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EXHIBIT 10.11
February 13, 1996
PRIVILEGED AND CONFIDENTIAL
Clinitec International, Inc.
Cedar Creek Corporate Center
000X Xxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx, President
Gentlemen:
This letter expresses the intent of Quality Systems, Inc., a
California corporation ("QSI"), and Clinitec, International, Inc., a
Pennsylvania corporation ("Clinitec"), to enter into a series of transactions
(collectively, the "Transactions") whereby QSI will acquire Clinitec's
business. The parties intend to enter into definitive agreements regarding the
Transactions which will set forth the definitive understandings, terms and
conditions agreed to by the parties with respect to the Transactions.
1. Structure of Transactions.
(a) QSI shall exercise its option (the "Option") pursuant
to Article IX of that certain Series A Convertible Preferred Stock Purchase
Agreement among Clinitec, Xxxxxxx Xxxxx and Xxxxx Xxxxx, and QSI, dated April
21, 1995, to acquire such number of additional shares of Clinitec Series A
Convertible Preferred Stock to bring QSI's stock holdings in Clinitec (on a
fully diluted basis) to fifty-one percent (51%) (the "Option Transaction").
(b) Following or concurrent with the close of the Option
Transaction, a newly created, wholly-owned subsidiary of QSI will merge with
Clinitec and all of the outstanding shares of Clinitec stock, and any and all
options, warrants or other rights to acquire or which may convert into Clinitec
stock, will be cancelled and the holders thereof other than QSI (the "Clinitec
Shareholders") will receive common stock of QSI (the "QSI Common Stock") and
cash. The QSI subsidiary resulting from the Merger (the "Clinitec Subsidiary")
shall retain the name "Clinitec International, Inc." The parties intend that
the Merger (as defined below) be a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended.
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(c) The timing of the Option Transaction and the Merger
shall be determined by the parties; however, the parties intend that the
closing of the Transactions occur on or before March 31, 1996.
2. Purchase Price. Pursuant to the contemplated Transactions,
QSI shall deliver to Clinitec and Clinitec's Shareholders the following
consideration:
(a) Upon the closing of the Option Transaction, QSI shall
deliver to Clinitec One Million Five Hundred Thousand Dollars ($1,500,000) in
cash. The parties acknowledge that this $1.5 million shall be distributed by
Clinitec to the Clinitec Shareholders on a pro rata basis proportionate to the
Clinitec Shareholders' respective ownership (in relation to one another) of
Clinitec. Further, the parties acknowledge that QSI shall not be required to
contribute $1.5 million of additional capital (for a total of $3.0 million)
into Clinitec as contemplated by the terms of the Option if the Merger and the
Option Transaction occur concurrently. Otherwise, the additional $1.5 million
of consideration for the Option Transaction (for a total of $3.0 million) shall
be due and payable upon the closing thereof. However, if the Merger occurs
subsequent to the closing of the Option Transaction, then the $1.5 million of
additional capital paid to Clinitec in connection with the Option Transaction
shall be returned by Clinitec to QSI upon the closing of the Merger.
(b) Pursuant to an agreement and plan of merger and any
other documents ancillary thereto (collectively, the "Merger Agreements"), upon
consummation of the transactions contemplated by the Merger Agreements (such
consummation, the "Merger"), the Clinitec Shareholders shall receive as
consideration the following:
(i) Cash in the amount of Three Million Three
Hundred Ninety-five Thousand Seven Hundred
Dollars ($3,395,700) payable to the Clinitec
Shareholders on a pro rata basis
proportionate to their respective percentage
ownership of Clinitec; and
(ii) That number of shares of QSI Common Stock
determined by dividing Six Million Eight
Hundred Ninety-four Thousand Three Hundred
Dollars ($6,894,300) by the offering price
(the "Stock Price") of QSI Common Stock
offered pursuant to its Secondary Public
Offering (as defined below). The term
"Secondary Public Offering" shall mean a
registered public offering of shares of QSI
Common Stock pursuant to that certain
Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on
January 11, 1996.
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3. Restricted Stock. The QSI Common Stock issued pursuant to the
Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "1933 Act"), by reason of Section 4(2)
thereof or Regulation D promulgated thereunder, and shall be "restricted
securities" under the 1933 Act and Rule 144 promulgated thereunder and
otherwise may only be sold or transferred pursuant to an effective Registration
Statement under the 1933 Act or an exemption from registration requirements of
the 1933 Act. Additionally, all former Clinitec Shareholders receiving shares
of QSI Stock pursuant to the Merger shall enter into an agreement with QSI
restricting the sale of such QSI Common Stock by such holders for a period of
two years following the closing of the Merger.
4. Representations and Warranties. In connection with the
Transactions, Clinitec and certain key Clinitec Shareholders designated by QSI
will make customary representations and warranties regarding, among other
things, Clinitec's business, operations, financial condition and assets.
Additionally, such key Clinitec Shareholders will indemnify, defend and hold
QSI harmless from and against any and all claims, damages, liability or
obligations of any nature whatsoever (i) arising out of or relating to any
breach of any covenant or any representation or warranty made or given by
Clinitec or any key Clinitec Shareholder in or pursuant to any Merger
Agreement, or (ii) arising out of or relating to any acts or omissions of
Clinitec or any current or former officer, director, employee or agent of
Clinitec prior to the closing of the Transactions.
Further, Clinitec and such key Clinitec Shareholders shall
represent and warrant that:
(a) the NextGen product's document processing function
has been developed with reasonable diligence and skill, and that Clinitec will
use its best efforts to review and incorporate newer, faster methods of
generating documents should such methods be feasible;
(b) the NextGen product is based upon client/server
architecture and is designed to be scaleable to support up to 500 appropriately
configured and connected workstations performing typical functions, and that if
performance problems arise with large scale implementations of the product,
that Clinitec will use its best efforts to resolve such problems on a timely
basis;
(c) Clinitec will use its best efforts to cooperate with
QSI to identify tools and procedures, and to use its best efforts to develop
appropriate NextGen product functions, which assist with the support and
updating of a large network of NextGen users; and
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(d) Clinitec will work with QSI to design, and will use
its best efforts to develop, NextGen product functions that assist with
work-flow, including patient tracking and provider notification methodology
automated transcription lists, to-do lists, message and document routing linked
to patient charts, etc.
Further, Clinitec and such key Clinitec Shareholders shall
represent and warrant that the forecasts provided to QSI by Clinitec on
February 13, 1996 represent a reasonable projection for the calendar year 1996,
exclusive of QSI's direct sales.
5. Conditions to Closing. The consummation of the Transactions
will be subject to, among other things:
(a) Negotiation, execution and delivery of definitive
Merger Agreements and other related documentation reflecting the terms and
conditions of the Transactions and such other terms and conditions as are
mutually agreed upon by QSI and Clinitec;
(b) Completion by QSI and its attorneys, accountants,
advisors and agents of due diligence review of Clinitec;
(c) Obtaining all necessary approvals and consents of all
third parties required by law or under QSI's and/or Clinitec's material
agreements, licenses and permits;
(d) The Transactions being approved by the respective
Boards of Directors of Clinitec and QSI; and
(e) Since December 31, 1995, the business of Clinitec
shall have been conducted in the ordinary course, and there shall have been no
material adverse change in the business, prospects, operations, earnings,
assets or financial condition of Clinitec.
6. Due Diligence. Clinitec will provide to QSI (and to QSI's
attorneys, accountants, financial institutions, advisors and other appropriate
representatives) reasonable access to its books, records, facilities, and
properties; provided, however, that any non-public information or materials
obtained by QSI pursuant to its due diligence review shall be treated as
confidential.
7. Board Seat Position. The parties intend that the authorized
number of directors of QSI be increased by one position and that Xxxxxxx Xxxxx
be nominated to fill such vacant position.
8. Employment Agreements. The parties intend that certain key
employees of Clinitec, including without limitation, Xxxxxxx Xxxxx, Xxxxx
Xxxxxxxxxxx, Xxxxx Xxxxx, Xxx
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Xxxxx, and Xxxxx Xxxxxx, enter into employment agreements with QSI containing
three-year terms. The employment agreements shall contain customary terms and
provisions with compensation provisions consistent with Exhibit A hereto.
9. Agreements Not to Compete. Certain key shareholders and
employees, including, without limitation, Xxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxx
Xxxxxxxxxxx, Xxx Xxxxx, and Xxxxx Xxxxxx, will enter into agreements which
restrict them from competing with Clinitec or QSI during the term of their
employment and for the following periods of time (the "Restriction Period")
following termination or expiration of such employment agreements:
(a) for a period of two years following the Merger, the
Restriction Period shall be three years;
(b) during the period beginning on the day subsequent to
expiration of two years following the Merger and ending on the day preceding
the third anniversary of the Merger (the "Gap Period"), the Restriction Period
shall be two years plus the number of days remaining in the Gap Period; and
(c) subsequent to expiration of three years following the
Merger, the Restriction Period shall be two years.
10. Operation of Business. Until the closing of the Transactions
(or the termination of the binding provisions of this letter), Clinitec will
continue to operate its business in substantially the same manner as in the
past and consistent with past business practices and accounting procedures, and
any significant expenditures, commitments or operational changes (including
changes in the rates of compensation or other benefits for employees) not in
the ordinary course of business will be subject to QSI's prior approval.
Following the closing of the Option Transaction, Clinitec shall not issue or
grant any option, warrant or other right to acquire or which may convert into
Clinitec stock.
11. Binding Effect. Except for paragraphs 6, 10 and 12 hereof
(which shall be binding on the parties), this letter does not create any
binding or legal obligation of or on any party, but merely represents the
present intention of the parties.
12. General.
(a) After executing this letter and until the earlier of
(i) 45 days following the closing of the Secondary Public Offering or (ii) May
15, 1996, Clinitec agrees, and shall use its best efforts to cause its
officers, directors, employees, agents and shareholders, not to solicit or
encourage, directly or indirectly, in any manner, any discussion with, or
furnish or
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cause to be furnished any information to any person other than QSI in
connection with, or to negotiate for or pursue the sale of all or substantially
all of the assets or stock of Clinitec or any portion of its business or any
business combination or merger of Clinitec with, any other party. Clinitec
will promptly inform QSI of any inquiries or proposals with respect to the
foregoing. In the event that the agreements in this paragraph are violated by
Clinitec or its officers, directors, employees, agents or shareholders, and QSI
does not consummate the Merger or the Transactions, then, in addition to other
remedies available to QSI, QSI shall be entitled to receive from Clinitec all
out-of- pocket expenses (including reasonable attorneys' fees and expenses)
relating to the Transactions that QSI has incurred. Subject to the foregoing,
if the proposed Transactions do not close by the earlier of (i) 45 days
following the closing of the Secondary Public Offering or (ii) May 15, 1996,
each party is released from any obligations under this letter.
(b) Neither of the parties to this letter shall disclose
to the public or to any third party the existence of this letter or the
proposed Transactions described herein other than with the express written
consent of the other party, except as may be required by law or deemed
appropriate by QSI in connection with the Secondary Public Offering.
(c) Except as otherwise provided herein, each party will
be responsible for its own expenses in connection with all matters relating to
the Transactions herein proposed. If the proposed Transactions shall not be
consummated for any reason other than a violation of subparagraph (a) above,
neither party will be responsible for any of the other party's expenses.
(d) Each party will indemnify, defend and hold harmless
the other against the claims of any brokers or finders claiming by, through or
under the indemnifying party.
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If this letter properly reflects the mutual intention of QSI and
Clinitec with respect to the matters discussed herein, please sign, date and
return to me a copy of this letter.
I look forward to working with you and the rest of the Clinitec team
on bringing the Transactions to a successful and timely closing.
Sincerely,
QUALITY SYSTEMS, INC.
By: Xxxx Xxxxx for Xxxxxxx Xxxxx
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Xxxxxxx Xxxxx Chairman of the
Board and Chief Executive Officer
Agreed to and Accepted this 13th Day of February 1996.
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CLINITEC INTERNATIONAL, INC.
By: Xxxxxxx Xxxxx
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Xxxxxxx Xxxxx
Its: President
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EXHIBIT A
TOTAL COMPENSATION CAP: Total compensation cap for employees during calendar
year 1996, 1997, 1998 shall be as follows:
Xxxxxxx Xxxxx Xxxxx Xxx Xxxxx Other Other
Xxxxx Xxxxxxxxxxx Xxxxx Xxxxx Xxxxxx Sales Empl.
------- ----------- ----- ----- ------ ----- -----
1996 $250k $ 95k $150k $150k $195k $170k $100k
1997 $275k $104k $165k $165k $214k $187k $110k See Note
(1)
1998 $302k $115k $181k $181k $236k $206k $121k See Note
(2)
Note (1): Provided that (i) Clinitec continues to be operated by its current
management, and (ii) QSI does not impose fees for services or other obligations
on Clinitec which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved by QSI due to
business synergies, management of the combined entities and economies of scale,
if Clinitec does not achieve at least 75% of its profitability forecast for
1997 then the total compensation caps for 1996 will replace the caps for 1997.
Note (2): Provided that (i) Clinitec continues to be operated by its current
management, and (ii) QSI does not impose fees for services or other obligations
on Clinitec which are outside the scope of Clinitec's budget and current
operational plans that materially exceed cost reductions achieved by QSI due to
business synergies, management of the combined entities and economies of scale,
if Clinitec does not achieve at least a 50% increase in its profitability for
1998 over 1997, then the total compensation caps in effect for the prior year
will replace the caps for 1998.
