement Mr. Emkjer
received a nonqualified option to purchase 100,000 shares of common stock of the
Company which vest 20% on the first anniversary date of the grant and 20% on
each of the next four anniversary dates of grant, and are exercisable at the
price of $2.50 per share. He also received a nonqualified option for 110,000
shares of common stock of the Company with an exercise price of $1.00 per share,
of which 35,000 vested upon purchase by Mr. Emkjer of a house and relocation of
his family to the Des Moines area, and the balance vest at the rate of 15,000
per year for five years. In addition, Mr. Emkjer's employment agreement provided
for payment of the selling commission with respect to his home in California and
moving expenses. The Agreement also contains severance, change of control and
noncompete provisions.
On October 17, 1997, the Company and Mr. Emkjer amended the Employment Agreement
to provide certain benefits to Mr. Emkjer in the event of "Trigger Event" which
is defined in the Amendment to mean (A) Employee is terminated without Cause (as
defined in the Amendment to the Employment Agreement), (B) the Company is
liquidated, or (C) any person becomes the owner of more than 50% of the
Company's outstanding common stock as a result of a tender offer, merger,
acquisition of substantially all of the Company's assets or other similar
transaction (but not including an investment by a third party in stock newly
issued by the Company or the conversion into common stock of convertible
securities by a person holding such securities on October 17, 1997, or the
conversion into common stock of convertible securities newly issued by the
Company as part of an investment in the Company by a third party.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of July 1, 1998, the number and percentages
of shares of the Common Stock and Preferred Stock beneficially owned by each
current director, by the chief executive officer of the Company and all other
executive officers whose total cash compensation in the year ended December 31,
1997 exceeded $100,000, by all directors and such executive officers as a group,
and by each person known to the Company to be the beneficial owner of more than
5% of the outstanding shares of the Common Stock and Preferred Stock. The table
setting forth information with respect to holders of Common Stock includes (i)
shares of Common Stock issuable upon the exercise of options and warrants
exercisable within 60 days and (ii) ownership of Preferred Stock, which is
convertible into Common Stock on a 2 for 1 basis. The Company is aware of no
stockholder, other than those listed on the following table, claiming to hold
more than five percent of any class of the Company's outstanding voting
securities.
5
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK:
NAME AND ADDRESS NO. OF SHARES PERCENT OF CLASS
OF BENEFICIAL OWNER(4) BENEFICIALLY OWNED(1)(13) OUTSTANDING(15)
- ---------------------- ------------------------- ---------------
<S> <C> <C>
DIRECTORS AND OFFICERS:
Mark J. Emkjer 115,000 (10) 2.1
John G. Pappajohn 2,531,686 (2) 34.5
R. David Spreng (6) 4,172,039 (3) 48.7
Bill W. Childs 25,638 (8) *
Carl S. Witonsky 31,638 (14) *
Gordon Derzon 11,728 (9) *
Alan Wittmer 30,475 (19) *
All present directors and
executive officers as a group
(10 persons) 10,835,543 (15) 64.4
OTHER FIVE PERCENT OR MORE
SHAREHOLDERS:
Simon Casady (5) 314,428 (16) 5.9
IAI Investment Funds (6) 4,172,038 (3) 48.7
FBL Investment Advisory Services, Inc. (7) 1,735,364 (17) 26.4
Edgewater Private Equity Fund, L.P. (11) 2,227,757 (18) 31.7
The Dreyfus Corporation (12) 380,000 7.1
PREFERRED STOCK:
<CAPTION>
NAME AND ADDRESS NO. OF SHARES PERCENT OF CLASS
OF BENEFICIAL OWNER(4) BENEFICIALLY OWNED(1)(13) OUTSTANDING
- ---------------------- ------------------------- ---------------
DIRECTORS AND OFFICERS:
John G. Pappajohn 625,000 21.7
OTHER FIVE PERCENT OR MORE
SHAREHOLDERS:
IAI Investment Funds 1,250,000 43.5
FBL Investment Advisory Services, Inc. 500,000 17.4
Edgewater Private Equity Fund, L.P. 500,000 17.4
</TABLE>
- ----------------
* Less than 1%.
1. Unless otherwise noted, each person has sole investment and voting
power with respect to the shares indicated. Preferred stock shares
noted below receive two votes per share and are convertible into common
stock on a two for one basis.
6
<PAGE>
2. Includes 100,000 common stock shares held by Halkis, Ltd., an affiliate
of Mr. Pappajohn, 408,519 common stock shares, 625,000 preferred stock
shares and presently exercisable warrants to purchase 773,167 shares
held by Mr. Pappajohn.
3. Includes 471,473 common stock shares and presently exercisable warrants
to purchase 56,820 shares held by IAI Investment Fund IV; 340,705
common stock shares, 1,250,000 preferred stock shares and presently
exercisable warrants to purchase 681,820 shares held by IAI Investment
Fund VI; and 121,220 common stock shares held by IAI Investment Fund
VII, each of which is an affiliate of Mr. Spreng.
4. Except as noted, the address of each officer and director of the
Company is 1025 Ashworth Road, Suite 200, West Des Moines, Iowa 50265.
5. Address: 1238 Fulton, Indianola, Iowa 50125.
6. The address for R. David Spreng and each of the IAI Funds is 3700 First
Bank Place, P.O. Box 357, Minneapolis, Minnesota 55402-0357.
7. Address: 5400 University Avenue, West Des Moines, Iowa 50266.
8. Includes 25,638 shares issuable upon the exercise of presently
exercisable options.
9. Includes 3,000 shares and 8,728 shares issuable upon the exercise of
presently exercisable options under the 1995 Stock Compensation Plan.
10. Represents presently exercisable options held by Mr. Emkjer. See "Stock
Options/SARs/LTIPs."
11. Address: 666 Grand Avenue, Suite 200, Des Moines, Iowa 50309.
12. Address: c/o Mellon Bank Corporation, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258. The shares are beneficially owned by
The Dreyfus Corporation, which is a subsidiary of Mellon Bank
Corporation, the trustee of the Company's employee benefit plan (the
"Trustee"). The shares include all shares held of record by the Trustee
which have not been allocated to the individual accounts of employee
participants in the plan. The Trustee disclaims beneficial ownership of
all shares that have been allocated to the individual accounts of
employee participants in the plan for which directions have been
received and followed.
13. Assumes exercise of options or warrants exercisable on or before July
1, 1998 by the named person or group, but by no other person.
14. Includes 6,000 shares and 25,638 shares issuable upon the exercise of
presently exercisable options.
15. Includes shares, options and warrants held by Messrs. Emkjer,
Pappajohn, Spreng, Childs, Witonsky and Derzon, as described in the
notes above. Also includes presently exercisable options to purchase
34,073 shares held by Roger Huseman, 6,000 shares and presently
exercisable options to purchase 10,000 shares held by Josh Wisham and
5,000 shares and presently exercisable options to purchase 2,400 shares
held by Gary Feierstein.
16. Includes 302,465 shares and presently exercisable warrants to purchase
11,963 shares.
7
<PAGE>
17. Includes 471,127 common stock shares, 500,000 preferred stock shares
and presently exercisable warrants to purchase 264,237 shares, held on
behalf of Mutual Ventures of South Dakota, Inc., a South Dakota
corporation, which is an investment advisory client of FBL Investment
Advisory Services, Inc. Does not include shares which may be deemed to
be owned indirectly by Mutual Ventures of South Dakota as a 7.51%
shareholder of Iowa Business Development Finance Corp., which owns
approximately 4.3% of the outstanding shares of the Company.
18. Includes 517,090 common stock shares, 500,000 preferred stock shares
and presently exercisable warrants to purchase 710,667 shares.
19. Includes 30,475 shares issuable upon the exercise of presently
exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and the first quarter of 1998, John Pappajohn, who is a Director of
the Company and who beneficially owns 34.5% of the Company's Common Stock; IAI
Investment Funds, which beneficially owns 48.7% of the Company's Common Stock
and which is an affiliate of R. David Spreng, a Director of the Company;
Edgewater Private Equity Fund, L.P., which beneficially owns 31.8% of the
Company's Common Stock; and an affiliate of FBL Investment Advisory Services,
Inc., which beneficially owns 26.4% of the Company's Common Stock, purchased an
aggregate of 2,875,000 shares of the Company's Preferred Stock at a price of
$1.00 per share. Each share of Preferred Stock is convertible into two shares of
Common Stock. For additional information, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
In August 1997, the Company's Board of Directors reduced the exercise price of
all outstanding stock options of the Company to $1.75 per share. In January
1998, the Board of Directors reduced the exercise price of all outstanding stock
options to $.50 per share. In adopting each resolution, the Board determined
that, prior to the amendment, the options no longer provided an incentive for
the holders of such options because the market price of the Company's stock had
declined to substantially below the then-effective exercise price of the
options. In each case, the Board also determined that the amended exercise price
was equal to the fair market value of the Company's common stock, within the
meaning of the stock option plans, as of the date of the amendment. These
amendments applied to options held by officers and directors of the Company, as
well as to options held by employees who were not officers or directors. The
number of such options held by each officer and director is set forth under
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Mr. Spreng is President of IAI Ventures, Inc., the venture capital arm of
Investment Advisers Inc., which provides investment management services to
certain funds which, in the aggregate, beneficially own 4,172,039 shares of the
Common Stock of the Company, and shares voting and investment power with respect
thereto, and may be deemed to beneficially own such shares. Investment Advisers
Inc. had a one-year consulting agreement with the Company which commenced on
August 31, 1995. As consideration for this agreement, certain funds to which
Investment Advisers Inc. provides investment management services received
warrants to purchase a total of 70,000 shares of Common Stock exercisable at
$3.00 per share.
In September 1996 the Company completed an offering of 900,000 shares of its
Common Stock at a price of $3.25 per share. The shares were sold by the Company
without an underwriter or placement agent, and all shares sold in the offering
are subject to a 270-day lock-up agreement. In the offering, two funds of which
Mr. Spreng is an officer purchased a total of 261,539 shares, Mr. Pappajohn and
his affiliates
8
<PAGE>
purchased 169,231 shares, and Mutual Ventures of South Dakota and Edgewater
Private Equity Fund, L.P. (see "Securities Ownership of Certain Beneficial
Owners and Related Persons") purchased 61,539 and 169,231 shares, respectively.
The remaining shares in the offering were sold to unaffiliated persons on the
same terms and conditions.
From March 1996 to March 1997, Michael J. Vasquez, who was President and CEO of
the Company until March 1996, had a one-year consulting agreement with the
Company to provide consulting services for which he received compensation in the
amount of $72,675 for the period ended December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report.
3. Articles of Incorporation and Bylaws
3.1 Restated Articles of Incorporation, as amended (1)
3.2 Restated Bylaws (1)
3.3 Articles of Amendment (included herein)
4. Instruments defining the rights of shareholders
4.1 Form of Common Stock Certificate (2)
4.9 Form of Class A Warrant Certificate (2)
4.12 Form of Class B Warrant Certificate (2)
4.13 Form of Agent's Warrant (2)
4.14 Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1)
4.15 Restated Bylaws (Incorporated by reference to Exhibit 3.2)
10. Material Contracts
10.1 Employment Agreement for Michael Vasquez, as amended December 16, 1994
(2)
10.2 Employment Agreement for Simon Casady, as amended December 16, 1994 (2)
10.3 1995 Stock Compensation Plan, effective February 10, 1995 (2)
10.4 Form of Incentive Stock Option Agreement (2)
10.5 Form of Non-Qualified Stock Option Agreement (2)
10.6 Form of Non-Employee Director Non-Qualified Stock Option Agreement (2)
10.7 Incentive Stock Option Agreement for Michael J. Vasquez dated December
16, 1994 (2)
10.8 Form of Five-year Employee Warrants (2)
10.9 Form of Three-year Employee Warrants (2)
10.10 Compensatory Warrants issued to Director Carl S. Witonsky dated April
22, 1994 and December 16, 1994 (2)
10.11 Compensatory Warrants issued to Director Bill W. Childs dated February
26, 1990 and December 16, 1994 (2)
10.12 Form of Lockup Agreements with Executive Officers, Directors and
Shareholders (2)
10.13 Consulting Services Agreement with Steven Evans dated December 31, 1993
(2)
10.14 Consulting Services Agreement with Carl S. Witonsky dated January 1,
1995 (2)
10.15 Software Purchase Agreement with JRS Clinical Technologies, Inc. dated
October 18, 1989 (2)
10.16 COMMES Purchase Agreement between the Company and Creighton University
dated December 18, 1989 (2)
10.17 Office Lease and Amendments thereto between the Company and Ashworth
Plaza Ltd. (2)
10.18 Merit Client Agreement with Customer dated January 1, 1995 (2)
10.19 Master Agreement with Customer dated September 30, 1994 (2)
10.20 Non-qualified Executive Stock Option Plan adopted March 25, 1996 (3)
10.21 Employment Agreement with Mark J. Emkjer dated February 15, 1996 (4)
10.22 Amendment to Mark J. Emkjer Employment Agreement (5)
10.23 Form of Employee Retention Agreement (5)
9
<PAGE>
10.24 Asset Purchase Agreement by and between the Company and Minnesota
Mining and Manufacturing Company dated June 30, 1998 (included herein)
10.25 Amendment to Asset Purchase Agreement (included herein)
11 Earnings Per Share Calculation (5)
27 Financial Data Schedule (5)
(1) Incorporated by reference to the Company's Form 8-K dated May 3, 1996.
(2) Incorporated by reference to the Company's Registration Statement on
Form SB-2, Registration No. 33-90408-C, effective April 27, 1995.
(3) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1996.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 333-7487, effective August 9, 1996.
(5) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
1997.
10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment to be signed on its behalf by the undersigned, thereunto
duly authorized.
PACE HEALTH MANAGEMENT SYSTEMS, INC.
(Registrant)
Dated: August 5, 1998 By /s/ Mark J. Emkjer
-------------------------------------------
Mark J. Emkjer, Chief Executive Officer and
Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated: August 5, 1998 By /s/ Mark J. Emkjer
-------------------------------------------
Mark J. Emkjer, Chief Executive
Officer and Director
Dated: August 5, 1998 By /s/ Roger D. Huseman
-------------------------------------------
Roger D. Huseman, Vice President,
Secretary and Treasurer, Chief
Financial Officer and Principal
Accounting Officer
Dated: August 5, 1998 By /s/ Carl S. Witonsky
-------------------------------------------
Carl S. Witonsky, Chairman and
Director
Dated: August 5, 1998 By /s/ John G. Pappajohn
-------------------------------------------
John G. Pappajohn, Director
Dated: August 5, 1998 By /s/ R. David Spreng
-------------------------------------------
R. David Spreng, Director
Dated: August 5, 1998 By /s/ Bill W. Childs
-------------------------------------------
Bill W. Childs, Director
Dated: August 5, 1998 By /s/ Gordon M. Derzon
-------------------------------------------
Gordon M. Derzon, Director
11
<PAGE>
PACE HEALTH MANAGEMENT SYSTEMS, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER ITEM PAGE
- ----------- --------------------------------------------------- ----
3.3 Articles of Amendment 13
10.24 Asset Purchase Agreement by and between the Company 17
and Minnesota Mining and Manufacturing Company
dated June 30, 1998
10.25 Amendment to Asset Purchase Agreement 41
12
EXHIBIT 3.3
ARTICLES OF AMENDMENT
OF
PACE HEALTH MANAGEMENT SYSTEMS, INC.
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to Section 1002 of the Iowa Business Corporation Act (the
"Act"), the undersigned corporation adopts the following amendment to the
corporation's Articles of Incorporation.
I. The name of the corporation is Pace Health Management Systems, Inc.
(the "Company").
II. On July 24, 1997, the Company filed Articles of Amendment with the Iowa
Secretary of State to amend the Company's Restated Articles of Incorporation by
designating a series of the Company's Preferred Stock to be known as Convertible
Preferred Stock, Series A (the "Convertible Preferred Stock"). No shares of the
Convertible Preferred Stock have been issued. By the filing of these Articles of
Amendment, the Company now amends the preferences, limitations and relative
rights of the Convertible Preferred Stock, prior to the issuance of any shares
thereof. As of the effectiveness of these Articles of Amendment, the
preferences, limitations and relative rights of the Convertible Preferred Stock
shall be as follows:
SECTION 1. DESIGNATION; NUMBER OF SHARES; PURCHASE PRICE. The shares of
such series shall be designated as "Convertible Preferred Stock, Series A", and
the number of shares constituting the Convertible Preferred Stock shall be
4,000,000. The Convertible Preferred Stock may be issued and sold by the Company
at the discretion of the Board of Directors at a price of $1.00 per share.
SECTION 2. PAR VALUE. The Convertible Preferred Stock shall have no
par value.
SECTION 3. RANK. The Convertible Preferred Stock shall rank prior to
all of the Company's Common Stock, no par value (the "Common Stock"), now
outstanding or hereafter issued, both as to payment of dividends and as to
distribution of assets upon the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of
Convertible Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, annual dividends at the rate of $0.10 per share. Such dividends shall
be fully cumulative, shall accumulate quarterly without interest, shall be
payable in cash and shall become due and payable when, as and if declared by the
Board of Directors or the conversion of the Convertible Preferred Stock.
Dividends shall be payable to holders of record as they appear on the stock
books of the Company on such record dates as shall be fixed by the Board of
Directors. Such record dates shall be not more than 60 nor less than 10 days
preceding the respective dividend payment date. The amount of dividends payable
per share of Convertible Preferred Stock for each full quarterly dividend period
shall be computed by dividing the annual dividend amount by four. The amount of
dividends payable for the initial dividend period and for any other period
shorter than a full quarterly dividend period shall be computed on the basis of
a 360-day year of twelve 30-day months. No dividends or other distributions
shall be paid or set apart for payment on, and no purchase, redemption or other
acquisition shall be made by the Company of, any shares of Common Stock or any
other capital stock ranking junior as to the payment of dividends to the
Convertible Preferred Stock (the "Junior Preferred Stock") unless and until all
accumulated and unpaid dividends on the Convertible Preferred Stock, including
the full dividend for the then-current quarterly dividend period, shall have
been paid or declared and set apart for payment.
Upon the full payment of all accumulated and unpaid preferred dividends
to the holders of the
1
<PAGE>
Convertible Preferred Stock, the holders of Convertible Preferred Stock shall
participate in and receive dividends on a parity with the holders of Common
Stock on an as-converted basis, when, as and if such dividends or other
distributions are declared by the Board of Directors.
Any reference to "distribution" contained in this Section 4 shall not
be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Convertible Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets constitute stated capital or surplus
of any nature, an amount equal to the dividends accumulated and unpaid thereon
to the date of final distribution to such holders, whether or not declared,
without interest, plus a sum equal to $1.00 per share, before any payment shall
be made or any assets distributed to the holders of Common Stock or any other
capital stock of the Company ranking junior as to liquidation rights to the
Convertible Preferred Stock ("Junior Liquidation Stock"). The entire assets of
the Company available for distribution shall be distributed ratably among the
holders of the Convertible Preferred Stock and any other capital stock of the
Company which ranks on a parity as to liquidation rights with the Convertible
Preferred Stock in proportion to the respective preferential amounts to which
each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation preference of the shares of
the Convertible Preferred Stock, the holders of such shares shall participate in
the distribution of the remaining assets by the Company on a parity with the
holders of Common Stock on an as-converted basis.
The merger or consolidation of the Company with or into another
corporation, or the sale, transfer or other disposition of all or substantially
all of the assets of the Company which results in the shareholders of the
Company immediately prior to the consummation of such transaction holding less
than 50% of the voting securities of the surviving entity immediately following
the consummation of the transaction shall be deemed to be a liquidation or
dissolution of the Company for purposes of this Section 5.
SECTION 6. CONVERSION. Holders of Convertible Preferred Stock may, at
their option upon surrender of the certificates therefor, convert any or all of
their shares of Convertible Preferred Stock into fully paid and nonassessable
shares of Common Stock (and such other securities and property as they may be
entitled to, as hereinafter provided) at any time after issuance thereof.
There shall be a mandatory conversion of all outstanding Convertible
Preferred Stock by the Company upon the earlier of (i) the closing of a
Qualified Public Offering, or (ii) the affirmative vote of the holders of a
majority of the outstanding Convertible Preferred Stock for a mandatory
conversion. A "Qualified Public Offering" is a public offering of the shares of
the Company in which (a) a minimum of $10 million is raised in such offering by
the Company, (b) the per share purchase price is at least $4.00 and (c) the
offering is underwritten on a firm basis by a recognized underwriter.
Each share of Convertible Preferred Stock shall be convertible into
fully paid and nonassessable shares of Common Stock at the rate of two (2)
shares of Common Stock for each share of Convertible Preferred Stock, subject to
adjustment from time to time as provided in Section 7 (such conversion rate, as
so adjusted shall be referred to as the "Conversion Rate"). The initial
"Conversion Price" shall be equal to $1.00 per share divided by the Conversion
Rate, and is subject to adjustment as provided in Section 7. Upon conversion,
all accumulated and unpaid dividends to the conversion date on the Convertible
Preferred Stock so converted shall also be converted into fully paid and
nonassessable shares of Common Stock at the rate of $0.50 of accumulated and
unpaid dividends for each share of Common Stock, subject to adjustment in the
same manner as any adjustment in the Conversion Price or Conversion Rate under
Section 7.
2
<PAGE>
To effect the conversion the holders of Convertible Preferred Stock
shall surrender for such purpose to the Company or its agent, certificates
representing shares to be converted, duly endorsed in blank or accompanied by
proper instruments of transfer. The Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of Common Stock or other securities or property upon conversion of
Convertible Preferred Stock in a name other than that of the holder of the
shares of Convertible Preferred Stock being converted, nor shall the Company be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Convertible Preferred Stock
outstanding upon the basis hereinbefore provided shall at all times be reserved
by the Company, free from preemptive rights, for such conversion. If the Company
shall issue any securities or make any change in its capital structure which
would change the number of shares of Common Stock into which each share of the
Convertible Preferred Stock shall be convertible as herein provided, the Company
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Convertible Preferred
Stock on the new basis.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
No fractional shares are to be issued upon the conversion of the
Convertible Preferred Stock, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the fraction of the share remaining times the Conversion Price.
Section 7. Adjustments to Conversion Price and Conversion Rate. The
Conversion Rate shall be adjusted from time to time in the event the Company
shall (i) pay a dividend or make a distribution on its Common Stock in shares of
its capital stock, (ii) subdivide its outstanding Common Stock into a greater
number of shares, (iii) combine the shares of its outstanding Common Stock into
a smaller number of shares, or (iv) issue by reclassification of its Common
Stock any shares of its capital stock. In each such case the Conversion Rate in
effect immediately prior thereto shall be proportionately adjusted so that the
holder of any Convertible Preferred Stock thereafter surrendered for conversion
shall be entitled to receive, to the extent permitted by applicable law, the
number and kind of shares of capital stock of the Company which such holder
would have owned or have been entitled to receive after the happening of such
event had such Convertible Preferred Stock been converted immediately prior to
the record date for such event (or if no record date is established in
connection with such event, the effective date for such action). An adjustment
pursuant to this paragraph shall become effective immediately after the record
date in the case of a stock dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
Except for issuances of Common Stock specifically listed below, the
Conversion Price shall be adjusted from time to time if the Company shall issue
any additional shares of Common Stock (including securities convertible into
Common Stock) without consideration or for consideration per share less than the
Conversion Price then in effect. In such event, the Conversion Price shall be
adjusted to a price equal to the price paid per share for the additional Common
Stock issued. The Conversion Price shall not be adjusted in the event of the
issuance of Common Stock (i) upon the conversion of Convertible Preferred Stock,
or (ii) to officers, directors, employees, agents or consultants of the
3
<PAGE>
Company pursuant to any stock option or equity incentive plans approved by the
Board of Directors.
Whenever the Conversion Rate or Conversion Price is adjusted, the
Company shall give notice by mail to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Company to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Company.
SECTION 8. VOTING RIGHTS. Except as specified in Section 9 or as
expressly required by the Act, the holders of Convertible Preferred Stock shall
be entitled to one vote per share and shall vote, together with the holders of
Common Stock as a single class, on all matters required or permitted to be
submitted to the shareholders of the Company.
SECTION 9. CERTAIN ACTIONS NOT TO BE TAKEN WITHOUT VOTE OF HOLDERS OF
CONVERTIBLE PREFERRED STOCK. Without the consent or affirmative vote of the
holders of a majority of the outstanding shares of Convertible Preferred Stock,
voting separately as a class, the Company shall not (i) secure additional
capitalization through the issuance of debt or equity securities, (ii) merge
with or into or acquire more than 50% of the stock of, or all or substantially
all of the assets of, another entity, (iii) reorganize or recapitalize the
Company, (iv) sell, lease, license or otherwise dispose of all or substantially
all of the assets of the Company, (v) alter any rights, preferences, or
limitations of Convertible Preferred Stock, (vi) pay any dividend on Junior
Preferred Stock or Common Stock, (vii) repurchase Convertible Preferred Stock or
any other preferred stock issued by the Company or Common Stock, (viii) amend
the Company's Articles of Incorporation or Bylaws, (ix) increase the size of the
Board of Directors to more than six (6) directors; (x) voluntarily liquidate the
Company or (xi) create a new series or class of securities of the Company.
SECTION 10. AMENDMENT. Any provision of these Articles of Amendment,
including any of the terms of the Convertible Preferred Stock, may be amended or
waived at any time by the agreement of the Company and the holders of a majority
of the outstanding shares of Convertible Preferred Stock. The Company shall
promptly furnish a copy of any such amendment or waiver to each holder of record
of the Convertible Preferred Stock.
III. The Board of Directors of the Company duly adopted the foregoing as the
preferences, limitations and relative rights of the Convertible Preferred Stock
by unanimous resolution on December 18, 1997.
IV. Pursuant to Section 602 of the Act, shareholder approval is not required for
this Amendment.
Dated and effective as of the 18th day of December, 1997.
PACE HEALTH MANAGEMENT SYSTEMS, INC.
By /s/ Roger D. Huseman
-------------------------------------------
Roger D. Huseman, Chief Financial Officer
4
EXHIBIT 10.24
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of June 30, 1998, by
and between MINNESOTA MINING AND MANUFACTURING COMPANY, a Delaware corporation
("3M"), and PACE HEALTH MANAGEMENT SYSTEMS, INC., an Iowa corporation ("PACE").
3M and PACE are referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which 3M will purchase
certain of the assets (and assume certain of the liabilities) of PACE in return
for cash.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all of PACE's right, title and interest, as of
the Closing Date, in and to all of the assets of PACE related to, or used in
conjunction with, the Business, other than Excluded Assets, including, but not
limited to:
(a) All of the real property owned by PACE and used by PACE in
the operation of the Business;
(b) All of the equipment, machinery, vehicles, furniture,
fixtures, furnishings and leasehold improvements owned by PACE and used by PACE
in the operation of the Business;
(c) PACE's interest in all real property leases to which PACE
is a party that are used in connection with the Business.
(d) PACE's interest in all personal property leases to which
PACE is a party that are used in connection with the operation of the Business.
(e) All of PACE's inventories of supplies, raw materials,
parts, finished goods, work-in-process, product labels and packaging materials
used in connection with the Business and PACE's interest in all orders or
contracts for the purchase of supplies, raw materials, parts, product labels and
packaging materials used in connection with the Business;
(f) PACE's interest in those licenses, contracts or agreements
with respect to the Business to which PACE is a party (i) that are assignable to
3M without the need for the prior consent or approval of any other third party
and (ii) that are not assignable to 3M without the prior consent or approval of
a third party but for which PACE has procured such consent or approval pursuant
to Sections 5(b) or 6(a)(iii);
(g) All unfilled or uncompleted customer contracts,
commitments or purchase or sales orders received and accepted by PACE in
connection with the Business in the ordinary course of business;
(h) All Intellectual Property, whether registered,
unregistered or unregisterable;
(i) All accounts or notes receivable (excluding intra-company
accounts) owing to PACE that relate to the Business;
(j) The current telephone listings of the Business and the
right to use the telephone numbers currently being used at the principal offices
and other offices or facilities of the Business;
<PAGE>
(k) All permits, licenses and other governmental approvals
held by PACE with respect to the Business, to the extent they are assignable;
(l) All prepaid expenses and deposits made by PACE with
respect to the Business;
(m) All long-term investments of PACE relating to the
Business.
(n) Any rights to recovery by PACE arising out of litigation
with respect to the Business;
(o) PACE's customer, prospect, dealer and distribution lists,
sales literature, inventory records, sales order and sales order log books,
customer information, employee payroll records, product data, material safety
data sheets, price lists, production demonstrations, quotes and bids and all
product catalogs and brochures.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local, or foreign law.
"Assumed Liabilities" means only those (a) Liabilities and obligations
of PACE relating to PACE's accounts payable and accrued liabilities; (b) all
customer deposits and deferred revenues; and (c) all obligations as set forth in
the contracts and agreements assumed by 3M as part of the Acquired Assets.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Business" means the development and marketing of point of care
clinical documentation software for use in the hospital acute care, ambulatory
and rehabilitation environments.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday observed by 3M.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Disclosure Agreement" means the Disclosure Agreement between PACE and
3M dated April 23, 1998, as amended from time to time.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
2
<PAGE>
"Escrow Agent" means Norwest Bank Minnesota, National Association.
"Escrow Agreement" means the Escrow Agreement among 3M, PACE and the
Escrow Agent, in the form of Exhibit A hereto, to be dated the Closing Date.
"Escrow Fund" means the Escrow Fund established under the Escrow
Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with PACE for purposes of Code Section 414.
"Excluded Assets" means the following assets of PACE:
(a) All bank accounts of PACE;
(b) All corporate certificates of authority and corporate
minute books and the corporate stock record or register of PACE;
(c) Such licenses, permits or other certificates of authority
issued by any federal, state or local government to PACE which, by their terms,
are nonassignable, and which are not necessary for 3M to operate the Business;
(d) All cash and cash equivalents of PACE with respect to the
Business;
(e) All insurance policies of PACE and all rights of PACE
(including rights to receive dividends) under or arising out of such insurance
policies;
(f) Rights to receive refunds with respect to any and all
taxes paid by PACE, including interest payable with respect thereto; and
(g) The furniture and equipment listed on Exhibit B;
(h) All of PACE's books, records and other documents and
information relating to the Assets or the Business not specifically included in
the Acquired Assets, including, without limitation, all purchase orders and
invoices, commission records, correspondence and personnel records.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
3
<PAGE>
"Intellectual Property" means:
(a) All documents or other tangible materials embodying
technology or intellectual property rights owned by, licensed to or otherwise
controlled by PACE and used in connection with the Business, whether such
properties are located on PACE's business premises or on the business premises
of PACE's suppliers or customers, including, without limitation all software
programs (including both source and object codes) and related documentation for
software used in or developed for support of the Business; and
(b) All rights in patents, patent applications, copyrights,
mask works, trade secrets or other intellectual property rights owned by,
licensed to or otherwise controlled by PACE or used in, developed for use in or
necessary to the conduct of the Business as now conducted or planned to be
conducted including, without limitation, those set forth in the Disclosure
Schedule under the caption referencing Section 3(k).
(c) All rights in trademarks, service marks, tradenames and
corporate names owned by PACE, whether registered or unregistered, including,
without limitation, those set forth in Section 3(k) of the Disclosure Schedule,
together with all goodwill associated therewith.
(d) All rights to institute and maintain any action or
investigation for and to recover damages for any past infringement of the
foregoing Intellectual Property or any actions of unfair competition relating
thereto.
"Knowledge" (or "know" or any similar term) means the knowledge of the person or
persons responsible for addressing the matter. When used with regard to PACE,
"knowledge," "know" or any similar term means the actual knowledge of Mark J.
Emkjer, President; Roger D. Huseman, Chief Financial Officer; Josh Wisham, Vice
President of Client Services; Alan Wittmer, Vice President of Sales, Marketing
and Product Development; and Gary Feierstein, Vice President of Technology.
"Liability" means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"PACE" has the meaning set forth in the preface above.
"PACE Stockholder" means any person who or which holds any PACE Shares.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code
Section 4975.
"Purchase Price" has the meaning set forth in Section 2(c) below.
4
<PAGE>
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for Taxes not yet due and payable, (c) purchase money liens and
liens securing rental payments under capital lease arrangements, and (d) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money as set forth in Section 3(e) of the Disclosure
Schedule.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or addon minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, 3M agrees to purchase from PACE, and PACE agrees
to sell, transfer, convey, and deliver to 3M, all of the Acquired Assets at the
Closing for the consideration specified below in this Section 2. PACE is
retaining no rights in or to any of the Acquired Assets, including any use
thereof, except as provided in Sections 7(d) and 10(u) hereof. Within fifteen
(15) Business Days following the execution of this Agreement, 3M may give notice
to PACE of any agreements included in the listing of contracts in the Disclosure
Schedules which 3M does not wish to have assigned to it as part of the Acquired
Assets, and PACE shall not be required to obtain assignments of such agreements.
(b) Assumption of Liabilities.
(i) On and subject to the terms and conditions of this
Agreement, 3M agrees to assume and become responsible for all of the
Assumed Liabilities at the Closing. 3M WILL NOT ASSUME OR HAVE ANY
RESPONSIBILITY, HOWEVER, WITH RESPECT TO ANY OTHER OBLIGATION OR
LIABILITY OF PACE NOT INCLUDED WITHIN THE DEFINITION OF ASSUMED
LIABILITIES.
(ii) Within ten (10) Business Days following the Closing Date,
PACE will prepare and deliver to 3M a schedule of the accounts
receivable transferred to 3M as part of the Acquired Assets and of
liabilities assumed by 3M under clause (a) of the definition of Assumed
Liabilities, including the amount of each such receivable and
liability. In the event that such liabilities exceed the amount of such
accounts receivable by more than $100,000, but not more than $125,000,
3M shall be entitled to deduct the amount in excess of $100,000 from
the Escrow Fund pursuant to the Escrow Agreement. In the event such
liabilities exceed the amount of such accounts receivable by more than
$125,000, PACE shall immediately pay to 3M the amount in excess of
$125,000. If such amount is not paid by PACE, 3M shall be entitled to
deduct the amount of such excess from the Escrow Fund pursuant to the
Escrow Agreement.
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(iii) Within ten (10) Business Days following the Closing
Date, PACE will prepare and deliver to 3M a schedule of the customer
deposits and deferred revenues assumed by 3M under clause (b) of the
definition of Assumed Liabilities. In the event that such customer
deposits and deferred revenues exceed One Million Thirty-Seven Thousand
Dollars ($1,037,000), 3M will be entitled to deduct the amount of such
excess from the Escrow Fund pursuant to the Escrow Agreement.
(iv) At 3M's option and upon written notice to PACE prior to
the Closing Date, 3M may pay to PACE at the Closing the amount of
accrued employee vacation pay and personal needs compensation which
would otherwise be included in the Assumed Liabilities. In the event 3M
exercises this option and pays to PACE the entire amount of such
liabilities, such liabilities shall remain obligations of PACE and
shall not be included in the Assumed Liabilities. PACE will provide to
3M at or before Closing a schedule showing the amount of accrued
vacation pay and personal needs compensation for each employee.
(c) Purchase Price. 3M agrees to pay to PACE at the Closing Four
Million Seven Hundred Fifty Thousand Dollars ($4,750,000.00) (the "Purchase
Price") by delivery of cash for the Purchase Price payable by wire transfer or
delivery of other immediately available funds, in addition to the assumption of
the Assumed Liabilities. The Purchase Price will be paid as follows:
(i) $4,000,000.00 payable to PACE in immediately available funds; and
(ii) $750,000.00 deposited with the Escrow Agent pursuant to the Escrow
Agreement.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Dorsey & Whitney
LLP, 220 South Sixth Street, Minneapolis, Minnesota, commencing at 9:00 a.m.
local time on the second business day following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "Closing Date"). The Closing shall be deemed
effective as of 12:01 a.m., Central Time, on the Closing Date.
(e) Deliveries at the Closing. At the Closing, (i) PACE will deliver to
3M the various certificates, instruments, and documents referred to in Section
6(a) below; (ii) 3M will deliver to PACE the various certificates, instruments,
and documents referred to in Section 6(b) below; (iii) PACE will execute,
acknowledge (if appropriate), and deliver to 3M (A) assignments (including
Intellectual Property transfer documents and assignments of customer contracts)
in form and substance acceptable to 3M and PACE, and (B) such other instruments
of sale, transfer, conveyance, and assignment as 3M and its counsel reasonably
may request; (iv) 3M will execute, acknowledge (if appropriate), and deliver to
PACE (A) an assumption in form and substance acceptable to 3M and PACE, and (B)
such other instruments of assumption as PACE and its counsel reasonably may
request; and (v) 3M will deliver to PACE the consideration specified in Section
2(c) above.
(f) Allocation of Purchase Price. 3M and PACE agree that the Purchase
Price and the Assumed Liabilities (plus other relevant items) shall be allocated
to the Acquired Assets for all purposes (including tax and financial accounting)
as provided in this Section. The allocation shall be according to Exhibit C
hereto, but using the fair market values of the respective Acquired Assets and
Assumed Liabilities as of the Closing Date. The allocation of the purchase price
shall be determined by 3M within 60 days following the Closing Date, and 3M
shall promptly notify PACE of such determination. 3M's allocation of the
purchase price shall be binding unless it is determined as provided in this
Section that such allocation is not reasonable under the standards of the
Internal Revenue Code.
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If PACE has any objections to such proposed allocation, it shall
deliver to 3M a notice setting forth any objections to the allocation, including
the reasons therefor. In the event that no such objections are made within
thirty (30) days after the receipt of notice from 3M, then such allocation shall
be final and binding for purposes of this Agreement. In the event that PACE
delivers such an objection within such 30-day period, PACE and 3M shall use
their reasonable efforts to resolve by written agreement any such objections,
and, in the event 3M and PACE so resolve all such objections, then the proposed
allocation as modified by such agreement shall be final and binding for purposes
of this Agreement.
In the event all such objections are not resolved by agreement of the
parties within the fifteen (15) day period following the delivery of such
objections, 3M and PACE shall submit such objections which are then unresolved
to the Minneapolis, Minnesota office of an accounting firm agreed upon by PACE
and 3M, which firm shall not be an auditor or consultant for either party, and
such accounting firm shall be directed by 3M and PACE to resolve any unresolved
objections as promptly as practicable, but in any event within thirty (30) days,
and to deliver written notice to 3M and PACE setting forth its resolution of the
disputed matters. The allocation, after giving effect to any modifications
agreed by the parties and the resolution of the remaining objections by such
accounting firm, shall be final and binding for purposes of this Agreement.
3M and PACE shall make available to each other and, if applicable, to
such accounting firm such books, records and other information (including work
papers) as any of the foregoing may reasonably request to review the allocation
referenced above or any matters submitted to such accounting firm. The fees and
expenses of such accounting firm shall be paid 50% by each of 3M and PACE.
3. Representations and Warranties of PACE. PACE represents and warrants
to 3M that the statements contained in this Section 3 are correct and complete
as of the date of this Agreement, except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3.
(a) Organization of PACE. PACE is a corporation duly organized and
validly existing under the laws of the State of Iowa.
(b) Authorization of Transaction. PACE has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. The board of directors of
PACE has duly authorized the execution, delivery, and performance of this
Agreement by PACE. Subject to the approval of this Agreement by PACE
Stockholders, and assuming that this Agreement is the valid and binding
obligation of 3M, this Agreement constitutes the valid and legally binding
obligation of PACE, enforceable in accordance with its terms and conditions,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting creditor's rights generally or by general principles of equity or
public policy.
(c) Noncontravention. Except as disclosed in Section 3(c) of the
Disclosure Schedule, to PACE's knowledge, neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which PACE is subject or any provision of the
charter or bylaws of PACE or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any material agreement, contract, lease, license, instrument, or other
arrangement to which PACE is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets).
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PACE does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above).
(d) Brokers' Fees. PACE 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 for which 3M could become liable or obligated.
(e) Title to Acquired Assets. Except as disclosed in Section 3(e) of
the Disclosure Schedule, PACE has good and marketable title to all of the
Acquired Assets, free and clear of any Security Interest or restriction on
transfer.
(f) Financial Information. Attached hereto as Exhibit D is a schedule
showing certain information concerning the Acquired Assets and Assumed
Liabilities. The column of Exhibit D labeled "3/31/98" sets forth the amounts
attributable to each category listed in such Exhibit, as taken from the
Company's financial records as of March 31, 1998 and calculated according to
GAAP. The columns labeled "A", "B", "C" and "D" represent PACE's good faith
estimate of the expected changes in the listed categories between March 31, 1998
and the anticipated Closing Date of October 1, 1998, and the column labeled
"10/1/98" represents the sum of the preceding columns. Although the columns
labeled A, B, C, D and 10/1/98 represent PACE's good faith estimate of the
changes in the items indicated during the period prior to the Closing Date and
the amount of such items at the anticipated Closing Date, respectively, PACE
does not represent or warrant that the actual amounts at the Closing Date will
correspond to the amounts in the column labeled 10/1/98 or that the amounts
shown in columns A, B, C and D will be the same as the changes which actually
occur prior to Closing in the corresponding items in the 3/31/98 column.
(g) Events Subsequent to Most Recent Fiscal Year End. Except as
disclosed on Section 3(g) of the Disclosure Schedule, since December 31, 1997:
(i) no party has accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) constituting part
of the Acquired Assets and involving more than Ten Thousand Dollars
($10,000.00);
(ii) PACE has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims)
constituting part of the Acquired Assets and either involving more than
Ten Thousand Dollars ($10,000.00) or occurring outside the Ordinary
Course of Business;
(iii) PACE has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property; or
(iv) PACE has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to any Acquired Asset;
(h) [Intentionally omitted.]
(i) Legal Compliance. To the knowledge of PACE, PACE and its
predecessors and Affiliates have complied, and all Acquired Assets are in
compliance, with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
except for any failure to comply which in the aggregate does not materially
adversely affect the Acquired Assets or the business of PACE taken as a whole,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
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claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
(j) Tax Matters.
(i) Except as disclosed on Section 3(j)(i) of the Disclosure
Schedule, PACE has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material
respects. All Taxes owed by PACE (whether or not shown on any Tax
Return) have been paid. PACE currently is not the beneficiary of any
extension of time within which to file any Tax Return. To PACE's
knowledge, no claim has ever been made by an authority in a
jurisdiction where PACE does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of PACE that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) PACE has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) PACE has no knowledge of any pending or threatened
proceeding by any authority to assess any additional Taxes for any
period for which Tax Returns have been filed or of any dispute or claim
concerning any Tax Liability of PACE. There are no Tax Returns filed
with respect to any of PACE and its Subsidiaries that currently are the
subject of audit. PACE has delivered to 3M correct and complete copies
of all federal income Tax Returns, examination reports, and statements
of deficiencies assessed against or agreed to by PACE since December
31, 1994.
(k) Intellectual Property Rights. PACE owns and possesses all right,
title and interest, or holds a valid license, in and to Intellectual Property.
To the knowledge of PACE: (i) no party has infringed or misappropriated, or is
currently infringing or misappropriating, any Intellectual Property, (ii) no
party has used, or is using any Intellectual Property, except pursuant to a
contract identified in Sections 3(n)(xiii) or (xiv) of the Disclosure Schedule,
(iii) no party has contested or is contesting the validity or enforceability of
any Intellectual Property, and (iv) neither PACE nor any Intellectual Property
has or is infringing, misappropriating or otherwise violating any intellectual
property rights of any party.
(l) Tangible Assets. PACE owns all its equipment and other tangible
assets necessary for the conduct of the Business as presently conducted and as
presently proposed to be conducted. Each such tangible asset, is, in all
material respects, in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used
and presently is proposed to be used.
(m) [Intentionally omitted.]
(n) Contracts. Section 3(n) of the Disclosure Schedule lists the
following contracts and other agreements to which PACE is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person constituting a part of
the Acquired Assets and providing for lease payments in excess of
$25,000 per annum;
(ii) any agreement (or group of related agreements)
constituting part of the Acquired Assets and being for the purchase or
sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to PACE, or involve consideration in excess of
$25,000;
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(iii) any agreement constituting part of the Acquired Assets
and concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$25,000 or under which it has imposed a Security Interest on any of the
Acquired Assets;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) [Intentionally omitted];
(vii) [Intentionally omitted];
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
fulltime, parttime, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(x) [Intentionally omitted];
(xi) any agreement constituting part of the Acquired Assets
under which the consequences of a default or termination would
reasonably be expected to have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of PACE;
(xii) any other agreement (or group of related agreements)
constituting part of the Acquired Assets the performance of which
involves consideration in excess of $25,000;
(xiii) any agreement involving the license, lease or sale of
any of the Intellectual Property with customers who are end users of
the Intellectual Property;
(xiv) any agreement involving the license, lease or sale of
any of the Intellectual Property with any individual or company that
sublicenses, subleases or resells any of the Intellectual Property to
end users (i.e., distribution agreements);
(xv) any agreement involving third party materials (e.g.,
software, data or other matter) that have been incorporated into any of
the Intellectual Property; and
(xvi) any agreement involving companies and/or individuals who
authored (in whole or in part) any of the Intellectual Property.
PACE has delivered to 3M a correct and complete copy of each written agreement
listed in Section 3(n) of the Disclosure Schedule (as amended to date) and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Section 3(n) of the Disclosure Schedule. With respect to each
such agreement: (A) the agreement is legal, valid, binding, enforceable, and in
full force and effect; (B) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in Section 2 above); (C) to PACE's
knowledge, no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) to
PACE's knowledge, no party has repudiated any provision of the agreement.
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(o) Notes and Accounts Receivable. All notes and billed accounts
receivable of PACE constituting part of the Acquired Assets are reflected
properly on PACE's books and records, in accordance with GAAP, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to a reserve for bad debts of $25,000.
(p) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of PACE.
(q) Insurance. Section 3(q) of the Disclosure Schedule sets forth the
insurance coverage currently in effect for PACE and PACE's insurance claims
history since March 1994.
(r) Litigation. Section 3(r) of the Disclosure Schedule sets forth each
instance in which, to PACE's knowledge, PACE (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasijudicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(r) of the Disclosure Schedule could result
in any adverse change in the business, financial condition, operations, results
of operations, or future prospects of PACE.
(s) Product Warranty. Section 3(s) of the Disclosure Schedule
summarizes all claims outstanding, pending or, to the best knowledge of PACE,
threatened for breach of any warranty relating to any products of the Business
sold by PACE prior to the date hereof.
(t) Product Liability. To PACE's knowledge, PACE has no Liability (and
to PACE's knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
PACE software product developed and delivered by PACE.
(u) Employees. PACE is not a party to or bound by any collective
bargaining agreement, nor has PACE experienced any strikes, grievances, claims
of unfair labor practices, or other collective bargaining disputes. PACE has not
committed any unfair labor practice. PACE has no knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of PACE. PACE has paid or shall pay on the Closing
Date compensation or benefits (other than accrued vacation and sick leave) for
its employees or leased employees and all amounts due under its employee leasing
arrangements with Merit Resources, Inc. Accrued vacation and sick leave will be
included in the Assumed Liabilities, subject to 3M's option under Section
2(b)(iv) to exclude such items from the Assumed Liabilities. PACE has satisfied
all obligations to former employees in connection with its 1998 restructuring.
(v) Employee Benefits.
(i) Except as disclosed on Section 3(v)(1) of the Disclosure
Schedule, PACE does not maintain or contribute to any Employee Benefit
Plan.
(ii) PACE has not made any promises or representations to any
employee or leased employee with respect to any employee benefits that
may be provided by 3M after the Closing Date.
(iii) PACE and the other members of the Controlled Group never
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any
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Liability (including withdrawal liability as defined in ERISA Section
4201) under any Multiemployer Plan.
(iv) Except as set forth in Section 3(v)(iv) of the Disclosure
Schedule, PACE never has maintained, never has contributed, and never
has been required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other welfaretype
benefits for current or future retired or terminated employees, their
spouses, or their dependents (other than in accordance with Code
Section 4980B).
(w) [Intentionally omitted];
(x) [Intentionally omitted];
(y) Certain Business Relationships With PACE. To PACE's knowledge, none
of the PACE Stockholders or PACE's Affiliates owns any asset, tangible or
intangible, which is used in the business of PACE.
(z) Year 2000. Except as disclosed on Section 3(z) of the Disclosure
Schedule, to the knowledge of PACE, each of PACE's software products included in
the Acquired Assets is Year 2000 Compliant (defined below). PACE will transfer
and assign to 3M any Year 2000 warranties from its suppliers related to such
supplier's products and business processes, but PACE assumes no responsibility
with respect to Year 2000 Compliance by such suppliers. For purposes of the
foregoing, "Year 2000 Compliant" means the ability to provide the following
functions:
(1) Consistently handle date information before, during and
after January 1, 2000, including but not limited to accepting date input,
providing date output, and performing calculations on dates or portions of
dates;
(2) Function accurately in accordance with all requirements of
its specifications and without interruption before, during and after January 1,
2000, without any change of operations associated with the advent of the new
century;
(3) Respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed, defined and predetermined manner; and
(4) Store and provide output of date information in ways that
are unambiguous as to century.
(aa) Development Obligations. Except as set forth in Section 3(aa) of
the Disclosure Schedule, PACE has no unfulfilled obligation to any customer,
distributor or any other third party, obligating PACE to develop or deliver
non-standard, customer-specific changes (including, but not limited to,
modifications, enhancements, translations or adaptations) to any Intellectual
Property.
4. Representations and Warranties of 3M. 3M represents and warrants to
PACE that the statements contained in this Section 4 are correct and complete as
of the date of this Agreement, except as set forth in the Disclosure Schedule.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) Organization of 3M. 3M is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) Authorization of Transaction. 3M has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of 3M, enforceable in accordance
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with its terms and conditions, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting creditor's rights generally or by general
principles of equity or public policy.
(c) Noncontravention. To 3M's knowledge, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Section 2 above), will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which 3M is subject or any
provision of its charter or bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any material agreement, contract, lease, license, instrument, or other
arrangement to which 3M is a party or by which it is bound or to which any of
its assets is subject. 3M does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Section 2 above).
(d) Brokers' Fees. 3M 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 for which PACE could become liable or obligated.
(e) Knowledge of PACE Violation. 3M has no knowledge of any matter that
is required to be disclosed by PACE under Section 3 of this Agreement or that
constitutes (or with the giving of notice and/or passage of time would
constitute) a breach of any representation or warranty of PACE under Section 3.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use its reasonable efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. PACE will give any notices to third parties,
and PACE will use its reasonable efforts to obtain any third party consents (in
a form acceptable to 3M), for all contracts which constitute part of the
Acquired Assets for which such notice or consent is required, other than
contracts 3M notifies PACE pursuant to Section 2(a) it will not assume. Each of
the Parties will give any notices to, make any filings with, and use its
reasonable efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3(c) and Section 4(c) above.
(c) Operation of Business. PACE will not engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business with respect to any Acquired Asset or any Assumed Liability.
(d) Preservation of Business. PACE and 3M will cooperate reasonably to
keep PACE's business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. PACE will permit representatives of 3M to have full
access to all premises, properties, personnel, books, records (including Tax
records), contracts, and documents of or pertaining to PACE. In particular, PACE
will make available to 3M those of its employees and leased employees that 3M
wishes to interview for employment with 3M following the Closing, and PACE will
not do
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anything to discourage or prevent such employees and leased employees from
accepting employment with 3M.
(f) Notice of Developments. Each Party will give prompt written notice
to the other Party of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. PACE will not (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of PACE (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) unless PACE's board of directors is
advised by PACE's outside counsel in writing to the effect that there would be a
material risk of liability on the part of PACE's board of directors to PACE's
shareholders for failure to do so, participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. PACE will notify 3M immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to any of
the foregoing.
(h) Security Interests. PACE will use reasonable efforts to obtain
releases of all Security Interests in the Acquired Assets on or before the
Closing, which may include arrangements whereby a portion of the Purchase Price
is paid to the party holding such Security Interest in exchange for a release of
such Security Interest.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of 3M. The obligation of 3M to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) PACE shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) PACE shall have procured all of the third party consents
specified in Section 5(b) above and releases of all Security Interests
specified in Section 5(h) above;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of 3M to own the Acquired
Assets and to operate the former businesses of PACE;
(v) [Intentionally omitted];
(vi) PACE shall have delivered to 3M a certificate to the
effect that each of the conditions specified above in Section
6(a)(i)-(v) is satisfied in all respects;
(vii) [Intentionally omitted];
(viii) [Intentionally omitted];
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(ix) [Intentionally omitted];
(x) all actions to be taken by PACE in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to 3M.
3M may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of PACE. The obligation of PACE to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) 3M shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(iv) 3M shall have delivered to PACE a certificate to the
effect that each of the conditions specified above in Section
6(b)(i)-(iii) is satisfied in all respects; and
(v) the transactions contemplated by this Agreement shall be
approved by the PACE Stockholders as required by the Iowa Business
Corporation Act;
(vi) all actions to be taken by 3M in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to PACE; and
(vii) [Intentionally omitted].
PACE may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing Date.
(a) Medical and Dental Benefits. PACE will cause any of its employees
or leased employees who become employees of 3M following the Closing to remain
covered under their current medical and dental benefit plans for a period of 30
days after the Closing Date. 3M will reimburse PACE for the cost of continuing
such coverage for such 30-day period.
(b) COBRA. PACE will remain responsible (at its expense) for ensuring
the continued availability of COBRA coverage to its current and former employees
or leased employees (and their
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respective family members) with respect to any qualifying events that occur on
or prior to the Closing Date.
(c) Availability of Books and Records. Each party agrees to make
available at reasonable times, upon request by the other party, copies of any of
the books and records relating to the Business which are acquired by 3M or
retained by PACE, respectively, pursuant to this Agreement. The requesting party
agrees to reimburse the party in possession for its actual costs for copying,
faxing, mailing or otherwise providing such records to the requesting party upon
receipt of an invoice itemizing such expenses. The parties agree to hold such
information subject to the Disclosure Agreement.
(d) Use of PACE Name. 3M agrees that PACE may use the names "PACE",
"PACE Health Management Systems, Inc." or variations thereof (hereinafter
referred to as "PACE's Corporate Name") at no charge to PACE, but subject to the
following conditions and restrictions: (i) except as set forth in paragraph
(iii) and (v), PACE shall have no right to use the stylistic rendition of PACE
Health Management Systems, Inc. identified in Section 7(d) of the Disclosure
Schedule, or any variant thereof, (ii) PACE may use the forgoing names as a
corporate name only (i.e., solely and exclusively for purposes of avoiding a
corporate name change), and not as a trade name, trademark or service mark in
conjunction with any product or service, (iii) PACE shall not advertise or list
itself using the PACE name (or renew any such advertisement or listing upon the
expiration thereof), except that (x) this provision shall not prohibit any
listing or advertisement which has been placed prior to the Closing Date, and
(y) this provision shall not prohibit PACE from using the PACE Corporate Name in
telephone directory listings, (iv) PACE shall have no right to use the PACE
Corporate Name on or in connection with any website, (v) PACE may exhaust its
existing supply of business cards, letterhead and other stationery items but may
not reorder additional copies thereof, (vi) PACE shall have o right to sell,
license, transfer, assign or otherwise permit any third party the right to use
PACE's Corporate Name, (vii) PACE's right to use the PACE Corporate Name as set
forth above shall immediately cease upon the first to occur of any of the
following: (a) the effective date upon which PACE consolidates or merges with
another entity, (b) upon written notice from 3M, if, in 3M's reasonable opinion,
PACE's use of the PACE Corporate Name is detracting from or damaging the
goodwill associated with such names, or (c) six (6) months from the Closing
Date, and (vi) PACE indemnifies 3M from and against any Adverse Consequences
arising from PACE's use of the PACE Corporate Name.
(e) Cooperation with 3M. PACE agrees that it will, upon 3M's reasonable
request, cooperate with and assist 3M (without charge to 3M but at 3M's expense)
as may be necessary in the opinion of 3M to preserve, protect and defend 3M's
rights in the Acquired Assets and 3M's obligations in the Assumed Liabilities.
8. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) 3M and PACE may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) 3M may terminate this Agreement by giving written notice
to PACE within fifteen (15) Business Days following the date of
execution of this Agreement in the event that the Disclosure Schedules
delivered by PACE at or prior to the execution of this Agreement (or
any updates thereto delivered during such 15-day period) disclose a
fact, event or circumstance which, in the reasonable judgment of 3M,
constitutes or results in a material adverse change in the value of the
Acquired Assets.
(iii) 3M may terminate this Agreement by giving written notice
to PACE at any time prior to the Closing (A) in the event PACE has
breached any material representation,
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warranty, or covenant contained in this Agreement in any material
respect, 3M has notified PACE of the breach, and the breach has
continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or before
December 31, 1998, by reason of the failure of any condition precedent
under Section 6(a) hereof; and
(iv) PACE may terminate this Agreement by giving written
notice to 3M at any time prior to the Closing (A) in the event 3M has
breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, PACE has notified 3M of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before December 31, 1998, by reason of the failure of
any condition precedent under Section 6(b) hereof;
(v) either Party may terminate this Agreement by giving
written notice to the other Party in the event the PACE Stockholders
shall fail to approve this Agreement at a meeting of shareholders at
which this Agreement is considered and voted upon by the PACE
Stockholders, as required by the Iowa Business Corporation Act; or
(vi) PACE may terminate this Agreement by giving written
notice to 3M in the event PACE Stockholders beneficially owning more
than ten percent (10%) of the outstanding shares of PACE's common stock
shall exercise their dissenter's rights pursuant to Division XIII of
the Iowa Business Corporation Act.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
9. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of 3M and PACE contained in this Agreement shall
survive the Closing and continue in full force and effect for a period of twelve
(12) months thereafter (subject to any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of 3M.
(i) In the event PACE breaches (or in the event any third
party alleges facts that, if true, would mean PACE has breached) any of
its representations, warranties, and covenants contained in this
Agreement, within the survival period pursuant to Section 9(a) above,
provided that 3M makes a written claim for indemnification against PACE
below within such survival period, then PACE agrees to indemnify 3M
from and against the entirety of any Adverse Consequences 3M may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences 3M may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(ii) PACE agrees to indemnify 3M from and against the entirety
of any Adverse Consequences 3M may suffer resulting from, arising out
of, relating to, in the nature of, or caused by any Liability of PACE
which is not an Assumed Liability (including any Liability of PACE that
becomes a Liability of 3M under any bulk transfer law of any
jurisdiction, under any common law doctrine of de facto merger or
successor liability, under Environmental, Health, and Safety
Requirements, or otherwise by operation of law).
(iii) PACE agrees to indemnify 3M from and against the
entirety of any Adverse Consequences 3M may suffer resulting from,
arising out of, relating to, in the nature of, or caused by (a) the net
liability of the Assumed Liabilities pursuant to the definitional
subparagraph
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(a) of Assumed Liabilities exceed One Hundred Thousand Dollars
$100,000.00) as described in Section 2(b)(ii) to the extent the Escrow
Fund is insufficient to pay the amount of such excess, and (b) the net
liability of the Assumed Liabilities pursuant to the definitional
subparagraph (b) of Assumed Liabilities exceed One Million Thirty-seven
Thousand Dollars ($1,037,000.00) as described in Section 2(b)(iii) to
the extent the Escrow Fund is insufficient to pay the amount of such
excess.
(c) Indemnification Provisions for Benefit of PACE.
(i) In the event 3M breaches (or in the event any third party
alleges facts that, if true, would mean 3M has breached) any of its
representations, warranties, and covenants contained in this Agreement,
and, within the survival period pursuant to Section 9(a) above,
provided that PACE makes a written claim for indemnification against 3M
within such survival period, then 3M agrees to indemnify PACE from and
against the entirety of any Adverse Consequences PACE may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences PACE may suffer after the end of any
applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) 3M agrees to indemnify PACE from and against the entirety
of any Adverse Consequences PACE may suffer resulting from, arising out
of, relating to, in the nature of, or caused by any Assumed Liability.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 9, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing within
15 days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (C)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 9(d)(ii)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any
judgment or enter
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<PAGE>
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 9(d)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 9.
(v) Nothing in this paragraph (d) shall be construed as
lengthening the survival period for representations and warranties
under paragraph (a).
(e) Recoupment Under the Escrow Fund. In the event of a claim for
indemnification under Section 9(b), 3M may satisfy such claim from the Escrow
Fund pursuant to the Escrow Agreement.
(f) Exclusive Remedies. Except as otherwise explicitly provided in this
Agreement or by statute to the extent that statutory remedies cannot legally be
waived by the person entitled thereto, and except for fraud, deceit or
intentional misrepresentation by PACE or 3M, after consummation of the
transactions contemplated by this Agreement the sole and exclusive remedy of a
Party for breach of any of the respective representations, warranties or
covenants of the other Party in this Agreement are as set forth in this Section
9, provided that no Party waives any rights it or they may have to specific
performance. 3M acknowledges and agrees that PACE would not have entered into
this Agreement but for the inclusion herein of this paragraph (f).
(g) Minimum Losses. Neither Party shall have any right to obtain
indemnification under this Section until aggregate losses imposed on or incurred
by such Party and its affiliates and the successors and assigns of such Party
and its affiliates exceed $50,000, after which time only the aggregate amount of
such losses in excess of $50,000 shall be recoverable in accordance with the
terms of this Section. This Section shall not apply to any claim under Section
9(b)(iii).
(h) Maximum Indemnification. Neither Party hereto shall have any right
to obtain an indemnification payment under this Section to the extent the
aggregate amounts received by such Party and its affiliates, successors and
assigns would, if paid, exceed $4,750,000. This Section shall not apply to any
claim under Section 9(b)(iii) nor to any Adverse Consequences resulting from the
Indemnifying Party's fraud, deceit or intentional misrepresentation. This
Section shall also not apply to any claim by 3M against PACE for Adverse
Consequences in connection with a third-party claim relating to a liability
which is not included in clause (c) of the definition of Assumed Liabilities
(and which is not included under clauses (a) or (b) of the definition of Assumed
Liabilities) but as to which 3M is subjected to a claim or action on the basis
that 3M has assumed such liability under such clause (c); provided, however,
that this sentence shall not apply to any claim by 3M which would also be
covered by Section 9(b)(i) of this Agreement.
(i) Net Indemnity. The amount of any losses from and against which
either Party is liable to indemnify, reimburse, defend and hold harmless the
other Party or any other person pursuant to this Article shall be reduced by any
insurance or other recoveries (and no right of subrogation shall accrue
hereunder to any insurer) and any tax benefit that such indemnified Party
realizes or may realize as a
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result of or in connection with such losses and increased by any taxes such
indemnified Party realizes or may realize in respect of indemnification for such
losses.
10. Miscellaneous.
(a) [Intentionally omitted.]
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publiclytraded securities (in which case the disclosing
Party will use its reasonable efforts to advise the other Party prior to making
the disclosure). 3M understands that PACE will be required to make a public
announcement concerning the execution of this Agreement and will be required to
prepare and distribute a proxy statement in connection with obtaining the
approval of this Agreement by the PACE Stockholders.
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they relate in any way to the subject
matter hereof, except that the Disclosure Agreement shall survive both the
execution of this Agreement and the Closing.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that 3M may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases 3M nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to PACE: PACE Health Management Systems, Inc.
1025 Ashworth Road, Suite 200
West Des Moines, Iowa 50265
Attention: Roger D. Huseman
Copy to: Steven J. Dickinson
Dorsey & Whitney LLP
801 Grand, Suite 3900
Des Moines, Iowa 50309
If to 3M: 3M Health Information Systems
575 W. Murray Blvd.
Murray, Utah 84157
Attention: James Burgess
Copy to: Minnesota Mining and Manufacturing
Company
Building 220-14W-07
3M Center
St. Paul, Minnesota 55144
Attention: John J. Ursu
Senior Vice President
Legal Affairs and General Counsel
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Minnesota or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Minnesota.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by 3M
and PACE. PACE may consent to any such amendment at any time prior to the
Closing with the prior authorization of its board of directors; provided,
however, that any amendment effected after the PACE Stockholders have approved
this Agreement will be subject to the restrictions contained in the Iowa
Business Corporation Act. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms
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and provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(l) Expenses. Each of 3M and PACE will be responsible for its own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. However, such expenses
of PACE may be included in the accounts payable described in clause (a) of the
definition of Assumed Liabilities, subject to the provisions of Section 2(b)
hereof.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 9(p)
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Minneapolis, Minnesota, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on the other Party by sending or delivering a copy of the
process to the Party to be served at the address noted herein and in the manner
provided for the giving of notices in Section 10(h) above. Nothing in this
Section 10(p), however, shall affect the right of any Party to serve legal
process in any other manner permitted by law or in equity. Each Party agrees
that a final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or in equity.
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(q) Bulk Transfer Laws. 3M acknowledges that PACE will not comply with
the provisions of any bulk transfer laws of any jurisdiction in connection with
the transactions contemplated by this Agreement.
(r) Covenant Not to Compete. PACE hereby agrees that it will not (a)
for a period ending on the earlier of (i) five (5) years following the Closing
Date or (ii) the merger, consolidation or share exchange between PACE and
another entity which is not an Affiliate of PACE, or the dissolution or
liquidation of PACE, engage in the business of developing or marketing point of
care clinical documentation software for use in the hospital acute care,
ambulatory or rehabilitation environments, or (b) for a period of two (2) years
following the Closing Date, hire or attempt to hire in any capacity (including
without limitation employee, consultant, independent contractor or agent) any
former PACE employee who has accepted a position with 3M. The parties hereto
specifically acknowledge and agree that the remedy at law for any breach of the
foregoing will be inadequate and that 3M, in addition to any other relief
available to it, shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damage. In the event that the provisions
of this Section 10(r) should ever be deemed to exceed the limitation provided by
applicable law, then the parties hereto agree that such provisions shall be
reformed to set forth the maximum limitations permitted.
(s) Post-Closing Receipts. PACE hereby agrees that any funds received
by it after the Closing Date which reflect payments for accounts receivables
included in the Acquired Assets, or which reflect payments under contracts that
are included in the Acquired Assets, shall be promptly sent to Buyer.
(t) Limitation on Damages. Except for fraud, deceit or intentional
misrepresentations by PACE or 3M, and notwithstanding any other provision of
this Agreement, no Party shall be liable to the other for punitive, special or
consequential damages, including lost profits, even if such Party has been
advised of the possibility of such damages.
(u) Provision of Office Space and Services. 3M agrees that it will
provide to PACE office space and access to telephones, conference rooms, faxes,
and other office services in the current PACE office space in West Des Moines,
Iowa and Huntersville, North Carolina until the earlier of (i) termination of
such office leases by 3M or (ii) six (6) months after the Closing Date. 3M will
not charge rent to PACE for the office space and services, but may at 3M's
option charge PACE for actual costs for copying, faxes, telephone calls and
other out of pocket expenses. PACE will promptly reimburse 3M for such expenses
upon receipt of an invoice itemizing such expenses.
*****
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
MINNESOTA MINING AND MANUFACTURING COMPANY
By: /s/ Karen E. Welke
-------------------------------------------------------
Title: Vice President, Medical Markets Group
----------------------------------------------------
PACE HEALTH MANAGEMENT SYSTEMS, INC.
By: /s/ Roger D. Huseman
-------------------------------------------------------
Title: Vice President of Finance and Chief Financial Officer
----------------------------------------------------
24
EXHIBIT 10.25
AMENDMENT
AMENDMENT ("Amendment") to the Asset Purchase Agreement entered into as of June
30, 1998 ("Agreement") by and between the MINNESOTA MINING AND MANUFACTURING
COMPANY ("3M") and PACE HEALTH MANAGEMENT SYSTEMS, INC. ("PACE").
The parties hereby agree to amend the Agreement as follows:
1. SCOPE OF AMENDMENT. Except as amended herein, the Agreement shall remain in
full force and effect according to its terms. In case of a conflict between a
provision of this Amendment and a provision or provisions of the Agreement, the
provision of this Amendment shall control. Except as specifically set forth
herein, all terms used in this Amendment shall have the meanings attributed to
them in the Agreement.
2. REPRESENTATIONS AND WARRANTIES OF PACE. The following new Section 3(bb) is
hereby added to the Agreement:
3(bb) JRS Clinical Technologies. Pursuant to a Purchase Agreement dated October
18, 1993 as thereafter amended ("Purchase Agreement") by and between Health Care
Expert Systems ("HCES") and JRS Clinical Technologies, Inc. ("JRS"), HCES (which
subsequently became, and shall hereafter be referred to within this paragraph
as, PACE) acquired certain rights from JRS, including royalty-free rights to
use, modify and license the use of certain JRS "Software" and "Documentation,"
and to use and modify the "Source Code" (as those terms are defined and used in
the Purchase Agreement). The JRS Software, Documentation and Source Code form a
substantial basis of PACE's Clinical Information System ("CIS") product line,
but no more than approximately ten percent (with an estimated range of between
five to fifteen percent) of the source code, executable code and associated
written documentation of PACE's Case Management System ("CMS") product line.
Approximately ninety percent (with an estimated range of between eighty-five to
ninety-five percent) of the source code, executable code and associated
documentation to PACE's CMS product line is original to PACE and, thus, the CMS
product line does not constitute an "update," "enhancement," "addition" or
"modification" (as those terms are used in the Purchase Agreement) to the JRS
Software, Documentation or Source Code. Except with respect to PACE's CIS and
CMS products as set forth above, no part of the JRS Software, Documentation and
Source Code was used to create, and are not included in, any other PACE product
that is part of the Acquired Assets under this Agreement.
Under the Purchase Agreement, JRS, together with JRS's successors in interest
(regardless of whether such succession occurred through the acquisition of JRS's
stock or assets) have no right, title or interest (including, but not limited
to, any patent, copyright, trade secret, right to possession, right to use,
right to a copy, or right to distribute) in or to:
(1) any update, enhancement, addition or modification to the JRS Software,
Documentation or Source Code made by or for PACE after the Delivery Date (as
defined in the Purchase Agreement), except as made by JRS pursuant to the
Purchase Agreement; and
(2) any software (both source code and executable object code), accompanying
documentation, or other matter created by or for (and is original to) PACE.
3. EFFECTIVE DATE. This Amendment shall be effective upon its complete
execution.
25
<PAGE>
IN WITNESS WHEREOF the parties have caused this Amendment to be executed by
their duly authorized representatives.
MINNESOTA MINING AND MANUFACTURING COMPANY
By: /s/ Karen E. Welke
---------------------------------------------------------
Title: Vice President, Medical Markets Group
------------------------------------------------------
Date: June 30, 1998
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PACE HEALTH MANAGEMENT SYSTEMS, INC.
By: /s/ Roger D. Huseman
---------------------------------------------------------
Title: Vice President of Finance and Chief Financial Officer
------------------------------------------------------
Date: June 30, 1998
-------------------------------------------------------
26
