-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVS6sbI226u5aTDtqH93NOsX9RtIC428tQa415OwJQRPb4XidhKLZPZevAA/fx3q pnA1KXCon6h0iKl6sc9qAg== 0000950144-99-012987.txt : 19991117 0000950144-99-012987.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950144-99-012987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PER SE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000878556 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 581651222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19480 FILM NUMBER: 99751304 BUSINESS ADDRESS: STREET 1: 2840 MT WILKINSON PARKWAY STREET 2: SUITE 300 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7704445300 MAIL ADDRESS: STREET 1: 2700 CUMBERLAND PKWY STREET 2: STE 300 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: MEDAPHIS CORP DATE OF NAME CHANGE: 19931027 10-Q 1 PER-SE TECHNOLOGIES, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 000-19480 --------------------- PER-SE TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 58-1651222 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2840 MT. WILKINSON PARKWAY, SUITE 300 30339 ATLANTA, GEORGIA (Zip code) (Address of principal executive offices)
(770) 444-5300 (Registrant's telephone number, including area code) MEDAPHIS CORPORATION (Former name, former address and former fiscal year, if changed since last report) --------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares of stock outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING TITLE OF CLASS AT NOVEMBER 5, 1999 -------------- ------------------- Common Stock $0.01 Par Value................................ 88,724,301 Shares Non-voting Common Stock $0.01 Par Value..................... 0 Shares
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PER-SE TECHNOLOGIES, INC. FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
PAGE ---- Part I: FINANCIAL INFORMATION Item 1: Financial Statements................................ 1 Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998...................................... 1 Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and 1998.......... 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998...................... 3 Notes to Consolidated Financial Statements................ 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 11 Part II: OTHER INFORMATION Item 1: Legal Proceedings................................... 18 Item 5: Other Matters....................................... 18 Item 6: Exhibits and Reports on Form 8-K.................... 18 Index to Exhibits........................................... 21
--------------------- THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY PER-SE TECHNOLOGIES, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF PER-SE TECHNOLOGIES, INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-Q, AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME. 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT PAR VALUE DATA)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Current Assets: Cash and cash equivalents................................. $ 38,101 $ 54,409 Restricted cash........................................... 5,585 5,754 Accounts receivable, billed............................... 48,362 54,800 Accounts receivable, unbilled............................. 43,467 46,757 Other..................................................... 5,184 8,022 --------- --------- Total current assets.............................. 140,699 169,742 Property and equipment, net................................. 37,796 47,954 Intangible assets........................................... 47,147 48,241 Net assets of discontinued operations....................... 8,345 11,872 Other....................................................... 5,785 8,912 --------- --------- $ 239,772 $ 286,721 ========= ========= Current Liabilities: Accounts payable.......................................... $ 7,043 $ 8,550 Accrued compensation...................................... 21,387 21,234 Accrued expenses.......................................... 17,031 22,361 Accrued litigation settlements............................ 9,297 12,026 Current portion of long-term debt......................... 42 1,067 Deferred revenue.......................................... 20,760 18,289 --------- --------- Total current liabilities......................... 75,560 83,527 Long-term debt.............................................. 175,000 175,013 Accrued litigation settlements.............................. 3,865 20,250 Other obligations........................................... 3,714 5,608 --------- --------- Total liabilities................................. 258,139 284,398 --------- --------- Stockholders' Equity: Preferred stock, no par value, 20,000 authorized; none issued................................................. -- -- Common stock, voting, $0.01 par value, 200,000 authorized; 90,924 and 78,745 issued and outstanding in 1999 and 1998, respectively..................................... 909 787 Common stock, non voting, $0.01 par value, 600 authorized; none issued............................................ -- -- Paid-in capital........................................... 776,257 740,014 Warrants.................................................. 1,495 -- Accumulated deficit....................................... (797,028) (738,390) --------- --------- (18,367) 2,411 Less treasury stock, at cost -- 15 shares in 1998........... -- 88 --------- --------- Total stockholders' equity........................ (18,367) 2,323 --------- --------- $ 239,772 $ 286,721 ========= =========
See notes to consolidated financial statements. 1 4 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- --------------------- 1999 1998 1999 1998 ------- --------- -------- --------- Revenue...................................... $81,270 $ 81,979 $245,001 $ 266,657 ------- --------- -------- --------- Salaries and wages........................... 53,388 59,680 160,311 173,095 Other operating expenses..................... 26,363 39,083 84,260 95,699 Depreciation................................. 4,189 5,603 16,629 17,420 Amortization................................. 2,357 5,045 6,872 15,743 Interest expense, net........................ 4,075 6,196 11,858 18,418 Intangible asset impairment.................. -- 390,641 -- 390,641 Legal settlements............................ (4,439) 19,500 24,811 41,375 Restructuring and other charges.............. -- 1,770 -- 3,377 ------- --------- -------- --------- Total expenses..................... 85,933 527,518 304,741 755,768 ------- --------- -------- --------- Loss before income taxes..................... (4,663) (445,539) (59,740) (489,111) Income tax expense (benefit)................. 22 67,621 (502) 62,582 ------- --------- -------- --------- Loss from continuing operations.............. (4,685) (513,160) (59,238) (551,693) ------- --------- -------- --------- Discontinued operations, net of tax: Income (loss) from discontinued operations............................ 1,351 (2,845) 2,012 723 Gain (loss) on sale of subsidiary, net of additional expenses................ (5,955) -- (1,468) -- ------- --------- -------- --------- (4,604) (2,845) 544 723 ------- --------- -------- --------- Loss before extraordinary item............... (9,289) (516,005) (58,694) (550,970) Extraordinary item, net of tax............... -- -- -- (5,557) ------- --------- -------- --------- Net loss........................... $(9,289) $(516,005) $(58,694) $(556,527) ======= ========= ======== ========= Basic net (loss) income per common share: Loss from continuing operations......... $ (0.06) $ (6.52) $ (0.72) $ (7.22) (Loss) income from discontinued operations, net of tax................ (0.05) (0.04) 0.01 0.01 Extraordinary item, net of tax.......... -- -- -- (0.07) ------- --------- -------- --------- Net loss................................ $ (0.11) $ (6.56) $ (0.71) $ (7.28) ======= ========= ======== ========= Weighted average shares outstanding.......... 85,394 78,655 82,573 76,442 ======= ========= ======== =========
See notes to consolidated financial statements. 2 5 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1999 1998 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(58,694) $(556,527) Adjustments to reconcile net loss to net cash used for operating activities: Income from discontinued operations....................... (2,012) (723) Depreciation and amortization............................. 23,501 33,163 Loss on sale of subsidiaries.............................. 1,141 -- Impairment losses on long-lived assets.................... -- 390,641 Early extinguishment of debt.............................. -- 9,231 Non-cash legal settlement costs........................... 21,433 -- Deferred income taxes..................................... -- 60,857 Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Restricted cash......................................... 392 2,500 Accounts receivable, billed............................. 6,438 8,605 Accounts receivable, unbilled........................... 3,290 11,556 Accounts payable........................................ (1,507) (1,341) Accrued compensation.................................... 153 (1,701) Accrued expenses........................................ (8,572) (6,962) Accrued litigation settlements.......................... (8,153) 41,375 Deferred revenue........................................ 2,471 187 Other, net.............................................. 3,811 6,010 -------- --------- Net cash used for continuing operations............ (16,308) (3,129) Net cash (used for) provided by discontinued operations........................................ (3,292) 2,351 -------- --------- Net cash used for operating activities............. (19,600) (778) -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment....................... (6,210) (18,590) Software development costs................................ (5,777) (3,217) Proceeds from sale of subsidiaries, net................... 12,664 -- Proceeds from sale of property and equipment.............. 2,751 764 Other..................................................... -- (468) -------- --------- Net cash provided by (used for) investing activities........................................ 3,428 (21,511) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 920 1,446 Proceeds from the exercise of stock options............... 214 5,683 Proceeds from borrowings.................................. -- 339,467 Payments of debt.......................................... (1,038) (315,248) Debt issuance costs....................................... (232) (12,432) -------- --------- Net cash (used for) provided by financing activities........................................ (136) 18,916 -------- --------- CASH AND CASH EQUIVALENTS: Net change................................................ (16,308) (3,373) Balance at beginning of period............................ 54,409 14,729 -------- --------- Balance at end of period.................................. $ 38,101 $ 11,356 ======== ========= SUPPLEMENTAL DISCLOSURES: Cash paid for: Interest................................................ $ 16,761 $ 13,926 Income taxes............................................ 946 1,482 Non-cash investing and financing activities: Issuance of Common Stock upon funding of litigation settlement............................................ 32,710 52,500 Issuance of stock warrants.............................. 1,495 -- Additions to capital lease obligations.................. -- 42
See notes to consolidated financial statements. 3 6 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Per-Se Technologies, Inc. ("Per-Se" or the "Company"), formerly Medaphis Corporation, are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. For further information, the reader of this Form 10-Q may wish to refer to the audited consolidated financial statements of the Company for the fiscal year ended December 31, 1998 included in the Company's Annual Report on Form 10-K filed March 19, 1999. The unaudited condensed financial information has been prepared in accordance with the Company's customary accounting policies and practices. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of results for the interim period, have been included. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. As more thoroughly discussed in Note 2, the Medaphis Services Corporation ("Hospital Services") and Impact Innovations Group ("Impact") segments have been presented as discontinued operations for all periods presented. NOTE 2. DISCONTINUED OPERATIONS On November 30, 1998, the Company completed the sale of Hospital Services to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. During the first quarter of 1999, the Company received additional consideration of $0.8 million based on Hospital Services' final closing balance sheet and payment on certain Hospital Services' accounts receivable retained by Per-Se. The additional consideration resulted in the recognition of an additional gain of $0.5 million, net of tax of $0.3 million. Also, Per-Se could receive a purchase price adjustment of up to $10.0 million subject to Hospital Services' achievement of various operational targets in 1999. The Company sold the commercial division of Impact to Complete Business Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. On November 4, 1999, the Company entered into a definitive stock purchase agreement for the sale of the government division of Impact to J3 Technology Services Corp. The initial purchase price is $45.0 million subject to certain closing adjustments. The transaction is expected to close by the end of 1999. Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB No. 30"), the consolidated financial statements of the Company have been presented to reflect both Hospital Services and Impact as discontinued operations for all periods presented. The net operating results of these segments have been reported in the Consolidated Statements of Operations as "Income (loss) from discontinued operations"; the net assets have been reported in the Consolidated Balance Sheets as "Net assets of discontinued operations"; and the net cash flows have been reported in the Consolidated Statements of Cash Flows as "Net cash (used for) provided by discontinued operations." 4 7 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Summarized financial information for the discontinued operations is as follows (the 1999 Impact results include the commercial division through April 15, 1999 -- the effective date of the sale):
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------ 1999 1998 -------- ------------------------------- HOSPITAL IMPACT SERVICES IMPACT TOTAL ------ -------- ------ ----- (IN THOUSANDS) Revenue........................................... $11,234 $29,124 $19,375 $48,499 ======= ======= ======= ======= Income from discontinued operations before income taxes........................................... 1,351 2,301 (4,203) (1,902) Income tax expense................................ -- 943 -- 943 ------- ------- ------- ------- Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845) ======= ======= ======= =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ------- ----------------------------- HOSPITAL IMPACT SERVICES IMPACT TOTAL ------ -------- ------ ----- (IN THOUSANDS) Revenue.......................................... $44,411 $81,081 $62,079 $143,160 ======= ======= ======= ======== Income from discontinued operations before income taxes.......................................... 2,210 6,247 (2,946) 3,301 Income tax expense............................... 198 2,578 -- 2,578 ------- ------- ------- -------- Income from discontinued operations, net of tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723 ======= ======= ======= ========
AS OF SEPTEMBER 30, AS OF DECEMBER 31, 1999 1998 ------------------- ------------------ IMPACT IMPACT ------------------- ------------------ (IN THOUSANDS) Current assets..................................... $10,427 $16,399 Total assets....................................... 12,074 21,829 Current liabilities................................ 3,478 9,787 Total liabilities.................................. 3,729 9,957 Net assets of discontinued operations.............. 8,345 11,872
NOTE 3. INTANGIBLE ASSET IMPAIRMENT At September 30, 1998, the Company recorded an intangible asset impairment charge of $390.6 million to adjust the intangible assets of the Physician Services segment to their fair value. Management regularly monitors its results of operations and other developments within the industry to adjust its cash flow forecast, as necessary, to determine if an adjustment is necessary to the carrying value of the Company's intangible assets. NOTE 4. LEGAL MATTERS SETTLED LEGAL MATTERS On June 21, 1999, the Company finalized the settlement with the United States government concerning its investigation of the Company's wholly-owned subsidiary, PST Emergency Medicine Services, Inc. (the "Emergency Medicine division"), formerly Gottlieb's Financial Services, Inc., requiring the Company to pay to the United States and the various states a total of $15.0 million. The Company paid $6.8 million to the United States on June 29, 1999, $1.2 million on September 30, 1999 and $2.2 million, in the aggregate, to the participating states on October 1, 1999. The balance of $4.8 million will be paid as follows: $1.2 million to the United States on December 31, 1999 and $0.9 million to the United States at the end of each calendar quarter of 2000. The deferred portion of the settlement payment will bear interest at the one-year Treasury Bill rate. All pending claims against the Company by the United States and the Relator in underlying qui tam litigation 5 8 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) have been dismissed with prejudice and the United States has released the Company from all civil and administrative claims arising out of the emergency room billing of government programs services provided by the Emergency Medicine division from 1993 through the date of the settlement agreement with the United States. The settlement agreements with the participating states provide for the release of the Company by the states of all civil and administrative claims arising out of the emergency room billing services provided by the Emergency Medicine division from 1993 through the date of the settlement agreement with the individual state. On June 16, 1999, the Company agreed to settle certain contract claims arising out of a 1996 contract for emergency room billing services to be provided by the Emergency Medicine division to Spectrum Healthcare, Inc. ("Spectrum") and Emcare, Inc. ("Emcare"), the successor to Spectrum's emergency business. The Company paid Emcare $1.75 million in cash in exchange for a release by Spectrum and Emcare of all claims against the Emergency Medicine division for breach of contract. On June 24, 1999, the Company entered into a settlement agreement with the former shareholders of Medical Management Sciences, Inc. ("MMS") related to claims arising out of Per-Se's acquisition of MMS in December of 1995. The litigation has been dismissed with prejudice. The settlement agreement provided for the issuance by the Company to the MMS Shareholders of 500,000 shares of Common Stock and warrants to purchase an additional 500,000 shares of Common Stock. In addition, the Company entered into a five-year consulting agreement with Providence Management Corporation, a company controlled by a former MMS shareholder, providing for a $300,000 up front payment and $150,000 a year for the five-year term. The Company also paid the MMS Shareholders $375,000 for the MMS Shareholders' interest in a malpractice claim. In October 1999, the Company and Foundation Health Services, Inc. ("Foundation"), formerly Health Systems International, Inc., settled litigation arising out of Per-Se's acquisition of Health Data Sciences Corporation ("HDS") in June of 1996. Pursuant to the settlement, Foundation realized $25.0 million from its investment in HDS, consisting of $3.6 million from the sale of 976,771 shares of Per-Se Common Stock received by Foundation in the June 1996 HDS transaction, $4.6 million in cash funded by the Company's insurers, $5.0 million in cash paid by the Company and $11.8 million from the October 1999 sale by Foundation of 4,000,000 shares of Per-Se Common Stock issued to Foundation. On January 28, 1998, SCI Management Corporation ("SCI") filed a complaint against BSG Alliance/IT, Inc. (later known as Impact Innovations Group, Inc.) seeking recovery for alleged damages in connection with work performed by the commercial division of Impact under a consulting contract. The Company sold the commercial division of Impact effective April 15, 1999 but retained responsibility for this matter. The Company and SCI have reached an agreement to refund $5.3 million to SCI. The Company paid $3.2 million to SCI on November 4, 1999 and issued a promissory note for $2.1 million bearing interest at 8.25% payable on October 31, 2000. PENDING LEGAL MATTERS On May 10, 1999, a motion to reopen the putative class action complaint filed by Ernest Hecht and Stephen D. Strandberger was granted. During 1998, this case had been dismissed with prejudice and without leave to amend. The reinstated appeal is pending. The Company is unable to estimate a range of loss, if any, related to this matter. NOTE 5. RESTRUCTURING AND OTHER CHARGES During the nine months ended September 30, 1998, the Company recorded approximately $0.2 million of restructuring costs for the reorganization of several corporate and operating division departments. 6 9 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) In the three and nine months ended September 30, 1998, the Company recorded charges of $0.1 million and $0.8 million, respectively, for the legal and administrative fees, costs and expenses associated with various legal matters. In addition, the Company settled various legal matters for $1.2 million in the third quarter of 1998. The Company recorded charges of $0.5 million and $1.2 million in the three and nine months ended September 30, 1998, respectively, for severance costs associated with former executive management. The description of the type and amount of restructuring costs recorded and applied against each reserve in the nine months ended September 30, 1999 is as follows:
RESERVE COSTS RESERVE BALANCE APPLIED BALANCE DECEMBER 31, AGAINST SEPTEMBER 30, 1998 RESERVE 1999 ------------ ------- ------------- (IN THOUSANDS) Lease termination costs............................. $4,292 $ (601) $3,691 Severance........................................... 1,148 (875) 273 ------ ------- ------ $5,440 $(1,476) $3,964 ====== ======= ======
NOTE 6. LONG TERM DEBT Under the indenture governing the 9 1/2% $175 million of Senior Notes due 2005 (the "Notes"), the balance of the excess sale proceeds, as defined, from the sale of Hospital Services, the commercial division of Impact, the government division of Impact or from the sale of any other asset having a fair value in excess of $1.0 million, must be invested in the Company's business within 360 days of receipt of proceeds related to the sale. To the extent that such excess proceeds are not invested and the aggregate amount of excess proceeds is greater than $10.0 million, the Company is required to offer to repurchase the Notes at par with such proceeds. Currently, it is management's intention to invest the excess proceeds from the November 1998 sale of Hospital Services and the April 1999 sale of the commercial division of Impact in the Company. NOTE 7. INCOME TAXES At September 30, 1998, the Company reassessed the recoverability of its deferred tax asset. Based on its analysis, the Company determined a full valuation allowance of $67.6 million against the deferred tax asset was required. If management believes the Company will generate sufficient taxable income to realize the deferred tax asset, then the Company will adjust this valuation reserve accordingly. NOTE 8. STOCKHOLDERS' EQUITY In April 1999, the Company issued 5,000,000 shares of Common Stock in accordance with the January 13, 1999 settlement agreement of a previously resolved legal matter. As a result of the issuance of the shares, non-current accrued litigation settlements was reduced by $15.9 million with a corresponding increase in stockholders' equity in the second quarter of 1999. During the third quarter of 1999, the Company issued 500,000 shares of Common Stock and warrants to purchase an additional 500,000 shares of Common Stock in accordance with the June 24, 1999 settlement of the legal matter related to Per-Se's acquisition of MMS. As a result of the issuance of the shares and the warrants, non-current accrued litigation settlements was reduced by $4.0 million with a corresponding increase in stockholders' equity in the third quarter of 1999. In July 1999, the Company reached an agreement in principle to settle its legal dispute with Foundation resulting from the Company's acquisition of HDS in 1996. Based on the agreement in principle, the Company recorded a legal settlement charge of $21.5 million in the second quarter of 1999. 7 10 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) In September 1999, the Company issued 6,200,000 shares of Common Stock to Foundation to be sold by Foundation in order to satisfy the balance due under the agreement in principle. If fewer than the 6,200,000 shares issued were necessary to satisfy the remaining balance due, any excess shares would be returned to the Company and cancelled. As a result of the issuance of the shares, non-current accrued litigation settlements was reduced by $16.8 million with a corresponding increase in stockholders' equity at September 30, 1999. In October 1999, the agreement with Foundation was finalized and Foundation realized $25.0 million from its investment in HDS as follows: $3.6 million from the sale of 976,771 shares of Per-Se Common Stock received by Foundation in the HDS transaction, $4.6 million in cash funded by the Company's insurers, $5.0 million in cash paid by Per-Se and $11.8 million from the sale of 4,000,000 shares of Per-Se Common Stock. The 2,200,000 excess shares were returned to the Company and cancelled on October 29, 1999. As a result of the final settlement, stockholders' equity will be decreased by $5.0 million during the fourth quarter of 1999. NOTE 9. SEGMENT REPORTING The Company's reportable segments are strategic business units that offer different services and products. Per-Se provides its services and products through its Physician Services segment and its Software and E-Commerce segment (formerly the Per-Se Technologies segment). The Physician Services segment provides business management services to physicians and healthcare organizations, including clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management. These services are designed to assist healthcare providers with the business management functions associated with the delivery of healthcare services, allowing physicians and hospital staff to focus on providing quality patient care. These services also assist physicians and healthcare organizations in improving cash flows and reducing administrative costs and burdens. The Software and E-Commerce segment provides integrated financial and clinical software to include patient scheduling, staff management, clinical information systems and patient financial management software. In addition, the Software and E-Commerce segment offers Internet-enabled connectivity to both integrated healthcare delivery networks and physician practices, including electronic claims processing, referral submissions, eligibility verification and other electronic transaction processing. The Software and E-Commerce segment includes the results of the electronic commerce group for all periods presented. Some parts of this group had previously been included in the Physician Services and Hospital Services segments. Also, certain expenses previously included in Corporate overhead have been reclassified to the Physician Services segment and the Software and E-Commerce segment for all periods presented. Per-Se evaluates each segment's performance based on operating profit or loss. The Company accounts for intersegment sales as if the sales were to third parties. 8 11 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Information concerning the operations in these reportable segments is as follows:
THREE THREE MONTHS MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- (IN THOUSANDS) Revenue: Physician Services................. $60,224 $ 62,534 $183,143 $ 202,236 Software and E-Commerce............ 23,939 22,331 70,500 72,990 Eliminations....................... (2,893) (2,886) (8,642) (8,569) ------- --------- -------- --------- $81,270 $ 81,979 $245,001 $ 266,657 ======= ========= ======== ========= Operating profit (loss) (1): Physician Services................. $(1,468) $ (11,494) $ (5,974) $ (10,252) Software and E-Commerce............ 962 (9,766) (1,984) (8,290) Corporate.......................... (4,521) (6,172) (15,113) (16,758) ------- --------- -------- --------- $(5,027) $ (27,432) $(23,071) $ (35,300) ======= ========= ======== ========= Interest expense, net................ $ 4,075 $ 6,196 $ 11,858 $ 18,418 ======= ========= ======== ========= Restructuring and other charges (including intangible asset impairment and legal settlements): Physician Services................. $ -- $ 410,458 $ 1,750 $ 410,458 Software and E-Commerce............ -- (50) -- 112 Corporate.......................... (4,439) 1,503 23,061 24,823 ------- --------- -------- --------- $(4,439) $ 411,911 $ 24,811 $ 435,393 ======= ========= ======== ========= Loss before income taxes............. $(4,663) $(445,539) $(59,740) $(489,111) ======= ========= ======== ========= Depreciation and amortization: Physician Services................. $ 3,270 $ 7,355 $ 12,384 $ 23,502 Software and E-Commerce............ 2,186 2,325 6,857 6,921 Corporate.......................... 1,090 968 4,260 2,740 ------- --------- -------- --------- $ 6,546 $ 10,648 $ 23,501 $ 33,163 ======= ========= ======== ========= Capital expenditures: Physician Services................. $ 1,111 $ 763 $ 4,252 $ 12,822 Software and E-Commerce............ 371 594 1,299 3,382 Corporate.......................... 187 436 659 2,386 ------- --------- -------- --------- $ 1,669 $ 1,793 $ 6,210 $ 18,590 ======= ========= ======== =========
9 12 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (IN THOUSANDS) Identifiable Assets: Physician Services........................................ $118,039 $134,485 Software and E-Commerce................................... 61,557 65,320 Corporate (2)............................................. 60,176 86,916 -------- -------- $239,772 $286,721 ======== ========
- --------------- (1) Excludes restructuring and other charges, intangible asset impairment, legal settlements and interest expense. (2) Includes net assets of $8,345 and $11,872, respectively, related to the discontinued operations. 10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Per-Se Technologies, Inc. ("Per-Se" or the "Company"), formerly Medaphis Corporation, incorporated in 1985 in Delaware, is a global leader in delivering comprehensive business management services, integrated financial and clinical software solutions and Internet-enabled connectivity to healthcare providers. Per-Se delivers its services and products through its Physician Services segment and its Software and E-Commerce segment (formerly the Per-Se Technologies segment). Physician Services provides business management services to physicians and healthcare organizations, including clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management. These services are designed to assist healthcare providers with the business management functions associated with the delivery of healthcare services, allowing physicians and hospital staff to focus on providing quality patient care. These services also assist physicians and healthcare organizations in improving cash flows and reducing administrative costs and burdens. The Software and E-Commerce segment provides integrated financial and clinical software to include patient scheduling, staff management, clinical information systems and patient financial management software. In addition, the Software and E-Commerce segment offers Internet-enabled connectivity to both integrated healthcare delivery networks and physician practices, including electronic claims processing, referral submissions, eligibility verification and other electronic transaction processing. The Company provides consulting services through its Impact Innovations Group ("Impact") segment. After reviewing several alternatives for Impact throughout 1998, management concluded a sale of this segment (comprised of two divisions: commercial and government) would generate the greatest return to the stockholders and finalized its plan to sell Impact. The Company sold the commercial division of Impact to Complete Business Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. On November 4, 1999, the Company entered into a definitive stock purchase agreement for the sale of the government division of Impact to J3 Technology Services Corp. The initial purchase price is $45.0 million subject to certain closing adjustments. The transaction is expected to close by the end of 1999. Per-Se markets its products and services primarily to integrated healthcare delivery networks, hospitals, physician practices, long-term care facilities, home health providers and managed care providers. RESULTS OF OPERATIONS Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998 Revenue. Revenue classified by the Company's different operating segments is as follows:
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1999 1998 ------------------ ------------------ (IN THOUSANDS) Physician Services.............................. $60,224 $62,534 Software and E-Commerce......................... 23,939 22,331 Eliminations.................................... (2,893) (2,886) ------- ------- $81,270 $81,979 ======= =======
Physician Services' revenue decreased 3.7% to $60.2 million in the third quarter of 1999 from $62.5 million in the same period in 1998. The decline in revenue is attributable to operating issues resulting in client discontinuances throughout 1998 primarily at the Company's wholly-owned operating subsidiary, PST Emergency Medicine Services, Inc. (the "Emergency Medicine division"), formerly Gottlieb's Financial Services, Inc. These discontinuances were partially offset by the addition of new business during 1999. 11 14 The Physician Services segment continues to be affected by the revenue pressures on the physician accounts receivable operation resulting from an increase in managed care. Software and E-Commerce's revenue increased 7.2% to $23.9 million in the third quarter of 1999 from $22.3 million in the same period in 1998. This increase is a result of higher internal and external E-Commerce transaction volumes. Software and E-Commerce also experienced increases in software consulting services and software maintenance revenue. These increases were partially offset by lower software license revenue. Operating Profit (Loss). Operating profit (loss), which excludes intangible asset impairment, legal settlements, restructuring and other charges and interest expense, classified by the Company's reportable segments is as follows:
THREE THREE MONTHS MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- (IN THOUSANDS) Physician Services.......................................... $(1,468) $(11,494) Software and E-Commerce..................................... 962 (9,766) Corporate................................................... (4,521) (6,172) ------- -------- $(5,027) $(27,432) ======= ========
Physician Services' had an operating loss of $1.5 million for the three months ended September 30, 1999 as compared to a loss of $11.5 million for the same period in 1998. The decrease is attributable to a $4.0 million increase in the allowance for doubtful accounts during the three months ended September 30, 1998, lower salaries and wages attributable to staff reductions and lower amortization expense resulting from the intangible asset impairment charge of $390.6 million which was recorded during the quarter ended September 30, 1998. Software and E-Commerce had an operating profit of $1.0 million for the three months ended September 30, 1999 as compared to a loss of $9.8 million for the same period in 1998. The increase is primarily a result of increases in the allowance for doubtful accounts of $7.3 million during the three months ended September 30, 1998, lower salaries and wages expense and the previously mentioned revenue increases during the quarter. The Company's overhead decreased 26.8% for the three months ended September 30, 1999 as compared to the same period in 1998. The decrease in the Company's overhead is related to management's continued commitment to reduce costs where feasible and create efficient processes. For the quarter ended September 30, 1998, certain corporate overhead expenses of $1.6 million and $0.6 million have been reclassified to the Physician Services segment and the Software and E-Commerce segment, respectively. Interest. Net interest expense was $4.1 million for the three months ended September 30, 1999 as compared with $6.2 million for the three months ended September 30, 1998. The decrease is attributable to less debt outstanding and interest income of $0.6 million generated from the short-term investment of cash. Intangible Asset Impairment. At September 30, 1998, the Company recorded an intangible asset impairment charge of $390.6 million to adjust the intangible assets of the Physician Services segment to their fair value. As previously disclosed, management regularly monitors its results of operations and other developments within the industry to adjust its cash flow forecast, as necessary, to determine if an adjustment is necessary to the carrying value of the Company's intangible assets. Legal Settlements. In September 1999, the Company reduced its legal settlement expense by $4.4 million related to the Company's legal dispute with Foundation Health Services, Inc. ("Foundation"), formerly Heath Systems International, Inc., arising from Per-Se's June 1996 acquisition of Health Data Sciences Corporation ("HDS"). The Company had recorded an estimated litigation settlement expense of $21.5 million in the quarter ended June 30, 1999 based on an agreement in principle with Foundation. When 12 15 the agreement was finalized in October 1999, the cost to the Company was reduced to $17.0 million. As a result, the legal settlement expense was reduced by $4.4 million. The Company accrued $19.5 million during the third quarter of 1998 as a result of its resolution with the government concerning two federal investigations into billing and collection practices of the Company. Restructuring and Other Charges. In addition to the $390.6 million intangible asset impairment charge and the $19.5 million legal settlement charge previously discussed, the Company recorded charges of $1.8 million during the three months ended September 30, 1998 related to various severance and legal matters. Income Taxes. Based on recent events and the current operating forecast, the Company does not believe it is more likely than not that net operating losses (NOLs) will be realized; therefore a tax benefit has not been recognized related to the NOLs during the three months ended September 30, 1999. At September 30, 1998, the Company reassessed the recoverability of its deferred tax asset. Based on its analysis, the Company determined a full valuation allowance of $67.6 million against the deferred tax asset was required. If management believes the Company will generate sufficient taxable income to realize the deferred tax asset, then the Company will adjust this valuation reserve accordingly. Discontinued Operations. Summarized financial information for the discontinued operations for the three-month periods ended September 30, 1999 and 1998 is as follows (the 1999 Impact results exclude the commercial division which was sold effective April 15, 1999):
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------ 1999 1998 -------- ------------------------------- HOSPITAL IMPACT SERVICES IMPACT TOTAL ------ -------- ------ ----- (IN THOUSANDS) Revenue........................................... $11,234 $29,124 $19,375 $48,499 ======= ======= ======= ======= Income from discontinued operations before income taxes........................................... 1,351 2,301 (4,203) (1,902) Income tax expense................................ -- 943 -- 943 ------- ------- ------- ------- Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845) ======= ======= ======= =======
On November 30, 1998, the Company completed the sale of Medaphis Services Corporation ("Hospital Services") to NCO Group, Inc. for initial consideration of $107.5 million. During the first quarter of 1999, the Company received additional consideration of $0.8 million based on Hospital Services' final closing balance sheet and payment on certain Hospital Services' accounts receivable retained by Per-Se. The additional consideration resulted in the recognition of an additional gain of $0.5 million, net of tax of $0.3 million. Also, Per-Se could receive a purchase price adjustment of up to $10.0 million subject to Hospital Services' achievement of various operational targets in 1999. The Company sold the commercial division of Impact to CBSI effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid July 16, 1999. On November 4, 1999, the Company entered into a definitive stock purchase agreement for the sale of the government division of Impact to J3 Technology Services Corp. The initial purchase price is $45.0 million subject to certain closing adjustments. The transaction is expected to close by the end of 1999. The Company accrued $5.3 million for the period ended September 30, 1999 as a result of an agreement with SCI Management Corporation ("SCI"), a former client of the commercial division of Impact. SCI filed a complaint against the commercial division of Impact in January of 1998 seeking recovery for alleged damages in connection with work performed by the commercial division of Impact under a consulting contract. Although the commercial division of Impact was sold effective April 15, 1999, the Company retained responsibility for the matter with SCI. The Company paid $3.2 million to SCI on November 4, 1999 and issued a promissory note for $2.1 million bearing interest at 8.25% payable on October 31, 2000. 13 16 Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Revenue. Revenue classified by the Company's different operating segments is as follows:
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- (IN THOUSANDS) Physician Services.......................................... $183,143 $202,236 Software and E-Commerce..................................... 70,500 72,990 Eliminations................................................ (8,642) (8,569) -------- -------- $245,001 $266,657 ======== ========
Physician Services' revenue decreased 9.4% to $183.1 million for the nine months ended September 30, 1999 from $202.2 million in the same period in 1998. The decline in revenue is attributable to operating issues resulting in client discontinuances throughout 1998 primarily at the Emergency Medicine division. These discontinuances were partially offset by the addition of new business in 1999. The Physician Services segment continues to be affected by the revenue pressures on the physician accounts receivable operation resulting from an increase in managed care. Software and E-Commerce's revenue decreased 3.4% to $70.5 million for the nine months ended September 30, 1999 from $73.0 million in the same period in 1998. This decrease is primarily a result of lower software license revenue and more contracts requiring percentage of completion accounting. The decrease in software license revenue was partially offset by higher software maintenance revenue, consulting revenue and E-Commerce revenue. Operating Profit (Loss). Operating profit (loss), which excludes intangible asset impairment, legal settlements, restructuring and other charges and interest expense, classified by the Company's reportable segments is as follows:
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- (IN THOUSANDS) Physician Services.......................................... $ (5,974) $(10,252) Software and E-Commerce..................................... (1,984) (8,290) Corporate................................................... (15,113) (16,758) -------- -------- $(23,071) $(35,300) ======== ========
Physician Services' had an operating loss of $6.0 million for the nine months ended September 30, 1999 as compared to a loss of $10.3 million for the same period in 1998. The decrease is attributable to a $4.0 million increase in the allowance for doubtful accounts during the nine months ended September 30, 1998, lower salaries and wages attributable to staff reductions and lower amortization expense resulting from the intangible asset impairment charge of $390.6 million which was recorded during the nine months ended September 30, 1998. Software and E-Commerce had an operating loss of $2.0 million for the nine months ended September 30, 1999 as compared to a loss of $8.3 million for the same period in 1998. The decrease is primarily the result of increases in allowance for doubtful accounts recognized in 1998 and lower salaries and wages expense in 1999 due to staff reductions. The Company's corporate overhead decreased 9.8% for the nine months ended September 30, 1999 as compared to the same period in 1998. The decrease in the Company's overhead is related to management's continued commitment to reduce costs where feasible and create efficient processes. For the nine months ended September 30, 1998, certain corporate overhead expenses of $4.9 million and $2.1 million have been reclassified to the Physician Services segment and the Software and E-Commerce segment, respectively. 14 17 Interest. Net interest expense was $11.9 million for the nine-month period ended September 30, 1999 as compared to $18.4 million in the same period of 1998. The decrease is primarily related to less debt outstanding and interest income of $1.9 million generated from the short-term investment of cash. Intangible Asset Impairment. At September 30, 1998, the Company recorded an intangible asset impairment charge of $390.6 million to adjust the intangible assets of the Physician Services segment to their fair value. As previously disclosed, management regularly monitors its results of operations and other developments within the industry to adjust its cash flow forecast, as necessary, to determine if an adjustment is necessary to the carrying value of the Company's intangible assets. Legal Settlements. During the nine months ended September 30, 1999, the Company recorded legal settlement charges of $17.0 million and $6.0 million related to legal disputes arising from Per-Se's June 1996 acquisition of HDS and December 1995 acquisition of Medical Management Sciences, Inc. ("MMS"), respectively. In addition, the Company paid $1.8 million to settle contract claims against the Emergency Medicine division which arose in January 1998 in the ordinary course of business. During the nine months ended September 30, 1998, the Company recorded an estimated litigation settlement liability of $21.3 million associated with claims made on behalf of certain former BSG Corporation ("BSG") shareholders in connection with Per-Se's acquisition of BSG in June 1996. This settlement was subsequently finalized during the fourth quarter of 1998 for $15.9 million. A reduction to litigation settlements totaling approximately $5.4 million was recorded in the fourth quarter to reflect the final settlement value. In addition, the Company accrued $19.5 million during the third quarter of 1998 related to two federal investigations into billing and collection practices of the Company. The Company also recorded $0.6 million in the nine months ended September 30, 1998 in connection with the settlement of two other legal matters. Restructuring and Other Charges. In addition to the $390.6 million intangible asset impairment charge and the $41.4 million legal settlement charge previously discussed, the Company recorded charges of $3.4 million during the nine months ended September 30, 1998 related to various restructuring, severance and legal matters. Income Taxes. Based on recent events and the current operating forecast, the Company does not believe it is more likely than not that net operating losses (NOLs) will be realized; therefore a tax benefit has not been recognized related to the NOLs during the nine months ended September 30, 1999. At September 30, 1998, the Company reassessed the recoverability of its deferred tax asset. Based on its analysis, the Company determined a full valuation allowance of $67.6 million against the deferred tax asset was required. If management believes the Company will generate sufficient taxable income to realize the deferred tax asset, then the Company will adjust this valuation reserve accordingly. Discontinued Operations. Summarized financial information for the discontinued operations for the nine-month periods ended September 30, 1999 and 1998 is as follows (the 1999 Impact results include the commercial division through April 15, 1999 -- the effective date of the sale):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1999 1998 ------- ----------------------------- HOSPITAL IMPACT SERVICES IMPACT TOTAL ------ -------- ------ ----- (IN THOUSANDS) Revenue.......................................... $44,411 $81,081 $62,079 $143,160 ======= ======= ======= ======== Income from discontinued operations before income taxes.......................................... 2,210 6,247 (2,946) 3,301 Income tax expense............................... 198 2,578 -- 2,578 ------- ------- ------- -------- Income from discontinued operations, net of tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723 ======= ======= ======= ========
15 18 Extraordinary Item. During the nine months ended September 30, 1998, the Company recorded a charge of $5.6 million, net of tax of $3.6 million, to write-off the unamortized costs associated with the Company's then-current debt facility. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $65.1 million at September 30, 1999, including $38.1 million of unrestricted cash and cash equivalents. The $16.3 million decrease in cash and cash equivalents from December 31, 1998 is primarily a result of the payment of semi-annual interest payments required under the 9 1/2% $175 million of Senior Notes due February 15, 2005 (the "Notes") and payments made in accordance with the provisions of the settlement reached with the government concerning the Emergency Medicine division. The Company sold the commercial division of Impact to CBSI effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. On November 4, 1999, the Company entered into a definitive stock purchase agreement for the sale of the government division of Impact to J3 Technology Services Corp. The initial purchase price is $45.0 million subject to certain closing adjustments. The transaction is expected to close by the end of 1999. Under the Indenture governing the Notes, the balance of the excess sale proceeds, as defined, from the sale of Hospital Services, the commercial division of Impact, the government division of Impact or the sale of any other asset having a fair value in excess of $1.0 million, must be invested in the Company's business within 360 days of receipt of proceeds related to the sale. To the extent that such excess proceeds are not invested and the aggregate amount of excess proceeds is greater than $10.0 million, the Company is required to offer to repurchase the Notes at par with such proceeds. Currently, it is management's intention to invest the estimated excess proceeds in the Company. As of September 30, 1999, excess proceeds related to the sale of Hospital Services were approximately $14.0 million of which $13.5 million must be invested by November 25, 1999 and the balance of $0.5 million must be reinvested by February 6, 2000. The excess proceeds from the sale of the commercial division of Impact were approximately $6.7 million at September 30, 1999 and must be invested by April 15, 2000. The Company believes that its current cash position is sufficient to permit the Company to meet its operating expenses, service its debt requirements as they become due in the next twelve months and for the long term and to invest in the business. To enhance the Company's financial flexibility, management is currently seeking a replacement credit facility. This flexibility would give management the ability to make prudent strategic investments in the business. Additionally, management anticipates receiving proceeds from the sale of the government division of Impact by the end of 1999 which will be available to invest in the business subject to the limitations discussed above. YEAR 2000 It is possible that the Company's currently installed computer systems, software products or other business systems, or those of the Company's customers, vendors or resellers, working either alone or in conjunction with other software or systems, will not accept input of, store, manipulate and output dates for the years 1999, 2000 or thereafter without error or interruption (commonly known as the "Year 2000" problem). The Company has conducted a Company-wide review of its business systems, including its computer systems, and is querying its customers, vendors and resellers as to their progress in identifying and addressing problems that their computer systems may face in correctly interrelating and processing date information as the year 2000 approaches and is reached. Through its Company-wide review, the Company had identified a number of older legacy systems, all within the Physician Services business, that will be abandoned in favor of a limited number of more efficient processing systems ("Systems Assimilation"), rather than make all the systems Year 2000 compatible. The Company believes that it has completed substantially all of the required transitions and is on track to continue with normal business operations before the end of 1999. The detailed planning and inventory for all of the Company's legacy systems that are being modified for Year 2000 compatibility have 16 19 been completed. These legacy systems have completed their remediation and testing activities and final documentation has been signed. Customers, vendors and resellers have been identified and requests for information distributed regarding the Year 2000 readiness of such parties. Responses have been received throughout 1999 and follow up is planned for the remainder of the year. The Company began to develop contingency plans during the fourth quarter of 1998 and will continue refining these plans through the fourth quarter of 1999 in response to assessments of the Year 2000 readiness of customers, vendors and resellers. In the second quarter of 1999, Software and E-Commerce completed testing and documentation of Year 2000 compatible versions of the clinical information system and the radiology information system. Those releases, along with Year 2000 compatible versions of the patient scheduling and staff management products, are currently available to customers. Year 2000 testing for products that will be generally available late in 1999 or early in 2000 will be done as a routine part of quality assurance and documentation. Through September 30, 1999, the Company has spent approximately $10.2 million on its Year 2000 and Systems Assimilation efforts, and it expects to spend an additional $3.0 million to $5.0 million during the fourth quarter on such efforts, the majority of which represents redirection of internal resources. However, there can be no assurance that the Company will identify all Year 2000 problems in its computer systems or those of its customers, vendors or resellers in advance of their occurrence or that the Company will be able to successfully remedy any problems that are discovered. The expenses of the Company's efforts to identify and address such problems, or the expenses or liabilities to which the Company may become subject as a result of such problems, could have a material adverse effect on the Company's business, financial condition and results of operations. The revenue stream and financial stability of existing customers may be adversely impacted by Year 2000 problems, which could cause fluctuations in the Company's revenue. In addition, failure of the Company to identify and remedy Year 2000 problems could put the Company at a competitive disadvantage relative to companies that have corrected such problems. 17 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information required by this Item is included in Note 4 of Notes to Consolidated Financial Statements in Item 1 on pages 5 to 6. ITEM 5. OTHER MATTERS On November 4, 1999, the Company entered into a definitive stock purchase agreement for the sale of the government division of Impact to J3 Technology Services Corp. The initial purchase price is $45.0 million subject to certain closing adjustments. The transaction is expected to close by the end of 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) Exhibits
EXHIBIT NO. DOCUMENT - ------- -------- 2.1 -- Stock Purchase Agreement dated as of October 15, 1998, between Registrant and NCO Group, Inc. (incorporated by reference to Exhibit 2.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among Complete Business Solutions Inc., E-Business Solutions.com, Inc., Impact Innovations Holdings, Inc. and Registrant (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 5, 1999). 2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among J3 Technology Services Corp., Impact Innovations Holdings, Inc., Impact Innovations Government Group, Inc. and Registrant. 3.1 -- Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-42216). 3.2 -- Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 3.3 -- Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.3 to Registration Statement on Form 8-A/A, filed on March 28, 1995). 3.4 -- Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-8, Registration No. 333-03213). 3.5 -- Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 3.6 -- Certificate of Ownership and Merger merging Per-Se Technologies, Inc. with and into Registrant (incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed on August 16, 1999). 3.7 -- Amended and Restated By-laws of Registrant (incorporated by reference to Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 4.1 -- Indenture dated as of February 20, 1998, among Registrant, as Issuer, the Subsidiary Guarantors named in the Indenture and State Street Bank and Trust Company, as Trustee (including form of note) (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on March 3, 1998).
18 21
EXHIBIT NO. DOCUMENT - ------- -------- 4.2 -- Warrant Agreement dated as of July 8, 1998, between Registrant and SunTrust Bank, Atlanta, as Warrant Agent (including form of warrant certificate) (incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A filed on July 21, 1998) 4.3 -- Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company (including form of rights certificates) (incorporated by reference to Exhibit 4 to Current Report on Form 8-K filed on February 12, 1999). 4.4 -- Registration Rights Letter Agreement, dated as of May 3, 1999, by and among NFT Ventures Inc., Raymond J. Noorda, Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and the Registrant (incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-3, File No. 333-78775). 10.1 -- Employment Agreement dated as of June 1, 1999, between Registrant and Philip M. Pead. 27 -- Financial Data Schedule (for SEC use only) 99.1 -- Safe Harbor Compliance Statement for Forward-Looking Statements.
(B) Reports on Form 8-K The Company filed the following reports on Form 8-K during the quarter ended September 30, 1999:
FINANCIAL STATEMENTS ITEM REPORTED FILED DATE OF REPORT FILING DATE - ------------- ---------- -------------- ----------- Name Change from Medaphis Corporation to Per-Se Technologies, Inc.................. No August 16, 1999 August 16, 1999 Definitive Agreement for settlement with Foundation Health Systems, Inc............ No September 20, 1999 September 21, 1999
19 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PER-SE TECHNOLOGIES, INC. (Registrant) By: /s/ WAYNE A. TANNER ------------------------------------ Wayne A. Tanner Executive Vice President and Chief Financial Officer Date: November 12, 1999 20 23 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS - ------- ----------------------- 2.1 -- Stock Purchase Agreement dated as of October 15, 1998, between Registrant and NCO Group, Inc. (incorporated by reference to Exhibit 2.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among Complete Business Solutions Inc., E-Business Solutions.com, Inc., Impact Innovations Holdings, Inc. and Registrant (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 5, 1999). 2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among J3 Technology Services Corp., Impact Innovations Holdings, Inc., Impact Innovations Government Group, Inc. and Registrant. 3.1 -- Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1, File No. 33-42216). 3.2 -- Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 3.3 -- Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.3 to Registration Statement on Form 8-A/A, filed on March 28, 1995). 3.4 -- Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-8, Registration No. 333-03213). 3.5 -- Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 3.6 -- Certificate of Ownership and Merger merging Per-Se Technologies, Inc. with and into Registrant (incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed on August 16, 1999). 3.7 -- Amended and Restated By-laws of Registrant (incorporated by reference to Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 4.1 -- Indenture dated as of February 20, 1998, among Registrant, as Issuer, the Subsidiary Guarantors named in the Indenture and State Street Bank and Trust Company, as Trustee (including form of note) (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on March 3, 1998). 4.2 -- Warrant Agreement dated as of July 8, 1998, between Registrant and SunTrust Bank, Atlanta, as Warrant Agent (including form of warrant certificate) (incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A filed on July 21, 1998) 4.3 -- Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company (including form of rights certificates) (incorporated by reference to Exhibit 4 to Current Report on Form 8-K filed on February 12, 1999). 4.4 -- Registration Rights Letter Agreement, dated as of May 3, 1999, by and among NFT Ventures Inc., Raymond J. Noorda, Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and the Registrant (incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-3, File No. 333-78775). 10.1 -- Employment Agreement dated as of June 1, 1999, between Registrant and Philip M. Pead. 27 -- Financial Data Schedule (for SEC use only) 99.1 -- Safe Harbor Compliance Statement for Forward-Looking Statements.
21 EX-2.3 2 STOCK PURCHASE AGREEMENT 1 EXHIBIT 2.3 STOCK PURCHASE AGREEMENT BY AND AMONG J3 TECHNOLOGY SERVICES CORP., IMPACT INNOVATIONS HOLDINGS, INC., IMPACT INNOVATIONS GOVERNMENT GROUP, INC. AND PER-SE TECHNOLOGIES, INC. DATED AS OF NOVEMBER 4, 1999 2 ARTICLE 1 -PURCHASE AND SALE................................................................ 1 1.1 PURCHASE AND SALE.................................................................. 1 1.2 TIME AND PLACE OF CLOSING; CLOSING DELIVERIES...................................... 1 1.3 BONUS ACCRUAL...................................................................... 2 1.4 WORKING CAPITAL PURCHASE PRICE ADJUSTMENT.......................................... 2 1.5 RETENTION OF ASSETS................................................................ 3 1.6 FURTHER ASSURANCES................................................................. 4 ARTICLE 2 -REPRESENTATIONS AND WARRANTIES OF THE SELLER AND HOLDINGS........................ 5 2.1 ORGANIZATION, STANDING, AND POWER.................................................. 5 2.2 AUTHORITY; NO BREACH BY AGREEMENT.................................................. 5 2.3 OWNERSHIP INTERESTS; CAPITAL STOCK................................................. 6 2.4 SUBSIDIARIES....................................................................... 6 2.5 FINANCIAL STATEMENTS............................................................... 7 2.6 ABSENCE OF UNDISCLOSED LIABILITIES................................................. 7 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS............................................... 7 2.8 TAX MATTERS........................................................................ 7 2.9 ASSETS............................................................................. 9 2.10 INTELLECTUAL PROPERTY.............................................................. 10 2.11 ENVIRONMENTAL MATTERS.............................................................. 10 2.12 COMPLIANCE WITH LAWS............................................................... 11 2.13 LABOR RELATIONS.................................................................... 11 2.14 EMPLOYEE BENEFIT PLANS............................................................. 13 2.15 MATERIAL CONTRACTS................................................................. 14 2.16 LEGAL PROCEEDINGS.................................................................. 15 2.17 REPORTS............................................................................ 15 2.18 BROKERAGE.......................................................................... 15 2.19 YEAR 2000.......................................................................... 16 2.20 CUSTOMERS.......................................................................... 16 2.21 FEDERAL GOVERNMENT CONTRACTS....................................................... 16 ARTICLE 3 -REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................. 17 3.1 ORGANIZATION, STANDING, AND POWER.................................................. 17 3.2 AUTHORITY; NO BREACH BY AGREEMENT.................................................. 17 3.3 COMPLIANCE WITH LAWS............................................................... 18 3.4 LEGAL PROCEEDINGS.................................................................. 18 3.5 INVESTMENT INTENT.................................................................. 18 ARTICLE 4 -CONDUCT OF BUSINESS PENDING CONSUMMATION......................................... 19 4.1 AFFIRMATIVE COVENANTS WITH RESPECT TO COMPANY...................................... 19 4.2 NEGATIVE COVENANTS WITH RESPECT TO COMPANY......................................... 19 4.3 COVENANTS OF PURCHASERS............................................................ 20 4.4 ADVERSE CHANGES IN CONDITION....................................................... 21 4.5 REPORTS............................................................................ 21 4.6 RELATED PARTY TRANSACTIONS......................................................... 21 ARTICLE 5 -ADDITIONAL AGREEMENTS............................................................ 21 5.1 APPLICATIONS; ANTITRUST NOTIFICATION............................................... 21 5.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE.............................................. 21 5.3 INVESTIGATION AND CONFIDENTIALITY.................................................. 22 5.4 PRESS RELEASES..................................................................... 22 5.5 CERTAIN ACTIONS.................................................................... 22 5.6 TAX MATTERS........................................................................ 23 5.7 GOVERNMENT CONTRACT AUDITS......................................................... 24 5.8 EMPLOYEE BENEFITS AND CONTRACTS.................................................... 24
3 5.9 INSURANCE.......................................................................... 25 5.10 BONUS PAYMENT...................................................................... 25 5.11 HOLDINGS OPTIONS................................................................... 25 5.12 SUPPLEMENTAL DISCLOSURE............................................................ 25 ARTICLE 6 -CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE................................ 25 6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY............................................ 25 6.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER......................................... 26 6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER............................................ 28 ARTICLE 7 -INDEMNIFICATION.................................................................. 28 7.1 INDEMNIFICATION OF PURCHASER........................................................ 28 7.2 INDEMNIFICATION OF SELLER........................................................... 29 7.3 NOTICE AND OPPORTUNITY TO DEFEND.................................................... 29 7.4 LIMITATIONS......................................................................... 29 7.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................................... 31 7.6 SUBROGATION......................................................................... 31 7.7 EXCLUSIVE REMEDY.................................................................... 31 7.8 DISPUTE RESOLUTION.................................................................. 31 7.9 ESCROW.............................................................................. 31 ARTICLE 8 -TERMINATION...................................................................... 32 8.1 TERMINATION........................................................................ 32 8.2 EFFECT OF TERMINATION.............................................................. 32 ARTICLE 9 -MISCELLANEOUS.................................................................... 33 9.1 DEFINITIONS........................................................................ 33 9.2 EXPENSES........................................................................... 40 9.3 BROKERS AND FINDERS................................................................ 40 9.4 ENTIRE AGREEMENT................................................................... 40 9.5 AMENDMENTS......................................................................... 40 9.6 WAIVERS............................................................................ 41 9.7 ASSIGNMENT......................................................................... 41 9.8 NOTICES............................................................................ 41 9.9 GOVERNING LAW...................................................................... 42 9.10 COUNTERPARTS....................................................................... 42 9.11 CAPTIONS; ARTICLES AND SECTIONS.................................................... 42 9.12 INTERPRETATIONS.................................................................... 42 9.13 SEVERABILITY....................................................................... 42
EXHIBITS EXHIBIT A RELEASE LETTER 4 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of November 4, 1999, by and among J3 Technology Services Corp., a Georgia corporation ("Purchaser"), IMPACT INNOVATIONS HOLDINGS, INC., a Delaware corporation ("Holdings" or "Seller"), IMPACT INNOVATIONS GOVERNMENT GROUP, INC., a Maryland corporation ("Impact" or the "Company"), and PER-SE TECHNOLOGIES, INC., a Delaware corporation ("Per-Se"). PREAMBLE Per-Se is the record and beneficial owner of all of the issued and outstanding shares of Common Stock of Holdings. Holdings is the record and beneficial owner of all of the issued and outstanding shares of Common Stock of Impact (the "Shares"). Holdings desires to sell all of the Shares to the Purchaser, and the Purchaser desires to purchase all of the Shares from Holdings, upon the terms and subject to the conditions set forth in this Agreement. The transactions described in this Agreement are subject to the expiration of the required waiting period under the HSR Act and the satisfaction of certain other conditions described in this Agreement. Notwithstanding the foregoing, Purchaser intends at Closing to acquire Assets of the Company such that the Assets so acquired are from an entity disregarded as an entity separate from its owner for tax purposes. From and after the Closing Date, all references to the Company or Impact set forth herein shall mean and include the LLC as hereinafter defined. Certain terms used in this Agreement are defined in Section 9.1 of this Agreement. NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, Holdings shall sell to the Purchaser and the Purchaser shall purchase from Holdings, the Shares at the closing of the transactions contemplated hereby (the "Closing"), free and clear of any Liens (the "Stock Purchase") in exchange for $45 million in cash (the "Initial Purchase Price"), plus the Conversion Payment, minus the Bonus Accrual and plus or minus the Working Capital Purchase Price Adjustment as provided in Sections 1.3 and 1.4 respectively (the "Purchase Price"). 1.2 Time and Place of Closing; Closing Deliveries. (a) The Closing will take place at 9:00 A.M. on the Closing Date, or at such other time as the Parties, acting through their authorized officers, may mutually agree. To the extent not inconsistent with any other provision of this Agreement, all of the Parties agree that for tax, accounting and other purposes, the transactions described herein shall be deemed to have occurred as of the Closing Date, 11:59 p.m., Eastern Time. The Closing shall be held at the offices of Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street, N.W., Atlanta, Georgia, or such other location as may be mutually agreed upon by the Parties. Subject to the terms and conditions hereof, unless otherwise mutually agreed upon in writing by the authorized 5 officers of each Party, the Parties shall use their reasonable efforts to cause the Closing to occur in December on the first business day following a payroll date of the Company in the month in which occurs the last to occur of the effective date (including expiration of any applicable waiting period) of the last required Consent of any Regulatory Authority having authority over and approving or exempting the Stock Purchase. (b) At the Closing: (i) The Purchaser shall deliver to Per-Se in immediately available funds by wire transfer to an account specified by Per-Se cash in an amount equal to the Initial Purchase Price less the Estimated Bonus Accrual determined in accordance with Section 1.3 below, less the Escrow Amount; (ii) Per-Se or Holdings shall deliver to the Purchaser (x) certificates representing the Shares duly registered in the name of the Purchaser (or such other Person as the Purchaser may designate to Per-Se not less than five business days prior to the Closing), free and clear of any Liens; and (iii) The Purchaser shall deliver to the Escrow Agent the Escrow Amount in immediately available funds by wire transfer to be held in escrow pursuant to the terms of the Escrow Agreement. Distribution of the Escrow Amount to either Purchaser, Per-Se or Seller shall be governed by the terms of the Escrow Agreement. Taxes owed on any interest earned on the Escrow Amount shall be paid by Per-Se; and (iv) the Parties shall deliver the certificates and other documents set forth in Article 6 hereof. (c) Within ninety (90) days following the Closing Date, Purchaser or the Company shall pay to Per-Se the Conversion Payment. 1.3 Bonus Accrual. The Purchase Price shall be reduced by that portion of the amount owed to the employees of the Company for the calendar year 1999 under the Target Performance Bonus Program adjusted to reflect the portion of the bonus attributable to that portion of the calendar year prior to the Closing Date (the "Bonus Accrual"). Per-Se will submit to Purchaser a good faith estimate of the Bonus Accrual within five days prior to Closing (the "Estimated Bonus Accrual"). To the extent there is a discretionary portion of the bonus, the Parties shall work in good faith to determine the discretionary amount. 1.4 Working Capital Purchase Price Adjustment. (a) The "Working Capital Purchase Price Adjustment" shall be equal to the Net Working Capital of the Company as of the Closing Date, as derived from the Closing Balance Sheet (as defined in Section 1.4(b)), minus $8,424,438. (b) Within ninety (90) days after the Closing Date, Purchaser will cause to be prepared and delivered to Per-Se an audited balance sheet of the Company as of the Closing Date (the "Closing Balance Sheet"), prepared in accordance with GAAP consistently 2 6 applied and Purchaser's final calculation of the Working Capital Purchase Price Adjustment and the Bonus Accrual. Purchaser will pay all expenses incurred in connection with the preparation of the Closing Balance Sheet and Per-Se will have an opportunity to participate in such audit and review and comment on the workpapers related thereto prior to the delivery of the Closing Balance Sheet. Within thirty (30) days after receipt of the Closing Balance Sheet (the "Notification Period"), Per-Se will notify Purchaser in writing of any objections Per-Se may have to the Closing Balance Sheet, the Working Capital Purchase Price Adjustment and the Bonus Accrual. In the absence of such written objections timely made, Per-Se will be deemed to have approved the Closing Balance Sheet for purposes of the Working Capital Purchase Price Adjustment, if any, and the Bonus Accrual to be made pursuant to this Section 1.4 on the expiration of the Notification Period. If Per-Se timely notifies Purchaser in writing of objections to the Closing Balance Sheet, the calculation of the Working Capital Purchase Price Adjustment or the Bonus Accrual and if any such objections cannot be resolved by Per-Se and Purchaser within thirty (30) days after receipt by Purchaser of such objections (the notice of which shall also state with reasonable specificity the reasons for any disagreement and the amounts in dispute), such dispute will immediately be submitted to the Accountants for a final and binding resolution of such dispute within thirty (30) days (the "Determination") and the Determination shall be conclusive and binding. The fees of such firm incurred in resolving such dispute will be paid by the party against whom such objections are resolved. Purchaser will, upon request of Per-Se make available to Per-Se's accountants and to the Accountants, all work papers prepared in connection with the preparation of the Closing Balance Sheet, together with reasonable access to the information and individuals as necessary to determine the accuracy of the Working Capital Purchase Price Adjustment and the Bonus Accrual. (c) If, after following the procedures set forth in Section 1.4(b) above, the Working Capital Purchase Price Adjustment is a positive number, or if the Estimated Bonus Accrual exceeds the Bonus Accrual, the amount(s) so determined shall be paid by Purchaser to Seller in immediately available funds within five (5) days after the earliest to occur of (i) final approval of the Closing Balance Sheet by Per-Se or agreement between the Parties on the Working Capital Purchase Price Adjustment or the Bonus Accrual, (ii) expiration of the Notification Period with no written objections being received by Purchaser, or (iii) receipt by Purchaser and Per-Se of the Determination. (d) If, after following the procedures set forth in Section 1.4(b) above, the Working Capital Purchase Price Adjustment is a negative number, or if the Bonus Accrual exceeds the Estimated Bonus Accrual, the amount(s) so determined shall be paid by Seller to Purchaser in immediately available funds within five (5) days after the earliest to occur of (i) final approval of the Closing Balance Sheet by Per-Se or agreement between the Parties on the Working Capital Purchase Price Adjustment or the Bonus Accrual, (ii) expiration of the Notification Period with no written objections being received by Purchaser, or (iii) receipt by Purchaser and Per-Se of the Determination. Purchaser, at its discretion, may notify the Escrow Agent pursuant to the terms of the Escrow Agreement of the amount owed to Purchaser and receive the amount owed to Purchaser hereunder from the Escrow Amount. 1.5 Retention of Assets. Purchaser acknowledges and agrees that it is acquiring the Cash Amount at the Closing (the Cash Amount shall be equal to actual cash in the Company bank accounts retained by the Company after Closing), and agrees that the Company may make a distribution at Closing to Per-Se in an amount equal to all cash on hand of the Company on the Closing Date in excess of such amount. 3 7 1.6 Further Assurances. Holdings and Per-Se after the Closing Date, at Purchaser's request, will execute, acknowledge and deliver to Purchaser such other instruments of conveyance and transfer and will take such other actions and execute and deliver such other documents, certifications, and further assurances as Purchaser may reasonably require in order to vest more effectively in Purchaser, or to put Purchaser more fully in possession of, any of the Assets or the Impact Common Stock, or to better enable Purchaser to complete, perform or discharge the obligations of the Company. Without limiting the generality of the foregoing, if any party to a Government Contract (other than the Company itself) requires an assignment or novation Contract be entered into to continue performance under the Government Contract, the Parties will cooperate to the fullest extent reasonably practicable, including executing a novation agreement on terms no less favorable to the U.S. Government as the terms are reflected in the form novation agreement set forth in 42.12 of the FAR. Each of the Parties hereto will cooperate with the other and execute and deliver to the other Parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purposes of this Agreement. 1.7 (a) Notwithstanding the other provisions of the Agreement to the contrary, Per-Se and Purchaser agree that, prior to the Closing Date, Per-Se shall cause Company to be converted, by means of a merger or conversion (collectively, the "Conversion") to a Delaware or Maryland limited liability company (the "LLC"), all of the membership units and other economic interests (collectively, the "Units") of which are held by Holdings. In connection therewith, the Parties agree to take the following actions prior to the Closing Date: (i) Per-Se, at its expense, shall cause the Conversion to occur such that all of the Assets and Liabilities of the Company immediately after the Conversion shall be held in the LLC and only such Assets and Liabilities shall be held by the LLC immediately after the Conversion. (ii) Per-Se shall cause all of the issued and outstanding Shares of the Company to be converted into and exchanged for the Units. (iii) Per-Se shall cause the LLC to be taxed as a business entity which shall be disregarded as an entity separate from its owner for Tax purposes within the meaning of Treasury Regulation Section 301.7701-3(b)(1)(ii). (iv) The Parties will execute such documents, certificates and agreements reasonably necessary to carry out the Conversion. (b) At the Closing, the representations and warranties set forth in Section 2 of the Agreement as they relate to the Company shall be restated as provided in Section 6.2(a), except that those representations and warranties which relate to the Company's corporate status and authority shall be given by the LLC with respect to the appropriate counterparts of its status under applicable limited liability company Laws and those representations and warranties which relate to the effect of the Stock Purchase on circumstances or documents shall be given by the LLC with respect to the LLC Conversion. In addition, covenants of Per-Se, Holdings and the Company in the Agreement shall be conformed and restated to become consistent with the Company's LLC status and the effect of an LLC Conversion rather than a Stock Purchase. Per-Se shall cause the LLC to deliver such additional certificates or documents (including opinions) as shall be reasonably requested by Purchaser to evidence the same. 4 8 (c) Purchaser shall prepare a schedule allocating the Purchase Price (together with all other capitalizable costs) among the Assets of Impact (the "Allocation Schedule") for Per-Se's review and approval, provided that Per-Se shall not unreasonably withhold such approval. Such allocation will comply with the requirements of Section 1060 of the Code. Purchaser and Per-Se each agrees to file IRS Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with the Allocation Schedule. Per-Se agrees to provide promptly to Purchaser any other information required to complete the Allocation Schedule. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF PER-SE AND HOLDINGS Per-Se and Holdings hereby jointly and severally represent and warrant to the Purchaser as follows: 2.1 Organization, Standing, and Power. Each of Holdings, Impact and Per-Se is a corporation validly existing and in good standing under the Laws of the jurisdiction of its incorporation, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its material Assets. The Company is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. The minute book and other organizational documents for Company have been made available to Purchaser for its review and are true and complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceedings of the Board of Directors and shareholders thereof. The stock record book of the Company, which has been made available for review, contains true, complete and accurate records of the stock ownership of the Company and the transfer of the shares of its capital stock. Section 2.1 of the Company Disclosure Memorandum lists the names of all directors and officers of the Company. 2.2 Authority; No Breach By Agreement. (a) Each of Holdings, Impact and the Seller has the corporate power and authority to execute and deliver this Agreement and the Closing Documents to which it is a party and to perform its obligations under this Agreement and the Closing Documents. The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action on the part of each of Holdings, Impact and Per-Se. This Agreement represents a legal, valid, and binding obligation of Holdings, Impact and Per-Se, enforceable against them in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Upon the execution and delivery of the Closing Documents to which it is a party, such Closing Documents will constitute the legal, valid, and binding obligations of Holdings, Impact and/or Per-Se, enforceable against such Party in accordance with their respective terms. 5 9 (b) Neither the execution and delivery of this Agreement by Holdings, Impact or Per-Se, nor the consummation by any of them of the transactions contemplated hereby, nor compliance by any of them with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of their respective Articles or Certificates of Incorporation or Bylaws, or (ii) except as disclosed in Section 2.2(b) of the Company Disclosure Memorandum or except for Consents required under Contracts, constitute or result in a Default under, or result in the creation of any Lien on any material Asset of the Company under, any material Contract or Permit, or (iii) constitute or result in a Default under any Law or Order applicable to the Company, Holdings or Per-Se or any of the Company's material Assets (including the Company becoming subject to or liable for the payment of any Tax, or any of the Assets owned by Purchaser or any Affiliate including the Company, being reassessed or revalued by any Taxing authority). (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and other than (i) Consents required from Regulatory Authorities set forth on Section 2.2(c) of the Company Disclosure Memorandum; (ii) notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans; (iii) filings with the Defense Security Service set forth on Section 2.2(c) of the Company Disclosure Memorandum; and (iv) filings under the HSR Act which, if applicable, will be made by the Parties prior to Closing, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Per-Se or Holdings of the transactions contemplated in this Agreement. 2.3 Ownership Interests; Capital Stock. (a) Per-Se is the owner of all right, title and interest (legal and beneficial) in and to all of the issued and outstanding shares of Common Stock of Holdings. Holdings is the owner of all right, title and interest (legal and beneficial) in and to all of the Shares, free and clear of all Liens. The authorized capital stock of Impact consists of 20,000,000 shares of Impact Common Stock, of which 100 shares are issued and outstanding as of the date of this Agreement and will be outstanding on the Closing Date. All of the issued and outstanding shares of Impact Common Stock are duly and validly issued and outstanding, are fully paid and nonassessable, and were not issued in violation of any federal or state securities Laws for which a remedy is available and for which the Company or the Purchaser bear any Liability. None of the outstanding shares of capital stock of Impact has been issued in violation of any preemptive rights of the current or past shareholders of Impact. There are no Liabilities of Holdings that relate to Liabilities of the Company such that the September 30, 1999 Company Financial Statements do not fully and accurately reflect the financial position of the Company as of such date. (b) Except as set forth in Section 2.3(a), or as disclosed in Section 2.3(b) of the Company Disclosure Memorandum, there are no shares of capital stock or other equity securities of the Company outstanding and no outstanding Equity Rights relating to the capital stock of Company. Except as specifically contemplated by this Agreement, no Person has any Contract or any right or privilege (whether pre-emptive or contractual) capable of becoming a Contract for the purchase from Per-Se or Holdings of any of the Shares, or any Contract or Equity Right for the purchase, subscription or issuance of any securities of Holdings. 2.4 Subsidiaries. Impact has no Subsidiaries. Section 2.4 of the Company Disclosure Memorandum reflects with respect to Impact its jurisdiction of incorporation, and each jurisdiction in which it is qualified and/or licensed to transact business. No capital stock (or other equity interest) of Impact is or may become required to be issued by reason of any Equity 6 10 Rights. There are no Contracts relating to the rights of Holdings to vote or to dispose of any shares of the capital stock (or other equity interests) of Impact. 2.5 Financial Statements. The Company Financial Statements are attached to Section 2.5 of the Company Disclosure Memorandum. Each of the Company Financial Statements (including, in each case, any related notes) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements), and fairly presented in all material respects the financial position of the Company as and at the respective dates and the results of operations and cash flows for the periods indicated, except that the interim financial statements (i) do not contain notes or reflect income Taxes and (ii) were or are subject to normal and recurring year end adjustments which were not or are not expected to be material in amount or effect. Except as disclosed in Section 2.5 of the Company Disclosure Memorandum, the Company Financial Statements do not contain any items of special or nonrecurring income or other income not earned in the ordinary course of business, individually in excess of $15,000 and in the aggregate in excess of $45,000. 2.6 Absence of Undisclosed Liabilities. The Company has no Liabilities which are of a nature required by GAAP to be accrued or reserved against on the Company Financial Statements except (i) Liabilities which are accrued or reserved against in the balance sheets of the Company as of December 31, 1998 and September 30, 1999, included in the Company Financial Statements or reflected in the notes thereto or (ii) Liabilities incurred or paid since September 30, 1999 in the ordinary course of business consistent with past business practice and which are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect or (iii) in connection with the transactions contemplated by this Agreement. Except as disclosed in Section 2.6 of the Company Disclosure Memorandum, the Company is not directly or indirectly liable, by guarantee, indemnity, or otherwise, upon or with respect to, or obligated, by discount or repurchase agreement or in any other way, to provide funds in respect to, or obligated to guarantee or assume any Liability or any Person for any amount in excess of $75,000. The Company has no long term indebtedness except as disclosed on the September 30, 1999 Company Financial Statement. 2.7 Absence of Certain Changes or Events. Since June 30, 1999, except as disclosed in the Company Financial Statements or as disclosed in Section 2.7 of the Company Disclosure Memorandum, (i) there have been no events, changes, or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect, and (ii) the Company has not taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of the Company provided in Article 4. 2.8 Tax Matters. (a) A correct and complete list of each of the income or franchise Tax Returns for which the Company is a party for any periods from January 1, 1996 to the date hereof are attached to Section 2.8(a)(i) of the Company Disclosure Memorandum. The Company Entities' federal income Tax Returns have never been audited by the IRS. All Tax Returns required to be filed by or on behalf of any of the Company Entities have been timely filed or requests for extensions have been timely filed, granted, and have not expired for periods ended on or before December 31, 1998, and on or before the date of the most recent fiscal year end immediately preceding the Closing Date, and all Tax Returns filed are complete and accurate in 7 11 all material respects. All Taxes, whether or not shown on filed Tax Returns, have been paid. As of the date of this Agreement, there is no audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against in the Company Financial Statements or as disclosed in Section 2.8(a)(ii) of the Company Disclosure Memorandum. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded refund Litigation have been paid. There are no material Liens with respect to Taxes upon any of the Assets of Impact. (b) Impact has not executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due (excluding such statutes that relate to years currently under examination by the Internal Revenue Service or other applicable taxing authorities) that is currently in effect or agreed to any extension of time with respect to a tax assessment or deficiency . (c) The provision for any Taxes due or to become due for Impact for the period or periods through and including the date of the respective Company Financial Statements that has been made and is reflected on such Company Financial Statements is sufficient to cover all such Taxes. (d) Deferred Taxes of Impact have been provided for in accordance with GAAP. (e) Any Tax sharing agreement with respect to which the Company is or has been a party shall be terminated prior to the date of this Agreement and will have no further effect or Liability to the Company for any taxable year or period prior to, including, or following the date of this Agreement. The Company shall have no Liability for Taxes of any Person (other than Impact) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law) as transferee or successor or by Contract or otherwise. (f) The Company is in compliance with, and its records contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with all amounts paid or owing to any employee, independent contractor, creditor or other third party. (g) The Company has not (i) filed any consent or agreement under Section 341(f) of the Code, (ii) applied for any tax ruling, (iii) entered into a closing agreement with any Taxing authority, (iv) filed an action under Section 338(g) or 338(h) (10) of the Code (nor has a deemed election under Section 338(e) of the Code occurred), or (v) been a party to any Tax allocation or Tax Sharing agreement except as set forth in Section 2.8(g) of the Company Disclosure Memorandum. The Company is not a "United States Real Property Holding Company" within the meaning of Section 897 of the Code. The Company has disclosed in accordance with applicable Law on its federal income Tax Returns all positions therein that could give rise to an understatement of federal income Tax. Except as disclosed in Section 2.8(g) of the Company Disclosure Memorandum, the Company has not made any payments, is not obligated to make any payments, or is a party to any Contract that could obligate it to make any payments that would be disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue Code. 8 12 (h) The Company does not have, and has not had in any foreign country a permanent establishment, as defined in any applicable tax treaty or convention between the United States and such foreign country. 2.9 Assets. (a) Except as disclosed in Section 2.9(a) of the Company Disclosure Memorandum or as disclosed or reserved against in the Company Financial Statements, Impact has good title, free and clear of all Liens, to all of its material Assets. All material tangible properties used in the businesses of the Company are in reasonable condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with the Company's past practices. (b) Except for the nonrecoverable travel expenses of approximately $86,608, all earnings of the Company in excess of billings as set forth on the most recent balance sheet included in the Company Financial Statements delivered prior to the date of this Agreement or arising since the date thereof have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business consistent with past practices; are not subject to valid defenses, set-offs or counterclaims; and are collectible within 120 days after billing at the full recorded amount thereof less the recorded allowance for collection losses. (c) The accounts receivable of the Company as set forth on the most recent balance sheet included in the Company Financial Statements delivered prior to the date of this Agreement or arising since the date thereof are valid and genuine; have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business consistent with past practice; are not subject to valid defenses, set-offs or counterclaims; and are collectible within 120 days after billing at the full recorded amount thereof less, in the case of accounts receivable appearing on the most recent balance sheet included in the Company Financial Statements delivered prior to the date of this Agreement, the recorded allowance for collection losses on such balance sheet. The allowance for collection losses on such balance sheet has been determined in accordance with GAAP and are adequate in light of the Company's historical methods and practices is establishing such allowances. (d) All Assets which are material to the Business or held under leases or subleases by the Company, are held under valid Contracts that are enforceable in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought), and each such Contract is in full force and effect. (e) Section 2.9(e) of the Company Disclosure Memorandum contains a complete and accurate list of all insurance policies held or owned by Per-Se, Holdings or the Company relating to the Business and now in force and such Section of the Company Disclosure Memorandum indicates the name of the insurer, the type and number of each policy. (f) The Assets of the Company include all Assets used by the Company to operate the business of the Company as presently conducted, except for Assets related to administrative or corporate services provided by Per-Se to the Company, certain of 9 13 which services are the subject of the Transition Services Agreement. The Company owns no real property. (g) A list of the names and addresses of each bank, together with the name and number of each account, in which the Company has an account or safe-deposit box, the names of all persons entitled to draw thereon or to have access thereto, and the names of any persons holding powers of attorney with respect to the Company, are set forth in Section 2.9(f) of the Company Disclosure Memorandum. 2.10 Intellectual Property. Section 2.10(a) of the Company Disclosure Memorandum contains a true and correct list of all material registered patents, copyrights and trademarks Intellectual Property owned or used by the Company relating to or used in connection with the Business, containing a brief description of each item of Intellectual Property and the nature of the Company's interest therein. The Assets of the Company include (or will by Closing include), all patents, designs, art work, designs-in-progress, formulations, know-how, inventions, trademarks, trade names, trade styles, service marks, copyrights, manufacturing processes, and confidential or proprietary information used and necessary for the conduct of the Company's business as presently conducted, including all rights Per-Se or Holdings possess to use the name "Impact Innovations", and Per-Se, Holdings and the Company have no Knowledge of any adverse claims. No claim is pending or, to the Knowledge of the Company and Per-Se, threatened, and, except as set forth on Section 2.10(b) of the Company Disclosure Memorandum, the Company has not received notice that the conduct of the Business (including without limitation, the Company's use of any Intellectual Property) infringes upon or conflicts with any rights claimed therein by any third party. No use by the Company of any material Intellectual Property licensed to it violates the terms of any agreement pursuant to which it is licensed. No claim is pending, or to the Knowledge of the Company, threatened, which alleges that any material Intellectual Property owned or licensed by the Company for use in the Business is invalid or unenforceable by the Company. With respect to the Business, the Company does not manufacture products which are the subject of patents, patent applications, copyrights, copyright applications, trademarks, trademark applications, trade styles, service marks, or trade secrets owned by or licensed from third parties. No royalties or fees are currently payable by the Company to anyone for use of the Intellectual Property. True, correct, and complete copies of all Contracts pursuant to which the Company has any license or right to use any material Intellectual Property are attached to Section 2.10(c) of the Company Disclosure Memorandum. All such Contracts are in full force and effect and there are no existing defaults or events of default, real or claimed, or events which with or without notice or lapse of time or both would constitute defaults under such Contracts that would give the non-defaulting party a right to terminate such agreement or a right to receive any material payment pursuant to such agreement. With respect to the Business, the Company has not received any notice that its business operations or any Asset employed by the Company, violates or infringes upon any claims of any United States or foreign patent or patent application owned or held by any third party. The Company owns, or will own by Closing, the exclusive and entire right, title and interest to the name "Impact Innovations" and all variations or derivations thereof. 2.11 Environmental Matters. (a) To the Knowledge of the Company and Per-Se, the Company, and its Operating Properties are, and have been, in compliance with all material Environmental Laws. 10 14 (b) To the Knowledge of the Company and Per-Se, there is no Litigation pending or threatened before any court, governmental agency, or authority or other forum in which the Company or any of its Operating Properties (or the Company in respect of such Operating Property) has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release, discharge, spillage, or disposal into the environment of any Hazardous Material, whether or not occurring at, on, under, adjacent to, or affecting (or potentially affecting) a site owned, leased, or operated by the Company or any of its Operating Properties. (c) During the period of (i) the Company's ownership or operation of any of its current properties, or (ii) the Company's holding of a security interest in a Operating Property, there have been no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, adjacent to, or affecting (or potentially affecting) such properties. Prior to the period of (i) the Company's ownership or operation of any of its current properties, or (ii) the Company's holding of a security interest in an Operating Property, to the Knowledge of the Company and the Per-Se, there were no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, or affecting any such property, or any Operating Property. 2.12 Compliance with Laws. The Company is in material compliance with all Laws applicable to it, its business and the ownership and present uses of its Assets. The Company has in effect all material Permits necessary for it to own, lease, or operate its material Assets and to carry on its business as now conducted, and there has occurred no Default under any such Permit which has not been cured. Except as disclosed in Section 2.12 of the Company Disclosure Memorandum, the Company is not: (a) in Default under any of the provisions of its Articles or Certificate of Incorporation or Bylaws (or other governing instruments); (b) in Default under any Laws, Orders, or Permits applicable to its business or employees conducting its business; or (c) since January 1, 1994, in receipt of any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that the Company is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits, or (iii) requiring the Company to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any Board resolution or similar undertaking. Copies of all material reports, correspondence, notices and other documents relating to any inspection, audit, monitoring or other form of review or enforcement action by a Regulatory Authority have been made available to Purchaser. 2.13 Labor Relations. (a) Except as disclosed on Section 2.13(a) of the Company Disclosure Memorandum, the Company is not the subject of any Litigation asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state Law) or seeking to compel it to bargain with any labor organization as to wages or conditions of employment, nor is the Company a party to any collective bargaining agreement, 11 15 nor is there any strike or other labor dispute involving the Company, pending or threatened, or to the Knowledge of the Company, Holdings and Per-Se, is there any activity involving any of the Company 's employees seeking to certify a collective bargaining unit or engaging in any other organization activity. (b) The Company, within the last three (3) years, has not experienced any organized slowdown, work interruption, strike, or work stoppage by employees of the Company. The Company, within the last three (3) years, has not had a plant closing or mass layoff, as those terms are defined in the Worker Adjustment Retraining and Notification Act ("WARN"), or similar event requiring notification or payment of severance pay under any state, local or foreign Law and has not violated WARN or any similar state, local or foreign Law. Neither the Company, nor any of its officers, directors, or employees has been charged or, to the Company's or Per-Se's or Holdings' Knowledge, threatened with the charge of any unfair labor practice, with respect to the Business within the last two (2) years. The Company is in material compliance with all applicable federal, state, local and foreign Laws and regulations concerning the employer-employee relationship and with all agreements relating to the employment of the Company's employees, including applicable wage and hour Laws, plant closing or layoff notification Laws, wage payment Laws, fair employment Laws, safety Laws, worker compensation statutes, unemployment Laws, and social security Laws. There are no pending or, to the Company's or Per-Se's or Holdings' Knowledge, threatened in writing, material claims, investigations, audits, inspections, compliance reviews, charges, citations, hearings, consent decrees, conciliation agreements, Orders, or Litigation concerning: wages, compensation, bonuses, commissions, awards, or payroll deductions; equal employment or human rights violations regarding race, color, religion, sex, national origin, age, handicap, veteran's status, marital status, disability, or any other recognized class, status, or attribute under any federal, state, local or foreign equal employment Law prohibiting discrimination; affirmative action obligations; representation petitions or unfair labor practices; grievances or arbitrations pursuant to current or expired collective bargaining agreements; occupational safety and health; workers' compensation; wrongful termination, negligent hiring, invasion of privacy or defamation; immigration or any other claim based on the employment relationship or termination of the employment relationship (collectively, "Labor Claims"). The Company is not liable for any unpaid wages, bonuses, or commissions (other than those not yet due or accrued on the Closing Balance Sheet) or any Tax, penalty, assessment, or forfeiture for failure to comply with any of the foregoing. There is no outstanding agreement or arrangement with respect to severance payments with respect to any employee of the Company. All Contracts with independent contractors validly establish an independent contractor relationship and such independent contractors are not employees of the Company, and are not treated as such. (c) Except as disclosed on Section 2.13(c) of the Company Disclosure Memorandum, none of which disclosures individually or in the aggregate constitute a Company Material Adverse Effect, the Company is in material compliance with and has not violated the terms and provisions of the Immigration Reform and Control Act of 1986, and all regulations thereunder ("Immigration Laws"). The Company has not been the subject of any inspection or investigation relating to its compliance with or violation of the Immigration Laws, nor has it been warned, fined or otherwise penalized by reason of any failure to comply with the Immigration Laws, nor is any such proceeding pending or, to the Knowledge of the Company, Per-Se or Seller, threatened. With respect to each employee of the Company for whom compliance with the Immigration Laws by an employer is required, the Company has made available, or shall make available prior to the Closing Date, such employees' Form I-9 (Employment Eligibility Verification Form) and all other records, documents or other papers which are retained with the Form I-9 by the Company pursuant to the Immigration Laws. 12 16 2.14 Employee Benefit Plans. (a) The Company has disclosed in Section 2.14(a) of the Company Disclosure Memorandum, and has delivered or made available to Purchaser prior to the execution of this Agreement copies in each case of, all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plan, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including "employee benefit plans" as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by the Company for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "Company Benefit Plans") and such related documents and information as the Purchaser may reasonably request. Any of the Company Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "Company ERISA Plan." Each Company ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred to herein as a "Company Pension Plan." (b) Except as disclosed in Section 2.14(b) of the Company Disclosure Memorandum, all Company Benefit Plans are in material compliance with the terms thereof and all applicable terms of ERISA, the Internal Revenue Code, and any other applicable Laws. Each Company ERISA Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and Company, Seller and Per-Se are not aware of any circumstances likely to result in revocation of any such favorable determination letter. To the Knowledge of the Company, Holdings and Per-Se, the Company has not engaged in a transaction with respect to any Company Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject the Company to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA. Neither the Company nor any ERISA Affiliate of the Company nor any employee or agent thereof, has made any oral or written representation to any participant in or beneficiary of a Company Benefit Plan, or to any other individual or entity that is contrary to the terms of any Company Benefit Plan. (c) Neither the Company nor any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Internal Revenue Code of Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") maintains or contributes or has maintained or contributed to a Company Pension Plan that is or was subject to Title IV of ERISA or Section 412 of the Internal Revenue Code. (d) Except as disclosed in Section 2.14(d) of the Company Disclosure Memorandum, to the Knowledge of the Company and Per-Se, the Company has no Liability for retiree health and life benefits under any of the Company Benefit Plans and there are no restrictions on the rights of the Company to amend or terminate any such retiree health or benefit Plan without incurring any Liability thereunder. (e) Except as disclosed in Section 2.14(e) of the Company Disclosure Memorandum, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including 13 17 severance, unemployment compensation, golden parachute, or otherwise) becoming due to any director or any employee of the Company from the Company under any Company Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Company Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit. The Company does not, and will not, upon consummation of the Stock Purchase have any Liability to anyone for rights and obligations of any entity under any bonus plan and the Impact Innovations Key Employee Incentive Plan or under any stock option agreement issued thereunder. (f) To the Knowledge of the Company and Per-Se, the actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of the Company and their respective beneficiaries, have been fully reflected on the Company Financial Statements to the extent required by and in accordance with GAAP. (g) To the extent a Company Benefit Plan has excluded any individual from coverage, such exclusion is (i) consistent with the written terms of the Company Benefit Plan, (ii) enforceable under the terms of such Plan, (iii) consistent with the terms of any agreement with such individual (whether written or oral); and (iv) enforceable under applicable Law. (h) After the Closing Date, neither Purchaser nor the Company shall have any liability or obligation with respect to any Company Benefit Plan or any other employee benefit, plan, program, arrangement or policy that covers employees of the Company, other than those disclosed in Section 2.14(h) of the Company Disclosure Memorandum. Regardless of whether it is disclosed in Section 2.14 (h) of the Company Disclosure Memorandum, neither Purchaser nor Company shall have any liability or obligation with respect to the Minimum Premium Agreement with Great-West Life & Annuity Insurance Company that provides benefits pursuant to a plan that covers employees of the Company. With respect to any Company Benefit Plan under which the Company is not the sole named insured, neither Purchaser nor the Company shall have any liability or obligation as to payment of premiums, benefits or other charges that accrue or are attributable to coverage or claims incurred after the Closing Date, other than those that are reflected on the Closing Balance Sheet. 2.15 Material Contracts. Except as disclosed in Section 2.15 of the Company Disclosure Memorandum or otherwise reflected in the Company Financial Statements, the Company is not a party to (i) any employment, severance, termination, consulting, independent contractor, change in control, restrictive covenant, or retirement Contract providing for aggregate payments to any Person in any calendar year in excess of $75,000, (ii) any Contract relating to the borrowing of money by the Company or the guarantee by the Company of any such obligation (other than Contracts evidencing trade payables, Contracts relating to borrowings or guarantees made in the ordinary course of business and guarantees to be released prior to Closing), (iii) any Contract which prohibits or restricts the Company from engaging in any business activities in any geographic area, line of business or otherwise in competition with any other Person, (iv) any Contract between or among the Company and any Affiliate of the Company, (v) any Contract involving Intellectual Property (other than Contracts entered into in the ordinary course with customers and "shrink-wrap" software licenses) providing for aggregate payments in excess of $25,000, (vi) any Contract relating to the provision of data processing, network communication, or other technical services to or by the Company providing for aggregate payments in excess of $50,000, (vii) any Contract relating to the purchase or sale of any goods or services (other than Contracts involving payments under any individual Contract not in excess of $50,000), (viii) any 14 18 Contract for the lease or possession of real property, (ix) any settlement agreement, consent decree, conciliation agreement or other Contract relating to the resolution of any Litigation, potential Litigation, Order, investigation, compliance review, inspection or audit for which obligations remain outstanding, (x) any Contract that provides indemnity or warranty rights to any Person (other than third party application software, purchase orders and other Contracts in the ordinary course of business), (xi) any Contract for the management of the Company by a third party, (xii) any Contract for the lease of machinery, vehicles, equipment and other tangible Property used or employed by the Company, except those that are terminable by the Company without penalty on 60 or fewer days notice or that provide for annual rental payments of less than $12,000, (xiii) any fixed price Contract for services, and (xiv) any Contract not otherwise described in (i) through (xiii) above involving payments in excess of $50,000 (together with all Contracts referred to in Sections 2.10 and 2.14(a), the "Company Contracts"). A correct and complete copy of all Company Contracts have been provided to, or made available to, Purchaser. With respect to each Company Contract and except as disclosed in Section 2.15(b) of the Company Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) the Company is not in material Default thereunder, nor will the transactions contemplated hereunder cause a Default; (iii) the Company has not repudiated or waived any material provision of any such Contract; and (iv) no other party to any such Contract is, to the Knowledge of the Company and Per-Se, in Default in any respect, or has repudiated or waived any material provision thereunder. There is no outstanding indebtedness of the Company for money borrowed and the Company at Closing will not be liable for any indebtedness of any Affiliate of the Company. 2.16 Legal Proceedings. Except as disclosed on Section 2.16(a) of the Company Disclosure Memorandum, there is no (i) Litigation instituted or pending, or, to the Knowledge of the Company and Per-Se, threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) or (ii) settlement entered into within the past two years from the date hereof involving payment by the Company or any director, agent, employee or employee benefit plan of the Company against the Company, or against any director, agent, employee or employee benefit plan of the Company that, in each case is reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against the Company that are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Section 2.16(b) of the Company Disclosure Memorandum contains a summary of all Litigation and Orders as of the date of this Agreement to which the Company is a party. 2.17 Reports. Since January 1, 1994, or the date of organization if later, the Company has timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities. As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. 2.18 Brokerage. Except as set forth in Section 9.3, the Company has not made any agreement or taken any other action which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereby. Any such broker's fee shall be paid by Holdings or Per-Se at Closing. 15 19 2.19 Year 2000. The Company's software (except for software licensed or leased from third parties by the Company) included among the Assets of the Company has and will have the ability to: (a) accept input and provide output of data involving dates or portions of dates correctly and without ambiguity as to the twentieth or twenty-first centuries; (b) manage, store, manipulate, sort, sequence, and perform calculations (collectively "Process") with respect to data involving dates or portions of dates, before, during, and after January 1, 2000 (including single century or multi-century date formulas) without malfunctions, abends or aborts; and (c) correctly Process leap years including the year 2000. To the Knowledge of Per-Se and Holdings, any inability of the Company's software licensed or leased from third parties by the Company or hardware to Process data as described above shall not cause a Company Material Adverse Effect. 2.20 Customers. Section 2.20 of the Company Disclosure Memorandum sets forth a list of the 10 largest customers of the Company (determined by gross revenue) from whom payments were received for the calendar year ended December 31, 1998, together with a list of the 10 largest customers of the Company (determined by gross revenue) from whom payments were received for the nine month period ended September 30, 1999 (the "Material Customers"). 2.21 Federal Government Contracts. (a) With respect to each and every Government Contract or Bid to which the Company is a party and for which final payment has not been made by the Closing Date, and except as set forth in Section 2.21(a) of the Company Disclosure Memorandum: (i) the Company has fully complied with all material terms and conditions of such Government Contract or Bid, including all clauses, provisions and requirements incorporated expressly, by reference or by operation of Law therein; (ii) the Company has fully complied with all requirements of statute, rule, regulation, order or agreement pertaining to such Government Contract or Bid; (iii) all representations and certifications executed, acknowledged or set forth in or pertaining to such Government Contract or Bid were current, accurate and complete as of their effective date, and the Company has fully complied with all such representations and certification; (iv) neither the U.S. Government nor any prime contractor, subcontractor or other person has notified the Company, either orally or in writing, that the Company has breached or violated any statute, rule, regulation, certification, representation, clause, provision or requirement; (v) no termination for convenience, termination for default, cure notice or show cause notice has been issued and remains uncorrected; (vi) no material cost incurred or invoice rendered by the Company has been questioned or disallowed; and (vii) no material money due to the Company has been (or has attempted to be) withheld or set off. (b) Except as set forth in Section 2.21(b) of the Company Disclosure Memorandum: (i) neither the Company, any of the Company's Affiliates nor any of the Company's directors, officers, employees, agents or consultants is (or to Per-Se's or the Company's Knowledge for the last five years has been) under administrative, civil or criminal investigation, indictment or information, audit or internal investigation with respect to any alleged irregularity, mischarging, misstatement or omission arising under or relating to any Government Contract or Bid; (ii) during the last five years neither Company nor any of the Company's Affiliates has made a voluntary disclosure to the U.S. Government with respect to any alleged irregularity, mischarging, misstatement or omission arising under or relating to any Government Contract or Bid that in any case has led or could reasonably be expected to lead, either before or after the Closing Date, to any of the consequences set forth in (i) - (ii) above or any other damage, penalty assessment, recoupment of payment or disallowance of cost. 16 20 (c) Except as set forth in Section 2.21(c) of the Company Disclosure Memorandum, there exist (i) no financing arrangements with respect to performance of any current Government Contract; (ii) no outstanding material claims against the Company, either by the U.S. Government or by any prime contractor, subcontractor, vendor or other third party, arising under or relating to any Government Contract or Bid; or (iii) no facts to which the Company has Knowledge which would reasonably be likely to result in a claim in the future; (iv) no disputes between the Company and the U.S. Government or any prime contractor, subcontractor or vendor arising under or relating to any Government Contract or Bid; and (v) no facts to which the Company has Knowledge which would reasonably be likely to result in a dispute in the future. Except as set forth in Section 2.21(c) of the Company Disclosure Memorandum, the Company has no interest (other than those expressly arising under a Government Contract related to the Company's right to be paid for services rendered) in any pending claim against the U.S. Government or any prime contractor, subcontractor or vendor arising under or relating to any Government Contract or Bid. (d) Except as set forth in Section 2.21(d)(i) the Company Disclosure Memorandum, and except for circumstances specified in the organizational conflict of interest provisions in the Contracts disclosed in Section 2.21(d)(ii) of the Company Disclosure Memorandum, neither the Company, any of the Company's Affiliates nor any of the Company's directors, officers or employees is (or to Per-Se's or the Company's Knowledge for the last five years has been) suspended, proposed for debarment or debarred from doing business with the U.S. Government or has been declared nonresponsible or ineligible for U.S. Government contracting or subcontracting. Per-Se, Holdings and the Company know of no circumstances that could warrant the institution of suspension or debarment proceedings or the finding of nonresponsibility or such ineligibility on the part of the Company. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to Holdings and Per-Se as follows: 3.1 Organization, Standing, and Power. Purchaser is a corporation validly existing, and in good standing under the Laws of the State of Georgia, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its material Assets. Purchaser is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect. 3.2 Authority; No Breach By Agreement. (a) Purchaser has the corporate power and authority to execute and deliver this Agreement and the Closing Documents to which it is a party and to perform its obligations under this Agreement and the Closing Documents. The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement represents a legal, valid, and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or 17 21 injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Upon the execution and delivery of the Closing Documents to which it is a party, such Closing Documents will constitute the legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms. (b) Neither the execution and delivery of this Agreement by Purchaser, nor the consummation by Purchaser of the transactions contemplated hereby, nor compliance by Purchaser with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Purchaser's Articles of Incorporation or Bylaws, or (ii) except as disclosed in Section 3.2 of the Purchaser Disclosure Memorandum constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of Purchaser under, any Contract or Permit, or, (iii) subject to receipt of the requisite Consents referred to in Section 6.2(c), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to Purchaser or any of its material Assets. (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and other than: (i) Consents required from Regulatory Authorities; (ii) notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans; and (iii) filings under the HSR Act; no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Purchaser of the transactions contemplated in this Agreement. 3.3 Compliance with Laws. Purchaser has in effect all Permits necessary for it to own, lease or operate its material Assets and to carry on its business as now conducted. Except as disclosed in Section 3.3 of the Purchaser Disclosure Memorandum, Purchaser is not: (a) in Default under any of the provisions of its Articles or Certificate of Incorporation or Bylaws (or other governing instruments); (b) in Default under any Laws, Orders, or Permits applicable to its business or employees conducting its business; or (c) since January 1, 1994, in receipt of any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that Purchaser is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits, or (iii) requiring Purchaser to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any Board resolution or similar undertaking. 3.4 Legal Proceedings. There is no Litigation instituted or pending, or, to the Knowledge of Purchaser, threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against Purchaser, or against any director, employee or employee benefit plan of Purchaser, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against Purchaser. 3.5 Investment Intent. The Purchaser is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act of 1933, as amended. The Purchaser confirms that Per-Se, Holdings and the Company have made available to the Purchaser and its representatives and agents the opportunity 18 22 to ask questions of the officers and management employees of the Company and to acquire such additional information about the business and financial condition of the Company as the Purchaser has requested. ARTICLE 4 CONDUCT OF BUSINESS PENDING CONSUMMATION 4.1 Affirmative Covenants With Respect to Company. From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement, unless the prior written consent of Purchaser shall have been obtained, and except as otherwise expressly contemplated herein, Per-Se and Holdings shall cause Company to (a) operate its business only in the usual, regular, and ordinary course, (b) preserve intact its business organization and Assets and maintain its rights and franchises, and (c) take no action which would (i) adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 6.1(a) or 6.2(c), or (ii) adversely affect the ability of any Party to perform its covenants and agreements under this Agreement. 4.2 Negative Covenants With Respect to Company. From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement, unless the prior written consent of Purchaser shall have been obtained, and except as otherwise expressly contemplated herein, Per-Se shall not, and neither Per-Se nor Holdings shall permit the Company to do or agree or commit to do any of the following with respect to the Company: (a) amend the Articles of Incorporation, Bylaws or other governing instruments of Impact; or (b) incur any debt obligation or obligation for borrowed money, or impose, or suffer the imposition, on any Asset of the Company of any Lien or permit any such Lien to exist (other than in connection with Liens in effect as of the date hereof that are disclosed in the Company Disclosure Memorandum which will be released at Closing); or (c) repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary course under employee benefit plans), directly or indirectly, any shares, or any securities convertible into any shares, of the capital stock of Impact, or, except as contemplated by this Agreement, declare or pay any dividend or make any other distribution in respect of Company's capital stock; or (d) except for this Agreement, issue, sell, pledge, encumber, authorize the issuance of, enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become outstanding, any additional shares of Impact Common Stock or any other capital stock of the Company or other Equity Right; or (e) adjust, split, combine or reclassify any capital stock of the Company or issue or authorize the issuance of any other securities in respect of or in substitution for shares of Impact Common Stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber (x) any shares of capital stock of the Company, or (y) any Asset having a book value in excess of $50,000 other than in the ordinary course of business for reasonable and adequate consideration; or 19 23 (f) except for purchases of U.S. Treasury securities or U.S. Government agency securities, which in either case have maturities of three years or less, purchase any securities or make any material investment, either by purchase of stock of securities, contributions to capital, Asset transfers, or purchase of any Assets, in any Person, or otherwise acquire direct or indirect control over any Person, other than in connection with the creation of new wholly owned Subsidiaries organized to conduct or continue activities otherwise permitted by this Agreement; or (g) grant any increase in compensation or benefits to the employees or officers of the Company, except in accordance with past practice disclosed in Section 4.2(g) of the Company Disclosure Memorandum or as required by Law; pay any severance or termination pay or any bonus other than pursuant to written policies or guidelines or written Contracts in effect on the date of this Agreement and disclosed in Section 4.2(g) of the Company Disclosure Memorandum; and enter into or amend any severance agreements with officers of the Company; grant any material increase in fees or other increases in compensation or other benefits to directors of the Company except in accordance with past practice disclosed in Section 4.2(g) of the Company Disclosure Memorandum; or (h) enter into or amend any employment Contract between the Company and any Person having a salary thereunder in excess of $50,000 per year (unless such amendment is required by Law) that the Company does not have the unconditional right to terminate without Liability (other than Liability for services already rendered), at any time on or after the Closing Date; or (i) adopt any new employee benefit plan of the Company or terminate or withdraw from, or make any material change in or to, any existing employee benefit plans of the Company other than any such change that is required by Law or that, in the opinion of counsel, is necessary or advisable to maintain the tax qualified status of any such plan, or make any distributions from such employee benefit plans, except as required by Law, the terms of such plans or consistent with past practice; or (j) make any significant change in any Tax or accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in Tax Laws or regulatory accounting requirements or GAAP; or (k) commence any Litigation other than in accordance with past practice, settle any Litigation involving any Liability of the Company for material money damages or restrictions upon the operations of the Company; or (l) except in the ordinary course of business, enter into, modify, amend or terminate any material Contract or waive, release, compromise or assign any material rights or claims; or (m) make any capital expenditure involving in excess of $100,000 in the case of a single expenditure or $250,000 in the case of all capital expenditures. 4.3 Covenants of Purchaser. From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement, unless the prior written consent of Holdings or Per-Se shall have been obtained, and except as otherwise expressly contemplated herein, the Purchaser covenants and agrees that it shall take no action which would (i) adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated 20 24 hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 6.1(a) or 6.2(c), or (ii) adversely affect the ability of any Party to perform its covenants and agreements under this Agreement; provided, that the foregoing shall not prevent Purchaser from discontinuing or disposing of any of its Assets or business if such action is, in the judgement of Purchaser, desirable in the conduct of the business of Purchaser and its Subsidiaries. 4.4 Adverse Changes in Condition. Each Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries which (i) is reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable, or (ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, and to use its reasonable efforts to prevent or promptly to remedy the same. 4.5 Reports. Each Party shall file all reports required to be filed by it with Regulatory Authorities between the date of this Agreement and the Closing Date and shall deliver to the other Party copies of all such reports promptly after the same are filed. Any financial statements contained in any reports to a Regulatory Authority shall be prepared in accordance with Laws applicable to such reports. 4.6 Related Party Transactions. Per-Se, Impact and Holdings have caused the $342,000 account receivable to be reflected on the books of the Company and all indebtedness and other Liabilities owed to the Company by any Affiliate of the Company or Per-Se or Holdings, and E-Business Solutions.Com, Inc. to be paid in full on or prior to the Closing Date, and caused all indebtedness and other Liabilities owed by the Company to any Affiliate of the Company or to E-Business Solutions.Com, Inc. to be discharged and released in full on or prior to the Closing Date. ARTICLE 5 ADDITIONAL AGREEMENTS 5.1 Applications; Antitrust Notification. The Purchaser shall promptly prepare and file, and Per-Se and Holdings shall cooperate in the preparation and, where appropriate, filing of, applications with all Regulatory Authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite Consents necessary to consummate the transactions contemplated by this Agreement. To the extent required by the HSR Act, each of the Parties will promptly file with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which may reasonably be requested in connection therewith pursuant to the HSR Act and will comply in all material respects with the requirements of the HSR Act. The Parties shall deliver to each other copies of all filings, correspondence and orders to and from all Regulatory Authorities in connection with the transactions contemplated hereby. 5.2 Agreement as to Efforts to Consummate. Subject to the terms and conditions of this Agreement, each Party agrees to use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable after the date of this Agreement, the transactions contemplated by this Agreement, including using its reasonable efforts to lift or rescind any Order adversely affecting its ability to consummate the transactions contemplated herein and to cause to be satisfied the conditions referred to in Article 21 25 6; provided, that nothing herein shall preclude either Party from exercising its rights under this Agreement. Each Party shall use its reasonable efforts to obtain all Consents necessary or desirable for the consummation of the transactions contemplated by this Agreement. 5.3 Investigation and Confidentiality. (a) Prior to the Closing Date, the Company shall keep the Purchaser advised of all material developments relevant to its business and to consummation of the Stock Purchase and shall permit Purchaser to make or cause to be made such investigation of the business and properties of Company and of their respective financial and legal conditions as Purchaser reasonably requests, provided that such investigation shall be reasonably related to the transactions contemplated hereby and shall not interfere unnecessarily with normal operations. No investigation by a Party shall affect the representations and warranties of the other Party. (b) The Purchaser shall, and shall cause its advisers and agents to, maintain the confidentiality of all confidential information furnished to it by Company concerning Company and its businesses, operations, and financial positions and shall not use such information for any purpose except in furtherance of the transactions contemplated by this Agreement. If this Agreement is terminated prior to the Closing Date, Purchaser shall promptly return or certify the destruction of all documents and copies thereof, and all work papers containing confidential information received from Company. (c) Per-Se and its Affiliates shall use their reasonable efforts to exercise their rights under confidentiality agreements entered into with Persons which were considering a transaction with respect to Company to preserve the confidentiality of the information relating to the Company provided to such Persons and their Affiliates and Representatives. (d) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably likely to represent, either a material breach of any representation, warranty, covenant or agreement of the other Party or which has had or is reasonably likely to have a Company Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable; provided, however, that the failure to give such notice shall not give rise to any Liability against the Party or otherwise affect the representations, warranties, covenants or agreements of the Parties set forth herein (or the rights and remedies of the Party in the event of a breach thereof) or any of the other terms and conditions of this Agreement. 5.4 Press Releases. Prior to the Closing Date, Per-Se and Purchaser shall consult with each other as to the form and substance of any press release or other public disclosure materially related to this Agreement or any other transaction contemplated hereby; provided, that nothing in this Section 5.4 shall be deemed to prohibit any Party from making any disclosure which its counsel deems necessary or advisable in order to satisfy such Party's disclosure obligations imposed by Law. 5.5 Certain Actions. Except with respect to this Agreement and the transactions contemplated hereby, no Company Entity nor any shareholder nor any Affiliate thereof nor any Representatives thereof retained by Per-Se or Company shall directly or indirectly solicit any Acquisition Proposal by any Person. No Company Entity, any shareholder or any Affiliate or Representative thereof shall furnish any non-public information that it is not legally 22 26 obligated to furnish, negotiate with respect to, or enter into any Contract with respect to, any Acquisition Proposal, but Per-Se, Holdings or the Company may communicate information about such an Acquisition Proposal to its shareholders if and to the extent that it is required to do so in order to comply with its legal obligations as advised by outside counsel. 5.6 Tax Matters. (a) Cooperation and Exchange of Information. Per-Se and the Purchaser will provide each other with such cooperation and information as any of them reasonably may request of the other in filing any Tax Return, amended return or claim for refund, determining a Liability for Taxes or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules and related work papers and documents relating to rulings or other determinations by Tax authorities, but in no event shall Per-Se or the Purchaser be required to disclose to the other any information relating to the operations of either, as the case may be, other than information relating to a Liability for Taxes of the Company. Per-Se and the Purchaser shall make their respective employees available on a mutually convenient basis to provide explanations of any documents or information provided hereunder. Per-Se and Holdings will take no position on such Tax Returns that relate to the Company that would adversely affect the Company after the Closing Date, unless such position would be reasonable and consistent with past practice as if Per-Se or Holdings had owned the Company both before and after the Closing Date. Per-Se and the Purchaser will retain all Tax Returns, schedules and work papers and all material books and records or other documents relating to Tax matters of the Company for its taxable period ending on or before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such returns and other documents relate, without regard to extensions (but taking into account any extended statute of limitations applicable to a year in which a net operating loss is reported) except to the extent notified by the other party in writing of such extensions for the respective Tax periods. Any information obtained under this Section 5.6(a) shall be kept confidential, except as may be otherwise necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. Notwithstanding anything in this Section 5.6(a) to the contrary, no party shall be required to divulge any information to the other party that would operate as a waiver of the attorney-client privilege. Purchasers and the Seller shall use reasonable efforts not to destroy or allow the destruction of any such books and records and workpapers without first providing 60 days written notice of intention to destroy to the other party(ies), and allowing such other party(ies) to take possession of such records. (b) Tax Indemnification. Notwithstanding any provision of this Agreement to the contrary, Per-Se and Holdings shall be jointly and severally liable, and shall pay, indemnify, and hold harmless (including any Tax owed by the Purchaser as a result of this indemnification payment) the Purchaser and the Company for (i) all Liability for Taxes of the Company (including Taxes owed by Purchaser as a result of such indemnification payment), for all periods or portions thereof ending on or prior to the Closing Date; (ii) all Liability for Taxes of any affiliated, consolidated, unitary or combined group or any member thereof, which affiliated, consolidated, unitary or combined group includes or has included the Company for any period or portion thereof ending on or prior to the Closing Date; and (iii) all Liability for Taxes of the Company for all taxable periods beginning before the Closing Date and ending after such date but only with respect to the portion of such period ending on the Closing Date. Any Taxes under (iii) for a period commencing prior to but ending after the Closing Date will be apportioned, in the case of real and personal property Taxes, on a per diem basis and, in the case of other Taxes, on 23 27 the basis of the actual activities, taxable income or taxable loss of the Company during the periods before and after the Closing Date, based upon a closing of the books and determined as if such period ended with respect to Per-Se on the Closing Date and commenced with respect to the Purchaser on the date after the Closing Date. The Purchaser agrees to indemnify Per-Se for any additional Tax owed by Per-Se (including Tax owed by Per-Se due to this indemnification payment) resulting from any transaction initiated by Purchaser and not in the ordinary course of business occurring on the date of this Agreement. The Purchaser and Per-Se agree to report all transactions initiated by the Purchaser and not in the ordinary course of business occurring on the date of this Agreement on the Purchaser's federal income Tax Return to the extent permitted by Section 1.1502-76(b)(1)(ii)(B) of the Treasury Regulations promulgated pursuant to the Code. Any refund of Taxes received, or reduction of Taxes realized by Per-Se, or any Affiliate of Per-Se, that is directly attributable to Taxes paid or losses or credits generated by the Company with respect to any period or portion thereof ending after the Closing Date is to be paid to Purchaser within thirty (30) days after the receipt or credit thereof. Per-Se and Holdings shall comply with Purchaser's requests in obtaining such refunds, including, but not limited to, the filing of amended returns and claims for refund. Any refund of Taxes received by the Purchaser, or any Affiliate of Purchaser, that is directly attributable to Taxes paid by the Company with respect to any period or portion thereof ending on or before the Closing Date is to be paid to Per-Se within thirty (30) days after the receipt or credit thereof. The Purchaser shall comply with Per-Se's requests in obtaining such refunds, including, but not limited to, the filing of amended returns and claims for refund. 5.7 Government Contract Audits. Purchaser shall give notice to Per-Se of any notice Purchaser or the Company receives of any scheduled audits requested by the Defense Contract Audit Agency related to services provided prior to Closing under existing Government Contracts. Per-Se shall have the right to observe the audit process and review the results. Purchaser agrees to cause the Company to act reasonably and in good faith to mitigate the adverse consequences to any Party resulting from such an audit. 5.8 Employee Benefits and Contracts. (a) Following the Closing Date, the Purchaser shall provide generally to officers and employees of the Company employee benefits under employee benefit and welfare plans (other than stock option or other plans involving the potential issuance of Purchaser Common Stock), on terms and conditions which when taken as a whole are substantially similar to those currently provided by the Purchaser to its similarly situated officers and employees. For purposes of participation, to the extent permitted under Purchaser's employee benefit plans, vesting and (except in the case of Purchaser retirement plans) benefit accrual under Purchaser's employee benefit plans, the service of the employees of the Company prior to the Closing Date shall be treated as service with Purchaser for purposes of participating in such employee benefit plans. Purchaser agrees that expenses incurred by employees of the Company with respect to Company health plans for the current year shall be credited for purposes of satisfying health plans for the current year. Per-Se shall cause Per-Se or Holdings to honor in accordance with their terms all employment, severance, consulting and other compensation Contracts disclosed in Section 5.8(a) of the Company Disclosure Memorandum to Purchaser between Holdings or Per-Se and any current or former director, officer, or employee thereof. Until such Plans are amended by the Company, Purchaser shall cause the Company to honor all provisions for benefits or other amounts earned or accrued through the Closing Date under the Company Benefit Plans retained by the Company in accordance with the terms of such Company Benefit Plans. Any retention agreements or change in control agreements shall be fulfilled or 24 28 paid out by Holdings or Per-Se at Closing if the Stock Purchase triggers any event under any such agreement. (b) Seller or Holdings shall make 401(k) distributions to the Company's employees pursuant to Section 1.401(k)-1(d)(1)(v) of the Code. 5.9 Insurance. To the extent the Company suffers a Loss the circumstances for which are covered by insurance retained by Per-Se, Per-Se agrees to make a claim and seek insurance proceeds for the benefit of the Company. All such insurance proceeds (regardless of whether Purchaser has indemnification rights related to the Loss) actually received by Per-Se shall be promptly remitted to the Company less any applicable deductible and less actual costs incurred out-of-pocket by Per-Se to obtain the proceeds. 5.10 Bonus Payment. Purchaser shall cause the Company to pay Company employees amounts due under the Target Performance Bonus Program in accordance with the terms of such Bonus Program. If, on the date the bonuses are due to the Company employees, the amount payable under the Bonus Program on which the Bonus Accrual was calculated is determined to be greater than the amount actually paid pursuant to the terms of the Bonus Program, and if such determination has not been reflected in the adjustments to the Purchase Price as set forth in Sections 1.3 or 1.4 hereof, Purchaser shall cause the excess to be paid to Per-Se or Holdings within five (5) days of such determination. 5.11 Holdings Options. Per-Se or Holdings will cash out within 45 days of Closing all outstanding stock options granted pursuant to the Impact Innovations Key Employee Incentive Plan (the "Holdings Stock Plan") and Per-Se will use its best efforts to cause the options holders to release the Parties and acknowledge the cancellation or termination of the stock option agreements related thereto. 5.12 Supplemental Disclosure. The Parties shall have the continuing obligation up to and including the Closing Date to supplement promptly or amend the Company Disclosure Memorandum or the Purchaser Disclosure Memorandum as applicable, with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or listed in the applicable Disclosure Memorandum; provided, however, that for the purpose of the rights and obligations of the Parties hereunder, any such supplemental disclosure shall not be deemed to have been disclosed as of the date of this Agreement unless so agreed to in writing by Purchaser. Purchaser's remedy for supplemental disclosures to which it does not agree to in writing shall be to terminate the Agreement pursuant to Section 8.1(c) hereof. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE 6.1 Conditions to Obligations of Each Party. The respective obligations of each Party to perform this Agreement and consummate the Stock Purchase and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by both Parties pursuant to Section 9.6: (a) Regulatory Approvals. All Consents of, filings and registrations with, and notifications to, all Regulatory Authorities required for consummation of the Stock Purchase shall have been obtained or made and shall be in full force and effect and all waiting periods required by Law shall have expired or been terminated. No Consent obtained from any 25 29 Regulatory Authority which is necessary to consummate the transactions contemplated hereby, shall be conditioned or restricted in a manner (including requirements relating to the raising of additional capital or the disposition of Assets) which in the reasonable judgment of the Board of Directors of Purchaser and Holdings would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement. (b) Legal Proceedings. No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) or taken any other action which prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement. 6.2 Conditions to Obligations of the Purchaser. The obligations of the Purchaser to perform this Agreement and consummate the Stock Purchase and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by the Purchaser pursuant to Section 9.6(a): (a) Representations and Warranties. For purposes of this Section 6.2(a), the accuracy of the representations and warranties of Per-Se and Holdings set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date (provided that representations and warranties which are confined to a specified date shall speak only as of such date). There shall not exist inaccuracies in the representations and warranties of Per-Se and Holdings set forth in this Agreement such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Company Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Per-Se, Holdings and the Company to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Closing Date shall have been duly performed and complied with. (c) Consents and Approvals. Each Party shall have obtained any and all Consents reasonably deemed by Purchaser to be required for consummation of the Stock Purchase or to continue the benefits to Company under such Contracts, or for the preventing of any Default under any Company Contract or Permit of such Party, including Consents for the Company Contracts or Permits listed in Section 6.2(c) of the Company Disclosure Memorandum. No such Consent so obtained which is necessary to consummate the transactions contemplated hereby, shall be conditioned or restricted in a manner (including requirements relating to the raising of additional capital or the disposition of Assets) which in the reasonable judgment of the Board of Directors of Purchaser and Holdings would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement. (d) Certificates. Per-Se shall have delivered to the Purchaser (i) a certificate, dated as of the Closing Date, and signed on its behalf by duly authorized officers, to 26 30 the effect that the conditions set forth in Section 6.1 as relates to Per-Se and in Sections 6.2(a), 6.2(b) and 6.2(c) have been satisfied, all in such reasonable detail as the Purchaser and its counsel shall request and (ii) certified copies of Articles or Certificate(s) of Incorporation or other formation documents of Holdings and Impact, certified bylaws of Holdings and Impact and resolutions duly adopted by Per-Se and Holdings' Board of Directors and, if applicable, shareholders, evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as the Purchaser shall request. (e) Opinion of Counsel. Purchaser shall have received from Randolph L.M. Hutto, General Counsel for Seller, an opinion dated the Closing Date, in form reasonably satisfactory to Purchaser. (f) Net Working Capital. The Net Working Capital as of the Closing shall not be less than $8,000,000. Cash at Closing shall not be less than the Cash Amount. (g) Satisfactory Instruments. All instruments of conveyance and transfer required on the Company's or Per-Se's part to effectuate and consummate the transactions contemplated hereby will be delivered to Purchaser and will be in form and substance reasonably satisfactory to Purchaser and its counsel. Purchaser shall have received evidence satisfactory to it that all Liens against the Assets of the Company have been released or terminated prior to or at Closing. The officers and directors of the Company shall have resigned as of the Closing Date, effective upon consummation of the Stock Purchase. (h) Litigation. No Order of any court or administrative agency will be in effect which enjoins or prohibits the transactions contemplated hereby or which would materially adversely affect the Company or the business of the Company, and there will not have been threatened, nor will there be pending, any action or proceeding by or before any Regulatory Authority (i) challenging any of the transactions contemplated by this Agreement or seeking monetary relief by reason of the consummation of such transactions or (ii) which, if resolved against the Company on its terms, would reasonably be expected to have a Company Material Adverse Effect on the future conduct of the business of the Company, taking into account the magnitude and likelihood of exposure. (i) No Material Adverse Effect; Condition of Assets. As of Closing, there will not have occurred any Company Material Adverse Effect, or any condition or event which is reasonably likely to result in a Company Material Adverse Effect. (j) Escrow Agreement, Non-Compete Agreement; Transition Services Agreement. Per-Se and Holdings shall have entered into, executed and delivered the Escrow Agreement, the Non-Compete Agreement and the Transition Services Agreement. (k) Indenture Release. State Street Bank and Trust Company shall have entered into the Release Letter substantially in the form of Exhibit A. (l) RSSI Plan. Per-Se shall have caused the sponsorship of the Rapid Systems Solutions, Inc. 401(k) Savings and Profit Sharing Plan to be transferred to either Per-Se or Holdings prior to the Closing Date. 27 31 (m) Assignment Documents. Holdings shall have assigned all confidentiality agreements and other agreements with employees of the Company to the Company. Holdings and Per-Se shall have assigned all Contracts of the Company which are currently in the names of Holdings, Per-Se, or any former Affiliate of Per-Se to the Company. (n) Cost Submission Reports. The Company shall have submitted all submission reports required under all Government Contracts for the years 1996, 1997 and 1998 no later than the Closing Date. 6.3 Conditions to Obligations of the Seller. The obligations of Per-Se and Holdings to perform this Agreement and consummate the Stock Purchase and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by Per-Se pursuant to Section 9.6(b): (a) Representations and Warranties. For purposes of this Section 6.3(a), the accuracy of the representations and warranties of the Purchaser set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date (provided that representations and warranties which are confined to a specified date shall speak only as of such date). There shall not exist inaccuracies in the representations and warranties of the Purchaser set forth in this Agreement such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Purchaser Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of the Purchaser to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Closing Date shall have been duly performed and complied with. (c) Certificates. The Purchaser shall have delivered to Per-Se (i) a certificate, dated as of the Closing Date and signed on its behalf by duly authorized officers, to the effect that the conditions set forth in Section 6.1 as relates to the Purchaser and in Section 6.3(a) and 6.3(b) have been satisfied, all in such reasonable detail as the Seller and its counsel shall request, and (ii) certified copies of resolutions duly adopted by the Purchaser's Board of Directors evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as the Seller and its counsel shall request. ARTICLE 7 INDEMNIFICATION 7.1 Indemnification of Purchaser. Subject to the terms and conditions in this Article 7, Per-Se and Holdings shall jointly and severally indemnify, defend and hold harmless the Purchaser, and its officers, directors, shareholders, controlling persons, Affiliates and Representatives, from and against any Losses (but excluding consequential and incidental damages of Purchaser), suffered or incurred by the Purchaser, as and when incurred, by reason of, or arising out of, (i) any misrepresentation, breach of warranty or breach or non-fulfillment of any agreement of Per-Se, Holdings or the Company contained in this Agreement (except for a misrepresentation or breach of warranty found in Section 2.21) or in any document executed and 28 32 delivered in connection with this Agreement, and for purposes of this Section 7.1 any qualification of such representations and warranties by reference to the materiality of matters having or not having a "Material Adverse Effect," and any limitation of such representations and warranties as being "to the Knowledge of" or "Known to" or words of similar effect, shall be disregarded in determining any inaccuracy, untruth, incompleteness or each thereof; (ii) the breach or nonfulfillment of any covenant or agreement of the Seller contained in this Agreement or in the Closing Documents; (iii) the sale of E-Business Solutions.com, Inc. by Holdings to Complete Business Solutions, Inc. and the Rose Budd Lawsuit (iv) the Retention Agreements for Company employees that Purchaser has notified Per-Se it will not employ post-Closing, Liabilities arising prior to the Closing for benefits or other charges under the Minimum Premium Agreement with Great-West Life & Annuity Insurance, any stock option plan or grants of the Company or any Affiliate of Holdings or Per-Se, including the Holdings Stock Plan (and any stock options issued thereunder), or any operational defects in the frozen Rapid Systems Solutions, Inc. 401(k) Plan, (v) any misrepresentation or breach of warranty of Per-Se or Holdings contained in Section 2.21 of this Agreement, or Losses arising from any audit performed post-Closing in respect of the performance of any Government Contract occurring prior to the Closing Date. 7.2 Indemnification of Seller. Subject to the terms and conditions in this Article 7, the Purchaser shall indemnify, defend and hold harmless Per-Se, and its respective officers, directors, shareholders, controlling persons, Affiliates and Representatives, from and against any Losses (but excluding consequential and incidental damages of Per-Se) suffered or incurred by Per-Se, as and when incurred, by reason of, or arising out of, (i) any misrepresentation, breach of warranty or breach or non-fulfillment of any agreement of the Purchaser contained in this Agreement or in any document executed and delivered in connection with this Agreement, and (ii) the breach or nonfulfillment of any covenant or agreement of the Purchaser contained in this Agreement or in the Closing Documents. 7.3 Notice and Opportunity to Defend. The party indemnified hereunder (the "Indemnified Party") shall notify in writing the indemnifying party (the "Indemnifying Party") within thirty (30) days after a third party claim is presented to the Indemnified Party and the Indemnifying Party shall defend such claim at its expense and may select the attorneys for such defense, who shall be reasonably acceptable to the Indemnified Party. If the Indemnifying Party does not defend such claim, the Indemnified Party may do so without the Indemnifying Party's participation, in which case the Indemnifying Party shall pay the expenses of such defense. Neither the Indemnified Party nor the Indemnifying Party may settle or compromise such claim without the other party's consent, which shall not be unreasonably withheld. If the Indemnified Party fails to notify the Indemnifying Party of a third party claim as provided in this Section 7.3, and if the Indemnifying Party is thereby prejudiced by such failure of notice in its defense of the claim, the Indemnifying Party's obligation of indemnity hereunder shall be extinguished with respect to such claim to the extent that the Indemnifying Party has been prejudiced by the failure to give such notice. The Indemnified Party and Indemnifying Party agree to cooperate in good faith in the defense and/or settlement of any such claim. 7.4 Limitations. (a) A party otherwise entitled to indemnification under Section 7.1(i) or (ii) or Section 7.2 is not entitled to indemnification until the aggregate indemnifiable Losses for which it is otherwise entitled to indemnification hereunder shall equal or exceed U.S. $500,000 (the "Threshold Amount"). A party otherwise entitled to indemnification under Sections 7.1(v) is not entitled to indemnification until the aggregate indemnifiable Losses for 29 33 which it is otherwise entitled to indemnification hereunder shall equal or exceed U.S. $250,000 (the "Government Contract Threshold Amount"). The Threshold Amount and Government Contract Threshold Amount limitations set forth in this Section shall not apply to any intentional misrepresentation or breach of warranty of any indemnitor or any intentional failure to perform or comply with any covenant or agreement of any indemnitor, or to indemnifications rights provided in Sections 7.1(iii), (iv), or to any Tax Liability of the Company related to periods ended on or prior to the Closing Date, including the indemnification provided in Section 5.6(b); and the indemnitors shall be liable for all Losses with respect thereto. With respect to Sections 7.1(i) or (ii) or Section 7.2 described above, if and when the sum of all indemnifiable Losses of a party hereunder equals or exceeds the Threshold Amount, then such party may request indemnification for all indemnifiable Losses in excess of the Threshold Amount. With respect to Sections 7.1(v)described above, if and when the sum of all indemnifiable Losses of a party thereunder equals or exceeds the Government Contract Threshold Amount, then such party may request indemnification for all indemnifiable Losses in excess of the Government Contract Threshold Amount, and the Government Contract Threshold Amount shall be counted towards the Threshold Amount. To the extent covered by insurance, any indemnifiable Loss will be deemed reduced by the amount of insurance proceeds actually received by the Indemnified Party and its Affiliates in respect of such Loss; provided, however, that in no event shall this sentence be deemed to require any Indemnified Party to maintain any level of insurance. In no event shall a party's collective Liability under this Article 7 exceed $6,750,000, except for Liabilities related to Taxes or matters for which Purchaser is entitled to indemnification under Sections 7.1(iii) and (iv) (the "Maximum Liability"). (b) The indemnitors will have no liability to the Indemnified Parties under or in connection with: (a) a breach of any of the representations, warranties, covenants, or agreements made or to be performed by the indemnitors contained in this Agreement (other than the representations and warranties set forth in Sections 2.2, 2.8, 2.9, 2.11, 2.14 and 2.21), unless written notice asserting an Indemnification Claim based thereon is given to Per-Se or Purchaser, as applicable, prior to the later of (i) September 30, 2001 or (ii) the first anniversary of the date on which such covenant or agreement is to be performed hereunder; (b) a breach of any of the representations, warranties, indemnities, covenants or agreements made or to be performed by the indemnitors contained in this Agreement related to the Government Contracts, including without limitation, those representations, warranties, indemnities, covenants or agreements made by the indemnitors in Section 7.1(v), unless written notice asserting an Indemnification Claim based thereon is given to Per-Se on or prior to December 31, 2002; (c) a breach of any representation, warranty, covenant or agreement made or to be performed by the indemnitors contained in this Agreement related to any Taxes or employee benefit plans, including without limitation, those representations and warranties made by the indemnitors in Sections 2.8 and 2.14, unless written notice asserting an Indemnification Claim based thereon is given to Per-Se or Purchaser, as applicable, prior to the later of (i) ninetieth (90th) day after the date upon which the liability to which any such claim may relate is barred by all applicable statutes of limitation and (ii) the ninetieth (90th) day after the date upon which any claim for refund or credit related to such claim is barred by all applicable statutes of limitation; (d) a breach of any representation, warranty, covenant or agreement made or to be performed by the indemnitor contained in this Agreement related to any environmental matters, including without limitation, those representations and warranties made by the indemnitor in Section 2.11, unless written notice asserting an indemnification claim based thereon is given to the Seller or Purchaser, as applicable, prior to two years from the date hereof; provided, however, the liability of the indemnitors relating to, arising out of or based upon those representations and warranties of the indemnitors set forth in Section 2.2(a) and (b)(i) and the first sentence of 2.9(a) may be asserted at any time. 30 34 7.5 Survival of Representations and Warranties. The representations, warranties, covenants and agreements of Per-Se, the Company and Purchaser will survive the Closing and shall not be deemed waived or otherwise affected by any investigation conducted with respect thereto. 7.6 Subrogation. Upon payment in full of any claim by a third party under this Article 7 (irrespective of the method of payment), the Indemnifying Party shall be subrogated to the extent of such payment to the rights of the Indemnified Party against any Person with respect to the subject matter of such claim. 7.7 Exclusive Remedy. Except for remedies reflected in the Agreement related to adjustments to the Purchase Price and remedies based upon fraud, the remedies provided for in this Article 7 constitute the sole and exclusive remedies for recovery against Per-Se or the Purchaser based upon the inaccuracy, untruth, incompleteness or breach of any representation or warranty of such party contained in this Agreement or in any document executed and delivered in connection with this Agreement, or based upon the failure of Per-Se, Holdings, the Company or the Purchaser to perform any covenant, agreement or undertaking required by the terms hereof to be performed by such party. 7.8 Dispute Resolution. (a) If an Indemnified Party incurs any Loss indemnifiable under this Article 7("Indemnifiable Loss"), it shall promptly provide written notice to the Indemnifying Party stating in reasonable detail the nature and amount of such Indemnifiable Loss or potential Indemnifiable Loss (a "Loss Notice"). In addition, with respect to third party claims, the Indemnified Party shall comply with Section 7.3. If the Indemnifying Party disputes the amount sought under any such Loss Notice or otherwise disputes the right of the Indemnified Party to be indemnified hereunder, it shall provide the Indemnified Party a written notice objecting to such claim for indemnification within thirty (30) days of the date any such Loss Notice is received by the Indemnifying Party (a "Protest Notice"). (b) If (i) the Indemnifying Party and the Indemnified Party are unable to resolve a Loss Notice with respect to which the Indemnified Party has received a Protest Notice (a "Disputed Loss Notice") within thirty days of the date the Indemnified Party receives the Protest Notice, or (ii) there is any other controversy or claim arising out of or relating to this Agreement or a breach hereof, then any of the parties hereto may require such Disputed Loss Notice or other controversy or claim to be submitted to arbitration in the venue of Atlanta, Georgia in accordance with the then-current expedited procedures of the commercial arbitration rules of the American Arbitration Association ("AAA"). In any arbitration hereunder, the Purchaser shall select one arbitrator, Per-Se shall select one arbitrator, and the two arbitrators so chosen shall select a third. All such arbitrators must be selected from the list of arbitrators maintained by the AAA. Any decision of the arbitration panel shall require the vote of at least two (2) of such arbitrators and shall be deemed conclusive and each party shall be deemed to have waived any rights to appeal therefrom. Each party shall bear its own legal fees and related expenses incurred in connection with the arbitration proceedings. 7.9 Escrow. Upon notice to Per-Se specifying in reasonable detail the basis therefor, Purchaser may give notice of an Indemnification Claim under the Escrow Agreement until September 30, 2001. Neither the exercise of, nor the failure to exercise such right to give a notice of an Indemnification Claim under the Escrow Agreement shall constitute an election of 31 35 remedies nor limit the Indemnified Party in any manner in the enforcement of any other remedies that may be available to it. ARTICLE 8 TERMINATION 8.1 Termination. Notwithstanding any other provision of this Agreement, this Agreement may be terminated and the Stock Purchase abandoned at any time prior to the Closing Date: (a) By mutual consent of the Purchaser and Per-Se; or (b) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach; or (c) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach; or (d) By either Party in the event any Consent of any Regulatory Authority required for consummation of the Stock Purchase and the other transactions contemplated hereby shall have been denied by final nonappealable action of such authority or if any action taken by such authority is not appealed within the time limit for appeal; or (e) By either Party in the event that the Stock Purchase shall not have been consummated by December 31, 1999, if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 8.1(e); or (f) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event that any of the conditions precedent to the obligations of such Party to consummate the Stock Purchase cannot be satisfied or fulfilled within 60 days after the giving of written notice to the Party not satisfying the condition precedent. 8.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 8.1, this Agreement shall become void and have no effect, except that (i) the provisions of Section 5.3(b), this Section 8.2 and Article 9 shall survive any such termination and abandonment, and (ii) a termination pursuant to Sections 8.1(b), 8.1(c), 8.1(e) or 8.1(f) shall not relieve the breaching Party from Liability for an uncured willful breach of a representation, warranty, covenant, or agreement giving rise to such termination. 32 36 ARTICLE 9 MISCELLANEOUS 9.1 Definitions. (a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings: "Acquisition Proposal" with respect to a Party shall mean any tender offer or exchange offer or any proposal for a merger, acquisition of all of the stock or assets of, or other business combination involving the acquisition of such Party or any of its Subsidiaries or the acquisition of a substantial equity interest in, or a substantial portion of the assets of, such Party or any of its Subsidiaries. "Accountants" shall mean KPMG, or such other large accounting firm which has no prior or existing relationship with the Parties hereto and which is agreed to by the Parties hereto. "Affiliate" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 10% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described in clause (ii) acts in any such capacity. "Assets" of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located. "Bid" means any quotation, bid or proposal by the Company or any of its Affiliates which, if accepted or awarded, would lead to a Contract with the U.S. Government, or a prime contractor or a higher-tier subcontractor to the U.S. Government, for the sale of goods or the provision of services by the Company or a contracting team of which the Company is a member. "Business" shall mean the business of the Company as currently conducted. "Cash Amount" shall mean, $500,000. "Closing Date" shall mean the date on which the Closing occurs. "Closing Documents" shall mean the documents, agreements and certificates executed and delivered at Closing pursuant to the terms of this Agreement. "Company Disclosure Memorandum" shall mean the written information entitled "Company Disclosure Memorandum" delivered prior to the date of this Agreement to Purchaser describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section 33 37 shall not be deemed to be disclosed for purposes of any other Section not specifically referenced with respect thereto. "Company Entities" shall mean, collectively, Per-Se, Holdings and Impact and Affiliate thereof. "Company Financial Statements" shall mean (i) the balance sheets (including related notes and schedules, if any) of Company as of September 30, 1999, and as of December 31, 1998, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for the six months ended September 30, 1999, and for each of the three fiscal years ended December 31, 1998, and (ii) the balance sheets of Company (including related notes and schedules, if any) and related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) with respect to periods ended subsequent to September 30, 1999. "Company Material Adverse Effect" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on the financial position, business or results of operations of the Company or the ability of the Company or the Seller to perform its obligations under this Agreement or to consummate the Stock Purchase or the other transactions contemplated by this Agreement, provided that "Company Material Adverse Effect" shall not be deemed to include the impact of (a) changes in Laws of general applicability or interpretations thereof by courts or governmental authorities, (b) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to the Company, or (c) actions and omissions of either the Company or the Seller taken with the prior informed written Consent of the Purchaser in contemplation of the transactions contemplated hereby. "Consent" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit. "Contract" shall mean any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding, or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business. "Conversion Payment" shall mean $500,000. "Current Assets" of the Company means all assets of the Company (including Net Account Receivables and cash) permitted by GAAP to be classified as current assets. "Current Liabilities" of the Company means all Liabilities of the Company acquired by Purchaser which are permitted by GAAP to be classified as current Liabilities, excluding (i) the Bonus Accrual, and (ii) the current portion of all capital lease obligations. "Default" shall mean (i) any breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the 34 38 giving of notice would give rise to a right of any Person to exercise any remedy or obtain any relief under, terminate or revoke, suspend, cancel, or modify or change the current terms of, or renegotiate, or to accelerate the maturity or performance of, or to increase or impose any Liability under, any Contract, Law, Order, or Permit. "Environmental Laws" shall mean all Laws relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface, or subsurface strata) and which are administered, interpreted, or enforced by the United States Environmental Protection Agency and state and local agencies with jurisdiction over, and including common Law in respect of, pollution or protection of the environment, including the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges, releases, or threatened releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of any Hazardous Material. "Equity Rights" shall mean all arrangements, calls, commitments, Contracts, options, rights to subscribe to, scrip, understandings, warrants, or other binding obligations of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of a Person or by which a Person is or may be bound to issue additional shares of its capital stock or other Equity Rights. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means SunTrust Bank or such other party as mutually agreed upon by Purchaser and Per-Se. "Escrow Agreement" means the escrow agreement executed by Purchaser, Per-Se, and the Escrow Agent in form mutually agreed upon by Purchaser and Per-Se. "Escrow Amount" shall mean $1,000,000. "GAAP" shall mean generally accepted accounting principles, consistently applied during the periods involved. "Government Contract" means any prime Contract, subcontract, teaming agreement or arrangement, joint venture, basic ordering agreement, letter agreement, purchase order, delivery order, Bid, change order or other commitment between the Company and (i) the U.S. Government, (ii) any prime contractor to the U.S. Government or (iii) any subcontractor with respect to any contract described in clause (i) or (ii). "Hazardous Material" shall mean (i) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and specifically shall include asbestos requiring abatement, removal, or encapsulation pursuant to the requirements of governmental authorities and any polychlorinated biphenyls). 35 39 "Holdings Common Stock" shall mean the common stock, par value $.10 per share, of Holdings. "HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Impact Common Stock" shall mean the common stock, par value $.001 per share, of Impact. "Indemnification Claim" shall mean a claim for indemnification under Article VII. "Intellectual Property" means (a) any and all ideas, inventions, discoveries, prototypes, processes, art-work, know-how, compositions, techniques, methods, concepts, schematics, flow charts, works under the copyright Laws (for example, computer programs, including source and object code), formulas, systems, mask works, data bases, data, client lists (current clients, former clients or prospective clients), vendor lists, business associates/partners list, manuals, notes, designs, drawings, training materials, company information and records, brand names, trade names (including the name "Impact Innovations" or any variations or derivations thereof), trademarks, service marks, other marks, company names, company goodwill and goodwill associated with any trademark, service mark or other mark, phone numbers, domain names, Internet Protocol addresses and all other intangible property of any kind, (b) all copyrights, rights of authorship, rights of publicity or broadcast, patent rights, right of inventorship, trade dress rights, trade secrets and proprietary information, rights of attribution and integrity and other moral rights, and other intellectual property rights of any type under state Law, federal Law of the United States, the Laws of any other nation or international treaty, (c) all rights of registration or rights in applications for (a) and (b), including without limitation, any trademark application for "Impact Innovation or Rapid Systems Solution and design and trademark application for "Impact Innovation or Rapid Systems Solution", and (d) the medium in which (a), (b) or (c) resides where applicable (e.g., brochure upon which service mark resides, disk or CD upon which computer code resides). "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Knowledge" as used with respect to a Person (including references to such Person being aware of a particular matter) shall mean those facts that are known or should reasonably have been known after due inquiry by the chairman, president, chief executive officer, chief financial officer, chief accounting officer, chief operating officer, general counsel, or any senior or executive vice president of such Person. "Law" shall mean any code, law (including common law), ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities, or business, including those promulgated, interpreted or enforced by any Regulatory Authority. "Liability" shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person 36 40 (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. "Lien" shall mean any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current property Taxes not yet due and payable, and (iii) Liens which do not materially impair the use of or title to the Assets subject to such Lien. "Litigation" shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, governmental or other examination or investigation, hearing, administrative or other proceeding relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement. "Losses" shall mean any and all demands, claims, actions or causes of action, assessments, losses, diminution in value, damages (including special and consequential damages), Liabilities, costs, and expenses, including interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses. "Net Accounts Receivable" of the Company means the accounts receivables of the Company acquired by Purchaser, net of all reserves required by GAAP. "Net Working Capital" of the Company means the difference between the Current Assets of the Company and the Current Liabilities of the Company, each as set forth on the Company's balance sheet prepared in accordance with GAAP consistently applied. "Non-Compete Agreement" shall mean the non-competition agreement between Seller and Purchaser. "Operating Property" shall mean any property owned, leased, or operated by the Party in question or by any of its Subsidiaries or in which such Party or Subsidiary holds a security interest or other interest (including an interest in a fiduciary capacity), and, where required by the context, includes the owner or operator of such property, but only with respect to such property. "Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or Regulatory Authority. "Party" shall mean any of Holdings, Impact, the Seller or the Purchaser, and "Parties" shall mean all of Holdings, Impact, the Seller and the Purchaser. "Permit" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to 37 41 which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets, or business. "Person" shall mean a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity. "Purchaser Material Adverse Effect" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on the ability of the Purchasers to perform their obligations under this Agreement or to consummate the Stock Purchase or the other transactions contemplated by this Agreement, provided that "Purchaser Material Adverse Effect" shall not be deemed to include the impact of (a) changes in Laws of general applicability or interpretations thereof by courts or governmental authorities, (b) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to Purchaser, or (c) actions and omissions of either Purchaser taken with the prior informed written Consent of the Seller in contemplation of the transactions contemplated hereby. "Purchaser Disclosure Memorandum" shall mean the written information entitled "Purchaser Disclosure Memorandum" delivered prior to the date of this Agreement to Company describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. "Regulatory Authorities" shall mean, collectively, the Securities and Exchange Commission, the Federal Trade Commission, the United States Department of Justice, and all other federal, state, county, local or other governmental or regulatory agencies, authorities (including self-regulatory authorities), instrumentalities, commissions, boards or bodies having jurisdiction over the Parties and their respective Subsidiaries. "Release Letter" shall mean the letter executed by State Street Bank and Trust Company releasing the Company from the Subsidiary Guarantee. "Representative" shall mean any investment banker, financial advisor, attorney, accountant, consultant, or other representative engaged by a Person. "Rose Budd lawsuit" shall mean the lawsuit referenced on Schedule 2.16(b) of the Company Disclosure Memorandum. "Securities Laws" shall mean the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and regulations of any Regulatory Authority promulgated thereunder. "Subsidiaries" shall mean all those corporations, associations, or other business entities of which the entity in question either (i) owns or controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there shall not be included any such entity the equity 38 42 securities of which are owned or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof. "Tax Return" shall mean any report, return, information return, or other information required to be supplied to a taxing authority in connection with Taxes, including any return of an affiliated or combined or unitary group that includes a Party or its Subsidiaries. "Tax" or "Taxes" shall mean any federal, state, county, local, or foreign taxes, charges, fees, levies, imposts, duties, or other assessments, including income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposes or required to be withheld by the United States or any state, county, local or foreign government or subdivision or agency thereof, including any interest, penalties, and additions imposed thereon or with respect thereto. "Transition Services Agreement" means the agreement executed by Per-Se, Purchaser and the Company related to the provision of certain services similar to those currently provided by Per-Se to the Company for a period of time following the Closing Date, the form of which agreement and the length of time shall be mutually agreed upon by Per-Se and Purchaser. "U.S. Government" means the United States government, including any and all departments, agencies, commissions, branches and instrumentalities thereof, as well as any corporations owned or chartered by the United States government. (b) The terms set forth below shall have the meanings ascribed thereto in the referenced sections: AAA Section 7.8(b) Agreement Preamble Allocation Schedule Section 1.7 Bonus Accrual Section 1.3 Code Section 1.7 Company Preamble Company Benefit Plans Section 2.14(a) Company Contracts Section 2.15 Company ERISA Plan Section 2.14(a) Company Pension Plan Section 2.14(a) Conversion Date Section 1.7 ERISA Affiliate Section 2.14(b) Estimated Bonus Accrual Section 1.3 Government Contract Threshold Amount Section 7.4(a) Holdings Preamble Holdings Stock Plan Section 5.11 Immigration Laws Section 2.13 (c)
39 43 Impact Preamble Indemnified Party Section 7.3 Indemnifying Party Section 7.3 Initial Purchase Price Section 1.1 Labor Claims Section 2.13(b) Material Customers Section 2.20 Per-Se Preamble Process Section 2.19 Purchase Price Section 1.1 Purchaser Preamble Seller Preamble Shares Preamble Stock Purchase Section 1.1 Threshold Amount Section 7.4(a) WARN Section 2.13(b)
(c) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation." 9.2 Expenses. Except as otherwise provided in this Section 9.2, each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel. 9.3 Brokers and Finders. Each of the Parties represents and warrants that neither it nor any of its officers, directors, employees, or Affiliates has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers' fees, brokerage fees, commissions, or finders' fees in connection with this Agreement or the transactions contemplated hereby, other than, in the case of Per-Se, Donaldson, Lufkin & Jenrette, the fees and expenses of whom shall be the sole responsibility of Per-Se. In the event of a claim by any broker or finder based upon his or its representing or being retained by or allegedly representing or being retained by Holdings, Impact or Per-Se or by the Purchaser, each of Per-Se and the Purchaser, as the case may be, agrees to indemnify and hold the other Party harmless of and from any Liability in respect of any such claim. 9.4 Entire Agreement. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) constitutes the entire agreement between the Parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral. Nothing in this Agreement expressed or implied, is intended to confer upon any Person, other than the Parties or their respective successors, any rights, remedies, obligations, or liabilities under or by reason of this Agreement. 9.5 Amendments. To the extent permitted by Law, this Agreement may be amended by a subsequent writing signed by each of the Parties upon the approval of each of the Parties, whether before or after shareholder approval of this Agreement has been obtained. 40 44 9.6 Waivers. (a) Prior to or on the Closing Date, the Purchaser, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by Per-Se, Holdings or the Company, to waive or extend the time for the compliance or fulfillment by Per-Se, Holdings or the Company of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of Purchasers under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by duly authorized officers of the Purchaser. (b) Prior to or on the Closing Date, Per-Se, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by the Purchaser, to waive or extend the time for the compliance or fulfillment by the Purchaser of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of the Per-Se under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by duly authorized officers of the Seller. (c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. 9.7 Assignment. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party; provided, that Purchaser may assign its rights and its obligations to a Subsidiary and may assign its rights but not its obligations under this Agreement or under any other Closing Document as collateral to any lenders providing financing to Purchaser in connection with the transactions contemplated by this Agreement. Notwithstanding any such assignment(s), the Purchaser shall not be relieved of any of its obligations hereunder. Subject to the preceding, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns. 9.8 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered: Seller: Per-Se Technologies, Inc. 2840 Mt. Wilkinson Parkway Suite 300 Atlanta, Georgia 30339 Telecopy Number: (770) 444-4502 Attention: Randolph L.M. Hutto 41 45 Copy to Counsel: Powell, Goldstein Frazer & Murphy LLP 191 Peachtree Street, N.E. 16th Floor Atlanta, Georgia 30306 Telecopy Number: (404) 572-6999 Attention: Thomas R. McNeill, Esq. Purchaser: J3 Technology Services Corp. 1144 Canton Street Suite 204 Atlanta, Georgia 30075 Telecopy Number: (770) 552-8316 Attention: James W. Childs Copy to Counsel: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street, N.W. Atlanta, Georgia 30309 Telecopy Number: (404) 881-4777 Attention: Teri L. McMahon, Esq. 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Georgia, without regard to any applicable conflicts of Laws. 9.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 9.11 Captions; Articles and Sections. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. Unless otherwise indicated, all references to particular Articles or Sections shall mean and refer to the referenced Articles and Sections of this Agreement. 9.12 Interpretations. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. The parties acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by all parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereto. 9.13 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. [Signatures to Continue on Following Page] 42 46 IN WITNESS WHEREOF, each of Purchaser, Holdings, Impact and Per-Se has caused this Agreement to be executed on its behalf by its duly authorized officers as of the day and year first above written. J3 TECHNOLOGY SERVICES CORP. By: /s/JAMES W. CHILDS ----------------------------------- James W. Childs Title: President IMPACT INNOVATIONS HOLDINGS, INC. By: /s/RANDOLPH L. M. HUTTO ----------------------------------- Randolph L.M. Hutto Executive Vice President PER-SE TECHNOLOGIES, INC. By: /s/RANDOLPH L. M. HUTTO ----------------------------------- Randolph L.M. Hutto Executive Vice President IMPACT INNOVATIONS GOVERNMENT GROUP, INC. By: /s/RANDOLPH L. M.HUTTO ----------------------------------- Randolph L.M. Hutto Executive Vice President 43 EX-10.1 3 EMPLOYMENT AGREEMENT / PHILIP M. PEAD 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of the 1st day of June 1999, by and between Per-Se Technologies, Inc., a Delaware corporation (the "Company") and a wholly-owned subsidiary of Medaphis Corporation, a Delaware corporation ("Medaphis"), and Philip M. Pead, a resident of the State of Georgia (the "Employee"). Statement of Background Information The Company : (a) develops, markets and licenses to hospitals, integrated healthcare delivery systems, and other healthcare providers and other end users (collectively "Providers"), (i) strategic, operational and financial information systems and services and decision support tools for healthcare providers, (ii) software systems which provide claims and reimbursement services and electronic claims processing, and (iii) software applications which assist Providers with automated scheduling and resource management (the items discussed in Sections (a)(i), (a)(ii) and (a)(iii) of this paragraph are referred to as "Systems"), which Systems include, but are not limited to, nurse scheduling and management information systems, operating room patient scheduling and surgery information systems, enterprise wide patient scheduling and resource management systems, enterprise-wide employee scheduling and management information systems and related software interfaces to other information systems; and (b) provides to Providers installation and support services related to the Company's Systems (the "Systems Business")(the Systems Business and any other distinct business segment in which the Company engages during Employee's employment are collectively referred to herein as the "Business"). In consideration of the mutual covenants, promises and conditions set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts such employment upon the terms and conditions set forth in this Agreement. 2. Duties of Employee. Employee's title will be President of the Company. Employee agrees to perform and discharge such other duties as may be assigned to Employee from time to time by the Company to the reasonable satisfaction of the Company, and such duties will be consistent with those duties regularly and customarily assigned by the Company to the position of President and by Medaphis to heads of operating subsidiaries. Employee also agrees to comply with all of Medaphis' and the Company's policies, standards and regulations as promulgated and in effect from time to time, and to follow the instructions and directives of Employee's superiors within Medaphis. Employee will devote Employee's full professional and business-related time, skills and best efforts to such duties and will not, during the term of this 1 2 Agreement, be engaged (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Chief Executive Officer of Medaphis, which consent will not be unreasonably withheld. This Section will not be construed to prevent Employee from (a) investing personal assets in businesses which do not compete with the Company in such form or manner that will not require any services on the part of Employee in the operation or the affairs of the companies in which such investments are made and in which Employee's participation is solely that of an investor; (b) purchasing securities in any corporation whose securities are listed on a national securities exchange or regularly traded in the over-the-counter market, provided that Employee at no time owns, directly or indirectly, in excess of one percent (1%) of the outstanding stock of any class of any such corporation engaged in a business competitive with that of the Company; or (c) participating in conferences, preparing and publishing papers or books or teaching, so long as the Chief Executive Officer of Medaphis approves such participation, preparation and publication or teaching prior to Employee's engaging therein. 3. Term. The term of this Agreement will be for a two (2) year period of time, commencing as of May 1, 1999 and expiring on the second anniversary thereof subject to earlier termination as provided for in Section 4 of this Agreement. This Agreement shall be automatically renewed for successive one (1) year periods at the end of the initial term, unless either party gives notice to the other of its intent to terminate this Agreement not less than sixty (60) days prior to the commencement of any such one (1) year period. In the event such notice is properly and timely given, this Agreement shall terminate at the end of the initial term or one (1) year period in which such notice is given without further payment by or obligation on the part of the Company. 4. Termination. (a) Termination by Company for Cause. Notwithstanding anything contained in Section 3 to the contrary, the Company may terminate this Agreement and all of its obligations hereunder immediately if any of the following events occur: (i) Employee materially breaches any of the terms or conditions set forth in this Agreement and fails to cure such breach within ten (10) days after Employee's receipt from the Company of written notice of such breach (notwithstanding the foregoing, no cure period shall be applicable to breaches by Employee of Sections 6, 7 or 8 of this Agreement); (ii) Employee commits any other act materially detrimental to the business or reputation of the Company; 2 3 (iii) Employee commits or is convicted of any crime involving fraud, deceit or moral turpitude; or (iv) Employee dies or becomes mentally or physically incapacitated or disabled so as to be unable to perform Employee's duties under this Agreement. Without limiting the generality of the foregoing, Employee's inability adequately to perform services under this Agreement for a period of sixty (60) consecutive days will be conclusive evidence of such mental or physical incapacity or disability, unless such inability adequately to perform services under this Agreement is pursuant to a mental or physical incapacity or disability covered by the Family Medical Leave Act, in which case such sixty (60)-day period shall be extended to a one hundred and twenty (120)-day period. (b) Termination by Company Without Cause. Notwithstanding anything contained in Section 3 to the contrary, the Company may terminate Employee's employment pursuant to this Agreement without cause upon at least thirty (30) days' prior written notice to Employee. In the event Employee's employment with the Company is terminated by the Company without cause or Employee elects to terminate voluntarily his employment following the occurrence of events constituting "Good Reason" for his voluntary termination of employment (in each case, other than in connection with a Change in Control in which event the provisions of subsection (c) of this section 4 will apply, it being understood that the provisions of subsection (c) of this section and this subsection (b) are mutually exclusive), the Company shall pay to Employee an amount equal to his then current salary (not including the right to receive any incentive bonus payments) multiplied by the greater of (i) the number of months remaining in the initial or any renewal term of this Agreement, as applicable or (ii) twelve (12). Such amount shall be paid pursuant to the Company's normal payroll practices over the period of such payments. For purposes of this Agreement, "Good Reason" is defined as (w) a material reduction (greater than 10%) in Employee's annual base salary; (x) a change in Employee's work location to a work location more than 50 miles from Employee's existing work location, except for required travel on the Company's business to an extent consistent with Employee's then present business travel obligations; (y) an assignment to any duties inconsistent in any material adverse respect with Employee's current position, duties or responsibilities, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by Employee; or (z) the failure by the Company to continue any material benefit or compensation plan in which Employee is participating unless Employee is provided with comparable benefits. 3 4 (c) Change in Control. In the event there is a Change in Control (as defined herein) of the Company or Medaphis and if: (A) Employee's employment is terminated by the Company without cause or by Employee for Good Reason within one (1) year following any such Change in Control; (B) if Employee's employment is terminated by the Company at the request of or pursuant to an agreement with a third party who has taken steps reasonably calculated to effect a Change in Control; or (C) if Employee's employment is terminated by the Company or by Employee for Good Reason in connection with or in anticipation of a Change in Control, then Employee will be entitled to receive severance payments, payable over a two year period, equal in the aggregate to two times the sum of: (i) Employee's then current annual base salary; and (ii) the most recent incentive bonus payment received by Employee prior to the Change in Control. In addition, Employee shall be entitled to receive monthly for a period of eighteen (18) months commencing on the date of termination in connection with a Change in Control an amount equal to the difference between the monthly cost to Employee of healthcare coverage at the levels at which Employee is participating on the date of such termination and the monthly cost of comparable COBRA coverage actually incurred. All amounts payable pursuant to this Section 4 (c) shall be paid in accordance with the Company's normal payroll practices. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to occur upon any of the following: (i) a consolidation or merger of Medaphis or the Company with or into any other corporation, or any other entity or person, in the case of the Company, other than Medaphis or a wholly-owned subsidiary of Medaphis, excluding any transaction in which the shares of Medaphis common stock or the Company's common stock, as applicable, outstanding immediately prior to any such consolidation or merger represent immediately thereafter more than 50% of the combined voting power of the resulting entity after the transaction; (ii) any corporate reorganization, including an exchange offer, in which Medaphis or the Company shall not be the continuing or surviving entity resulting from such reorganization, excluding any transaction in which the shares of Medaphis common stock or the Company's common stock outstanding immediately prior to any such reorganization represent immediately thereafter more than 50% of the combined voting power of the resulting entity after the transaction; or (iii) the failure for any reason of individuals who constitute the Incumbent Board to continue to constitute at least a majority of the Board. For purposes of this Section 4 (d), the term "Board" shall mean the Board of Directors of Medaphis or the Company, as applicable, and the term "Incumbent Board" shall mean the members of the Board as of the date hereof and any person 4 5 becoming a member of the Board hereafter whose election or nomination is by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Medaphis or the Company, as applicable, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended). 5. Compensation and Benefits. a) Annual Salary. During the term of this Agreement and for all services rendered by Employee under this Agreement, the Company will pay Employee a base salary of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) per annum to be paid in accordance with the Company's regular payroll practices, provided, however, that such payments shall be made no less frequently than in equal monthly installments. Such annual salary will be subject to adjustments in the normal course of business. b) Incentive Compensation. Employee shall be eligible to participate in the current Medaphis Incentive Compensation Plan (and any comparable future incentive compensation plans during the term of this Agreement) at a participation category of up to Eighty Percent (80 %) of Employee's base salary, payable at the discretion of the Board of Directors of the Company. c) Other Benefits. Employee will be entitled to such fringe benefits as may be provided from time-to-time by the Company to its Employees, including, but not limited to, group health insurance, life and disability insurance, vacation and any other fringe benefits, in each case as now or hereafter provided by the Company to its Employees, if and when, and for so long as, Employee meets the eligibility requirements for such benefits. The Company reserves the right to change or discontinue any employee benefit plans or programs now being offered to its employees; provided, however, that all benefits provided for employees of the same position and status as Employee will be provided to Employee on an equal basis. d) Business Expenses. Employee will be reimbursed for all reasonable expenses incurred in the discharge of Employee's duties under this Agreement pursuant to the Company's standard reimbursement policies. e) Withholding. The Company will deduct and withhold from the payments made to Employee under this Agreement, state and federal income taxes, FICA and other amounts normally withheld from compensation due employees. 5 6 6. Non-Disclosure of Proprietary Information. Employee recognizes and acknowledges that the Trade Secrets (as defined below) and Confidential Information (as defined below) of the Company and its affiliates and all physical embodiments thereof (as they may exist from time-to-time, collectively, the "Proprietary Information") are valuable, special and unique assets of the Company's and its affiliates' businesses. Employee further acknowledges that access to such Proprietary Information is essential to the performance of Employee's duties under this Agreement. Therefore, in order to obtain access to such Proprietary Information, Employee agrees that, except in connection with performing duties assigned to him by the Company, Employee shall hold in confidence all Proprietary Information and will not reproduce, use, distribute, disclose, publish or otherwise disseminate any Proprietary Information, in whole or in part, and will take no action causing, or fail to take any action necessary to prevent causing, any Proprietary Information to lose its character as Proprietary Information, nor will Employee make use of any such information for Employee's own purposes or for the benefit of any person, firm, corporation, association or other entity (except the Company) under any circumstances. For purposes of this Agreement, the term "Trade Secrets" means information, without regard to form, including, but not limited to, any technical or non-technical data, formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, financial plan, product plan, list of actual or potential customers or suppliers, or other information similar to any of the foregoing, which is not commonly known by or available to the public and (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can derive economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. For purposes of this Agreement, the term "Trade Secrets" does not include information that Employee can show by competent proof (i) was known to Employee and reduced to writing prior to disclosure by the Company (but only if Employee promptly notifies the Company of Employee's prior knowledge); (ii) was generally known to the public at the time the Company disclosed the information to Employee; (iii) became generally known to the public after disclosure by the Company through no act or omission of Employee; or (iv) was disclosed to Employee by a third party having a bona fide right both to possess the information and to disclose the information to Employee. The term "Confidential Information" means any data or information of the Company, other than trade secrets, which is valuable to the Company and not generally known to competitors of the Company. The provisions of this Section 6 will apply to Trade Secrets for so long as such information remains a trade secret and to Confidential Information during Employee's employment with the Company and for a period of two (2) years following any termination of Employee's employment with the Company for whatever reason. 6 7 7.A. Non-Competition Covenant. During Employee's employment by the Company Employee will be a member of the Company's management team. Employee agrees that during his employment and for a period of two (2) years following any termination of Employee's employment for whatever reason, Employee will not, directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, compete with the Company within the Geographical Area (as hereinafter defined). The term "compete" means to engage in, have any equity or profit interest in, make any loan to or for the benefit of, or render services of any marketing, management, sales, administrative, supervisory or consulting nature, directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that Employee at no time owns, directly or indirectly, in excess of one percent (1%) of the outstanding stock of any class of any such corporation) any business which provides Business products or services. For purposes of this Agreement, the term "Geographical Area" means the territory located within a seventy-five (75) mile radius of Company headquarters of any Company facility for which Employee exercised managerial control. B. Non-Solicitation of Clients Covenant. Employee agrees that during Employee's employment by the Company and for a period of two (2) years following the termination of Employee's employment for whatever reason, Employee will not, directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, divert, solicit or attempt to divert or solicit any individual or entity (i) who is a client of the Company at any time during the six (6)-month period prior to Employee's termination of employment with the Company ("Client"), or was actively sought by the Company as a prospective client, and (ii) with whom Employee had material contact while employed by the Company, to provide Business services or products to such Clients or prospects. C. Construction. The parties hereto agree that any judicial authority construing all or any portion of this Section 7 or Section 8 below may, if it chooses, sever any portion of the Geographical Area, client base, prospective relationship or prospect list or any prohibited business activity from the coverage of such Section and to apply the provisions of such Section to the remaining portion of the Geographical Area, the client base or the prospective relationship or prospect list, or the remaining business activities not so severed by such judicial authority. In addition, it is the intent of the parties that the judicial authority may, if it chooses, replace each such severed provision with a provision as similar in terms to such severed provision as may be possible and be legal, valid and enforceable. It is the intent of the parties that Sections 7 and 8 be enforced to the maximum extent permitted by law. In the event 7 8 that any provision of either such Section is determined not to be specifically enforceable, the Company shall nevertheless be entitled to bring an action to seek to recover monetary damages as a result of the breach of such provision by Employee. 8. Non-Solicitation of Employees Covenant. Employee further agrees and represents that during Employee's employment by the Company and for a period of two (2) years following any termination of Employee's employment for whatever reason, Employee will not, directly or indirectly, on Employee's own behalf or in the service of, or on behalf of any other individual or entity, divert or solicit, or attempt to divert or solicit, to or for any individual or entity which is engaged in providing Business services or products, any person employed by the Company, whether or not such employee is a full-time employee or temporary employee of the Company, whether or not such employee is employed pursuant to written agreement and whether or not such employee is employed for a determined period or at-will. 9. Existing Restrictive Covenants. Employee represents and warrants that Employee's employment with the Company does not and will not breach any agreement which Employee has with any former employer to keep in confidence confidential information or not to compete with any such former employer. Employee will not disclose to the Company or use on its behalf any confidential information of any other party required to be kept confidential by Employee. 10. Return of Proprietary Information. Employee acknowledges that as a result of Employee's employment with the Company, Employee may come into the possession and control of Proprietary Information, such as proprietary documents, drawings, specifications, manuals, notes, computer programs, or other proprietary material. Employee acknowledges, warrants and agrees that Employee will return to the Company all such items and any copies or excerpts thereof, in any form or medium, and any other properties, files or documents obtained as a result of Employee's employment with the Company, immediately upon the termination of Employee's employment with the Company. 11. Proprietary Rights. During the course of Employee's employment with the Company, Employee may make, develop or conceive of useful processes, machines, compositions of matter, computer software, algorithms, works of authorship expressing such algorithm, or any other discovery, idea, concept, document or improvement which relates to or is useful to the Company's Business (the "Inventions"), whether or not subject to copyright or patent protection, and which may or may not be considered Proprietary Information. Employee acknowledges that all such Inventions will be "works made for hire" under United States copyright law and will remain the sole and exclusive property of the Company. Employee also hereby assigns and agrees to assign to the Company, in perpetuity, all right, title and interest Employee may have in and to such Inventions, including without limitation, 8 9 all copyrights, and the right to apply for any form of patent, utility model, industrial design or similar proprietary right recognized by any state, country or jurisdiction. Employee further agrees, at the Company's request and expense, to do all things and sign all documents or instruments necessary, in the opinion of the Company, to eliminate any ambiguity as to the ownership of, and rights of the Company to, such Inventions, including filing copyright and patent registrations and defending and enforcing in litigation or otherwise all such rights. Employee will not be obligated to assign to the Company any Invention made by Employee while in the Company's employ which does not relate to any business or activity in which the Company is or may reasonably be expected to become engaged, except that Employee is so obligated if the same relates to or is based on Proprietary Information to which Employee will have had access during and by virtue of Employee's employment or which arises out of work assigned to Employee by the Company. Employee will not be obligated to assign any Invention which may be wholly conceived by Employee after Employee leaves the employ of the Company, except that Employee is so obligated if such Invention involves the utilization of Proprietary Information obtained while in the employ of the Company. Employee is not obligated to assign any Invention which relates to or would be useful in any business or activities in which the Company is engaged if such Invention was conceived and reduced to practice by Employee prior to Employee's employment with the Company. 12. Remedies. Employee agrees and acknowledges that the violation of any of the covenants or agreements contained in Sections 6, 7, 8, 9, 10 and 11 of this Agreement would cause irreparable injury to the Company, that the remedy at law for any such violation or threatened violation thereof would be inadequate, and that the Company will be entitled, in addition to any other remedy, to temporary and permanent injunctive or other equitable relief without the necessity of proving actual damages or posting a bond. 13. Notices. Any notice or communication under this Agreement will be in writing and sent by registered or certified mail addressed to the respective parties as follows: If to the Company: If to Employee: Medaphis Corporation Philip M. Pead 2840 Mt. Wilkinson Parkway 1030 Lakeshore Overlook Suite 300 Alpharetta, Georgia 30005 Atlanta, GA 30339 Attn: General Counsel 9 10 or to such other address or agent as may be hereafter designated in writing by either party hereto. All such notices shall be deemed given on the date personally delivered or mailed. 14. Severability. Subject to the application of Section 7(C) to the interpretation of Sections 7 and 8, in case one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, the parties agree that it is their intent that the same will not affect any other provision in this Agreement, and this Agreement will be construed as if such invalid or illegal or unenforceable provision had never been contained herein. It is the intent of the parties that this Agreement be enforced to the maximum extent permitted by law. 15. Entire Agreement. This Agreement embodies the entire agreement of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, oral or written, regarding the subject matter hereof. No amendment or modification of this Agreement will be valid or binding upon the parties unless made in writing and signed by the parties. 16. Binding Effect. This Agreement will be binding upon the parties and their respective heirs, representatives, successors, transferees and permitted assigns. 17. Assignment. This Agreement is one for personal services and will not be assigned by Employee. The Company may assign this Agreement to its parent company or to any of its subsidiaries or affiliated companies; provided that the parent or any subsidiary or affiliate fulfills the obligations of the Company under this Agreement. 18. Governing Law. This Agreement is entered into and will be interpreted and enforced pursuant to the laws of the State of Georgia. The parties hereto hereby agree that the appropriate forum and venue for any disputes between any of the parties hereto arising out of this Agreement shall be any federal court in the state where the Company has its principal place of business and each of the parties hereto hereby submits to the personal jurisdiction of any such court. The foregoing shall not limit the rights of any party to obtain execution of judgment in any other jurisdiction. The parties further agree, to the extent permitted by law, that a final and unappealable judgment against either of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. 19. Indemnification. Employee shall be entitled to the indemnification and exculpation offered through and set forth in the Company's Charter and By-laws. 10 11 20. Surviving Terms. Sections 6, 7, 8, 9, 10, 11 and 12 of this Agreement shall survive termination of this Agreement. * * * * * * * (signatures appear on next page) 11 12 IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written, effective as of May 1, 1999. COMPANY: EMPLOYEE: By: /s/ RANDOLPH L. M. HUTTO /s/ PHILIP M. PEAD ------------------------ ------------------ Randolph L.M. Hutto Philip M. Pead Title: Executive Vice President 12 13 EXHIBIT A INVENTIONS Employee represents that there are no Inventions. /s/ PMP ------------------- Employee's Initials 13 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PER-SE TECHNOLOGIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U. S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 38,101 0 91,829 0 0 140,699 37,796 0 239,772 75,560 175,000 0 0 909 (19,276) 239,772 0 245,001 0 0 292,883 0 11,858 (59,740) (502) (59,238) 544 0 0 (58,694) (0.71) (0.71)
EX-99.1 5 SAFE HARBOR COMPLIANCE STATEMENT / FORWARD STMTS 1 EXHIBIT 99.1 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS In passing the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. Per-Se Technologies, Inc. intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward-looking statements are inherently uncertain because they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of Per-Se Technologies, Inc. We undertake no obligation to update or revise this Safe Harbor Compliance Statement for Forward-Looking Statements to reflect future developments. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. We are providing the following risk factor disclosure in connection with our continuing effort to qualify our written and oral forward-looking statements for the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Form 10-Q to which this statement is appended as an exhibit and also include the following: OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE. We have a significant amount of indebtedness and, as a result, significant obligations to make payments on our debt. If we are unable to make the required debt payments, we could be required to reduce or delay capital expenditures, sell certain of our assets, restructure or refinance our indebtedness, or seek additional equity capital. Our ability to make payments on our debt obligations will depend on our future operating performance, which will be affected by certain conditions that are beyond our control. Our substantial indebtedness could have important consequences to our financial performance. For example: - - our ability to obtain additional financing in the future may be impaired; - - if a substantial portion of our cash flow from operations is dedicated to the payment of debt, we may have reduced funds available for operations; - - the terms of our existing debt places restrictions on us, including our ability to incur additional debt or pay dividends; and - - we may be more leveraged than our competitors, which may limit our flexibility to respond to changes in the marketplace and may place us at a competitive disadvantage. WE ARE SUBJECT TO ONGOING LITIGATION AND A GOVERNMENT INVESTIGATION WHICH MAY ADVERSELY AFFECT OUR BUSINESS. 2 We are involved in several lawsuits which may expose us to material loss contingencies. These lawsuits include, but are not limited to, claims brought by former shareholders of companies that we acquired. We have also received written demands from customers and former customers that have not yet resulted in legal action and may receive demands with respect to the operation of our business and actions we have taken, including modifications made to a computerized coding tool to assist in healthcare reimbursement used by one of our subsidiaries and the transition from the computerized coding tool to manual coding. We are also subject to a formal, non-public investigation by the Securities and Exchange Commission into, among other things, trading and other issues relating to restatements of our financial statements. We may not be able to successfully defend any of these lawsuits. In addition, other lawsuits may be filed and other governmental investigations may be commenced against us. Existing or new lawsuits or new government investigations could have a material adverse effect on us. The ongoing governmental investigation against us may result in significant fines, damages or other penalties and the Commission could require further restatements of our financial statements. The investigation could have a material adverse effect on us. Also, in the event of an adverse outcome with respect to pending lawsuits, there is the risk that our insurance coverage may not fully cover any damages assessed against us. The litigation with which we are involved (as well as future litigation) could have a disruptive effect upon the operations of the business and consume the time and attention of our senior management. WE HAVE INCURRED SIGNIFICANT LOSSES IN RECENT YEARS. We had losses in each of 1995, 1996, 1997, 1998 and 1999. Most of these losses result from restructuring and other charges, litigation settlements, intangible asset impairment and acquisition costs. We cannot assure you when or if we will become profitable in the future. WE HAVE SUFFERED SIGNIFICANT SETBACKS IN RECENT YEARS AND MAY NOT BE ABLE TO TURNAROUND SUCCESSFULLY. We have suffered several setbacks in recent years, including: - - government investigations; - - the failure successfully to integrate acquired companies; - - restatements of our 1994, 1995, 1996 and interim 1997 financial statements; - - the discontinuance of the operations of one of the businesses we acquired; - - the abandonment of an extensive reengineering program that failed; - - a steep drop in the price of our common stock; and - - the filing of various lawsuits and claims against us. As a result of these setbacks, we have been operating in what is commonly described as a "turnaround" situation. In addition to risks associated with "turnaround" situations, we face certain challenges more specific to our operations, including: - - successfully integrating acquired companies; - - shifting our strategic focus from acquiring compatible businesses to running our existing businesses efficiently and profitably; 3 - - managing our customers' perceptions of our continued viability and focusing on customer service; - - combating employee turnover; - - reducing costs and increasing efficiencies; and - - reevaluating the efficiency of our operations following our abandonment of the reengineering initiative in 1996. WE MAY NOT BE ABLE TO KEEP UP WITH CHANGES IN OUR INDUSTRY. The markets for our software products and services are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. We may not be able to keep pace with changes in our industry. Our success depends in part upon our ability to: - - enhance our existing products and services; - - introduce new products and services quickly and cost effectively; - - achieve market acceptance for new products and services; and - - respond to emerging industry standards and other technological changes. Also, our competitors may develop competitive products that could adversely affect our operating results. In addition, it is possible that: - - we will be unsuccessful in refining, enhancing and developing our software and billing systems going forward; - - the costs associated with refining, enhancing and developing our software and systems may increase significantly in the future; or - - our existing software and technology will become obsolete as a result of ongoing technological developments in the marketplace. WE COULD LOSE CERTAIN CUSTOMERS IF WE ARE NOT SUCCESSFUL ON SEVERAL MAJOR CLIENT PROJECTS. Our client/server information technology business involves projects designed to reengineer customer operations through the strategic use of imaging, client/server and other advanced technologies. Failure to meet our customers' expectations with respect to a major project could have the following consequences: - - damage our reputation and standing in this marketplace; - - impairment of our ability to attract new client/server information technology business; - - the payment of damages to a customer; and - - the inability to collect for services already performed on the project. WE MAY INCUR ADDITIONAL COSTS BECAUSE OF POTENTIAL "YEAR 2000" PROBLEMS. Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the 4 century. If not corrected, many computer applications could fail or create erroneous results as we approach or when we reach the Year 2000. We have undertaken an assessment of our Year 2000 issues. We have identified some older computer systems that we will replace with more efficient processing systems, rather than attempting to make all these older systems Year 2000 compliant. Until we have replaced all these older systems, we cannot be sure that our efforts to address Year 2000 issues are appropriate, adequate or complete. In addition, we cannot be sure that we have identified all Year 2000 problems in the computer systems of our customers, vendors or resellers, or that we will be able to successfully remedy any future problems that are discovered. As a result of Year 2000 issues and the replacement of older computer systems, we may suffer the following consequences: - - we may incur a significant amount of additional expenses to remedy Year 2000 issues and we may experience a significant loss of revenues; - - our existing customers may be adversely impacted by Year 2000 problems, which could cause fluctuations in our revenue; and - - our failure to identify and remedy all Year 2000 problems could put us at a competitive disadvantage relative to companies that have corrected such problems. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER MANAGEMENT SERVICES COMPANIES. The medical management services business is highly competitive. We compete with national and regional physician and hospital reimbursement organizations and collection businesses, national information and data processing organizations, and physician groups and hospitals that provide their own business management services. We are uncertain whether we can continue to compete successfully with all of these competitors. Potential industry and market changes that could adversely affect our ability to compete for billing and collection business include: - - an increase in the number of managed care providers compared to fee-for-service providers; and - - new alliances between healthcare providers and third-party payors in which healthcare providers are employed by such third-party payors. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER INFORMATION TECHNOLOGY COMPANIES. The business of providing application software, information technology and consulting services is also highly competitive. We compete with national and regional companies in this regard. Certain of our competitors have longer operating histories and greater financial, technical and marketing resources than we do. We are uncertain whether we can continue to compete successfully with these competitors. OUR REVENUE AND OPERATIONS MAY BE ADVERSELY AFFECTED BY PRICING PRESSURES WHICH ADVERSELY AFFECT OUR CUSTOMERS. We believe that the revenue growth rate experienced by our healthcare clients continues to be adversely affected by managed care pricing and declining government reimbursement levels. At the same time, the process of submitting healthcare claims for reimbursement to third-party payors in accordance with applicable industry and regulatory standards grows in complexity and cost. We believe that these 5 trends have adversely affected and could continue to adversely affect our customers' revenues and profitability and, therefore, adversely affect us too. CHANGES IN THE HEALTHCARE MARKETPLACE MAY DECREASE DEMAND FOR OUR BILLING SERVICES. In general, consolidation initiatives in the healthcare marketplace may result in fewer potential customers for our services. Some of these types of initiatives include: - - employer initiatives such as creating purchasing cooperatives, like HMOs; - - provider initiatives, such as risk-sharing among healthcare providers and managed care companies through capitated contracts; and - - integration among hospitals and physicians into comprehensive delivery systems. We believe that the continued consolidation of management and billing services through integrated delivery systems could result in a decrease in demand for our billing and collection services for particular physician practices. FUTURE INVESTIGATIONS OF HEALTHCARE BILLING AND COLLECTION PRACTICES MAY ADVERSELY AFFECT OUR BUSINESS. Our medical billing and collection activities are governed by numerous federal and state civil and criminal laws. Federal and state regulators increasingly use these laws to investigate healthcare providers and companies, like us, that provide billing and collection services. In connection with these laws: - - we may be subjected to federal or state government investigation and possible civil or criminal fines; - - we may ultimately be required to defend a false claims action; - - we may be sued by private payors; or - - we may be excluded from Medicare, Medicaid and/or other government funded healthcare programs. We have been the subject of several federal investigations, and we may become the subject of false claims litigation or additional investigations relating to our billing and collection activities. Any such proceeding or investigation could have a material adverse effect on our business. The ownership and operation of hospitals is also subject to comprehensive regulation by federal and state governments which may adversely affect hospital reimbursement. This regulation could have an adverse effect on the operations of hospitals in general, and consequently reduce the amount of our revenues related to hospital clients. Current or future government regulations or healthcare reform measures may have a material adverse effect upon our business. OUR STOCK PRICE HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE SUBSTANTIALLY. Our common stock is listed on the Nasdaq National Market. The market price of our common stock has been volatile and could fluctuate substantially, based on a variety of factors, including the following: - - announcements relating to governmental investigations; - - our liquidity and financial resources; 6 - - our divestiture of businesses; - - the status of lawsuits or other demands; - - healthcare reform measures; - - quarter-to-quarter and year-to-year variations in financial results; and - - failure to continue to meet Nasdaq National Market listing requirements. Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their operating results. These fluctuations and general economic, political and market conditions may adversely affect the market price of our common stock. LISTING ON NASDAQ NATIONAL MARKET. Our common stock is currently traded on the Nasdaq National Market. Nasdaq has notified us that we are out of compliance with the Nasdaq National Market's continued listing requirements of a minimum bid price of $5.00 or net tangible assets of $4 million. Nasdaq has notified us that our situation is being reviewed, and that a decision by Nasdaq is likely to be issued in December 1999. We expect that we have until that time to: - - meet the requirements; - - file an appeal with Nasdaq; or - - make an application to have our common stock traded on the Nasdaq SmallCap Market or other exchange. We have formulated plans, including a possible reverse stock split, that we could implement to avoid a change in our Nasdaq National Market listing. In addition, since we currently meet all listing requirements for the Nasdaq SmallCap Market, we are prepared to make an application for listing of our common stock on that market, if necessary. There can be no assurance that we will be able to implement these plans successfully. If our stock price does not otherwise regain compliance with the Nasdaq National Market requirements then our common stock could potentially be de-listed from the Nasdaq National Market depending upon our ability to implement certain of these plans. In that event, our common stock would then be traded in the over-the-counter market. Such a result could adversely impact the liquidity of our common stock. -----END PRIVACY-ENHANCED MESSAGE-----